Shepp & Shepp
[2009] FamCA 566
•17 June 2009
FAMILY COURT OF AUSTRALIA
| SHEPP & SHEPP | [2009] FamCA 566 |
| FAMILY LAW – PROPERTY – Add backs – where wife’s company was in a good financial position at date of separation –whether wife had run business down by not attending to it properly and by moving assets and income away from business – where business was sold for comparatively very little – where wife admits that she did not attend properly to the business but alleges that it was due to harassment by the husband – where there are a number of significant transactions the wife has failed to explain adequately – whether assets should be taken as at date of separation or hearing – whether assets accumulated and subsequently dissipated post separation should be added back – preferable to take the asset pool as at the date of hearing and add back various items FAMILY LAW – PROPERTY – Value of property – where wife failed to provide full and frank disclosure and failed to provide complete and timely discovery and production – husband forced to bring extensive interlocutory proceedings including contravention proceedings – where husband failed to produce any documents in relation to his business – whether husband’s employment is a sham – where limited evidence as to identity and quantity of assets – where no valuations of businesses or furniture and household effects of either party FAMILY LAW – PROPERTY SETTLEMENT – whether monies should be put aside to meet taxation debt of wife’s business pursuant to s75(2)(ha) – liquidator of wife’s business has not joined proceedings – where wife has spent available funds on her own purposes – no basis to suggest husband should be responsible for debt FAMILY LAW – ORDERS – where no confidence that wife will use monies received from husband to pay out debts – wife’s loans to be paid out by the husband from the wife’s entitlement |
| Family Law Act 1975 (Cth), ss 75, 79 |
| Jones v Dunkel & Anor (1959) 101 CLR 298 Weir and Weir (1993) FLC 92-338 Townsend and Townsend (1995) FLC 92-569 Kowaliw and Kowaliw (1981) FLC 91-092 Lalor and Lalor (1990) FLC 92-164 Khademollah and Khademollah (2000) FLC 93-050 Coghlan and Coghlan (2005) FLC 93-220 Waters and Jurek (1995) FLC 92-635 JEL and DDF (2001) FLC 93-075 Phillips and Phillips (2002) FLC 93-104 |
| APPLICANT: | Mr Shepp |
| RESPONDENT: | Ms Shepp |
| FILE NUMBER: | DNC | 257 | of | 2007 |
| DATE DELIVERED: | 17 June 2009 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Darwin |
| JUDGMENT OF: | Strickland J |
| HEARING DATE: | 16-19 June 2008 2-3 September 2008 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr A Buckland |
| SOLICITOR FOR THE APPLICANT: | Anthony D Buckland Barrister & Solicitor |
| COUNSEL FOR THE RESPONDENT: | Mr D Story |
| SOLICITOR FOR THE RESPONDENT: | David Story & Associates |
Orders
That within six [6] weeks of the date hereof the husband:
(a)pay to the trust account of the wife’s solicitor on behalf of the wife the sum of TWENTY-THREE THOUSAND SIX HUNDRED AND EIGHTY-EIGHT DOLLARS [$23,688.00];
(b)pay out and discharge in full loan account no. …340 with Bank SA/St George Bank;
(c)pay the sum of TWENTY THOUSAND DOLLARS [$20,000.00] off loan account no. …440 with Bank SA/St George Bank.
That contemporaneously with compliance by the husband with paragraph (1) hereof:
(a)the wife transfer to the husband at his expense entirely all that her right title and interest in the property situated at H in the Northern Territory of Australia and described as Section ... of … and being the whole of the land comprised in Certificate of Title Volume … Folio …;
(b)the husband do all things necessary to take over sole responsibility for the payment of the mortgage to Bank SA/St George Bank registered on the said title to the property at H and including the payment of the said loan accounts and to remove the wife as a joint mortgagor and as a joint borrower on the said loan accounts.
That the husband indemnify the wife and keep her indemnified against all claims, demands, suits and actions, of whatsoever nature:
(a)for payment of any of the said loan accounts or the said mortgage;
(b)for payment of any rates, taxes, notices or assessments in relation to the said property;
(c)in relation to all debts and liabilities of the business NT Business.
That subject to these orders the husband retain as his sole property absolutely free of any claim, right, interest, demand or entitlement of the wife the following:
(a)the husband’s furniture and household effects;
(b)the husband’s business NT Business;
(c)the husband’s tools;
(d)the husband’s superannuation entitlement;
(e)all other items of personalty currently in the husband’s possession or control.
That the wife retain as her sole property absolutely free of any claim, right, interest, demand or entitlement of the husband the following:
(a)the wife’s furniture and household effects;
(b)the wife’s Jeep Wrangler motor vehicle;
(c)the wife’s superannuation entitlements;
(d)all other items of personalty currently in the wife’s possession or control.
That the wife indemnify the husband and keep him indemnified against all claims, demands, suits and actions:
(a)by the liquidator of GY Pty Ltd in relation to any debt or liability of GY Pty Ltd or the business GY Business, or for reimbursement of any money withdrawn from the company or the business by the wife after 1 March 2006;
(b)in relation to the repossession of the Toyota Camry motor vehicle.
In the event of the husband failing to comply with paragraph (1) hereof the said property at H be sold on such terms and conditions and for such price as the parties may agree and in default of agreement as determined by this Honourable Court, and from the net proceeds of sale the wife receive such sum as shall then be outstanding pursuant to paragraph (1)(a) hereof together with interest thereon calculated at the rate fixed by the Family Law Rules 2004, and the husband receive the balance.
That if either the husband or the wife shall refuse or neglect to execute any document necessary to give effect to the terms of this order within seven [7] days after the same shall have been tendered to him or her for that purpose then and in such case a Registrar or Deputy Registrar of the Family Court upon proof by affidavit of such refusal or neglect is hereby appointed to execute on behalf of either party hereto and if in his or her opinion it shall be necessary so to do to settle the same and to do all such other acts and things and execute all such other documents as shall be necessary to give full force and effect hereto and shall execute and do the same accordingly.
That each party have liberty to apply for consequential orders.
That all applications and responses in relation to property settlement be dismissed and removed from the active pending cases list.
IT IS NOTED that publication of this judgment under the pseudonym Shepp & Shepp is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT ADELAIDE |
FILE NUMBER: DNC 257 of 2007
| MR SHEPP |
Applicant
And
| MS SHEPP |
Respondent
REASONS FOR JUDGMENT
Introduction
I have before me competing applications for property settlement.
On 4 June 2008 the husband filed an Amended Application for Final Orders seeking the following orders with respect to property settlement:
2.1 That the wife upon presentation to her or to her solicitors sign within seven (7) days all documents necessary to transfer to the husband all of her right, title and interest in the property located at [H] in the Northern Territory of Australia and described as section […] of […] and being the whole of the land contained in the Certificate as to Title Volume […] Folio […].
2.2 That the husband do all those things necessary to take over the mortgage debt on the property located at [H] in the Northern Territory of Australia. Particulars: Banksa [sic] Portfolio Loan – BSB […]/Account Number […]540/Balance as at 19 May 2008 approximately -$180,000.
2.3 That the wife do all those things necessary to take over and service the debt secured against the said property used to establish the business [GY]. Particulars: Banksa [sic] Portfolio Loan – BSB […]/Account Number […]340/Balance as at 19 May 2008 - $50,773.21.
2.4 That in the event that the husband is unable to finance so as to take over the mortgage debt, the property shall be sold on the following terms and conditions:-
2.4.1The property shall be listed with [R] Real Estate at a price recommended by the said real estate agent by private treaty for a period of three (3) months.
2.4.2That upon sale the proceeds of sale be distributed as follows:
a)in payment of commission and costs associated with the sale;
b)to discharge all encumbrances over the property;
c)balance payable to the husband.
2.5 In the event that the property does not sell by private treaty within three (3) months of the date of orders the property shall be sold by auction on the following terms and conditions:-
2.5.1The property shall be auctioned by [R] Real Estate at a price agreed by the parties or as recommended by a valuer appointed by the Real Estate Institute of the Northern Territory;
2.5.2Otherwise on the same terms and conditions as detailed in clause 4.
2.6 In the event that the property is sold, that the wife is to indemnify the husband in the sum of $50,773.21 or the amount that is paid to Banksa [sic] to discharge loan account […]340 whichever amount is greater.
2.7 That the husband do all of those things necessary to pay out $7,500.00 of the loan obtained for the establishment of the overdraft for the business [NT Business].
2.8 That the wife do all of those things necessary to pay out $7,500.00 of the loan obtained for the establishment of an overdraft for the business [NT Business].
2.9 That the wife do all those things necessary to transfer the Toyota Camry motor vehicle to the husband.
2.10 That the husband and wife retain possession of and title in all other property in their respective possession at the date of order including, but not limited to, any entitlement to superannuation and proceeds of bank accounts.
2.11 That the wife pay the costs of all applications made by the husband in relation to the wife’s failure to discover documents.
2.12 That in the event that either party refuses or neglects to execute any deed or other document necessary to give effect to these orders within seven (7) days of first being requested to do so, then the Registrar of the Court is appointed pursuant to Section 106A of the Family Law Act 1975 to execute such deed or other document in the name of the defaulting party and to do all such things as may be necessary to give validity and operation to that deed or document.
2.13 Such other orders as this Honourable Court deems meet [sic].
At trial the husband did not pursue paragraphs 2.4, 2.5 and 2.6. However, if the property is sold the husband seeks an order that the wife pay out the loan referred to in paragraph 2.3. In relation to the order sought in paragraph 2.8 the husband also seeks that the wife pay out the further amount of $20,000 that he says she increased the loan by after separation. Further, at trial, in lieu of paragraph 2.9 the husband sought an order that the wife pay him $17,500 on the basis that he understood that the motor vehicle has been repossessed. The wife’s counsel confirmed this towards the conclusion of the hearing.
The wife in her Response to an Application for Final Orders filed on 6 September 2006 sought the following orders by way of property settlement:
4.1 That the property situate at and known as [H] be sold and after deduction of all selling expenses and outstanding mortgage balances the balance of proceeds be divided as to fifty percent to the husband and fifty percent to the wife.
4.2 That the husband retain his business known as [NT Business] and indemnify the wife in respect of any or all liabilities with respect to that business.
4.3 The wife shall retain her business known as [GY Business].
4.4 That the husband retain the furniture and household effects presently in his possession.
4.5 That the husband pay to the wife the sum of $12,000 being the amount advanced by her for the purchase of the [business equipment].
4.6 Such other and further order as this Honourable Court deems meet [sic].
At trial however the wife sought the following final orders:
5.1 That he property situate at and known as [H] be sold and after deduction of all selling expenses and outstanding mortgage balances the balance of proceeds be divided as follows:
a)the sum of $100,000 be held in trust pending the finalisation of the liquidation of [GY] Pty Ltd;
b)the balance to be divided as to 50% to the wife and 50% of [sic] the husband;
c)upon finalisation of the liquidation of [GY Pty Ltd] the balance of funds is [sic] not required by the liquidator shall be divided as to 50% of [sic] the husband and 50% of [sic] the wife.
5.2 That the Husband retain his business known as [NT Buisness] and indemnify the Wife in respect of any or all liabilities with respect to that business.
5.3 That the Husband retain the furniture and household effects presently in his possession.
5.4 That the wife make available to the husband the Toyota Camry and the husband shall retain the said vehicle
5.5 That the Husband pay the Wife the sum of $12,000 being the amount advanced by her for the purchase of the [business equipment].
5.6 Such other or further order as this Honourable Court deems meet [sic].
The wife indicated though that if the husband complies with the other orders that she seeks she has no difficulty with the husband having the property at H rather than it being sold. However, given the repossession of the Toyota Camry motor vehicle the wife no longer sought the order in paragraph 5.4, and in his final address the wife’s counsel indicated that the wife no longer sought the order in paragraph 5.5.
In relation to GY Pty Ltd (in liquidation) I was advised by both counsel that the liquidator, Mr P of M Business was well aware of these proceedings but had not sought to intervene or be heard. The status of the liquidation also was not the subject of any evidence, but the common position of both parties was that no demand for any payment had been made of either of them. The basis though of the order sought by the wife to set aside $100,000 was that the liquidation arose out of a taxation debt of $97,000.
Factual Background
The husband was born in Australia in July 1962 and is thus aged 46 years. The wife was born in Scotland in July 1966 and is thus aged 42 years.
The wife has one child from a previous relationship, a son born in 1990.
The parties met in Scotland in 1994 when the husband was travelling overseas.
In 1994 the wife emigrated to Australia and joined the husband in Alice Springs. The husband claims that he paid some $10,000 towards the wife and her son’s relocating expenses. The wife denies this but admits the husband paid for the airfares for her and her son to come to Australia
At the commencement of cohabitation, the husband owned a house property on 30 acres of land, and another block of land of 22 acres both in Victoria. The wife says that she had some savings which she brought with her from Scotland.
A few months after the wife arrived in Australia her former partner refused to return their son after he had visited him, and the wife successfully pursued proceedings in Scotland for his return. That cost $20,000 which was met by the husband.
The parties married in August 1994.
The parties initially rented a property in Alice Springs and then purchased a home at D Street for $107,000. The husband says that he sold the Victorian house property, receiving $30,000 which was put towards the purchase of this property. The parties renovated this property with the husband attending to the majority of the work.
The husband worked as a maintenance contractor at EG Company on a two week on two week off basis.
The wife says that she was employed at a store in Alice Springs between 1994 and 1996.
The parties sold the property at D Street and purchased a property at F Street for $149,000.
The parties’ child H was born in February 1995.
In 1997 or 1998 the parties moved to Darwin. They lived in rented accommodation initially but then purchased a property at C Street. The husband says he renovated this property as well.
The parties opened a shop in leased premises in Darwin. The maternal grandmother loaned the mother ₤10,000 and the parties borrowed $20,000 from Westpac. The husband states that he sold the 22 acre property in Victoria for approximately $20,000 which was invested in the Shop.
The husband commenced working for a building business and the wife completed a course in sales in 1997. The Shop was closed in 1998 or in 1999 and the wife then commenced work as a sales agent.
The parties had rented out the Alice Springs property but the tenants failed to pay rent and damaged the premises. As a result the mortgage was not paid and there was a mortgagee sale with the parties having to pay a further $20,000 to the bank.
In 2000 the husband commenced his own landscaping business and the wife commenced working at R Company in Darwin as their Sales Manager.
The husband says that without consulting him, the wife purchased a Kia Sportage vehicle, taking out a personal loan in her maiden name for $42,000.
The parties sold the C Street property and lived in a rental property. They then purchased a vacant block at H for $95,000. The net proceeds from the sale of the C Street property were used to purchase the H property, to erect a shed, and to connect the power and water. The husband also had a steel house frame made.
In about May or June 2003 the wife commenced a business called GY Business in partnership with Mr Mc. At some later stage GY Pty Ltd was incorporated and became the proprietor of the business GY Business.
To finance the wife’s share in the business the parties obtained a portfolio loan of $50,000 from Bank SA secured over the title to the H property.
In or about 2003 the parties commenced a partnership called NT Business. The business was registered in the wife’s name, but it was operated by the husband.
Equipment was purchased for this business for approximately $65,000 in the wife’s name. The wife says that GY Business advanced the sum of $12,000 and the balance was borrowed from the Commonwealth Bank in her name.
The husband says that he was responsible for the construction of the former matrimonial home at H and that he undertook all of the labour except where he was assisted by friends in tasks requiring more than one person. The husband also says that the cost of materials largely came out of his income, and this amounted to approximately $30,000.
Once the roof was on the parties moved into the property and the children lived in a caravan on the site. The building took almost two years to be completed.
In 2004 GY Business commenced carrying on a management business in addition to sales. As the wife was not licensed to conduct this management, Mr Mc took responsibility for this.
The wife says that she introduced the husband to clients who required maintenance, renovations and gardening work carried out. The wife says that the husband would bill the clients and she made disbursements from the GY Business account to pay the husband. The wife says that on accountant’s advice she allocated $19,000 per annum to the husband from GY Business by way of wages.
The wife says that in 2005 Mr Mc became unwell and reduced his working hours. The wife then discovered that the management arm of GY Business had been poorly managed and had a shortfall of some $20,000, which GY Business was ultimately required to meet.
In 2005 the wife’s son returned to Scotland to live with his father.
In 2005 the parties purchased a property at O for $349,000. The property was sold later in the same year for $389,000. The net proceeds of $22,000 were thereafter held on trust until October 2006.
In May 2005 the wife purchased a block of land at R for $115,000 through GY Pty Ltd.
The wife claims that the parties separated under the same roof in January 2006 and that she paid all outgoings for a further 10 months from this time. The husband denies this and says that separation occurred on 1 March 2006 and that he paid the mortgage and all associated outgoings on the former matrimonial home from that date.
The wife does say that the parties physically separated in March 2006, with the husband remaining in the former matrimonial home.
The husband says that after separation in March 2006, the wife failed to make all repayments off the loans taken out to fund GY Business and for the business NT Business. The husband has endeavoured to make these repayments and since January 2008 he has been paying off these loans including past unpaid interest.
The husband also claims that the loan for the business NT Business stood at $15,000 at March 2006, but in the period up to May 2006 the wife increased that loan by $20,000.
On 16 March 2006 Mr Mc left GY Business and sold his share in the company to the wife for $71,800, including the retention of a motor vehicle at $22,000 (see Exhibit H2). The wife says that she discharged the loan on the motor vehicle but she has not paid him the cash payment in full and does not intend to do so. There is approximately $4,000 to $5,000 owing.
In or about March 2006 GY’s management arm was sold for approximately $45,000. The wife says that when the management arm short fall of $20,000 and the accountancy costs to rectify the books are taken into account, the sale resulted in a net loss.
The wife says that she commenced a relationship with Mr N in April 2006. However the husband says that it was far earlier than that and that their relationship commenced at least in December 2005.
On 19 April 2006 the wife sold the land at R held by GY Pty Ltd. The net proceeds of sale were $41,620.49.
On 10 July 2006 the wife through GY Pty Ltd purchased the property at K for $420,000. A total deposit of approximately $42,000 was paid from the bank account of GY Pty Ltd and the balance was borrowed. The husband says that the wife and Mr N moved into this property but they did not pay any rent.
On 14 August 2006 the husband filed an application in the Federal Magistrates Court seeking parenting orders.
The wife filed a response in the Federal Magistrates Court on 6 September 2006, seeking orders set out in paragraph 4 above.
The wife says that in September 2006 she borrowed $12,000 from Mr N as capital for GY Business.
On 20 October 2006, orders were made by Brown FM providing that the proceeds of the sale of the property at O held in trust be divided as to $10,000 to the mortgage account secured against the former matrimonial home, and the remainder to be divided equally between the parties. The order also provided that the wife deliver up the business equipment to the husband and that the husband keep the wife indemnified in respect thereto, and that the husband pay the mortgage payments on the former matrimonial home.
The wife says that pursuant to those orders $10,000 was paid to the mortgage account secured against the former matrimonial home, but that the husband then drew down from that sum of $10,000 subsequent repayments due on the mortgage without her consent or knowledge.
In December 2006 the wife sold the business GY to Mr G for $65,000. The wife claims that she had outstanding debts comprising $48,000 for advertising costs, $5,000 for solicitors’ fees and the amount due to Mr Mc. She says she was also obliged to pay commissions to sales staff.
The wife remained working for GY Business as office manager and licensee. She was paid 60% of commissions earnt on sales made by her.
Commencing in late 2006 then throughout 2007 and up to June 2008 various requests and then orders were made for the wife to make discovery and for the production and inspection of documents. The wife failed to fully comply with these requests and orders.
The wife retained the NT business equipment after separation and refused to comply with an order that she return it to the husband. In January 2007 the equipment was transferred to HM Pty Ltd, which is owned by the husband’s brother and by whom the husband is now employed. HM Pty Ltd took over the liability to the Commonwealth Bank.
The business GY was sold by Mr G to Mr S in March 2007. The wife stayed on in her capacity as office manager and licensee.
On 2 July 2007 the property at K was sold by GY Pty Ltd for $465,000. There is a dispute as to the amount of the net proceeds of sale and what happened to them. Certainly $8,750 went to Mr N, the wife claiming that was part repayment of the loan of $12,000 made by him to GY in September 2006.
On 6 July 2007, the wife’s partner Mr N purchased a property at G for $240,000. The husband says that money to purchase this property came from the sale of the K property.
On 24 July 2007 orders were made by Burr J restraining the wife and GY Pty Ltd from disposing of the proceeds of sale of the property at K, and restraining Mr N from disposing of the property at G.
On 22 August 2007 the wife filed an Application for Divorce, and a divorce order was subsequently made.
On 28 February 2008 the husband filed an Application alleging contravention by the wife and by Mr N of orders that they provide discovery.
On 6 March 2008, orders were made by Burr J by consent finalising the child issues. The orders provided that for six months from December 2007 the child live with the mother from after school on Thursday to 9:00am Sunday each alternate week and from after school on Wednesday to before school on Friday each intervening week, and to live with the father at all other times. Thereafter the child’s time with the mother was to be from Wednesday to Monday each second week of the fortnight and from the beginning of the 2009 school year the child was to spend time with each of the parties on a week and week about basis.
On 7 March 2008 the husband filed a further Application alleging that the wife had contravened orders for discovery.
On 11 March 2008 the Applications Alleging Contravention were adjourned, and inter alia, further orders were made providing for the wife to produce certain documents.
In May 2008 the Australian Tax Office obtained a judgment against GY Pty Ltd in the sum of $97,000 for unpaid tax. GY Pty Ltd was subsequently placed into liquidation and a liquidator, Mr P of M Company was appointed.
The wife quit her position at GY on 8 May 2008 and commenced working at AS Company.
On 5 June 2008 orders were made by consent that Mr N file an affidavit of documents and provide inspection of the documents discovered, and that the husband’s Applications Alleging Contravention be dismissed.
On 13 June 2008 Mr N filed an Application in a Case seeking an order discharging the injunction made against him on 24 July 2007.
On 16 June 2008 the injunction granted against Mr N on 24 July 2007 was discharged and the question of costs was adjourned until after the conclusion of the trial on property settlement.
On 1 September 2008 Mr N sold the property at G for $278,000.
The current circumstances of the parties
The wife
At the time of trial, the wife was living with her partner Mr N in rented premises.
The wife was employed by AS Company and receiving 60% of the commission received on sales made by her. In her Financial Statement filed on 11 June 2008 the wife stated that she was earning $800 gross per week. The wife also claimed that her total expenditure amounted to $870 per week, but that included $320 per week for mortgage repayments that the husband was in fact paying.
The child was living with the mother from Wednesday to Monday in the second week of each fortnight.
The husband
At the time of trial, the husband remained living in the former matrimonial home. The parties’ child was living with the husband for the whole of the first week in each fortnight, and until Wednesday in the second week.
The husband claims to be working for his brother and states in his Financial Statement filed on 23 May 2008 that he was earning $960 gross per week and receiving $50 per week in child support. The husband claimed a weekly expenditure of $1,010 per week.
The issues in dispute
The primary issues in dispute are firstly the alleged failure by the wife to provide full and frank disclosure in relation to the business GY Business and the company GY Pty Ltd, and the assets, income and expenditure of the wife, and secondly the alleged “asset stripping” of the business and the company by the wife subsequent to the separation of the parties. The husband alleges the wife’s actions have reduced or minimised the asset pool available for distribution between the parties.
I have no difficulty in finding that the wife has failed to make full and frank disclosure in this case. The failure to provide discovery of documents that she clearly had either in her control or in her possession, or that were available to her, either at all or in a timely manner is quite apparent from the extensive interlocutory proceedings in this case. For example, allowing for the inadequate drafting and the inadmissibility of certain paragraphs, I refer in this regard to paragraphs 237 to 253 of the affidavit of the husband filed on 30 May 2008, and to his affidavit filed on 11 March 2008. I accept the accuracy of this evidence.
Indeed, it reached the stage where the husband had no choice but to institute contravention proceedings. They were ultimately dismissed by consent but not because the wife finally complied with the previous orders. The trial was looming and the wife reverted to the position that she had no further documents to disclose. In her oral evidence before me she suggested that she had done all that she could to discover and produce the relevant documents, but I find that this was disingenuous and indicates to me that she still has not accepted responsibility for her failure to comply with the Rules of this Court. Further, I find that she lied to this Court in cross examination when she claimed that she had provided documents to the husband’s solicitor when challenged as to her failure to provide discovery and production.
In the end result the only way that many of the relevant documents were able to be obtained and tendered in evidence was by the husband issuing a number of subpoenas. However, that still did not result in the complete picture of the wife’s actions being revealed.
In relation to the alleged “asset stripping” the husband points to the healthy asset position of the business/company at the date of the physical separation of the parties and the apparent dissipation of those assets subsequent to the separation.
The husband says that the wife not only failed to attend to the business and in effect ran it down, but that she moved assets and income “sideways” including to her partner Mr N ultimately reaching the position where she sold the business for comparatively very little, and where the company has ended up in liquidation as a result of a substantial taxation debt.
The wife concedes that she did not attend properly to the business but claims that that was a direct result of harassment from the husband. Beyond that she says that the success of the business was not able to be maintained and that was not her fault. She makes no concession as to the movement of assets and income away from the business. I propose to further address these issues later in these reasons.
In terms of the net pool of assets available for distribution between the parties, there is of course the husband’s allegations referred to above and the vague suggestion by the husband’s solicitor that the assets of the business/company both at separation and the assets that were accumulated and then dissipated since should be added back to the asset pool. An alternative to this approach, although it is by no means clear in the presentation of the husband’s case, is the submission that the assets to be considered should be those as at the date of separation rather than as at the date of the trial. Separate to that the specific issues in dispute in relation to the asset pool are as follows:
84.1Whether the husband in effect owns the business that employs him, including the plant and equipment comprising primarily the machinery and a bob-cat.
84.2What should be done about the repossession of the Toyota Camry motor vehicle.
84.3What was done with the net proceeds of sale of the R land, and with the sale of the property at K what in fact were the net proceeds of sale and what was done with them.
84.4Whether the wife is entitled to a share of the net proceeds of sale of the property at G.
84.5Whether allowance should be made for the taxation debt of GY Pty Ltd.
84.6Whether alleged assets and liabilities such as the amount the wife says that Mr S owes her, the amount that the wife still owes to Mr Mc, the amount the wife claims to owe Mr N, and the loan of $5,000 that the husband says he obtained from his brother are to be included or not in the asset/liability pool.
In relation to the respective contributions of the parties it is agreed that up to the date of separation they should be treated as being equal. The wife then says that there should be no change to that after taking into account the post-separation contributions, and that was the husband’s final position as well.
In relation to the s 75(2) factors, although there are some relevant issues, neither party suggests that there should be any adjustment as a result save and except that the wife’s counsel submits that s 75(2)(ha) justifies putting aside $100,000 from the assets to meet any liability of the parties arising from the liquidation of GY Pty Ltd.
The principles applicable to the matters before the court
The provisions of s 79 of the Family Law Act 1975 define the court's power and obligations in determining applications for property settlement. The Court has a discretion to make orders altering the interests of parties in property, provided the court is satisfied that such orders are appropriate, just and equitable.
The Court is obliged by the provisions of s 79(4) of the Act to take into account the following matters:
88.1The financial and non-financial contributions made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them (sub-paragraph (a) and (b));
88.2The contribution made by a party to the marriage to the welfare of the family, including any contribution made in the capacity of homemaker or parent (sub-paragraph (c));
88.3The effect of any proposed order upon the earning capacity of either party to the marriage (sub-paragraph (d));
88.4The matters referred to in s 75(2) so far as they are relevant (sub-paragraph (e));
88.5Any other order made under the Act affecting a party to a marriage or a child of the marriage (sub-paragraph (f));
88.6Any child support payable (sub-paragraph (g)).
Accordingly, in assessing the entitlement of each of the parties for property settlement, there is both a retrospective element relating to the contributions of each of the parties and a prospective element relating to matters referred to in s 75(2).
According to guidelines established through a series of leading decisions, the Court should determine the following matters on the evidence, that is:
90.1Firstly, the Court must determine the assets, liabilities and financial resources of the parties to the marriage.
90.2Secondly, the Court must consider all relevant contributions of each of the parties, and, where possible, the Court should assign an entitlement of each of the parties arising as a result of those contributions.
90.3Thirdly, the Court should then consider the prospective components of the claims of each of the parties arising as a result of the provisions of s 75(2). The Court should then identify what alteration, if any, should be made to the entitlement of each of the parties earlier assessed on account of contributions having regard to the relevant s 75(2) factors.
90.4Fourthly, the Court takes a step back and considers whether the proposed orders are just and equitable.
The evidence
The husband was represented by Mr Buckland. The husband relied primarily on his affidavit filed on 30 May 2008 and his financial statement filed on the same date. The husband gave evidence and was cross examined.
The wife was represented by Mr Story. The wife relied on her affidavit filed on 11 June 2008 and her financial statement filed on the same date. The wife gave evidence and was cross examined.
The husband called as witnesses a former employee of the business Ms ER, a former sales agent employed by the business Ms LE, and Mr S who purchased the business in March 2007 from Mr Mc who had purchased it from the wife in December 2006. They each filed an affidavit on 16 June 2008 and they gave evidence and were cross examined.
The husband also called as a witness the wife’s partner Mr N. The wife chose not to call Mr N in her case and thus the husband was obliged to do so in his case by issuing a subpoena. Mr N did not file an affidavit of his evidence in chief, although he had filed affidavits in relation to a number of interlocutory proceedings including for example an affidavit filed on 1 November 2007. He of course gave evidence and was cross examined.
The final witness called by the husband was Mr W, accountant who filed affidavits on 14 April 2007 and 24 May 2007. He gave evidence and was cross examined.
Unfortunately, the husband’s affidavit of evidence in chief and his solicitor’s presentation at trial on his behalf revealed not only a fundamental misconception of what is relevant and what it is necessary to establish in determining a dispute as to property settlement in this Court, but also a lack of understanding as to the rules of evidence. For example, the affidavit of evidence in chief was inadequately drafted and the annexures were in a state of disarray. It was also replete with inadmissible material such as hearsay, opinion, submission and conclusions, and provided generalities with little detail. Clearly the husband’s preparation and presentation would have been hampered by the wife’s failure to disclose, but that cannot excuse an affidavit comprising what the husband has been told by all and sundry or just his guesses and assumptions.
However, despite this, save and except in one area I find that the husband at least attempted to provide this Court with a true and accurate picture of the relevant history of the relationship, the contributions of the parties, and their assets and liabilities. The one area where I do not believe the husband is in relation to his employment. He says that he is “employed” by his brother’s company and he does not “own” any of the plant and equipment that he uses including the equipment purchased by the parties. However, I find that this is all a sham and that it is his business and that he owns the plant and equipment. His evidence is that his brother purchased the equipment from the wife for what was owing on the loan at the time, but his brother then just left it all with him. I find that that was just a front for allowing the husband to simply maintain and continue the business using the same equipment. Importantly, despite this being an issue of some long standing the husband did not file an affidavit of his brother or call him as a witness. On the authority of Jones v Dunkel & Anor (1959) 101 CLR 298 in these circumstances I am entitled to assume that if called the evidence of the brother would not have assisted the husband.
I also note that the husband failed to produce any documents whatsoever in relation to NT Business. I do not accept his excuse that he could not obtain them because the wife had them.
In relation to the husband’s witnesses, apart from Mr N, I accept the truth and accuracy of their evidence. Mr S revealed the deception by the wife in preparing a fake agency agreement and two or three different settlement statements for the sale of the property at 8 K. He is currently in dispute with the wife over commissions allegedly due to her, but I do not consider that that has coloured his evidence in any way.
Ms ER was an impressive witness whose knowledge of the business and of the wife’s actions at the relevant times I accept. Her evidence was that even in 2006 the business had remained strong providing a turnover of close to $1 million per annum. She revealed though that from about late 2005 or at least early 2006 the wife would simply disappear for days, not answer her telephone or attend to her business. The wife would also write out cash cheques, cash them at the bank and retain then spend the money. She would not fill out the cheque butts at the time and did so later but then failing to record the transaction accurately. At the time she left in April 2006 there was only the wife and one agent left, and relevantly there was only a taxation debt of approximately $40,000. Ms ER did not leave the business on good terms but I do not consider that that affects the truthfulness of her evidence.
Ms LE, although hesitant and nervous was also a truthful witness. She worked as a sales agent in the business from April 2005 to April 2006. She confirmed that the business was successful but that from about late 2005 or at least early 2006 the wife attended to her business and her clients less and less. She would spend days away from the business and leave clients in the lurch; she cashed cheques of the order of $1,000 each week and then spent that money privately. She would spend time shopping and drinking at hotels, and usually when she was away she would be with Mr N.
She said that the business remained strong into 2006 but because the wife did not attend to her work the other agents and the staff had to cover for her and problems invariably developed.
Ms LE successfully instituted civil proceedings against GY Business to recover outstanding commissions, but as with the others I do not consider that this has coloured her evidence in any way.
With Mr W he was provided with what the wife had discovered to that point including a draft financial statement, some bare taxation returns, the general ledger from 1 January 2006 until 21 October 2006, and certain other documents such as bank statements. Even with these documents he found that there were many payments out of the business which were not accounted for and not explained. He sought further documents but was told that none were available. He noted that the significant credit balance in the bank account at the time of separation had all but disappeared by September 2006 and he suspected that another account or accounts were then opened. He was of the opinion that the assets and income of the business had been “stripped”, and I accept his evidence in this regard. I also note that the wife has still not provided the answers to all of the legitimate questions that Mr W has raised.
Mr N is of course the partner of the wife and he was still only 19 years of age at the time of the trial. He was a most unimpressive witness and as I commented during the hearing I do not believe a word that he said.
Mr N claimed to have only commenced a relationship with the wife in April 2006, as she herself also claimed, but I find that they started their relationship at least in January 2006. From then and maybe even before that the wife would take time off work to be with Mr N, she would spend money on him including at hotels, and she paid for him to accompany her on trips away including overseas and interstate. She also allowed him to use her motor vehicle and in late 2006 she purchased a Jeep Wrangler motor vehicle for his use for $32,000.
Mr N commenced to “work” for GY Business in April 2006 earning $60,000 in the 2006/2007 financial year. However, I find that this employment was a sham. He was previously working as an electrical apprentice and he had no prior experience in sales. The job was not advertised and he did not apply for it. He did not replace another staff member. He just started work as a “prospector”. At the time the wife and Mr N were living together and I find that this was a method the wife used to move money away from the business.
After the wife sold the land at K, Mr N purchased the property at G for $240,000. The deposit was paid with an amount of $8,750 that came from the wife allegedly in part payment of a loan of $12,000 allegedly due by her to Mr N, and Mr N obtained a loan for the balance. He claimed that the wife had nothing to do with that loan and says that she did not guarantee it. However, I do not accept that. Mr N was 18 years of age at the time and had a limited work history, yet he obtained a loan of well over $200,000 requiring repayments of $1,500 per month.
After the wife sold the business GY Mr N continued to “work” in effect for the wife, receiving a share of her commissions. Indeed, eventually the wife paid all of her income into Mr N’s bank account to avoid the bank taking it from her account in repayment of the loans that she was in default of.
In summary, Mr N was a completely unsatisfactory witness and he was a willing party to the wife’s actions in moving money away from the business and GY Pty Ltd.
The wife was an appalling witness. She was evasive, she failed to properly answer questions and her standard response was “I don’t know off the top of my head”, and if that was not enough she also lied to the Court, she exaggerated, and she made things up as she went along.
I have already referred to her failure to provide full and frank disclosure and her failure to provide complete and timely discovery and production, and that attitude continued throughout the proceedings. It was as though she put her head in the sand and hoped that the unanswered questions would all disappear. She simply failed to respond to requests for information or for explanations of transactions. In this regard I refer to paragraphs 205 to 218 of the husband’s affidavit of evidence in chief which sets out the requests made of the wife by the husband’s solicitors and records the failure by the wife to respond. The wife has still not adequately addressed these issues and in particular she failed to deal with them in her evidence.
There are a number of significant transactions which the wife has failed to explain adequately. For example, with the sale of the land in April 2006 the wife failed to tell me in her evidence what she did with the net proceeds of sale. Further, with the purchase and sale of the property at K the wife similarly failed to provide any satisfactory evidence as to where the money came from to purchase the property and where all the proceeds of sale have gone. There is also the purchase of the property at G which the wife and Mr N have attempted to promote as a transaction in which the wife has had no involvement.
In relation to the sale of the property at K it is apparent from the evidence of Mr S that for some reason, still unexplained by the wife, the agency agreement was a fake. It is dated 10 February 2007 but is a pro-forma which Mr S says did not exist until June 2007. Similarly, Mr S produced different settlement statements from records that he had found to the statement that the wife had produced in relation to this sale. They all provided for a payment of $8,750 to Mr N, but in the one produced by the wife there was only a payment of $5,871 to “the vendor” namely GY Pty Ltd. In one produced by Mr S, a payment of $47,032.52 was to be made to the wife, and not GY Pty Ltd, and in the other which was a letter that was prepared by an employee of the business a payment of $47,526.52 was to be made to the wife, again as opposed to GY Pty Ltd.
Now, again none of this was explained by the wife, however in cross examination she did say that payments were made to her rather than the company because the company owed her money. I do not accept this “convenient” and totally unsubstantiated excuse. I can only speculate that she received the money because the company had a taxation debt and the wife was diverting money away from the company to avoid the money being taken to meet that debt and in order to retain that money herself. I suspect that the liquidator of GY Pty Ltd will want to look closely at this transaction. Indeed there has to be a significant question mark over the operation of the bank accounts of GY Pty Ltd by the wife. Not all of the statements of every account of the company were presented because of the wife’s failure to properly disclose and the need for the husband to rely on subpoenas, but from the statements that were tendered it is quite apparent that from December 2005 to May 2006 the company had a substantial amount of money in its account, for example as at December 2005 there was over $140,000, as at 1 March 2006 there was over $136,000, and as at 10 May 2006 there was over $181,000. I note as an aside that the company at this stage had ample funds to meet any taxation debts.
Thereafter the bank balance dwindled to almost nothing by September 2006 and a new account was opened, although apart from the proceeds of the sale of the business in December there was never very much money in this account. It is clear that the wife used the accounts of the company as though they were her own private accounts and by March 2007 there was very little at all left in the remaining account of the company.
The wife clearly failed to attend properly to the business and spent money on herself and Mr N out of the ordinary. She used Mr N to move money away from the business. She did that by “employing” him and paying him a wage. She also bought a Jeep Wrangler motor vehicle for his use.
The wife did not necessarily deny the allegations made by Ms ER and Ms LE, and indeed the majority of their evidence was not seriously challenged in cross examination. The wife conceded that “she dropped her bundle” from December 2005 onwards but she tried to blame the husband for this claiming that she was stressed because he harassed and stalked her and that led her to not coping with the business. Now, I accept that the husband did harass her to a certain extent particularly in relation to issues to do with their child once Mr N was on the scene, but on her own evidence that occurred from after May 2006 and thus it could not have led her to act in the way that she did in relation to the business from late 2005 or early 2006, and even if it occurred when she said it did, namely following separation, it cannot explain her actions in moving income and assets away from the business and the company. That was deliberate on her part.
I also note that the wife dealt with this briefly in her affidavit of evidence in chief, but it was only during her counsel’s opening that any detail was provided. Significantly it was not put to the husband in cross examination.
The assets, liabilities and financial resources of the parties
At the date of commencement of cohabitation - 1994
The husband had the following:
Assets
The house property on 30 acres of land in Victoria N/K
22 acres of land in Victoria N/K
Savings $10,000
Tools and equipment N/K
Motor vehicle N/K
Personal effects N/K Liabilities
Mortgage in relation to the properties in Victoria N/K
Financial Resources
Superannuation entitlement N/K
The wife had the following:
Assets
Savings (minimal) N/K
Liabilities Nil
Financial Resources Nil
At the date of separation – 1 March 2006
The assets, liabilities and financial resources of the parties were as follows:
Assets
The house property at H N/K
Furniture and household effects N/K
The business GY Business (as at 30 June 2006) $106,847.07
The business NT Business N/K
Money held in trust on behalf of the parties $22,000
Land at R held in the name of GY Pty Ltd $41,620
Toyota Camry motor vehicle N/K
Utility N/K
The husband’s tools N/K
The husband’s superannuation entitlement N/K
The wife’s superannuation entitlements N/K
Liabilities
Home loan secured by way of mortgage over the H property N/K
Loan from Bank SA in relation to setting up the business GY $50,000
Loan due to Bank SA in relation to setting up the business NT $15,000
In relation to these assets and liabilities I make the following comments:
123.1With the date of separation, to repeat, the wife says that the parties separated under the same roof in January 2006 and then physically separated on 1 March 2006. The husband says that the parties separated on 1 March 2006 and he does not agree that there was a separation under the same roof prior thereto. Given my findings as to the lack of credit of the wife I accept the evidence of the husband in this regard. However, it makes little difference if any to the net asset pool whether the separation was January 2006 or March 2006.
123.2There was no valuation undertaken of the business GY Business as at separation or at any other time, and on the evidence it is difficult to even come up with an estimate of value. In the end result what I have determined to do is utilise the figure appearing in the balance sheet as at 30 June 2006 tendered and marked Exhibit H9. That figure is $106,847.07, but the accuracy of that figure is doubtful. Given the wife’s failure to disclose to this Court I suspect that if she was the source of information for this document then that would place serious doubt over its reliability. Further, and in any event there is no telling how if at all the proceeds of sale of the management arm in March 2006 have been accounted for, and similarly the proceeds of sale of the property at R. The evidence is that the amount received for the management arm was in total $46,627.46 (see Exhibit H16) but the wife gave inconsistent evidence as to what happened to these proceeds, and the net proceeds of sale of the R property were $41,620, and the wife gave no evidence as to what happened to these proceeds. Further still it is unclear how any payments to Mr Mc have been accounted for. The formal agreement for the sale of his share in the company to the wife is dated 16 March 2006 and provides for a payment of $30,000 on the settlement of the sale of the management arm, a payment of the amount owing on his motor vehicle, and payment of $19,000 by fortnightly instalments of $88 (Exhibit H2). There is also a recording of nil against an item described as “Bank SA loan – [K property]”, but this is odd given that that property had not been purchased by 30 June 2006. Finally, there is no amount shown in the balance sheet for goodwill.
In these circumstances it would ordinarily be unsafe to rely on the net asset figure in the balance sheet of $106,847.07, but that is all I have to work with given the failure of the wife to provide the information that only she has (Weir and Weir (1993) FLC 92-338).
123.3With the business NT Business the shoe is on the other foot. The husband failed to provide even one document in relation to this business, claiming that the wife held all the records. However, to repeat, I do not accept that the husband did not have any of the documents, or was not able to access any of them.
Regardless, in the end result I have nothing on which to base the inclusion in this schedule of any figure for this business. The only saving grace for the husband is that this failure to disclose pales into insignificance when compared with the failure to disclose by the wife.
123.4The wife had a Toyota Camry motor vehicle at the date of separation, but there was no valuation of it as at that time. Indeed it may have even been owned by the business GY, and if so it would be in the balance sheet of the business.
123.5The husband’s counsel submitted that I should include in the assets at separation the amount of the deposit paid by GY Pty Ltd for the purchase of the property at K, but that property was not purchased until well after separation. GY Pty Ltd still owned the land at R at this time and that was sold on 19 April 2006 with the net proceeds being $41,620. Although I have commented on the wife’s failure to reveal what these net proceeds were used for, I consider that they were ultimately used by the wife as the deposit for the purchase of the property at K.
123.6There was also some evidence given by the husband that the wife had a utility at the date of separation, but no details were provided of this vehicle, what it was worth, or indeed who owned it.
At the date of the hearing
The assets and liabilities of the parties are as follows:
Assets
The house property at H $580,000.00
The husband’s furniture and household effects N/K
The wife’s furniture and household effects N/K
The business GY $106,847.07
The business NT N/K
The wife’s Jeep Wrangler motor vehicle Nil equity
The wife’s share of the proceeds of sale of G property $8,750.00
The proceeds of sale received by the wife from the sale of
the property at K $47,526.52
The husband’s tools $5,000.00
Wages paid to Mr N $50,000.00
The husband’s superannuation entitlement $1,500.00
The wife’s superannuation entitlements with Asgard and
with REIA Super $53,000.00
TOTAL $852,623.59
Liabilities
The housing loan secured over the title to the H property $183,000.00
The loan in relation to GY Business $50,000.00
The loan in relation to NT Business $35,000.00
TOTAL $268,000.00
NET $584,623.59
In relation to these assets and liabilities I make the following comments:
125.1There was no valuation provided or agreement reached as to the value of the furniture or household effects of either of the parties. Apart from what the wife took from the former matrimonial home when she left and following separation there was the furniture and household effects that she purchased thereafter with monies withdrawn from the bank account of GY Pty Ltd. The husband alleged that the wife spent $60,000 in this way, but the wife denied this and indicated that it was more like $10,000. In any event there is still no current valuation of these items.
In her financial statement the wife estimated that she had furniture and household effects to the value of $30,000, and in his financial statement the husband estimated that he had furniture and household effects to the value of $5,000, but I consider it inappropriate to even use these figures. Although the husband’s figure sounds about right, the wife’s figure would appear to be calculated on an incorrect basis, and thus it would be unfair in my view to use that figure. I consider that if I cannot include amounts for both then it would be inappropriate to include say just the husband’s. Accordingly, I am unable to put any figure for these items in the schedule of assets.
125.2I have found that the business NT Business is in fact the husband’s business. The assets comprise at least a truck, a bobcat and the machiner purchased by the parties, but again there is no valuation or agreement as to the value of either the business or the individual assets. With the truck though there is no issue that that belongs to the husband in any event and in the husband’s financial statement he estimates its value at $2,000, and in the wife’s financial statement she estimates the value at $8,000. However, in the absence of any agreement about this I am not in a position to include either figure in this schedule.
125.3In relation to the Jeep Wrangler motor vehicle, apparently it was purchased for $32,000 and was fully financed. Once again though there is no valuation of this motor vehicle, nor any current evidence as to the amount owing. However, the husband’s counsel conceded that there would be little if any equity in this motor vehicle and suggested that it not even be included in the asset pool. I am comfortable to proceed on the basis that there is no equity but I consider it necessary to at least record the fact that the wife currently has this motor vehicle in her possession.
125.4Initially the wife’s evidence was that the Toyota Camry motor vehicle was broken down, but I was subsequently informed by the husband’s counsel that it had been repossessed. There was no evidence presented by either party in relation to this issue but in his final address the wife’s counsel appeared to concede that this was the case because he indicated that the wife’s instructions were to not agree to the husband’s proposal of the wife paying to the husband $17,500 in lieu of him having the motor vehicle, which was in fact the previously agreed position between the parties. Given that this vehicle is now repossessed I have not included it in the schedule.
125.5The husband suggested that the wife also retained a utility that the parties had prior to separation and which the wife let Mr N drive before she purchased the Jeep Wrangler motor vehicle for his use. The wife did not address this in her evidence but the husband’s evidence was so vague as to this that I am now not prepared to even include this in the schedule of assets.
125.6The wife claims that Mr S owes her money for commissions. However, her evidence about this was so convoluted that I do not accept that this is the case. Accordingly, I am not disposed to include any amount in relation to this issue in the schedule of assets.
125.7In relation to the proceeds of sale of the G property, although I have already expressed my concerns as to how Mr N was able to purchase this property and obtain a substantial loan given his age and his limited work history, I am not prepared to find that the wife’s interest in that property extends beyond the amount of $8,750 which the wife directed be paid to Mr N from the proceeds of sale of the property at K. As referred to previously the wife suggests that this amount was paid to Mr N as part repayment of a loan that he made to GY of $12,000. However, as I elaborate on later in these reasons I do not accept that such a loan was made and thus I consider that this payment was nothing more than an attempt by the wife to move money away from herself and GY Pty Ltd to which entity strictly this money should have been paid. Thus, I am treating this as money that the wife has taken for her own purposes and should be added back into the asset pool. Whether this is done by addressing the net proceeds of sale of the G property or by addressing the net proceeds of sale of the K property does not seem to me to matter terribly much. In the end result there is an amount of $8,750 which must be added back into the asset pool at least as a premature distribution of moneys to or on behalf of the wife (Townsend and Townsend (1995) FLC 92-569).
125.8The husband’s primary position is that given the wife’s failure to make full and frank disclosure, and the evidence of the wife “running the business down” and “diverting or removing money from the business” the only fair approach is to take the assets as they were at separation rather than as at the hearing. The husband then says though that there should be a number of notional add backs of “assets” disposed of by the wife since the separation. In this category he not only seeks to include assets that the wife had or had control of at separation but assets or income accumulated subsequently. For example, he seeks to add back the money that the wife has spent from the business on Mr N including money spent at hotels and on trips away, and to add back the amounts paid to Mr N by way of “wages”. However, apart from the fact that the husband does not and cannot from the evidence, or by using the principles of Weir and Weir (1993) FLC 92-338, namely that once it has been established that there has been a deliberate non-disclosure the Court should not be unduly cautious about making findings in favour of the innocent party and the Court’s jurisdiction to make an order going beyond the identified property arises once there is sufficient evidence to support a finding that a party has not made a full disclosure of his or her assets, suggest an amount that I could use for example for the former, the husband cannot have it both ways. If the assets (and liabilities) are taken as at separation then it is not open to the court to then add back in effect what the wife has dissipated from those assets, because that is the point of using the net asset pool at separation in the first place. On the other hand, if the net asset pool is taken as at the date of the hearing, which is the preferred approach on the authorities, then it is quite appropriate in the circumstances of this case to notionally add back assets that have been “prematurely distributed” (Townsend and Townsend, supra) or where the exceptions to the general principle in Kowaliw and Kowaliw (1981) FLC 91,092 apply.
A further difficulty with the husband’s suggested approach is that as referred to above there is no evidence of the value of a number of the assets as at the date of separation, and thus it is impossible to put a realistic figure on the net asset pool. That difficulty also applies to the position now given the lack of valuation or agreement as to the value of such items as furniture and motor vehicles, but the most significant asset both at separation and now is the house property at H, and with that property there is agreement about its value at the date of the hearing, but there is no figure that I can use as at the date of separation.
Thus, it seems to me that given the state of the evidence, the most productive way to proceed is to apply the net asset pool as at the date of the hearing and then address what if any notional add backs there should be. On that approach what looms large is the business GY Business and its assets, but to repeat it is not only a question of looking at a premature distribution by the wife of an asset or assets, but also a question of whether the wife “has embarked on a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets” or “acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value” (Kowaliw and Kowaliw (1981) FLC 91-092 at 76,644).
At separation the wife had a successful business. Mr Mc was about to depart leaving the wife effectively as the sole owner of GY Pty Ltd. The business had won an Award in its category, it had substantial business, it had a turnover of approximately $1 million, it had all the necessary office equipment, plant and equipment and motor vehicles, and it had a healthy bank balance. Clearly there were some issues though in relation to the business at this time, namely those arising from Mr Mc’s handling of the management arm of the business. However, that was sold for a total of $46,667 and that should have been enough or almost enough to cover the shortfalls due to clients and the accounting costs that had been incurred. There was also the requirement to pay out Mr Mc, but on the figures that was amply covered. There was also a taxation debt of approximately $40,000 but regular payments were being made and provision was made for any ongoing taxation liabilities in the accounts.
The real problem with the business though was that from late 2005 or at least early 2006 the wife had failed to attend properly to the business and I have referred to that already in these reasons. There is no specific evidence as to what occurred after separation in this regard, but by April 2006 there was only the wife and one other agent working in the business, all the other staff had left, and the wife had employed her boyfriend Mr N despite having had no previous relevant experience. Then, in December 2006 the wife sold the business including goodwill, all office equipment and all plant and equipment for $65,000. Thereafter the wife continued to hold the relevant qualifications and she remained as a sales person in that business earning 60% of the gross commissions on the sales effected by her. She says that she in effect also employed Mr N and paid him from the commissions that she received.
The wife attempted to explain the decline in the business and the dissipation of funds by suggesting that firstly the office manager Ms ER had failed to pay a number of significant expenses which she then had to pay, secondly that there was a lack of business, thirdly that the absence of a management arm substantially reduced the value of the business, and fourthly that because her relationship with the husband had deteriorated and he was harassing her she could not concentrate on the business.
However, I reject all of these claims, and I find that the wife simply let the business run down such that the most she could sell it for was $65,000. The wife claimed to have used that money to pay debts and to pay commission to sales staff, however, typically she provided no evidence supporting these claims. It is correct though that some of this money was paid by way of commission to sales staff because in February 2007 an amount of $14,000 was paid out to Mr N from this money allegedly to meet outstanding commissions due to him! Thus, in the context of the wife’s failure to disclose, and specifically her failure to provide adequate discovery and production, and her failure to respond to legitimate questions as to the various transactions revealed in the subpoenaed documents, I find that the wife has primarily used the funds of the business including the sale proceeds for her own purposes. Clearly the wife would have had to meet the expenses of the business, but there was ample money available for that purpose in the bank accounts of GY Pty Ltd following the separation. Despite not all the bank statements being available the evidence is that almost all the money in the accounts of the company was spent by March 2007. I am not in a position to make findings as to specifically in each instance what that money was spent on, but I am able to say that it was a combination of meeting ongoing expenses of the business up to of course December 2006 when the business was sold, and the wife withdrawing substantial amounts for her own purposes.
At this point it is convenient to deal with the unpaid taxation debt of $97,000 which resulted in the liquidation of GY Pty Ltd. Typically the wife did not present any documentary evidence in relation to this liability. In paragraph 46 of her affidavit of evidence in chief she claimed that “this debt arose during the course of the marriage and relates to the 2005 financial year”. Clearly she made this claim as a basis for her submission that both parties should be responsible for this debt. However, I find this to be another lie by the wife. The evidence from Ms ER, which I accept, is that when she left in April 2006 there was a taxation debt of approximately $40,000. It was also apparent from the bank statements tendered and marked Exhibit H16 that between December 2005 and March 2006 payments were made by the company to the Australian Taxation Office as per the evidence of Ms ER. In the balance sheet of GY as at 30 June 2005 there was provision for income tax of $53,681.10, and in the balance sheet as at 30 June 2006 there was provision for income tax of $29,938.50.
What I find is that there was a taxation liability at separation for which there was ample funds available in the bank account(s) of the company and that the wife subsequently failed to pay that taxation liability and further taxation liabilities assessed on the company in relation to the operation of the business choosing to use the funds in the bank account(s) of the company primarily for her own purposes. And this in the context of the wife allowing the business to simply run down.
Thus, as between the parties I find that the wife should be solely responsible for this debt applying the principles established in Kowaliw and Kowaliw (supra). The debt of course is a debt of GY Pty Ltd but the liquidator may pursue the wife and/or the husband seeking reimbursement of money removed from the bank account(s) of the company. In that event the wife has to take full responsibility for the same and indemnify the husband if a claim is made against him.
Now, to return to the issue at hand, namely in relation to the pool of assets, what if anything should be done about the wife’s running down of the business and the dissipation of assets. Clearly there should be a notional add back, but the question is of what amount or amounts. To repeat, there are no valuations of the business as at separation, or indeed as at any point. Thus the options appear to be, and applying the principles of Weir and Weir as referred above, to use the balance sheet figure of $106,847.07 as at 30 June 2006 or to use the amount of $65,000 being the sale price of the business in December 2006. There was a balance sheet of the business GY as at 30 June 2007 tendered and marked Exhibit H12. That balance sheet indicated net assets at that time of $81,762.99. However, I have no confidence in the accuracy of that balance sheet. Certainly it was not adopted by the wife, and it was not promoted by the husband. The business of course was sold in December 2006 and the figures that appear in this balance sheet bear no relationship to what might have been expected given the previous year’s balance sheet and what had happened to the business in the meantime. Thus, I do not consider that it is an option to use the net asset figure in that balance sheet. Similarly I do not consider that I can use the amount that Mr Mc was to receive for his one share in the company. I do not consider that that was an arms-length transaction. That said there are obvious difficulties as well associated with adopting either the net asset figure in the balance sheet as at 30 June 2006, or the sale price of $65,000. I have set out above the difficulties with the balance sheet figure, and with the sale price I have no reliable evidence of the liabilities of the business at that time. In the circumstances though I propose to notionally add back the balance sheet figure given that although its accuracy can be questioned it at least goes some way to take into account the assets and liabilities of the business at that time.
The next issue is what if anything else should be notionally added back to the asset pool that is associated with or that relates to the business. To repeat, the husband sought to add back the money spent by the wife on herself and Mr N, but there is simply no evidence of that figure and I am in no position to even hazard a guess.
The husband also sought to add back the money paid to Mr N by way of wages. As I have found, that was a device used by the wife to move money sideways from the business, and his “employment” was a sham. The relevant period would be from April 2006 until the business was sold in December 2006, but there are at least two possible problems with doing what the husband suggests. Firstly, apart from the lump sum amount paid from the proceeds of sale of the business, the payments to Mr N were probably made from the income of the business earned after separation and when the wife was the sole contributor to the business as between her and the husband. However, the fact of the matter is that if this money had not been paid out to Mr N it would have been available to meet the liabilities of the business and thereby increase its net worth. Thus the fact that it came from income should not prevent it from being added back if it is appropriate to do so under the authorities. Further, the circumstance that the money was probably earned after separation by the wife’s efforts is a contribution issue which the wife is able to pursue if she wishes to.
The second problem is whether there is sufficient evidence applying the principles of Weir and Weir, supra, to fix an amount to be added back.
The evidence is as follows:
(1)Mr N said in cross examination that in the three months prior to 30 June 2006 he was paid $940 net per fortnight, namely a total of $6,110.
(2)A group certificate for Mr N for the 2006/2007 financial year was produced to him in cross examination but was not tendered into evidence because he confirmed its contents. This certificate was from GY Pty Ltd as the employer for the period from 1 July 2006 until the sale of the business in December 2006, and it revealed a gross income of $60,000. Mr N said that that comprised $30,000 by way of a base wage and $30,000 by way of commissions. He also said that although he did in fact receive the base wage of $30,000 he left some of his commissions with the company at the request of the wife. However, as referred to already Mr N received $14,000 on 27 February 2007 allegedly for outstanding commissions from the proceeds of sale of the business (see Exhibit H19). Thus, I consider that I can safely find that of the gross income of $60,000 Mr N was paid at least a total of $44,000.
On the basis of this evidence I consider that it would be appropriate to notionally add back $50,000 in round figures representing money syphoned off from the business by the wife.
125.9At the time of separation the company GY Pty Ltd owned land at R which had been purchased in May 2005. This property was then sold on 19 April 2006 with net proceeds of sale of $41,620.49. According to documents that were in fact discovered by the wife this amount was paid into the bank account of GY Pty Ltd and it seems was ultimately used towards the purchase of the property by GY Pty Ltd at K on or about 7 July 2006. That property was then sold in June 2007, and although the evidence is unclear because of the actions of the wife as referred to above, it seems that $8,750 went to Mr N and $47,526.52 went to the wife. To repeat on what basis this could have been done given that the land was owned by the company has not been adequately explained. In any event, the $8,750 was used by Mr N towards the purchase of the G property and I have already dealt with that, but the wife has failed to satisfactorily disclose what she did with the $47,526.52. She claimed in cross examination that she paid cash of $10,800 to a painter, but I do not believe her. In these circumstances it is appropriate to notionally add back that amount of $47,526.52 to the asset pool as a premature distribution of the assets of the parties.
Importantly I note that the wife ignored injunctions made by Burr J on 24 July 2007 and 16 August 2007 restraining her and the company from dealing with the proceeds of sale of this property.
125.10The husband also sought that there be a notional add back of an amount equivalent to the rental that should have been paid by the wife and Mr N for their occupation of the property at K. The argument is that if rent was paid to GY Pty Ltd that would have been put towards the mortgage repayments required in relation to that property and thus increase the ultimate net proceeds of sale. However, I find this to be just a fanciful claim and I reject it. There is no basis in any of the authorities that I am aware of to justify such an add back. There was no premature distribution of an asset and nor was there any waste. Moreover, as was typical in the husband’s case, even if this claim was open there was no evidence whatsoever provided by the husband as to what the amount could or should be. That said, and this exemplifies the lack of knowledge referred to in paragraph 96 above, and which has led to an unnecessary prolongation of this case, it is open to take into account the circumstance of the wife living in rent-free accommodation after separation as a relevant factor arising under s 75(2)(o) of the Act (Lalor and Lalor (1990) FLC 92-164).
125.11The husband has tools of trade. They were not valued but in his financial statement he estimated their value at $5,000. This was not challenged by the wife and she did not seek an order that the tools be valued, and thus I propose to include the tools at the figure of $5,000 based on an admission against interest made by the husband (Khademollah and Khademollah (2000) FLC 93-050).
125.12In relation to the respective superannuation entitlements of the parties, no documentary or supporting evidence was provided as to what those entitlements were outside of what each party deposed to in their respective financial statements and their oral evidence. Neither party has sought a splitting order in relation to the wife’s superannuation entitlements and thus I assume that each party seeks to retain their own entitlement. Further, nothing whatsoever was put to me about whether the entitlement should be placed in the same pool as the non-superannuation assets or whether a two pool approach was to be applied (see Coghlan and Coghlan (2005) FLC 93-220).
For my part the simplest approach is to include the entitlements in the same pool as the other assets and given that there was no submission otherwise I propose to proceed on that basis.
125.13The husband says that he borrowed $5,000 from his brother to assist him to make the mortgage and loan repayments. However, his brother did not give evidence and there was no documentation or supporting material beyond the husband’s oral evidence about this alleged loan. The husband did not refer to it in his affidavit, and most significantly he did not include it in his financial statement. Thus I am not prepared to accept that there is such a loan outstanding.
125.14The wife says that she still owes Mr Mc $4,000 to $5,000 but I do not propose to include that in the liabilities because the wife’s evidence is that she does not intend to pay this amount to Mr Mc. She says that is more than offset by the expenses the business has had to meet as a result of the unsatisfactory manner in which Mr Mc conducted the management arm of the business.
125.15The wife also says that she owes Mr N $3,250 being the balance of a $12,000 loan that he made to GY after taking into account the payment of $8,750 to Mr N out of the proceeds of sale of the property at K.
Although I am satisfied that Mr N obtained a loan not of $12,000 but of $13,000, and not in September 2006 but in November 2006, that amount was not paid into the bank account of GY Pty Ltd but was paid into the joint account of the wife and Mr N (see the affidavit and the annexures thereto filed by Mr N on 1 November 2007).
It is also quite apparent that that amount was then used by the wife and Mr N to support their lifestyle and there was no documentary evidence that it was used to meet expenses of GY, and particularly bearing in mind that that business was sold in December 2006. Thus, in my view there is no basis for me to find that this was a loan either to the wife or to the business. Accordingly, not only do I reject the alleged basis for Mr N receiving $8,750 out of the proceeds of sale of the K property, as I have already found, but I reject the claim that the wife still owes Mr N $3,250.
125.16In her financial statement the wife deposed to owing $16,500 on a credit card and $32,000 to “Savings and Loans” by way of “Hire purchase/ lease”. Again no documentary evidence was presented by the wife in support of these claims and I reject them given my adverse finding as to the wife’s credit. It may be though that the later amount relates to the Jeep Wrangler motor vehicle but in this same financial statement the wife does not even include the Jeep as an asset. In any event, the husband concedes, to repeat, that there is no equity in the Jeep motor vehicle and I have proceeded on that basis.
125.17With the loan in relation to GY that is clearly to be treated as a joint loan of the parties given that it was taken out in the initial stages of the operation of the business when both parties were clearly benefiting from the income of that business. Thus it should be treated in the same way as the housing loan.
125.18With the loan in relation to NT Business there are two components. Firstly an amount of $15,000 that was owing at separation and secondly $20,000 being the amount by which the wife increased the loan after separation. Clearly the wife should be solely responsible for repayment of the amount of $20,000 and in my view the husband should be solely responsible for the repayment of the amount of $15,000. The husband has failed to present any evidence as to the value of the business or the value of its individual assets, and thus to repeat I am not in a position to include any figure for this in the asset pool. In these circumstances and given that the husband will retain the business the wife is clearly prejudiced and it is appropriate to require the husband to be solely responsible for the loan as it existed at separation.
Contributions
I now turn my attention to the respective contributions of the parties pursuant to s 79(4) of the Family Law Act 1975.
The wife’s case is that overall the respective contributions of the parties from the commencement of cohabitation until the hearing are equal.
During the hearing the husband’s counsel submitted that the respective contributions of the parties up to separation were equal and then subsequently advised that on his instructions the respective contributions of the parties post-separation can also be treated as being equal. Thus there is agreement about this issue and I do not need to address the extensive evidence that the husband in particular presented on this topic.
However, I should say that the husband’s case is still very much that certainly since the separation the wife has dissipated assets and specifically in relation to the business GY Business. Thus his concession about contributions is not to suggest that this circumstance should not be taken into account, and indeed it is made on the basis that there will be notional add backs to the asset pool of most if not all of the assets dissipated by the wife, and at least what can be identified and quantified.
In the circumstances then I find that the respective contributions of the parties overall should be assessed as being equal.
Section 75(2) of the Family Law Act 1975
I now turn as s 79(4)(e) of the Act dictates to the individual matters to be taken into account pursuant to s 75(2).
Again the parties are in agreement as to this issue, save and except as to one matter. Mr Buckland for the husband says that there are no relevant factors arising under the sub-section, and there should be no adjustments. Thus there is no basis to even apply Lalor and Lalor, supra. Mr Story for the wife says that there are relevant factors arising under the sub-section but only one of those needs to be addressed. That factor relates to the liquidation of GY Pty Ltd as a result of a taxation debt of $97,000. Mr Story submits that there may be a liability placed on the wife as a result of the liquidation and thus it would be appropriate to set aside $100,000 out of the pool of assets to meet this liability. To repeat, the wife’s case is that this taxation debt arose in the 2005 financial year at a time when both parties were enjoying the benefits of the business, and thus it should be treated as a joint liability. Mr Story submitted that this is a relevant factor arising under s 75(2)(ha) of the Act.
For completeness I should add that Mr Story suggests that because the husband had also drawn money out of the business the liquidator may demand repayment of that money from him.
Now, firstly, I do not see how a consideration of s 75(2)(ha) requires an amount to be set aside to meet any possible claim by the liquidator. It was open for the liquidator to join in these proceedings and indeed to seek an order setting aside an amount from the pool of assets, but the liquidator has not chosen to do that. Secondly, in addressing what this paragraph is really about, it is not apparent that the orders that I propose to make will affect the ability of the liquidator to recover money from the wife or the husband. Thirdly, I have already found that the evidence does not support the claim by the wife as to when the taxation debt arose, and even if it did the fact of the matter is that the wife has had ample funds available to her to meet this debt but she has chosen not to and she has spent that money on other things and for her own purposes. Thus, there is no basis for suggesting that the husband should in any way be responsible for any of this taxation debt.
In the circumstances I do not propose to set aside any amount to meet any possible claims from the liquidation.
That said, there are no other adjustments that either party says should be made as a result of a consideration of any relevant factors arising under s 75(2).
Section 79(4)(d), (f) and (g) of the Family Law Act 1979
Next, I am obliged to consider the effect of my proposed orders upon the earning capacity of either party (s 79(4)(d)); any other order made under the Act affecting a party to the marriage or a child of the marriage (s 79(4)(f)); and any child support under the Child Support (Assessment) Act 1989 that a party to the marriage is to provide or has provided for a child of the marriage (s 79(4)(g)).
In relation to the first matter, the evidence does not indicate that the earning capacity of either party will be affected by the proposed orders.
In relation to the second matter, although there are parenting orders in place, there is nothing arising from those orders that needs to be taken into account at this point.
With the third matter, the wife has been paying child support to the husband in respect of their child. However, I do not consider that that fact has any impact on the orders that I am considering, and indeed neither party submitted otherwise.
Conclusion
The net assets of the parties should be divided equally between them.
Just and equitable
Pursuant to s 79(2) of the Act the Court cannot make an order unless the Court is satisfied that in all the circumstances it is “just and equitable” to make the order. To assess that I need to stand back and consider the practical effect of my proposed orders (Waters and Jurek (1995) FLC 92-635, JEL and DDF (2001) FLC 93-075, Phillips and Phillips (2002) FLC 93-104).
The net asset pool comprises a monetary equivalent of $584,623.59, and on an equal division the husband is entitled to net assets to the value of $292,311.80, and the wife is entitled to net assets to the value of $292,311.79. However, as referred to previously the husband is to be solely responsible for $15,000 of the loan in relation to NT Business and the wife $20,000. Thus, for the moment I need to exclude these figures from the calculations. On that basis the husband is entitled to net assets to the value of $309,811.80 and out of which he will have to pay the $15,000 and the wife is entitled to net assets to the value of $309,811.79 out of which she will have to pay the $20,000.
Excluding the NT Business loan the husband has had, currently has and seeks to have the benefit of net assets totalling $403,500 calculated as follows:
Assets
The property at H $580,000
Furniture and household effects N/K
Business NT Business N/K
Tools $5,000
Superannuation $1,500
TOTAL $586,500
Liabilities
Home loan secured by mortgage over the title to the H property $183,000
TOTAL $183,000
NET $403,500
Excluding the NT Business loan the wife has had, currently has, and seeks to have the benefit of net assets totalling $216,123.59 calculated as follows:
Assets
The business GY Business $106,847.07
Furniture and household effects N/K
Jeep Wrangler motor vehicle Nil equity
Share of the proceeds of sale of the G property $8,750.00
Share of the proceeds of sale of the K property $47,526.52
Amount paid to Mr N for wages $50,000.00
Superannuation entitlements $53,000.00
TOTAL $266,123.59
Liabilities
Loan in relation to GY $50,000.00
TOTAL $50,000.00
NET $216,123.59
Thus, on these calculations the husband will have to pay to the wife the sum of $93,688 (to the nearest dollar) out of which to repeat the wife will have to pay $20,000 off the NT Business loan as well as of course the loan in relation to GY.
There was no evidence presented, and there was no submission made as to the source from which the husband could pay the amount that the wife is entitled to. On the basis though that he retains the house property at H, and given the current equity in that property an obvious option would be for him to further borrow on the security of that property. However, that is a matter for him. He of course has the business NT Business and I consider that he earns sufficient from that business to service any further borrowings that he might make, particularly given that he will no longer have any responsibility for the loan in relation to GY or a substantial portion of the loan in relation to NT Business.
In the end result, once the husband has paid out the wife he will either retain the property at H or sell it and purchase alternative accommodation. He will of course still have his business NT Business and that will provide his income. He also has furniture and household effects, tools of trade and a small amount of superannuation.
With the wife she has her furniture and household effects, the Jeep Wrangler motor and her superannuation. She lives in rented accommodation and although she no longer has the business GY Business she continues to work in sales and earn a reasonable income. She also has the distinct advantage of having sales qualifications. Of course she does not now have the assets that I have written back into the asset pool and which have then been taken into account on her side of the ledger, but she has had the benefit of those assets.
Finally, to repeat, the wife is due to receive from the husband the sum of $93,688 from which she will need to pay out the loan in relation to GY and $20,000 of the loan in relation to NT Business. However, I am troubled by this given the evidence that was before me as to her failure to use money that she had available to pay taxation assessments for example. I have no confidence that the wife will in fact use the money that she receives from the husband to pay out what she has to in relation to these loans. Accordingly, I propose to make an order that the loan in relation to GY and $20,000 of the loan in relation to NT Business be paid out by the husband from the wife’s entitlement. Thus, that will leave her with $23,688.
I confirm that as a result of my findings in this case the wife will need to indemnify the husband against all claims and demands that may be made of him by the liquidator in relation to any debt or liability of GY Pty Ltd.
On this analysis it is clearly the case that the husband will come out these proceedings with a better result than the wife, but of course that is not the test here. Any assessment of what is just and equitable must be undertaken in the knowledge of the reasons for the proposed orders. In this instance, a primary reason for the outcome is the wife’s running down of the business and her dissipation of assets. Thus, viewed in this light there is nothing unjust or inequitable in the order that I propose. Indeed, because of the wife’s failure to disclose the result may even be considered more generous to the wife than she deserves.
I certify that the preceding 152 paragraphs are a true copy of the reasons for judgment of the Honourable Justice Strickland delivered 17 June 2009.
Associate
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