Sherwood and Sherwood
[2013] FCCA 2334
•12 December 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SHERWOOD & SHERWOOD | [2013] FCCA 2334 |
| Catchwords: FAMILY LAW – Property – adjustment of matrimonial assets following a 27 year marriage – wife seeks assets be divided 55/45 in her favour on the basis of the wife’s responsibility for the care of the parties’ three children and that the husband should bear various business debts due to his sole responsibility and conduct of the business for two years post separation – the husband seeks a 55/45 division of assets in his favour due to the wife’s greater earning capacity – husband seeks the debts of the business to be met equally by both parties – held parties assets be divided equally between the parties and husband remain liable for part of the business debts. |
| Legislation: Family Law Act 1975, ss.75, 79 |
| Kowaliw & Kowaliw (1981) FLC 91-092 at 76,644 Stanford v Stanford [2012] HCA 52 |
| Applicant: | MR SHERWOOD |
| Respondent: | MS SHERWOOD |
| File Number: | MLC 4528 of 2011 |
| Judgment of: | Judge Bender |
| Hearing dates: | 9 & 10 December 2013 |
| Date of Last Submission: | 10 December 2013 |
| Delivered at: | Melbourne |
| Delivered on: | 12 December 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr Spicer |
| Solicitors for the Applicant: | RNG Lawyers |
| Counsel for the Respondent: | Ms O'Connell |
| Solicitors for the Respondent: | Fiona R McGregor |
ORDERS
The funds currently held in trust on behalf of the parties be distributed as follows:
(a)firstly, the sum of $515,037.62 to be wife; and
(b)secondly, the sum of $429,524.38 to the husband; and
(c)thirdly, any amount remaining after the payments to the wife and husband be divided equally between the parties.
The husband retain all the right, title and interest in Sherwood Pty Ltd and The Sherwood Family Trust (“the business”) and the husband be liable for and indemnify the wife in relation to all debts and liabilities for the business including any monies that may be owing to Mr C.
Unless otherwise specified in these orders and except for the purposes of enforcing the payment of any money due under these, or any subsequent orders:
(a)each party be solely entitled to the exclusion of the other to all property (including choses in action) in the possession of such party as at the date of these orders;
(b)each party hereby foregoes any claim they may have to any superannuation benefits belonging to, or earned by, the other;
(c)all insurance policies to become the sole property of the owner named thereon;
(d)each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders; and
(e)any joint tenancy of the parties in any real or personal estate is hereby expressly severed.
The matter be removed from the pending list of cases.
IT IS NOTED that publication of this judgment under the pseudonym Sherwood & Sherwood is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 4528 of 2011
| MR SHERWOOD |
Applicant
And
| MS SHERWOOD |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
This matter relates to the adjustment of the parties’ matrimonial assets following the breakdown of their 27 year marriage.
The applicant wife is seeking orders that the parties’ assets be divided on the basis that she receive 55 per cent of the pool. The wife also seeks orders that the husband be solely responsible for the liabilities of the business conducted by him during and after the marriage, (business omitted), including the alleged loans outstanding by the business to Mr C and a repayment of the taxation liabilities of that business paid from the net proceeds of sale of the former matrimonial home. I note at this time that (business omitted) was sold in May 2012 and the proceeds of sale were not sufficient to meet the company’s liabilities, at least at that time.
The wife also seeks orders that each party retain their current superannuation entitlements.
It is the wife’s argument that there should be a five per cent adjustment of the parties’ realisable assets in her favour, as this reflects her responsibility for the care of the parties’ three children post-separation and her commitment to their care into the future. Whilst acknowledging the parties’ three children are now adult, it is argued on behalf of the wife that they will all be undertaking either tertiary education or completing an apprenticeship over the next three to five years, that the children will continue to live solely with her and that she will continue to bear the financial responsibility for them solely during this period.
In relation to the business debts of the business known as (business omitted) (“the business”), it is the wife’s submission that as the husband has had the sole conduct and benefits of that business for the two years post separation and was solely responsible for its sale and how the proceeds of sale were distributed, the liabilities that the business accumulated post separation should be the husband’s sole responsibility.
The husband seeks orders that the parties’ assets be divided such that he receives 55 per cent of the pool. The husband also seeks orders that the debts of the business be met from the parties’ joint assets, prior to any division of those assets. The husband also seeks that orders be made equalising the parties’ current superannuation entitlements.
It is argued by the husband that a 55 per cent division of the parties’ realisable assets in his favour is just and equitable as this reflects the wife’s greater earning capacity.
In relation to the outstanding business liabilities, it is argued on behalf of the husband that if, upon sale, the business had realised a profit, the wife would have strongly argued that such profit form part of the matrimonial asset pool for division between the parties. In circumstances where the sale realised a loss that loss should be included when calculating the matrimonial asset pool.
Background
The wife was born on (omitted) 1959 and she is 54 years of age. The wife is employed as a (occupation omitted) working a 0.8 load. The wife earns a gross income of $1,708.00 per week and has not re-partnered.
The husband was born on (omitted) 1958 and he is 55 years of age. The husband is currently unemployed and he too has not re-partnered.
The parties commenced cohabitation in (omitted) 1982 and married on
(omitted) 1983. The parties’ son, Z, was born on (omitted) 1993 and their twin daughters, X and Y, were born on (omitted) 1995.
In 1988 the husband entered into a business with a partner (business omitted).
In March 1993 the parties purchased the former matrimonial home at Property K.
In June 1995 the Sherwood Family Trust was established.
In 1996 the husband sold his interest in the (omitted) business to his business partner.
In 1997 the husband established the company Sherwood & Company, with the husband as the sole director and shareholder. This company is the trustee of the Sherwood Family Trust.
In 1998 Sherwood & Company purchased the business (business omitted) for $595,000.00. The purchase was funded by borrowings secured over the former matrimonial home.
In 2000 the wife’s mother died and the wife inherited $97,000.00, which was utilised for the benefit of the family.
In 2004 the husband borrowed $50,000.00 from his friend and employee, Mr C. There is no formal loan agreement in relation to this advance. The loan from Mr C was repaid by regular weekly payments of $100.00 or by regular purchases by the husband of the business of beer and cigarettes for Mr C, by Mr C utilising the company credit card for his personal use and by Mr C being able to obtain stock items from the business without payment.
The wife was not told or ever made aware of the loan by either Mr C or the husband.
Whilst some of the payments or purchases made for Mr C’s benefit were kept in a ledger at the office of the business, it is clear from the evidence of both the husband and Mr C that there was no accurate record kept of the total repayments made to Mr C or of the purchases made on Mr C’s behalf.
In 2005 the wife’s father gifted her $20,000.00. These monies were also used for the benefit of the family.
In 2008 the overdraft for the business, secured over the former matrimonial home was increased to $350,000.00.
In April 2010 the husband obtained a further loan of $50,000.00 from Mr C. As with the 2004 loan there is no formal loan agreement and the terms for its repayment are the same as those for the 2004 loan described above. Again, no accurate records have been kept of the monies paid to and on behalf of Mr C. The wife was not told of this further loan by either the husband or Mr C.
In May 2010 the husband travelled without the family for a holiday to the (omitted). Prior to this trip he purchased through the business a boat, a trailer and fishing gear for approximately $10,000.00. The business also paid for the husband’s travel and accommodation costs.
It is the wife’s evidence that the parties separated under the one roof in or around June/July 2010. It is the wife’s evidence that thereafter the parties slept in different rooms, did not socialise as a couple and performed minimal household duties for each other. It is the wife’s evidence that she asked the husband to vacate the former matrimonial home at this time, but that he refused to do so.
It is the husband’s evidence at the final hearing that separation only occurred when he left the former matrimonial home in June 2012. It is the husband’s evidence that he continued to contribute $600.00 per week to support the family up until the time he left the former matrimonial home. It is the husband’s further evidence that until he left the former matrimonial home the parties continued to perform household duties for each other, including regular family meals.
The wife commenced proceedings in the Family Court of Australia on 25 May 2011 in which she deposes that the time of separation was
July 2010. In his responding material the husband did not challenge the wife’s assertion the parties were separated or the date of separation in the wife’s documents. In paragraph 6 of the husband’s affidavit, filed on 11 May 2012, he deposes as follows:
6. Currently we all remain living in the former matrimonial home. We are separated under the one roof. I say final separation occurred in or about July 2010.
In these circumstances I am satisfied the parties separated in June/July 2010.
In October 2010 the wife’s father died. The wife received a total of $517,587.00 by way of inheritance from her late father’s estate.
On 10 April 2012 a contract for the sale of the business (business omitted) was signed. The purchase price was $250,000.00 plus stock at valuation. By agreement between the parties, Nevett Ford & Company Solicitors were appointed to conduct the sale of the business on their behalf.
On 10 May 2012 settlement of the sale of the business occurred. The husband, rather than a solicitor from Nevett Ford, attended the settlement of the sale. Despite repeated requests from the wife’s solicitors and orders of this Court, no final settlement statement has been provided. However, on the basis of the husband’s evidence at final hearing, I am satisfied that the following reflects the settlement statement.
Purchase price
$250,000.00
Less deposit
$25,000.00
Amount outstanding
$225.000.00
Agreed stock as valued
$255,612.00
Sub-total
$480,612.00
Vendor’s adjustments
Council rates
$501.95
Water rates
$36.92
Rent adjustment
$2,399.21
Right of entry expenses
$690.65
Sub-total
$3,628.73
Total payable by purchaser
$484,240.73
The cheques payable by the purchaser at settlement on that day were as follows:
(omitted) Bank overdraft
$259,404.29
(omitted) Bank credit card
$500.00
(business omitted)
$70,504.42
Honda
$15,149.38
(business omitted)
$85,201.42
Payout on company motor vehicle number 1
$30,823.45
Payout on company motor vehicle number 2
$22,657.77
Total
$484,240.73
In the viva voce evidence given by both parties it is common ground that (business omitted), Honda and (business omitted) were secured creditors of the business and as such needed to be paid out in order for settlement to be affected. It is also common ground that the company motor vehicles were part of the plant and equipment sold to the purchasers and as such their loans also had to be paid out at settlement.
At settlement of the sale of the business, the business overdraft with the (omitted) Bank, secured over the former matrimonial home, was $316,834.00. Accordingly there were insufficient funds at settlement to fully discharge the overdraft. The wife agreed to allow the overdraft, fixed in the sum of $60,000.00, to remain secured over the former matrimonial home whilst the husband finalised the winding up of the business affairs.
At the time of settlement the business had considerable outstanding debtors and creditors. The collection of these outstanding business debtors and the payment of the outstanding business creditors was entirely managed by the husband after settlement.
Despite multiple requests from the wife’s solicitors and many orders of this Court, the husband has failed to provide a proper list of the business company debtors and creditors with original source documents, such that it is possible to be satisfied with certainty as to the exact amount of moneys received, and the creditors paid in the period up to the date of the final hearing. Nor is it possible to ascertain with certainty what monies still remain owing to or by the business.
It is the husband’s sworn viva voce evidence that as at 10 December 2013, to the best of his knowledge, the business affairs stand as follows:
Creditors
$42,486.64
Outstanding employee superannuation payments
$3872.00
Total
$46,358.64
Achievable debtors
$32,566.00
Net position
($13,726.40)
On 10 November 2012 the former matrimonial home sold at auction for $1.25 million. Settlement of this sale took place in or about, February 2013. After payment of sale costs, discharge of the home loan and discharge of the business overdraft (then $53,140.00), the balance was held in an interest bearing trust account on behalf of the parties.
The parties agreed that from the net proceeds of sale of the business, the 2013 year 12 school fees for X and Y at (omitted) College of approximately $20,000.00 would be paid.
After the sale of the business – the precise timing of which is still unclear – it became known that the husband had failed to lodge the December 2011 BAS statements for the business. On 21 August 2013, an order was made by consent in the following terms:
1. That within 14 days the Husband and the Wife do all acts and things necessary and sign all documents to enable the lawyers for the Wife to pay an amount of $70,557.23 to the Australian Taxation Office for payment of the tax liabilities owed by the Husband and Sherwood ATF The Sherwood Family Trust and the apportionment of the actual tax liability as between the Husband and the Wife be determined by the trial Judge.
The breakdown of this payment to the Australian Tax Office is as follows:
Company tax payable
$52,864.00
Penalty interest
$7,931.23
Penalty for late lodgement
$3,520.00
Husband’s personal tax for 2011/2012
$6,242.00
Total
$70,557.23
In June 2012 the husband’s father died suddenly, and in July 2012 the husband moved in with his brother and elderly uncle where he became his uncle’s carer.
In July 2013, the husband’s uncle died. The husband and his brother are the beneficiaries of his late uncle’s estate. The husband will receive a half interest in his uncle’s (omitted) property, his share of which is estimated to be $ 287,500.00, and his share of the residual estate of his uncle, estimated at $80,000.00, a total of approximately $350,000.00.
The parties’ son Z has a history of debilitating migraine. Recent treatment at the wife’s considerable cost has greatly assisted Z and he has recently started a (omitted) apprenticeship. Z earns approximately $350.00 per week. Z currently resides with the wife and will continue to do so for the foreseeable future. Z regularly sees the husband, albeit not for overnight periods.
X and Y finished their VCE this year and are anxiously awaiting their results. Both are excellent students and it is anticipated that they will both pursue tertiary studies. X and Y live with the wife and are estranged from the husband. Y recently obtained part-time employment and X is hopeful of doing the same.
Since the sale of the business, the husband has not provided any financial support for the parties’ children and the wife has been solely responsible for their care.
The Issues
Having heard the parties’ evidence, considered their proposals and heard the submissions, the Court identifies the following as the issues requiring determination in this matter:
a)what constitutes the property pool, and in particular:
i)should the husband be solely liable for any outstanding business creditors;
ii)is the alleged moneys owing to Mr C a joint debt;
iii)how should the payment to the Australian Tax Office of $70,557.23 that was paid from the monies held in trust on the parties’ behalf from the proceeds of sale of the former matrimonial home paid pursuant to the orders of 21 August 2013 be apportioned between the parties; and
iv)how should the Court treat the wife’s savings at separation of $26,000.00 that have since been expended by her;
b)should there be any adjustment on the basis of the parties’ contributions during and after their marriage;
c)what, if any, should the adjustment be for section 75(2) factors, and in particular what adjustment should be made for the wife’s responsibility for the parties’ children post-separation, and in particular after the sale of the business, and also her ongoing responsibility for the children whilst they complete their apprenticeship and tertiary education respectively; and
d)what adjustment, if any, should be made for the disparity in the parties’ earning capacity; and
e)should any order be made adjusting the parties’ current superannuation entitlements.
The legislation
Section 79 of the Family Law Act 1975 (“the Act”) defines the Court’s powers in determining applications for property settlement. Section 79(2) of the Act provides that:
The Court shall not make an Order under this Section unless it is satisfied that, in all the circumstances, it is just and equitable to make the Order.
Section 79(4) of the Act sets out the matters the Court must take into account when considering what orders should be made for the alteration of the interest of the parties in property. Those matters are:
(a)the financial contribution 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, or otherwise in relation to any of that last‑mentioned property, whether or not that last‑mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b)the contribution (other than a financial contribution) 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, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c)the contribution made by a party 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; and
(d)the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e) the matters referred to in subsection 75(2) so far as they are relevant; and
(f)any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g)any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
The matters to be taken into account under section 75(2) of the Act are as follows:
(a)the age and state of health of each of the parties; and
(b)the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment; and
(c)whether either party has the care or control of a child of the marriage who has not attained the age of 18 years; and
(d)commitments of each of the parties that are necessary to enable the party to support:
(i) himself or herself; and
(ii) a child or another person that the party has a duty to maintain; and
(e)the responsibilities of either party to support any other person; and
(f)subject to subsection (3), the eligibility of either party for a pension, allowance or benefit under:
(i) any law of the Commonwealth, of a State or Territory or of another country; or
(ii) any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia;
and the rate of any such pension, allowance or benefit being paid to either party; and
(g)where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable; and
(h)the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income; and
(ha)the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant; and
(j)the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party; and
(k)the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration; and
(l)the need to protect a party who wishes to continue that party's role as a parent; and
(m)if either party is cohabiting with another person--the financial circumstances relating to the cohabitation; and
(n)the terms of any order made or proposed to be made under section 79 in relation to:
(i) the property of the parties; or
(ii) vested bankruptcy property in relation to a bankrupt party; and
(naa)the terms of any order or declaration made, or proposed to be made, under Part VIIIAB in relation to:
(i) a party to the marriage; or
(ii) a person who is a party to a de facto relationship with a party to the marriage; or
(iii) the property of a person covered by subparagraph (i) and of a person covered by subparagraph (ii), or of either of them; or
(iv) vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii); and
(na)any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage; and
(o)any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account; and
(p)the terms of any financial agreement that is binding on the parties to the marriage; and
(q)the terms of any Part VIIIAB financial agreement that is binding on a party to the marriage.
The High Court in the matter of Stanford v Stanford [2012] HCA 52 held that prior to making orders for the division of the property in which the parties have an equitable interest in accordance with the provisions of section 79 of the Family Law Act 1975 (“the Act”), the Court must first determine that is just and equitable that the Court make such orders.
The High Court in Stanford held that in the majority of matters the decision as to whether it is just and equitable for the court to make property orders is easily resolved by the breakdown of the marital relationship and the mutual desire of both parties for orders altering their respective property interests.
This is such a matter, and thus it is very apparent it is just and equitable that orders be made adjusting property matters between the parties.
Having determined that it is just and equitable for the Court to make orders adjusting property matters between the parties, the way in which the Court is to ascertain what orders are to be made is clearly set out in the Act. Firstly, the Court must determine the party’s assets and liabilities, secondly the Court must look at the parties’ contributions in accordance with section 79(4) of the Act and then consider the relevant factors under section 75(2) of the Act. Having undertaken this process the Court must, I believe, be satisfied that the outcome is fair, or to use the old parlance, ‘just and equitable’ as between the parties.
Assets and Liabilities
The business creditors
As set out earlier in this judgment, after the sale of the business the husband was responsible for the collection of moneys owing to, and owing by, the business.
Whilst the husband has provided a myriad of “spreadsheets” which he claims set out and explains the payments received and made by the business, at no time has he provided the original source documents which would enable a proper forensic examination of these transactions.
At the final hearing, as noted, it was the husband’s evidence that he believes the current outstanding net liability of the business is $13,729.40. The Court can have little confidence in this figure.
Given that the husband has been solely responsible for the management of these matters since the settlement of sale, the inconclusive evidence as to the vigour with which he has pursued some debtors and the uncertainty as the accuracy of the figures given by him in the last 18 months, I am of the view the husband should be solely liable for whatever the final debts, if any, of the business may be.
The loans from Mr C.
This Court is satisfied that in or about April 2004 and April 2010
Mr C loaned the husband or the business on each occasion the sum of $50,000.00, a total of $100,000.00. I am also satisfied that those funds were placed into the business account.
It is the husband’s evidence these moneys were borrowed because the business was suffering, in his own words, “cash flow difficulties”.
However, it is also the husband’s evidence that shortly after the 2004 loan from Mr C he purchased a $16,000.00 jet ski for personal use utilising business funds. An interesting decision given the business was supposedly experiencing cash flow difficulties at that time.
Similarly, shortly after the loan of the $50,000.00 in May 2010, when the business was again allegedly suffering cash flow problems, the husband took a month’s holiday in the (omitted) with his friends. The husband spent upwards of $10,000.00 of business monies purchasing a boat, trailer and fishing gear. In addition the business funded the trip, including petrol, accommodation and food costs. Conservatively I suggest these costs would have been between $5,000.00 and $10,000.00. Another interesting decision for someone conducting a business that was allegedly suffering cash flow difficulties.
On 28 February 2012, the husband received a letter of demand from Ken Smith & Associates solicitors in which they advised that they act for Mr C and that the husband is indebted to Mr C in the sum of $71,692.00.
In his sworn evidence the husband confirmed that there was no formal loan agreements prepared in relation to the loans from Mr C. The husband also confirmed that the wife was never told of these loans and only discovered their existence when he made reference to them in the affidavits filed by him in these proceedings.
It is the husband’s evidence there was agreement that he would pay interest in relation to the loans from Mr C but was unable to tell the court what that interest was or on what basis it was to be calculated.
It is the husband’s sworn evidence that he paid Mr C a weekly cash payment of $100.00, and that in addition Mr C was able to obtain stock and equipment from the business for no charge and these ‘purchases’ were offset against the loans.
It is the husband’s evidence that a ledger was maintained by his office managers in relation these offsets, and a copy of that ledger was tendered in evidence to the court.
The husband concedes that the regularly weekly $100.00 payments to Mr C were not included in this ledger.
When the husband was cross-examined as to Mr C’s use of a business credit card, it is the husband’s evidence that whilst Mr C had use of the business credit card, it was only used by Mr C for the purchase of petrol for the company motor vehicle Mr C drove.
The husband also confirmed that in relation to the letter of demand received by him from solicitors purporting to act for Mr C, it was the business that paid the solicitor’s fees on behalf of Mr C for the sending of that letter.
Mr C swore an affidavit in these proceedings and also gave viva voce evidence at the final hearing.
Mr C, I find, is a transparently honest witness and I have no doubts whatsoever as to the veracity of that evidence.
It is Mr C’s evidence he has known the husband since he was 15 years of age. Mr C was badly injured in a motor bike accident.
Mr C feels himself to be eternally in the husband’s debt as the husband was extraordinarily supportive of him after the accident, teaching him to drive again, initially giving him part-time work, and upon his recovery full-time work as a (occupation omitted) in the business. Mr C has been retained as a (occupation omitted) by the new owners of the business.
Mr C is functionally illiterate. When questioned as to whether he had sighted or sought a written loan agreement when he lent the husband the monies, it is his evidence that he did not seek anything in writing as he would “trust the husband with his life”.
When Mr C was asked if there was to be interest payable to him in relation to these loans it is his evidence that interest was payable.
Mr C was unable to indicate what that interest rate was agreed to be.
When Mr C was asked whether he received a weekly $100.00 payment from the husband, it was his evidence that he did not receive cash but rather the husband bought his beer and cigarettes each week. It is Mr C’s evidence that the cost of these items was between $100.00 and $120.00 per week.
In cross-examination Mr C conceded that he may also have also received some cash payments, but his evidence in this regard is rather vague as to the quantum and regularity of those payments.
In relation to the company credit card, in contrast to the husband’s evidence, it is Mr C’s evidence that he was able to utilise this card for personal expenditure. Mr C spoke of using the company credit card to purchase two televisions from Good Guys for his children’s bedrooms as Christmas presents, as well as buying a dishwasher for his home. It is Mr C’s evidence that the business credit card was used to pay for his wife’s fiftieth birthday at a restaurant as well as for other personal expenditure. Some of these transactions are reflected in the ledger maintained by the business.
It is Mr C’s evidence that he was also able to obtain stock and equipment from and through the business without him having to pay for those items.
It is Mr C’s evidence that he understood that all payments were recorded in the ledger maintained by the office manager for the business.
In relation to the letter of demand, Mr C agreed he did not pay the solicitor’s account. It is his evidence that the figure in the letter of demand that was sent by the solicitors to the husband was provided to him by the office manager of the business and it was his understanding that this figure was based on the entries in the ledger.
Mr C also confirms that neither he or his wife ever discussed these loans with the wife, either at the time the moneys were advanced or subsequently.
The ledger tendered in evidence in these proceedings is for the period 18 July 2005 to 17 October 2011 only. Accordingly there is no record of what, if any, purchases, credit card usage or other benefits were received by Mr C from the business between April 2011 and July 2005 or after October 2011. Further, the ledger does not record any regular $100.00 weekly cash payment, as is the husband’s evidence. It does not show a weekly beer and cigarette purchase of somewhere between $105.00 and $120.00. Nor does it reflect any occasional cash payments as is Mr C’s evidence.
Further, there is no explanation as to the basis for the figure of $71,692.00 alleged to be owed by the husband to Mr C, contained in the letter of demand dated 28 October 2012 as this figure does not accord with the balance shown in the ledger.
If the husband’s evidence of weekly cash payments of $100.00 is accepted, then those payments over eight years from April 2004 to the sale of the business in May 2012 total $41,600.00.
If Mr C’s evidence of ‘in kind’ weekly purchases of beer and cigarettes of somewhere between $100.00 to $120.00 is accepted, then this total is between $41,600.00 and $43,646.00. This figure does not include the additional cash payments that Mr C conceded he received in addition to the cigarette and beer purchases. If added to these figures is either the figure of $22,875.87, which is the payment set out in the ledger or the $28,308.00 allegedly paid if the figure in the letter of demand of 28 February 2012 is used, then the conclusion to be drawn is that Mr C has been repaid somewhere between $65,000.00 to the entirety of the moneys lent by him to the husband.
A further concern to the court is the clearly personal expenditure that the husband has made from the business accounts shortly after the loans were made. This raises further questions as to just honest the husband was being when he borrowed these moneys from Mr C on the pretext the business was having cash flow difficulties at the time of the loans.
In all these circumstances I am of the view that if there are any moneys still owing to Mr C, they should be the responsibility of the husband.
The taxation payment.
It is argued by the wife that the taxation payment from the net proceeds of sale pursuant to the orders of 21 August 2013 should be payable by the husband, as they relate to the husband’s conduct of the business
post-separation, in circumstances where the husband had the sole responsibility for and received the benefits of the business.
The husband argues that these payments should be treated as a joint liability of the parties, given that the business was acquired and operated during the marriage and as such must be considered a joint asset. As noted previously, it was put on the husband’s behalf that if the business had achieved a profit on sale the wife would have strongly been arguing that she had an entitlement to part of that profit.
I am of the view that the tax liability should be treated as a joint liability of the parties, in the same manner as was the overdraft that was paid out on settlement of the sale of the former matrimonial home.
However, the penalties incurred as a result of the husband’s late lodgement of the December BAS statements are as direct result of his failure to properly conduct the business professionally. As such the wife should be reimbursed for those costs.
Similarly, the wife should not have to contribute to the husband’s personal taxation liability in the same way as the husband has not been required to contribute to the wife’s personal tax liabilities for the same period. Again, the wife should be reimbursed for those costs.
Accordingly, from the husband’s share of the net proceeds of sale an order will be made that he pay the wife an amount that reflects how the amount of those debts paid by the wife from her share of the proceeds of sale.
The wife’s savings at separation.
Whilst the practice of nominally ‘adding back’ joint funds expended by the parties to determine the pool for division between the parties has been thrown into doubt by the comments of the Full Court in the recent decision of Bevan & Bevan (1995) FLC 92-600,[1] there is no doubt in my mind that the Court can still make an adjustment to the division of the parties’ existing property on the basis of such expenditure.
[1] Bevan & Bevan (1995) FLC 92-600, para 79
When considering if such an adjustment should be made the existing law on what used to be called ‘add-backs’ will still be very relevant.
The authorities are quite clear that monies that are existing at separation which are used by the parties to fund their reasonable living expenses will not be notionally added back into the property pool (see M & M [1998] FamCA 42, C & C [1998] FamCA 143, Re NHC & RCH (2004) FLC 93-204 and M and M [2006] FamCA 913).
In C & C (supra), the Full Court held:
“the concept of adding monies recently disposed of back into the pool ought to be the exception rather than the rule.”
In AJO v GRO (2005) FLC 93-218, the Full Court of Holden, Warnick and La Poer Trench JJ held in paragraph 30 the following:
“To date, three clear categories of cases have emerged where the Court has determined that it is appropriate to notionally add back to the pool of assets, that is, assets that no longer exist. They are:
(a)Where the parties have expended money on legal fees;
(b)Where there has been a premature distribution of matrimonial assets; and
(c)In the circumstances outlined by Baker J in Kowaliw & Kowaliw (1981) FLC 91-092 at 76,644:
(a)where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b)where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
It is the wife’s evidence that post-separation the savings were used by her in the payment of school fees, the payment of the mortgage on the former matrimonial home and for part payment for ducted heating in the former matrimonial home. The wife’s savings were not used to pay her legal fees.
Thus it is very clear that the wife’s pre-separation savings were used by her to pay the reasonable living expenses of herself and the parties’ children and accordingly will not be a factor relevant to the division of the parties’ assets.
When this matter was before the court on 21 August 2013, an order was made the husband pay the wife’s costs of that day in the sum of $4,985.00. This amount is to be paid from the husband’s share of the monies held in trust for the parties upon finalisation of the matter.
There was also a notation to the order made on 21 August 2013 as follows:
A.The parties have agreed on the following relating to the asset pool:
(a) Jetski (H) $6,500
(b) Wife’s horsefloat and jewellery $9,500
(c) Catamaran (H) $2,400
(d) Husband’s plant and equipment $50,450
(e) Proceeds of ride-on mower (H) $5,000
The parties have also agreed that from the net proceeds of sale of the matrimonial home the wife will be reimbursed $3,000.00 expended by her in preparing that property for sale.
Accordingly I find the property pool division between the parties is as follows:
Net proceeds of sale, currently held in trust on behalf of the parties
$944,562.00
Jet ski (H)
$6,500.00
Horse float and jewellery (W)
$9,500.00
Catamaran (H)
$2,400.00
Plant tools and equipment (H)
$50,540.00
Proceeds of sale of ride-on mover (H)
$5,000.00
Total
$1,018,412.00
Should there be an order adjusting the parties’ superannuation entitlements?
I will deal with the question of whether there should be an order for adjusting the parties’ superannuation entitlements at this time.
The wife has a current superannuation entitlement of $124,720.00 and the husband has a current superannuation entitlement of $82,68.003.
The husband is seeking a splitting order such that the parties’ current superannuation entitlements are equalised.
The wife opposes an order in these terms on the basis that at separation the parties’ superannuation entitlements were equal. At separation the wife had approximately $66,000.00 in superannuation and the husband had approximately $68,000.00 in superannuation.
It is submitted on behalf of the wife that any increase in the wife’s superannuation greater than that of the husband is as a direct result of her post-separation contributions, including a one-off payment of $16,000.00 from her post-separation inheritance. As such it is argued on behalf of the wife that no superannuation splitting order should be made.
When considering what orders the Court should make in relation to the parties’ superannuation entitlements, the Court will usually have as its starting point the parties’ current superannuation entitlements. Whilst the wife’s current entitlements are greater than those superannuation entitlements of the husband, I am of the view that the wife’s now greater superannuation entitlements represent her post-separation contributions and that in those circumstances no splitting order should be made.
Contributions.
This is a long marriage of almost 28 years.
During the marriage both parties worked and raised their children.
Whilst the wife received an inheritance from her late mother’s estate and a gift from her father which were utilised for the benefit of the family, I am of the view that in the circumstances of the parties long marriage, the parties’ contributions should be considered equal.
Section 75(2) factors.
It is argued by the wife that there should be an adjustment in her favour of 10 per cent on the basis of the factors to be considered pursuant to section 75(2) of the Act.
It is submitted that since May of 2012 she has been solely financially responsible for the parties’ three children and that whilst they are now adults, she will continue to be financially responsible for them. The wife will be providing the parties’ children with a home at least until they complete their tertiary studies.
Whilst the wife concedes that she currently has a greater earning capacity than the husband, she questions why the husband has made no effort to obtain any form of employment since the settlement of the sale of the business in May 2012.
However, given the wife’s greater earning capacity, it is submitted on behalf of the wife that there should be a five per cent adjustment in the husband’s favour for section 75(2) factors.
Therefore it is the wife’s submission that there should be a division of the parties’ realisable assets such that she receives 55 per cent of same and the husband receives 45 per cent of same.
It is submitted on behalf of the husband that whilst the children reside with the wife, they are now adult, and are able to obtain full or part time work. It is argued that Z now earns an income as an apprentice and that this income will increase upon him achieving his proper qualifications.
As such it is argued that there should be no adjustment made in the wife’s favour for section 75(2) factors.
It is the husband’s submission that there should be a five per cent adjustment in his favour for section 75(2) factors on the basis of the wife’s greater earning capacity.
It is the husband’s evidence that after the sale of the business he became the full time carer of his late uncle, who was suffering from severe dementia. It is also the husband’s further evidence that upon finalisation of these matters he hopes to acquire a further business and as such is loathe to obtain employment knowing he will not be able to commit to any employer on a long term basis.
The parties have agreed that each of them shall retain their post-separation inheritances and that such inheritances do not form part of the property pool for division between the parties.
It is submitted on behalf of the husband that the wife’s inheritance is approximately $150,000.00 more than that being received by him and that this reflects a greater financial resource available to the wife than that which will be available to him.
It is further submitted on behalf of the husband that in light of the determination made by me that there be no superannuation splitting order, a ruling I indicated was likely during the closing submissions of the parties’ counsel, that the wife’s greater superannuation entitlement and capacity to continue contributing to superannuation is also a resource available to her that is not at the same level as that which is available to the husband.
It is therefore argued on behalf of the husband that there should be orders made for a division of the parties’ realisable assets, such that he receive 55 per cent of same and the wife receive 45 per cent.
As can be seen, both parties agree there should be a five per cent adjustment in the husband’s favour for section 75(2) factors. Given the current disparity in the parties’ earning capacity, the wife’s greater financial resources from her larger inheritance and the wife’s greater superannuation entitlements, such an adjustment is appropriate.
Whilst the parties’ three children are now adult, I accept that the wife will solely bear the brunt of their support over the next three to five years, whilst in the case of Z he completes his apprenticeship, and in the case of X and Y, they pursue their tertiary studies.
This court is therefore satisfied that there should be an adjustment in the wife’s favour for section 75(2) factors of five per cent.
Conclusion
It can be seen I have determined that the parties’ realisable assets should be divided equally between them subject to the adjustments needed to be made in the wife’s favour in relation to:
a)the repayment of $3,000.00 for the moneys expended by her in preparation of the former matrimonial home for sale, as agreed;
b)the reimbursement of the $4,985.00 costs paid on the husband’s behalf from joint funds pursuant to the orders of 21 August 2013; and
c)the reimbursement to the wife of the $8,846.62 being the wife’s portion of the taxation payments made from joint funds in payment of the taxation penalties incurred by the late filing of the business BAS statements and the husband’s personal taxation liability.
On the basis that the funds currently being held in trust for the parties stands at $944,562.00, an order will be made that from those moneys the wife receive $515,037.62 and the husband receive $429,524.38. Any amount over the figure of $944,562.00 is to be divided equally between the parties.
Orders will also be made that the parties otherwise retain all assets in their care and control including superannuation.
Finally an order will be made that the husband be responsible for all liabilities of Sherwood Proprietary Limited and the Sherwood Family Trust, including any moneys owing to Mr C, and that the husband indemnify the wife in relation to same.
I certify that the preceding one hundred and thirty-five (135) paragraphs are a true copy of the reasons for judgment of Judge Bender
Date: 22 January 2014
Key Legal Topics
Areas of Law
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Family Law
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Equity & Trusts
Legal Concepts
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Remedies
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Fiduciary Duty
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Constructive Trust
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