Sherman and Sherman - [2008] FMCAfam 413

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SHERMAN & SHERMAN

[2008] FMCAfam 413

FAMILY LAW – Property – direct and indirect financial contribution – little by way of income and property and financial resources by reason of their conduct of their affairs to date – parties lived far beyond their means – applicant has not made any contributions by way of child support.

Family Law Act 1975 (Cth)

Applicant:

MR SHERMAN

Respondent:

MS SHERMAN

File Number:

BRC 3613 of 2007

Judgment of:

Burnett FM

Hearing date:

20 March 2008

Date of Last Submission:

20 March 2008

Delivered at:

Brisbane

Delivered on:

20 March 2008

REPRESENTATION

The Applicant appeard on his own behalf

The Respondent appeared on her own behalf

ORDERS

It is ordered:

That the respondent receive the sum of $24,000 to be payable from the sums held in the trust account of Messrs Short Punch & Greatorix Solicitors to their account, by way of s.79 Property Settlement.
That the applicant receive:
(a)the balance of funds held in the trust account of Messrs Short Punch & Greatorix Solicitors;
(b)retain the boat;
(c)retain all chattels identified in the list identified as items retained by Mr Sherman being annexure A to the affidavit of Ms Sherman filed 13 March 2007 except items numbered 28, 31, 63, 64, 69, 83 and 84.
That the applicant permit the respondent to collect items 28, 31, 63, 64, 69, 83 and 84 from his possession within seven days of this order.
That $20,000 for the boat together with all associated chattels be sold by public auction to be conducted within 60 days of this order with the net proceeds of sale, be it of all sale expenses and commissions, to be divided between the parties 80/20 in favour of the respondent.

IT IS NOTED that publication of this judgment under the pseudonym Sherman & Sherman is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRC 3613 of 2007

MR SHERMAN

Applicant

And

MS SHERMAN

Respondent

REASONS FOR JUDGMENT

This is an application made by Mr Sherman seeking relief under s.79 of the Family Law Act in respect of his marriage to his former wife

Ms Sherman.
The parties commenced living together in 1989, then married on in December 1991. In January 1992 their only child was born. They resided together at various places on the Gold Coast until separation on 22 February 2006.
At the time the parties commenced their relationship, it seems that neither had very much. The wife says she had some money, something approaching $30,000 which she brought into the relationship but by reason of the effluxion of time that direct contribution probably bears little weight.
Broadly throughout the course of the marriage it appears that, although they resided principally on the Gold Coast for a time, they resided in New South Wales in the western suburbs of Sydney. They resided throughout that time with the applicant's mother at premises that she owned variously in the western suburbs of Sydney and during that time they partook activities involved in the renovation of properties, it would seem, for the purpose of sale for profit. The parties lived in the western suburbs of Sydney from about 1991 until they relocated to the Gold Coast region in about 2000. As I said during that time they were involved in various enterprises involving the improvement of properties for sale, some of which enterprises were undertaken in conjunction with the applicant's mother. When they relocated to the Gold Coast they purchased property at Property R. As with other properties, it was a property which was acquired with some assistance by the mother or by the applicant's mother.
At about that time they also established a business, [X] Pty Ltd. Again, that was a business established with funds which were provided by the applicant's mother and I will deal with the details of those in a short time.
The business [X] conducted itself until about 2006 when, on the advice of accountants, the business was rolled into a business entitled [X] Group Pty Ltd. The rolling in of the [X] business and the [X] Group was undertaken for credit protection or protection from creditors by the various shareholders.
At the time of separation, the parties broadly owned their interests in [X] Pty Ltd, [X] Group Pty Ltd, a house property at Property J, a Toyota Sahara sedan, a Holden Rodeo vehicle, household furnishings, a boat which was in an incomplete state together with some funds in a joint account. They had, at that time, liabilities in the nature of a $620,000 line of credit to the Bank of Adelaide, principally was a mortgage in respect of the matrimonial home, the $73,000 owing in respect of the Sahara, about $60,000 in credit card debts and an alleged total of $1.2 million repayable to the applicant's mother. It had been stated in the course of evidence that there was also a Honda vehicle which had been purchased in 2005 which was both an asset and had an attendant liability, however, the evidence demonstrates that in fact that vehicle was owned by the company and, accordingly, cannot be measured in the matrimonial pool.
Since separation, the former matrimonial home has been sold, the Toyota Sahara has been sold and the Rodeo has also been transferred. Household furnishings have been split but the boat still remains intact. The money in the joint account is gone.
On the credit side of the ledger the liabilities to the Bank of Adelaide have been discharged. The liability in respect of the Sahara has been discharged. The credit card debt has been reduced to a sum of about $52,000. The liability is still claimed in respect to the loan to the mother.
Accordingly, by reason of those transactions, the position as at today, the day of trial, is broadly as follows. There is a sum of $78,266.86 sitting in the trust account of Short Punch & Greatorix Solicitors. There is probably an additional sum on account of accretions in that trust account. There is still the parties' interests in the companies [X] Pty Ltd and [X] Group Pty Ltd. There was an assertion about an interest in a company called [P] Pty Ltd. There were furnishings in the possession of each of the applicant and the respondent. There was a boat. There is an allegation in respect of the wife's inheritance or entitlement to an inheritance. Those seven matters constitute the assets alleged in the estate. The liabilities of the estate are credit card debts which presently total $52,000 and the loan alleged in respect of the mother for $1.2 million.
If I can first deal with the matters that are in contention commencing first with the [P] Pty Ltd claim. There is no evidence to demonstrate any interest by the parties in a company called [P]. What transpires from the evidence is that there has been a transfer of some of the operations, or at least a web page, of the [X] Group to [P]. There does not appear to be any consideration discreetly payable by that company to either of the applicant or respondent in respect of that matter. There may have been a payment to [X] Group in which event that sum is accounted for in the consideration of the valuation of that entity. Accordingly, it has attributed no discrete value.
So far as [X] Group and [X] are concerned, I have the benefit of a valuation report prepared by the [V] Chartered Accountants. Grossed up and together, the value of those shares is nil. In fact, it is a negative sum, $25,186. The entities themselves when discreetly considered have a value of negative $365,761 in respect of [X] and a positive $78,550 in respect of [X] Group. After allowing for the interests of parties the value of shares totals negative $25,186. That, of course, affords a zero value for [X] and then takes account of the loan account in respect of [X] and then [X] Group. In effect, what we will have in reality on the winding up of [X] Pty Ltd will be a liability to each of the applicant and respondent in the sum of $52,212, and on the winding of [X] Group there will be a liability in respect of each of the applicant and the respondent of $51,524. Accordingly, when those two sums are taken into account and deducted from the value of the shares in [X] Group you get the negative $25,186. I identify those matters because those loans will no doubt be called up by a liquidator who will be appointed to deal with the companies.
It follows, that for present purposes, the companies have no value, and in fact have a negative value of $25,000. So far as the furnishings were concerned the parties have agreed in relation to furnishings and orders have been made dealing with that agreement but, in broad terms, by reference to a document attached to the affidavit of the wife which was filed on 13 March 2007 and entitled "Items retained by Mr Sherman", there has been an agreement by the respondent to accept items 28, 31, 63, 64, 69, 83 and 84 in forbearance of any rights that she might have in respect of the balance of the chattels listed in that list and orders will be made to give effect to that matter.
There is no contest about the boat. There is a contest about its value. It cannot be resolved because the evidence that was put before me was entirely unsatisfactory. It does not enable me to effect a valuation, so I will simply order that it be sold.
So far as the wife's inheritance is concerned there is a claim by the applicant that the matrimonial pool should include an allowance for an inheritance which was provided for by the wife from the estates of her late father and mother. In broad terms when her parents died she was bequested a sum which was about $80,000.
In her affidavit she swore that she had not disclosed any inheritance benefits because there were none to disclose. The basis for that statement was that she had renounced her entitlements under her Will in favour of her brother on the basis that her brother had made a significant contribution to the care of her parents during their life as he resided in Sydney and was able to provide that care. She resided in Queensland and was unable to and accordingly she felt that it was appropriate that those bequests be renounced. Given the renunciation of the bequests I think it is in those circumstances not appropriate to incorporate any allowance in the matrimonial pool for that particular matter. The bequests having been renounced they cannot any longer be her property. The renunciation which is, apart from anything else, sworn to in the affidavit of Ms Sherman would give rise to an estoppel in respect to any claim that she might now make if she were to pursue it against her brother, assuming of course that he has knowledge of these matters which I no doubt expect he does.
All up then it seems on my reckoning, putting aside the boat which has undefined value, the companies which have no value, and possibly a negative value, the only asset which has any value is the sum sitting in the trust account of about $78,000.
On the credit side of the ledger there are two liabilities contended for. The first are credit card debts. There is no contention that that sum approximates $52,000 and I will allow that sum.
But the next liability which is alleged relates to loans to the value of $1.2 million which the applicant says made to the parties. Those matters are the subject of particularisation in his affidavit which was filed on 15 January 2008. In broad terms an examination of that affidavit in fact demonstrates that the total value of the loans, if they are accepted as loans, is something approximating $1.45 million. The loan which the loans have been advanced would demonstrate broadly that a sum of about $1.045 million was by way of advances to [X] and a sum of $358,000-odd was advanced by the applicant's mother to the parties jointly. There were some other advances made by the applicant's mother to an entity associated with the respondent, a company called [I] which also appears to have been the beneficiary of some advances. The real question in this case is whether or not the advances were advances or gifts.
I will deal first with the question of the company. So far as advances were made to the company one advance was the subject of a loan agreement and was formally documented. The remaining advances appear to have been made, as the affidavit would demonstrate, they appear to have been made on an ad hoc basis but in any event they were made to the company either [X] or [X] Group. Accordingly, those advances cannot be metered discreetly into the matrimonial pool as they were advances made to the companies and not advances made to either of the applicant and respondent. Had there for instance have been guarantees put in place whereby the applicant and respondent had assumed personal liability well then obviously a different position may have ensued, however, that is not the case in this instance. They were simply advances made to the companies and it is for the applicant's mother-in-law to pursue the companies for the enforcement of her rights and remedies in that regard.
That then leaves to consider only the question of the advances that were made to each of the applicant and respondent which as I have earlier indicated a total sum of about $358,000.
In her evidence, the applicant's mother stated that she had loaned the moneys personally to the parties and that in her view they were never gifts, they were always loans. For reasons that I will explain in a moment I do not find that that is the case. I think at the time that she advanced the money she gave that matter little, if any thought at all. The evidence demonstrates advances were made on a spasmodic and period basis. When the funds were provided no security was provided. There was no repayment arrangement agreed or put in place. The advances were not documented. No agreement was made in relation to interest and no charges were made. The nature of the funds or the purpose for which the funds were provided were for personal use, for instance the provision of funds to acquire a house to pay certain personal debts, and perhaps most significantly as was stated by the applicant's mother, she really only provided the funds because they were living together at the time, she was, as she said, never expected the relationship between the parties to come to this and that by and large she was hoping that in exchange for the provision of funds she would obviously have a roof over her head but the funds were really provided by way of a gift. Unfortunately, she did not think these matters through with any particular detail, and did not give any consideration to the prospect that indeed the parties might separate and that in that event unless her position was adequately documented and secured, the funds would be construed to be a gift which in fact is the finding that I now make. That finding I think is reinforced by her evidence that the only two potential beneficiaries of her estate would be the applicant himself and his sibling, however, by reason of difficulties that obviously pre-date this proceeding, the applicant's only sibling appears to have been excommunicated from the family by reason of difficulties that arose between the applicant's mother and her former spouse. Sides were taken and it was clear to me that in the event of her death the applicant was to be the sole beneficiary of her estate. In that context it is quite obvious that the advancing of funds in the manner which they were provided was simply an advance on the ultimate bequest which he would enjoy upon the passing of his mother. I am not, as I say, satisfied that the sums which were provided by the mother to the applicant and respondent personally were in the nature of a loan. They were in fact gifts and I so find.
As I say there is no need to make any express findings in relation to the nature of the advances to the company. Although I am inclined to the view that by reason of the matters I have earlier identified, again, those advances were in the nature of a gift to the applicant himself principally because, as I have already stated, he was to be the sole beneficiary of his mother's estate upon her passing and that the applicant was fulfilling the unspoken obligation to his mother that he would provide her with a roof over her head and in those circumstances she willing, although somewhat foolishly, advanced the funds to him but the advance, as I say, was in the nature of a gift not a loan.
Generally I have to say that the evidence of the applicant's mother was to some extent very confusing and highly unreliable in many respects. The figures that she bandied about for instance did not tally very comfortably with the evidence as seems to have been documented. For instance, she made the observation that loans were made to the parties totaling 600,000 to the company, 400,000 which of course is quite to the contrary. The evidence of the general even flow of funds which was given by her did not lead me to any confidence that these matters were being regulated in a business like way. As I say all fortifying in my mind the view that what in reality occurred was that she simply provided the parties an advance or the applicant and the parties together an advance in the nature of a pre-death bequest. In those circumstances I do not accept that there is a liability to be accounted for in the matrimonial pool in the sum of $1.2 million. And I will deal with the matter of the bequests in terms of the contributions made by the parties in a moment.
So all up it seems to me that the matrimonial estate net of credit cards has a value of about $26,000 together with whatever might be extracted on the sale of the boat.
Now, in terms of matters to be taken into account. First, the court has to consider the direct or indirect financial contributions made on behalf of the parties to the marriage to the acquisition, conservation or improvement of any property. In this case both parties made direct financial contributions, both worked, both worked quite hard I think through the course of the marriage. Unfortunately for the applicant it appears he was not a particularly astute businessman or alternatively perhaps it is a reflection on his perspicacity but he persevered with what was clearly a poor business when perhaps more astute commercial operator would have long abandoned what was clearly an unprofitable enterprise. And that factor features in terms of the indirect financial contribution which I think should be allowed for in relation to the advances made to him by his mother. As I have earlier noted I think the advances were made to the parties jointly, no doubt by reason of the nature or the length of their relationship, the contribution made by the wife to the mother in the sense of her involvement in their property transactions in New South Wales, but also because of the presence of their child. But in any event irrespective of the weighting that might otherwise be made in favour of the applicant on account of the advances that were made by his mother in the nature of pre-death bequests, the fact remains that the indirect financial contribution was significantly diminished by his perseverance with this unprofitable business enterprise.
Next is the need to consider contributions other than a financial contribution made directly or indirectly by the parties to the acquisition, conservation or improvement of any of the property of the parties to the marriage. In that regard there is nothing particularly special about this case. Both parties appear, for instance, to have worked together to achieve a common outcome. Unfortunately that has not manifested itself in the production of any high value assets and indeed as the figures demonstrate the net value of the estate now approximates no more than about $25,000 – $30,000.
Next then is the question of contributions made by the parties to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage including any contribution made in the capacity of homemaker or parent. In that regard the respondent should receive some greater allowance. The child of the marriage resides with the respondent who resides in Sydney. There is no doubt by reason of that a greater contribution to the homemaker and parenting responsibilities or has been a greater contribution of homemaker and parenting responsibilities by the respondent than there has been by the applicant. That too has also manifested itself through the course of the marriage.

I take into account the effect of any proposed order upon the earning capacity of either party to the marriage in the sense that there will be no such adverse impact.
In terms of the s.75(2) considerations, dealing with those which are relevant to the present application. Each of the applicant and respondent were born in 1961. They are in the mid 40s. They are apparently in good health. They each by reason of their physical and mental capacity are capable of gainful employment. They have frankly little by way of income and property and financial resources by reason of their conduct of their affairs to date. The respondent has the care and control of the child of the marriage who has not yet attained the age of 18 and she has commitments obviously that arise in relation to that matter. In her financial statement filed on 13 March 2007 she identifies her principal expenses which aside from the usual mortgage and so forth which no doubt will have changed by reason of the sale of the property, indicate for instance that so far as the children's activities are concerned she has considerable expense associated with the keeping of the child; he is a teenage boy, and the cost of $200 a week does not in the circumstances appear to me be an unreasonable impost or expense in relation to his maintenance. That of course is an expense which is not met by the applicant.
I take into account the standard of living which is in all of the circumstances reasonable. It is I think a truism in this case and it is in my view the fact that the parties in this case each lived far beyond their means and accordingly having regard to their circumstances it is an unfortunate byproduct of divorce that they will likely suffer a diminution of their standard of living but in all of the circumstances their standard of living does not now appear to be unreasonable.
I take into account the need to consider the extent to which payment of maintenance to a party whose maintenance is not under consideration and that being the respondent in this case, would increase the earning capacity of that party by enabling that party to undertake a course of education or training. That does not appear to be required having regard to the age and experience of the respondent. I take into account the extent to which the respondent has contributed to the income, earning capacity, property and financial resources of the other party, although there was a contribution. That has contribution has been rendered negatory by reason of the poor financial commercial decisions made by the applicant in the conduct of his business.
I take into account the need to protect the party who wishes to continue that party's role as a parent. In that case that is principally going to be the respondent. The child lives with her and lives in Sydney and accordingly irrespective of the wishes of the applicant to spend more time with the child if that be the case, practical difficulties inhibit that leaving the greater burden to be borne by the respondent.
I take into account the fact that in this case the applicant has not been making and has not made any contributions by way of child support and that again it is a matter which has been principally borne by the respondent.
All up it seems to me that having regard to what could be described as the s.79(4) factors there should be, in my view, a 45/55 per cent contribution in favour of the respondent on those matters, and that is really to allow for the negative contribution made by the applicant in his poor commercial decision making. That factor has to be weighed against the s.75(2) factors which in my view require a further 25 per cent weighting in favour of the respondent having regard to the need to continue with the care and maintenance of the child of the marriage. All up, in my view, that gives an 80 per cent distribution in favour of the respondent and 20 per cent in favour of the wife. How does that work out in overall terms? Well, what that means broadly is that net of expenses the wife will receive approximately $20,000 and the husband will receive about $6,000 that is together with an 80/20 split on the boat.
I will direct the applicant indemnify the respondent in respect of
(a)all credit card debts presently outstanding; and
(b)as particularised in paragraph 8 of the applicant's affidavit filed 15 January 2008; and
(c)any claims made by or which may be made by the companies [X] Pty Ltd or [X] Group Pty Ltd in respect of any director's liability including director's loans upon the applicant undertaking to indemnify the respondent.
Having regard to the orders that I propose and having regard to all the evidence that I have earlier heard, I am content that the orders represent a just and equitable distribution of the matrimonial property pool having say to all the matters that I am required to consider under s.79 and s.75(2) and that it is I think just and equitable that orders be made on those terms, so I will order in those terms.

I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Burnett FM

Associate:

Date: