Sparr and Sparr

FAMILY COURT OF AUSTRALIA

SPARR & SPARR

[2007] FamCA 1229

FAMILY LAW – PROPERTY – Alteration of property interests – Contributions – Subsection 75(2)

Family Law Act 1975 (Cth)

APPLICANT:

MRS SPARR

RESPONDENT:	MR SPARR
FILE NUMBER:		NCF	475	of		2005

DATE DELIVERED:

16 October 2007

PLACE DELIVERED:

Newcastle

PLACE HEARD:

Newcastle

JUDGMENT OF:

JUSTICE MULLANE

HEARING DATES:

29 & 30 August 2007

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr P. Hartley

SOLICITOR FOR THE APPLICANT:

Merten & Co, Lawyers

COUNSEL FOR THE RESPONDENT:

Mr T. Hodgson

SOLICITOR FOR THE RESPONDENT:

Nash Allen Williams & Wotton, Solicitors

Orders

On or before 15 November 2007 the husband must do all acts and execute all documents submitted by the wife to purchase from S2 Pty Ltd on the wife’s behalf the motor vehicle owned by the company and currently in the wife’s possession and transfer unencumbered ownership and the registration of the vehicle to the wife.

On or before 15 November 2007 the husband must do all acts and execute all documents submitted by the wife to transfer to the wife the following property unencumbered:

2.1the property owned by the parties being P Property;
2.2the shares (other than any shares in S2 Pty Ltd) held by either of them or both of them on behalf of their partnership being shares referred to in items, 14, 15, 16, and 17 of the Schedule of Assets in Exhibit A in these proceedings; and
2.3the shares held by the wife pursuant to the CBA margin loan and being items 19, 21, 24 and 26 of the same schedule

In consideration for and contemporaneous with the husband’s compliance with Orders 1 and 2 the wife must do all acts and execute all documents submitted by the husband to:

3.1transfer to the husband any other assets of their partnership (items 39 and 40 of the schedule) including any debt owing to the partnership by the husband;
3.2transfer to the husband the parties’ property at F being the whole of the land in Certificate of Title Folio Identifier …;
3.3transfer to the husband the wife’s shares in S2 Pty Ltd;
3.4resign the directorship and any other office the wife holds with S2 Pty Ltd; and
3.5assign to the husband any interest she has in any loan account she has with S2 Pty Ltd.

4 The partnership of the parties is dissolved.
5 The husband must indemnify the wife in respect of:

5.1any debt owing by them or either of them to the partnership or to S2 Pty Ltd;
5.2any liability in respect of the property at F; and,
5.3the husband’s CGA overdraft, St George Bank Margin Loan, and CBA Margin Loan being items 30,31 and 32 of the said schedule to Exhibit A.

The wife must indemnify the husband and the company S2 Pty Ltd in respect of:
6.1any liability in respect of the P property; and

6.2any liability in respect of the motor vehicle of the company she has in her possession other than any existing encumbrance.

Except as otherwise provided in these orders each party is declared to have no interest in any property in the possession of the other.

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

FAMILY COURT OF AUSTRALIA AT NEWCASTLE

FILE NUMBER: NCF 475 of 2005

MRS SPARR

Applicant

And

MR SPARR

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

This was a hearing of competing applications for alteration of property interests under Section 79 of the Family Law Act.

BACKGROUND

In 1973 the husband acquired a property at T comprising approximately 1,750 acres. Subsequently he and his brother and his parents conducted a farming business using T property and other properties at A, H and E owned by members of the family.
The husband married his first wife in 1977. The husband and his first wife separated in1979 and subsequently that year their child, J was born.
In 1982 the husband’s parents moved to F. They ceased active participation in the farming activities. In F they resided in a home which they had intended to leave by will to the husband, but which it appears was owned by the 2 of them as tenants in common in equal shares.
Thereafter the husband managed the T property and a part of the property (E2) at E on his own account and his brother managed the other properties on his own behalf.
The parties met in 1983 and were married in February 1984. At the time the wife was employed in Sydney. The husband prior to the marriage had studied for 4 years to obtain qualifications in agriculture. He had worked in that field before his first marriage, but since about 1972 or 1973 had been living at the T property and working as a farmer. From the time of the marriage they lived on the property at T and the husband continued the farming activity. They subsequently formed a partnership and the farming activity was conducted in the name of the partnership. In later years they used the company S Pty Ltd, as the entity through which the farming activity was conducted. At all material times each of the parties has been a director and shareholder of the company. The company is also the trustee of the superannuation fund in which each of the parties has interests.
In August 1984 the husband entered into a contract to purchase from his parents’ company the part of E property that the husband was already farming. The purchase price was $542,250.
The property was subsequently transferred to the husband by that company by a Transfer dated 15 October 1984 which acknowledges receipt of the purchase price. However, no money was paid.
In March 1985 the husband borrowed from his bank $500,000 on security of his real estate to refinance the mortgage loan on T property, pay out various debts for plant and equipment and a personal loan, and provide additional funds for improvements to the properties and for the purchase of additional equipment. The funds were used as follows:
Pay out existing mortgage on T property  $177,109.19
Discharge personal loan   $   7,661.15
Pay out equipment loans and leases  $253,376.54
Funds to parties for property improvements and plant     $ 61,853.12
Total   $500,000.00
In about 1989 the parties diversified their agricultural activity by introducing cattle to the properties. They commenced with a single breed of cattle, but subsequently had other cattle as well.
The husband’s father died in 1993.
In 1995 the husband’s mother moved from F to a retirement village. The parties borrowed $180,000 and used $160,000 of this to pay for the unit to be occupied by the father’s mother at the retirement village.
By a Contract for Sale dated 10 May 1996 the parties as tenants in common contracted to purchase from the husband, his mother, and his brother the property at F that had been occupied by the husband’s parents and later the husband’s mother. The husband’s mother owned a one half interest in her own right. The remaining one half was owned by the husband’s mother, the husband and his brother as joint tenants. The total value of the mother’s interest in the property was $121,500. This was expressed to be the purchase price in the contract.
It is common ground that no consideration was paid to the father’s brother, nor did he require any. It is also common ground that no part of the consideration expressed in the contract was actually paid to the father’s mother. Prior to the transaction the husband’s interest as one of 3 joint tenants in a one half interest had been provided by his father’s will in 1995. After the transaction in 1996 he and the wife were the owners of the fee simple worth $230,000.
In June or July 1998 the husband sold the whole of his rural properties, including the cattle, plant and equipment. The sale price comprised:
Land$2,000,000
Cattle$120,000
Plant and equipment $400,000
Total$2,520,000
On completion of the sale of the rural properties, the parties moved to the property at F. The husband subsequently undertook a number of courses in relation to investing in the share market. He paid a Mr B about $5,000 in fees for training and mentoring in share trading. Thereafter the husband worked in investing the funds of the parties, of their company, and also their superannuation fund.
From about late 2000 or early 2001 the F house was demolished and a new residence was constructed for the parties on the property. They occupied that property from August 2001.
In March 2003 the parties purchased a rural property at R for $420,000.
The parties separated on 21 March 2003 when the wife moved from the home at F and took up residence in the R property. The parties have not since resided in the same residence although they have at times spent time together.
In June 2004 the parties sold the R property for $650,000 and the wife moved to rented premises in G.
In about November 2004 the parties realised an investment which the husband had arranged and received $1,400,000. They each were paid $700,000 of this. The husband invested the amount of $700,000 that he received and the value of those investments by 30 August 2006 had increased to $836,548. By the time of the hearing the value of those investments had increased to $925,508.
In May 2005 the husband’s mother moved from the retirement village to reside with the husband in the former matrimonial home at F.
The marriage was dissolved by Decree Nisi pronounced on 19 July 2005, which became absolute on 20 August 2005.
The husband entered into a partnership in about December 2005 with 3 other persons in a real estate business operating in F under the business name, N Pty Ltd. He works part time in the business. He continues to be occupied with his investment business. The husband has contributed $55,000 in capital to the business, which he has borrowed from his mother.
In June 2006 the wife moved to Canberra and rented accommodation. In July she purchased a unit in the ACT for $460,000. She also spent $18,700 on stamp duty and about $35,000 on furniture and furnishings. She drew $20,000 from her superannuation fund. From the $720,000 she received from the retirement village investment and the superannuation fund, she now has savings of $66,662 in 3 accounts. She has used the funds not spent on the unit and furnishings for legal costs and living expenses, including trips overseas.
There is precious little evidence about the block of land the parties’ own in joint names at P. The evidence does not disclose when they acquired that property or the purchase price, but its agreed value is $300,000.

CREDIT OF THE APPLICANT WIFE

In her affidavit the wife swore that the parties final separation occurred “in about June 2006”. But in oral evidence in chief she said that that was an error and should have been “in about June 2004”. In cross examination she conceded that the parties did not live under the same roof after March 2003.
In cross-examination it was put to the wife that she had sworn that she moved from the matrimonial home to the property at R in March 2003. She swore that when she left the husband told her, “If you leave you’re not coming back.” She swore that he had been having an affair. She later conceded that they did not reside together under the same roof after March 2003. When it was put to her that that was then they physically separated, she at first avoided the question and then said it happened in 2004. On the evidence the marriage ended in March 2003 and they remained separated after that.
In cross-examination the wife’s evidence was that she has an income of $3,000 per month ($36,000 per annum or about $690 per week). But in a previous Financial Statement she said the weekly interest on her investments was only $138 per week. She was claiming that her income of $3,000 per month was coming from her savings in a Bankwest account. The balance of the account at the time of the hearing was only $50,000. Even if she had an extremely favourable interest rate of 10% per annum, she would have needed an investment of $360,000 to produce income of $36,000 pa. She did not appear to understand that. She would not acknowledge and did not appear to understand that if she was drawing $3,000 pm from the Bankwest account, most of the money was being drawn against her capital. For example, $50,000, even at 10% pa would not produce income of $100 per week.
Similarly, the wife was quite vague about a savings account she has with the Commonwealth Bank containing $14,000. She said there was no interest payable on the account because “it’s a savings account”. Then she was asked, “But don’t you get interest on a savings account?”, to which she replied, “I suppose so”. She had not disclosed in her Financial Statement any income from interest on the Commonwealth Bank account. Her attention was drawn to the fact that in January she swore a Financial Statement that stated her expenses at $780 per week and her income as about $600 per week less than that. She said, “I don’t recall how it came to exceed my income”. Then she said, “I don’t understand what relevance this has to do ….”. She said, “I can’t recall 8 months ago”. She was asked, “Are you saying that not only do you meet your expenses from income, but you also save money?, and she replied, “I have to”. This was patently absurd because she has been spending her capital and has almost exhausted it.
In the course of her cross-examination the wife appeared to at times have difficulty focusing her answers on the questions. At times it appeared that she had lost track of the question before she had delivered the answer.
In her affidavit the wife swore that she attended the husband’s bank with him and “signed loan documentation” for a loan of $500,000. In cross examination she also gave evidence that they both borrowed the money. But the security for the loan was real estate owned by the husband and Exhibit W3 contains correspondence that establishes that the loan was to the husband; not to both of them.
In her Financial Statement sworn May 2005 the wife omitted any reference to the parties’ substantial CBA overdraft. When this was brought to her attention in cross-examination, she described it as an oversight. She gave a similar description to the statement in her Financial Statement in January 2007 that her weekly interest income was $138, but her oral evidence was that she was receiving an income from the Bankwest investment of $3,000 per month.
In cross-examination she conceded that she had alleged in her affidavit that she at the time of the marriage had jewellery worth $20,000. But she did not disclose any such jewellery in her Financial Statements. When asked why she had not, she said, “I didn’t think it was necessary. I thought jewellery was personal”. Her attention was drawn to the provision in the Financial Statement for “personal property” and she was asked why she did not include it there. She replied, “It didn’t occur to me that you include things you wear”.
In paragraph 39 of her affidavit she alleged, “In about 1996 we borrowed moneys to purchase (the husband’s mother’s) one third interest in the property at … [F].” She annexed a copy of the contract and of the Title Search prior to the transaction and other documentation. It is clear that the parties purchased the whole of the Fee Simple from the husband’s mother, the father and his brother. The husband’s mother owned a one half interest in the property and she, the husband and his brother owned the other half interest as joint tenants. In a sense she owned 2 thirds of the fee simple. Her interest was certainly not one third.
In her affidavit the wife swore: “I would also cook and cater for contract workers who would reside or visit on the property at (sic) during the harvest. There would be up to 6 or 10 workers on the property all requiring to be feed (sic) with, sometimes lunch, but always morning and afternoon tea and dinner. I would take the meals to the paddock in which the contractor workers and drivers were working, and clean up afterwards.”
But in cross-examination she conceded that the occasions when they had 6-10 contractor workers on the property occurred only during harvests, and the total periods would be only 2-3 weeks in any year.
The wife gave particularly detailed evidence about some of her home-making contributions, such as organising a 50^th Wedding Anniversary for the husband’s parents, an 80^th birthday party for the husband’s mother, and driving the husband’s parents from Sydney to the F property after the husband’s father had had a pace-maker fitted. She also gave evidence of having sent flowers and cards to the husband’s mother on her birthday, and of having hosted a luncheon for the father’s mother and her friends and family. She also referred to having driven the husband’s mother from F property to her retirement village for a family function after the husband’s father’s death and having organised an event for the husband’s mother’s 87^th birthday and driving her back to F property afterwards. She referred to her assistance to the husband’s mother in helping her unpack when she moved to a new home at a retirement village.
The wife’s such detailed evidence in relation to such matters raised an inference that such family functions were infrequent in a cohabitation of about 20 years. But it seemed from the wife’s approach in the affidavit, that she did not perceive that to be the case. This and other factors gave rise to concerns that the wife idealised or exaggerated her contributions.
The wife claimed that she was active in burning off on the rural property. She insisted that they burned off in winter, but in the course of discussion about what was done, it became obvious that she was talking about the summer season. She said that they, “Pulled down old sheep yards”. When it was put to her that she “only helped out”, she denied that and said, “I take that as an offence”.
In her affidavit the wife alleged that at the time of the marriage many of the fences on the T property “were run down”, and, “the watering on the property also required significant improvements”. In cross-examination she went further. She said that the whole property, “Had been left in a pretty run-down condition”. She said there were broken down fences and water courses that needed work. But the husband and his brother who had been part of the partnership with their parents who operated the property before the marriage, gave evidence that contradicted the wife’s evidence. The husband said that they had already owned the property for 11 years and with his brother they had done a lot of land clearing, filled in a lot of gullies eradicated a lot of burrs, up-graded the house and developed the water systems. He said that when the wife arrived the property was in a condition to maximise the return. He said the first 2 years that she was there were probably the 2 biggest income years and he referred to how quickly they had been able to pay off the mortgage of $500,000. He testified that a lot of the work that he and the wife did was maintenance.
His brother’s evidence was that the property was not run down at that time. He said it had been run down in 1972 when the family had bought it, and since then they had done “a lot of work clearing, fencing, filling gullies, replacing all the old fence …” He said that in his view it was “in pretty good order”. He also said that the section of E property acquired by the husband was a farming block in good order when it was transferred to him.
The Court does not accept the wife’s evidence that the T property was run down at the time of the marriage.
In cross-examination of the husband it was put to him on behalf of the wife that he spent about $50,000 on a training course with Mr B in share trading. In cross-examination the husband conceded that he did attend a course with Mr B and also visited him on numerous subsequent occasions. He said he was intent on learning Mr B’s philosophy on share trading and it had assisted him in his business of share trading on behalf of the parties and also on behalf of their superannuation fund. He said the cost of Mr B’s assistance was about $5,000 in total. He denied he spent $50,000. There was no admissible evidence offered in the wife’s case to support her suggestion that the husband spent $50,000.

The wife presented as an unreliable witness.

CREDIT OF THE RESPONDENT HUSBAND

The husband did not impress as generally attempting to exaggerate or idealise his contributions. Nor did her appear to attempt to minimise the wife’s. He was quite quick and generous in acknowledging her contributions. He disagreed with her evidence that she had been involved in burning off on the property. He said that they did burn off many times and that it was usually done soon after harvest and in the summer season. He said that the wife was referring to a different burning – the burning involved in clearing country. He said that that process involved the use of bull-dozers and heaping the cleared material, then burning it. Later there was also a process involved of picking up sticks etc and stacking them and burning those. He said that the wife was involved in that process. “She would have gone out and burned off sticks etc.” He said that she probably did it, “not more than 10 times”.
In his Financial Statement on 16 January 2007 the husband showed a total income of $1,934 per week, and total expenses of $2,283 per week. (A mathematical or typographical error results in the total being shown as $22, 260 per week.) When the husband was questioned about how the shortfall was funded, he gave a detailed and convincing explanation.
In his Financial Statement where required to state the average weekly income of his 90 year old mother who resides with him, the husband entered, “NK”, meaning not known. He was cross-examined about this. He conceded that he knew at the time that his mother was receiving income $500 per month from him, which he had disclosed as item 31 in the same Financial Statement. He was asked why he did not say, “At least $500 per month” in lieu of “NK”, and he said he could not recall why he did not do that. There was clearly no intention to mislead the Court or the wife, because he had disclosed the payments by him of $500 per month to his mother in his affidavit and his Financial Statement.
In cross-examination he also conceded that his mother pays only for occasional groceries and does not pay him board. But in his Financial Statement where he was required to state how much of her expenses were included in his expenses stated in the Financial Statement, he had inserted “NK”.
In cross-examination the husband conceded that he had omitted to include in his property in his Financial Statement his interest in the P property. He said that that was an oversight. His Case Outline prepared in May certainly included the property in the list of assets. He did include an amount for rates on the property in his Financial Statement.
Overall the husband presented as an honest and reliable witness.

EVIDENCE OF MR G

It emerged from his cross-examination that Mr G, a forensic accountant, had not accurately set out the assets and liabilities of the company S2 Pty Ltd in his reports. He had acknowledged in his report of November 2006 that the net assets of the company as at 30 June 2005 were $548,420. This included a loan owing by the parties to the company of $524,297. The other assets of the company are a motor vehicle, and some shares. The company owed a debt to the husband.
Mr G then adopted a “shorthand” (but confusing and misleading) approach of off-setting the loan owed by the partnership to the company against the value of the parties’ shares in the company (net assets) to arrive at what he described as “net interest in company”.
This methodology was misleading and it resulted in Mr G at page 10 of his November report deciding the remaining assets of the company were insufficient to pay the whole of the debt it owed to the husband ($18,054) as the company had a deficiency of $6,404 of liabilities over assets. He reached this position by excluding the debt owed by the partnership to the company, which is its main asset. (It had by then been reduced to $464,266.)
The company is not insolvent. It has ample assets to meet its liabilities. The loan to the partnership is repayable. The parties have the necessary wherewithal to pay it. Indeed, Mr G in cross-examination conceded that the loans have to be repaid within 7 years of inception; otherwise to the extent that they are not, they will be deemed dividends to the parties by the company under the Income Tax Assessment Act and included in their assessable income.
Because Mr G excluded the loan balance of $464,266 from his valuation of the parties’ shares in the company, he also excluded the debt as a debt of the partnership in calculating the value of the partnership interests.
These approaches are misleading and inaccurate. Accordingly, the Court has made the following findings relying on figures at 30 June 2006 used in Mr G’s report of November 2006 and also used in his reports of May 2007 and August 2007:
1)The parties have a joint debt of $464,266 owing to the company.
2)The debt of $18,054 owing by the company to the husband is fully recoverable.
3)The value of the parties’ shares in the company is calculated as follows:
“Adjusted deficiency in Net Assets” calculated
by Mr G at 30/6/06     $   6,404
Add back loans owed by the partnership to company        $464,266
Net assets of company  $457,462

PROPERTY & LIABILITIES

Exhibit A is an agreed list of assets and valuations. From that and other evidence the property of the parties at the time of the hearing comprises:
Jointly owned property at F  $1,150,000
Jointly owned property at P   $300,000
Wife’s unit at A.C.T.   $460,000
Husband’s funds in CBA & Bankwest   $124,018
Wife’s funds in CBA & Bankwest    (per Exhibit H2)   $ 66,662
Wife’s Jewellery    $ 20,000
Wife’s furniture (acquired post separation) at cost    $ 35,000
Husband’s investment with APN (per Exhibit H2)   $312,823
Husband’s shares with CFS     $82,059
Husband’s investments with Perpetual   $156,713
Husband’s shares with Vanguard Hi-Yield   $283,564
Husband’s St George Margin investment   $520,042
Husband’s investment with CBA Prime Value Funds   $117,189
Other shares owned by husband   $246,738
Husband’s post separation investment in N Pty Ltd   $ 55,000
Shares held by husband on behalf of parties’ partnership   $106,626
Shares held by wife on behalf of parties’ partnership   $106,626
Shares held by husband pursuant to CBA Margin loan on
behalf of the parties’   $910,532
Loan owing by P2 Pty Ltd to husband       $18,054
Parties’ shares in P2 Pty Ltd   $ 457,462
Husband’s interest in other assets of P2 Partnership  $86,087
Shares owned by wife pursuant to CBA Margin Loan   $279,332
Wife’s interest in other assets of P2 Partnership       $86,087
Husband’s interest in P2 staff superannuation fund     $804,342
Wife’s interest in P2 staff superannuation fund   $727,739
Total assets  $7,512,695
The liabilities of the parties at the time of the hearing comprised:
Partnership debt to P2 Pty Ltd  $ 464,266
Husband’s CBA overdraft   $273,596
Husband’s St George Bank Margin Loan   $293,100
Husband’s CBA Margin loan   $531,100
Husband’s debt for post separation loan from his mother    $ 55,000
Loan owing by husband to partnership   $150,155
Total $1,767,217
The difference between the property and liabilities is therefore $5,745,478.

THE AGREEMENTS BETWEEN THE HUSBAND AND HIS FAMILY

As at December 1982 the husband and his family owned various rural properties as follows:
The husband’s parents through their company D Pt Ltd
owned E property
The husband owned T property
The husband’s brother owned W property
The husband’s parents’ company G Pty Ltd owned L property
In December 1982 the husband’s parents met with the husband, his brother and Mr P (the accountant for all of them) and it was agreed that the assets would be divided as follows:
a)The husband would retain T property, about 1,200 acres of E property (E2 property), and farming plant and equipment from the various properties (subject to leases and debts); and,
b)The husband’s brother would receive a transfer of L property, the cattle on the various properties, the W property, and 1,800 acres of E property.
It was agreed that the arrangement for the husband’s brother to retain L property and the larger part of E property would be implemented by transferring the shares in D Pty Ltd and G Pty Ltd to the husband’s brother (after transfer of 1,200 acres of E property to the husband).
No written agreement was entered into because the husband’s father did not wish to have a written agreement. Although the transfers of property took some time to implement, particularly in relation to the husband, from the beginning of 1983 the husband and his brother farmed the various properties as if the transactions had already been implemented. The parents took no part in the farming business and moved to F to reside.
The husband’s brother sold the W property and his share of E property in mid-1983.
By a written agreement dated 23 December 1983 the husband agreed to purchase from his parents and his brother their ¾ interest in plant and equipment to a total stated value of $202,355. The purchase price was payable on demand. It appears that the husband had already taken delivery of the plant and equipment and already owned a one quarter interest. The total amount payable by the husband under the agreement was $152,180.
There was never any demand made for any part of the consideration. The plant and equipment were subject to a debt of approximately $200,000 and in lieu of payment of the consideration under the agreement, the husband assumed responsibility for that debt. He therefore acquired an equity of approximately $2,355.
The transfer of the 1,200 acres of E2 property did not occur until the husband and his parents’ company executed a contract in August 1984 for the husband to purchase the land for $542,250, its then value. The husband did not pay the consideration, nor was he expected to do so. No request for payment has ever been made.
There was also a written agreement prepared for each of the husband and his brother to contract with the husband’s parents, as part of the dissolution of the partnership between the husband, his parents and his brother, to pay the husband’s parents, or the survivor of his parents, $500 per month from 31 January 1983 until the death of the survivor of the parents and in addition, if the son disposed of any of the lands received from the partnership to pay the parents or the survivor 15% of the gross sale proceeds.
The husband and his brother have each continued to make the monthly payments of $500 per month to their parents, and then after their father’s death, to their mother. The payments continue.
Those agreements were never signed, but they have been honoured by the husband and his brother, except that neither of them has paid any part of the sale price of the real estate to either of the parents. The husband’s brother sold the properties he had acquired in mid-1983. The husband sold his in 1998, after his father’s death. No claim has been made by either of the parents for any payments from the sale of the lands in question.
The evidence is there was an undertaking given by the husband’s mother to the husband that she would leave the F property to him in her Will. It appears that until the death of the husband’s father, he and the husband’s mother each owned a half share in the F property as tenants in common in equal shares, and when the husband’s father died, he left his half interest to his widow and their 2 sons as joint tenants.
The husband’s evidence is that when his mother needed to go into aged peoples’ accommodation, she agreed with the husband that if he funded the purchase of her accommodation there, she would arrange for the transfer to him and his wife of the F property. Pursuant to this agreement, the contract was entered into. Neither of the parties made any payment of any consideration to the husband’s mother or the husband’s brother. The sale was completed by a transfer, which acknowledged receipt of the consideration, but no consideration was paid other than the payment by the husband and the wife of $160,000 for accommodation for the husband’s mother in the aged care facility.
The evidence establishes that the property at F was worth $230,000 in February 1996. There is no other evidence as to value closer to the death of the husband’s father in 1995, when the husband acquired by will an interest as joint tenant with his mother and brother in a one-half interest.
The evidence establishes that the value of the interest of the husband’s mother in the property at the time of the contract was $121,500. Accordingly, the value of the interests of the other 2 owners was about $108,500 or approximately $54,250 each.
It follows then that the interest the husband acquired under his father’s Will in 1995 was worth about $54,250 and the benefit the parties received pursuant to the waiver of payment of the consideration under the contract in 1996 was worth approximately $175,500. Accordingly, if one off-sets the $160,000 the parties paid for the benefit of the husband’s mother in order that she could obtain accommodation in the retirement village, the net benefit to the parties pursuant to the waiver of the consideration under the contact is $15,500.

INITIAL CONTRIBUTIONS

The husband brought the following property and liabilities into the marriage:
T property per value admission by
wife’s solicitor in annexure C to wife’s affidavit  $877,092
less mortgage  $250,000
net  $627,092
plus shed erected on T property since December 1982               $ 13,000
Part of E property per oral agreement later transferred               $542,250
Equity in plant and equipment acquired from partnership $    2,355
Bulldozer  about $ 36,555
Planter  about $ 33,000
Public company shares  $    5,000
Savings  $     1,600
Subtotal  $1,260,852
1982 Volvo Sedan (2 years old)  Value not established
Toyota Land Cruiser truck  Value not established
The wife brought the following property and liabilities into the relationship:
Honda civic car  about   $ 1,100
Jewellery  about   $20,000
Savings used for wedding  about   $ 6,000
Total  about $27,100

CONTRIBUTIONS THROUGH THE PARTNERSHIP AND THE COMPANY

The parties were equal partners in the partnership and later equal shareholders in the company. The partnership and the company were the legal entities through which the farming business was conducted. Both parties offered evidence about contributions they made to the partnership and to the company. No objection was taken or submission made that there was any inference from the fact of them being equal partners or equal shareholders that their contributions to either legal entity were equal or any estoppel to that effect.
There was no submission for the wife that the “Elias Principle” applies to such contributions. Nor does it appear that it does (see Nelson v Nelson (1995) 184 CLR 538; Chisholm R “Exclusion of Evidence Inconsistent With Earlier Statements: the Rise and Fall of the ‘Elias Principle’” (2001) Aust J Fam L 1-25; and Watts G “The Elias Principle – Dead or Alive?” (2000) 14 Australian Family Lawyer 21.)
The husband has qualifications in agriculture. It is common ground that he had many years of experience prior to the marriage in farming and in management of T property and other properties. It is common ground that from the marriage he managed the farming activity for the partnership and later the company and usually worked in that activity 6 days per week.
The wife came to the marriage with no experience or qualifications in farming. In comparison with the husband’s, the wife’s participation in the actual farming activity was quite limited. That is not to deny or understate her role as a partner or director. Nor is it to overlook the taxation benefits the parties obtained by income splitting by her being a partner and later a shareholder.
The husband drove tractors and other heavy machinery. He kept the books for the business, was responsible for the marketing of the crops, ordered all parts, and made all decisions regarding planting and the general operation of the properties. The wife’s evidence was that generally he did the heavy work.
In the period from 1984 to late 1989, the parties did not have cattle on the properties. In that period the wife’s participation in the farming activities included occasionally driving to town to collect spare parts or tyres, assisting to calibrate the machinery for sowing crops and applying fertilizer, assisting to pull up bores, assisting to pull down some old sheep yards, and assisting to clear land. This latter activity involved the use of a bull-dozer driven by the husband and the heaping of vegetation material and later burning it. After this was done, there was a process where sticks and other vegetative material was picked up by hand, stacked and then burned. They also picked up and removed rocks. On up to 10 occasions in the marriage the wife assisted in this clearing process by going out and picking up sticks and other material and piling it ready for burning or removal. On some of those occasions she did it on her own.
Sometimes she also assisted by driving a Land Cruiser while the husband and employed labourers picked up rocks and sticks from around the property.
During the wheat harvest, the husband engaged 6 to 10 temporary employees. The wife prepared morning and afternoon teas and dinner for the workers and delivered the food to them on the job. On some occasions she also prepared lunch. But these occasions, even if there were 2 harvests per annum, occurred on no more than 3 weeks in a year. At times the wife also sprayed for weeds around the homestead grounds and also in some other areas.
From late 1989 until the properties were sold more than 8½ years later, the parties ran cattle on the property. They continued growing crops, but as the number of cattle increased the other activities declined in significance. The wife’s activities in the farming area then increased. She rode a quad-bike around the property to check the cattle, check their water, and check their feed. She assisted the husband with the veterinary care of the cattle. She sometimes participated in mustering the cattle for drenching, marking calves, culling and calving. She assisted with tagging and drenching of the cattle. At times she installed electric fencing to construct laneways to move the cattle and temporary fencing to protect crops. She assisted the husband with fencing work. She could not manage heavy work, but assisted by tying wire onto posts and assisted the husband when he was straining wire.
The wife was not working full time in the farming activity at any stage. She had other activities which she performed in the household and these required some of her time.

HOMEMAKING CONTRIBUTIONS

The husband throughout the cohabitation managed the parties’ household finances.
The wife was responsible for the homemaking chores including cooking, cleaning, washing, ironing and shopping. She conceded in cross-examination the house was only a small cottage. There were only 2 of them living there and on the evidence it was not often that they had a guest stay. She also maintained the gardens around the household. Occasionally she prepared and delivered lunch to the husband when he was working on the property. Her catering and organising activities included catering for family functions for the parties, the husband’s parents and sometimes others. In her affidavit she detailed various such functions but they were not so numerous to be anything but infrequent in the 19 years of the cohabitation.

CONTRIBUTIONS to property and to the welfare of the parties

The parties made the following joint and equal contributions:
·as partners/principals in the farming partnership and later as shareholders and directors of S Pty Ltd;
·as joint borrowers of the $180,000 in 1995;
·as joint owners of the F property for the last 11 years;
·as joint owners of the R property for about 15 months;
·as joint owners of the $140 000 investment;
·as purchasers and joint owners of the land at P.

The applicant wife made the following additional contributions:
·initial contributions worth about $27,100 in 1984;
·an indirect contribution of taxation savings for the farming activity through income splitting by her being a partner and later a shareholder;
·her contribution to the farming activities;
·her income from one year of part time paid work 3 days per week;
·as legal owner of a minor part of the parties’ investments;
·her contribution to the husband’s welfare by homemaking chores;
·post separation as purchaser and owner of the ACT unit, the furniture and furnishings; and,
·post separation an indirect and substantial contribution to the husband’s welfare in that he has had the rent free occupation of the jointly owned F property for more than four and a half years.
The respondent husband made the following additional contributions:
·initial contributions of a Volvo sedan only 2 years old, a Toyota Land Cruiser truck plus other assets and liabilities to a net value of about $1.26 million in 1984;
·as borrower and mortgagor in respect of the $500,000 bank loan in 1985 by way of refinancing and additional borrowings;
·As borrower of funds for investment through his CBA overdraft, the St George Bank Margin Loan, his CBA Margin Loan, and the loan from his mother;
·as legal owner of T property for more than 14 years and as mortgagee in respect of the housing loan and presumably the bank loan of $500,000 in 1984;
·as purchaser and legal owner for about 14 years of 1200 acres of what had been E property;
·as manager of the parties’ household finances for 19 years;
·inheritance from his father’s estate in 1995 of an interest in the F property worth about $54,250:
·working full time, mostly 6 days per week for more than 14 years for the partnership and later the company farming and managing the farming properties;
·9 years of work managing the investments of the parties and of their superannuation fund, including investment of his $700,000 from their investment;
·as legal owner of the majority of the parties’ investments for the last 9 years (from Exhibit A the parties’ current investments in public company shares and other public investments are worth $2,736,087 of which $1,810,579 is in the husband’s name. Allowing for the $835,159 that is from the $700,000 being his share of the proceeds of the nursing home investment, he holds $1,515,970 of the total of $1,901,928 being 80% and the wife holds 20%);
·a contribution on his behalf by his mother and brother worth $15,500 by waiver of payment of any further consideration by the parties for transfer of the F property; and,
·an indirect contribution to the wife’s welfare in that after separation she had the rent free occupation of the R property for 15 months.
The joint and equal contributions are significant.
The husband’s contributions to the farming activities and his management of the household finances outweigh the wife’s contributions to the farming activities, her contributions from part time work and her contributions to the husband’s welfare by homemaking contributions.
The wife’s indirect contributions to the husband’s welfare since separation through his occupation of the F home is more substantial than his to her welfare, through her occupation of the R property.
In regard to investment activities after the sale of the farms, the husband’s contribution as legal owner of most of the shares and in managing the investments of the parties and the superannuation fund far outweighs the wife’s contributions in terms of tax savings by income splitting (for the farming activity and the investment activity) and the wife being the legal owner of some of the shares.
The husband’s initial contributions were probably worth about $1.3 million in 1984; whereas the wife’s were only $27,100. His were nearly 50 times hers.
In addition the husband made his contributions by borrowing the $500,000, as legal owner of the rural property, by his extensive borrowings to fund investments, by his inheritance of the interest in the F property and by the contribution on his behalf by his mother and brother in relation to waiver of payment of greater consideration for that property.
The husband’s contributions are substantially greater than the wife’s. The contributions are assessed as in a ratio of 65:35 but on the basis that in order to calculate contribution entitlements that are just and equitable, this ratio should be applied to an adjusted pool after adding back the $700,000 each has already received, deducting the present assets that reflect those funds, adding back any post separation debts and deducting any assets acquired post separation using post separation income.
The adjusted pool would be calculated as follows:
Present property and liabilities  $5,745,478
Add:
Proceeds of investment  $1,400,000
Wife’s receipt from superannuation      20,000
Husband’s debt to mother        55,000
Subtotal$7,220,478
Less:
Husband’s investments and funds representing
the $700,000  $925,508
Wife’s A.C.T. unit  $460,000
Wife’s savings  $ 66,662
Wife’s furniture  $ 35,000
Husband’s investment in N Pty Ltd             $ 55,000       $1,542,170
Adjusted Pool  $5,678,308
The parties shares (on a 65:35 ratio) are:
Husband:$3,690,900 Wife: $1,987,408
The wife’s settlement of the adjusted pool would be calculated as follows:
Already received – investment moneys           $700,000
Already received – superannuation             $ 20,000
Jewellery$ 20,000
Shares she holds on behalf of partnership             $106,626
Shares she holds pursuant to CBA margin loans    $279,332
Her interest in other assets of P2 Partnership      $ 86,087
Her superannuation  $727,739
Adjustment payable by husband  $ 47,694
Total$1,987,408
The husband’s entitlement of the adjusted pool would be calculated as follows:
Already received  $ 700,000
Shares in S2 P/L  $ 457,462
F property$1,150,000
P property$   300,000
Funds in CBA & Bankwest (excluding those
from the $700,000)  $     33,469
Investments other than those from the
$700,000$1,901,327
His interest in other assets of partnership             $    86,087
Loan owing by company to husband  $    18,054
His superannuation  $ 804,342
$5,450,741
Less:
Parties’ debt to P2 Pty Ltd           $464,266
Adjustment payable to wife $ 47,624
CBA overdraft  $273,596
St George Bank margin loan           $293,100
CBA margin loan  $531,100
Loan from partnership  $150,155      $1,759 841
Net total$3,690,900
The result in terms of distribution of present property and liabilities would be:
HusbandWife
F property  $1,150,000               -
P property$   300,000               -
Unit in A.C.T.  -  $460,000
Funds in Bankwest & CBA  $ 124,018                $ 66,662
Jewellery  -  $ 20,000
Furniture  -  $ 35,000
Shares in S2 Pty Ltd  $   457,462
APN investment  $   312,823               -
Shares with CFS  $     82,059                -
Investments with Perpetual  $   156,713               -
Shares with Vanguard Hi-Yield  $   283,564               -
St George Margin Investment  $   520,042               -
Investment with CBA Prime Value Funds               $   117,189                -
Other shares owned by husband  $   246,738               -
Husband’s investment in N Pty Ltd             $     55,000                -
Shares owned pursuant to CBA Margin Loan        $   910,532               $279,332
Loan owing to husband by S2 Pty Ltd           $     18,054                -
Shares held for partnership  $   106,626               $106,626
Interest in other assets of partnership  $     86,087                $ 86,087
Superannuation  $ 804,342                $727,739
Subtotal$5,731,249           $1,781,446
Payment by husband to wife  ($    47,624)           $    47,624  $5,683,625           $1,829,070
Less debts$1,767,217               -
Net Totals$3,916,408           $1,829,070
The wife is 64 and the husband is 60. They both enjoy good health.
Orders based upon the above findings as to contribution would see the husband with more than twice the net property and liabilities that the wife has.
The wife has not been in paid work for more than 20 years apart from farm labouring, which she ceased doing 9 years ago. She is 64 and has no current work skills. She could obtain only unskilled work and would have to compete with younger and fitter people seeking such work. She has a very limited earning capacity.
The husband’s earning capacity is as an investor and he has the knowledge and skills to invest wisely and obtain good returns. His income from investments, their partnership and their company, is currently about $1,934 per week. Orders proposed based on contributions would require him to pay the wife $47,624 and that would not have any significant effect on his income and earning capacity. The husband is able to work with N Pty Ltd but has no skills in that regard.
Both parties are now able to draw from their superannuation and receive any pension and lump sum benefits tax free. The husband’s superannuation contributions are greater than the wife’s.
The husband has a continuing obligation to pay his mother $500 per month. It would seem that this is a legal obligation in that the arrangement would be enforceable in Equity as it would be unconscionable for the husband to escape his obligation under the (oral) agreement. His mother is aged 90.
It was a cohabitation of 19 years. The role the wife undertook in labouring for the farms and homemaking over the first 14 years resulted in her professional skills and experience becoming irrelevant to the labour market and her earning capacity becoming limited to unskilled work. In contrast the husband, through the training he undertook in managing investments, acquired a new skill and earning capacity. By the supportive role the wife undertook in the marriage in the homemaking area she made an indirect contribution to the husband’s acquisition of those skills.
The standard of living the parties enjoyed until the sale of the farms in 1998 was restrained. They were rural dwellers, had limited holidays on the coast, and occupied a cottage on T property. They did not often eat out. They had one overseas holiday to Hong Kong.
Upon completion of the new home at F in 2001 they lived in very good accommodation, but the evidence does not disclose that otherwise they were more extravagant in their lifestyle and standard of living between then and their separation about 17 months later. It appears they had no holiday in that period. Since receipt of the $700,000 and the $20,000 from superannuation, the wife has enjoyed 3 overseas holidays. In less than 3 years she has spent, apart from her home and furniture, about $158,339, plus interests on investment of funds from those sources. However, her expenditure included $59,000 for legal costs for these proceedings. So her other expenses for the period were about $100,000 plus the interest income she received.
Each party has commitments necessary to enable him/her to support himself/herself. The husband’s, apart from loan commitments on investments of both parties and the payment to his mother, amount to about $573 per week plus income tax. The wife’s necessary commitments amount to $583 per week plus income tax of $165 per week.
Under Paragraph 75(2)(g) the justice of the case requires that the Court take into account the wife’s contribution to the welfare of the husband’s daughter J. The child was 4 when the parties married and living with her mother not far from T property. The husband and the child’s mother were estranged at the time of the marriage and consequently he rarely saw the child. It was not till about 1991 that the child started to visit the parties in school holidays. The visits in school holidays, it appears, lasted only about 6 or 7 years till the sale of T property and the child then ceased visits.
When the child visited in school holidays the wife made contributions to her welfare; through the homemaking chores she performed for the household, by paying attention to her medication needs for asthma, by taking her to hospital once when she had an asthma attack, and by advising her and supporting her when she began menstruating.
Another matter which the justice of the case requires to be taken into account is the liability for taxation payable by the shareholder(s) of S2 Pty Ltd if the partnership loans are repaid and the surplus of assets and liabilities (about $400,000) is distributed to the shareholders by dividends or distribution on a winding up.
The company does not trade. The husband has always had the management role in relation to the businesses of the parties. He is much better equipped to oversee the company including the repayment of the debts of the partnership to it. The wife does not appear to have any business or financial skills. The husband is also more likely to have opportunities in investing and other business to use the company structure and to limit or minimise the tax liability generated by distributions on any winding up.
There is the opportunity for the husband to introduce another shareholder or other shareholders whose marginal tax rate is less than his and for whom any distributions will not create as much of a tax liability. Distributions to shareholders can also be timed to occur in periods when their other assessable income and marginal tax rate are low.
The company has income tax franking credits of $61,000 which can be used to pay fully franked dividends to shareholders, providing a credit of 30% tax on those dividends so that the shareholders, if paying a marginal tax rate of 43%, would in effect pay tax on the dividend of only 13%.
The company accountant has calculated that if the whole of the company surplus were distributed to shareholders paying the top marginal tax rate the total tax liability of the shareholders on the distribution would be $82,000 after full utilisation of the franking credits. That, however, is the worse case scenario.
The options open to the husband would also include using the company and its assets to trade (including as a vehicle for investment) and not distributing the current surplus; but instead using it for capital. The shareholders then would not be paying any tax on the present surplus at all.
One cannot be precise but the contingent tax liability of uncertain amount should be taken into account.

SUBSECTION 79(2) OF THE FAMILY LAW ACT

Subsection 79(2) provides:
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.
The following matters under Subsection 75(2) weight in the wife’s favour:

The husband’s stronger position as to property and liabilities, and as to income and earning capacity;
Her indirect contribution to his income and earning capacity as an investor;
The adverse affects on her income and earning capacity of the roles she adopted in the marriage; and
Her contributions to the welfare of the husband’s child.

The matters that weigh in the husband’s favour are his ongoing obligation to pay his mother $500 per month, and the unquantified and contingent liability for tax if any of the existing surplus of S2 Pty Ltd is distributed to the shareholders.
When the matters under Subsection 75(2) are taken into account the just and equitable result is for the wife to receive present property and liabilities to a net value of $2,123,985 (about 37% of the present property and liabilities) and the husband to retain property and liabilities to a net value of $3,621,763 (about 63% of the present property and liabilities).
This would be implemented by the wife retaining the following:
Savings$    66,662
P Property$   300,000
CBA Margin Loan shares in her name  $   279,332
Public company shares of partnership           $   213,252
Her superannuation  $   727,739
Total savings, superannuation and investments      $1,586,985
Home$   460,000
Company car she presently has  $     22,000
Furniture and furnishings  $     35,000
Jewellery$     20,000
Total $2,123,985
The wife would have ample savings, superannuation and investments to provide a spread of different investments and to afford a standard of living that in all the circumstances is more than reasonable.

_______________________
The Hon Justice Mullane
16 October 2007

[2007] FamCA 1229

16 October 2007

Key Legal Topics

Areas of Law

Family Law

Property Law

Equity & Trusts

Legal Concepts

Remedies