Streeton and Streeton

[2013] FCCA 488

FEDERAL CIRCUIT COURT OF AUSTRALIA

STREETON & STREETON [2013] FCCA 488

Catchwords:
FAMILY LAW – Property adjustment after 29 year marriage – notional add backs – spouse maintenance.

Legislation:

Family Law Act 1975, ss.75, 79

Stanford [2012] HCA 52
Hickey & Hickey & Commonwealth (2003) FLC 93-143, 30 FamLR 355
AJO v GRO (2005) 33 Fam LR 134, (2005) FLC 93-218
DJM and JLM (1998) 23 Fam LR 396; (1998) FLC 92-816
Townsend (1994) 18 Fam LR 505; (1995) FLC 92-569
Kowaliw (1981) FLC 91-092; (1981) 7 Fam LR N13
AB v GB (No 2) (2005) 34 Fam LR 82

Applicant: MS STREETON

Respondent: MR STREETON

File Number: NCC 2125 of 2011

Judgment of: Judge Lapthorn

Hearing date: 14 March 2013

Date of Last Submission: 14 March 2013

Delivered at: Brisbane

Delivered on: 11 June 2013

REPRESENTATION

Counsel for the Applicant: Mr Fleetwood

Solicitors for the Applicant: Cassandra Pullos Lawyers

Counsel for the Respondent: Mr Trout

Solicitors for the Respondent: Richardson Legal

ORDERS

1. That there be a property division between the parties 68% to the wife and 32% to the husband inclusive of a 3% lump sum spouse maintenance order payable by the husband to the wife;

2. That the matter be adjourned to allow submissions as to the drafting of final orders consistent with reasons for judgment delivered this day.

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

FEDERAL CIRCUIT COURT OF AUSTRALIA

AT BRISBANE

NCC 2125 of 2011

MS STREETON

Applicant

And

MR STREETON

Respondent

REASONS FOR JUDGMENT

Applications

1. The parties have been unable to reach agreement in relation to their property settlement upon the breakdown of their marriage. The applicant wife sought orders that would provide for her to receive 75% of the net assets, liabilities and financial resources of the parties and that the husband pay her spouse maintenance in the sum of $780 per week for a period of five years.[1]  The husband contended in his outline of case document the appropriate property adjustment should be 57% to the wife and 43% to him.  He also argued there should not be any ongoing spouse maintenance order. When his counsel made submissions he argued that if the court was minded to make a spouse maintenance order a lump sum adjustment of 3% would be a more appropriate approach in this case.

   [1] Minute of Order Sought annexed to the wife’s Outline of Case document filed 11 March 2013

Background

1. The wife who is 59 years of age lives on the Gold Coast and is not currently in any paid employment.  She has recently received treatment for cancer.

2. The husband works in the [omitted] industry in a remote part of South Australia.  When he is on leave from his work he lives with a friend on the Central Coast of New South Wales or on his boat.  He is currently 58 years of age and although he and the wife tried retirement a few years ago he now intends to retire when he turns 60.

3. The parties commenced to live together in July 1981 and married [in] 1984.  After a relationship of 29 years they separated in mid 2010.  A divorce order came into effect on 5 November 2011.  During their marriage they had two children [names omitted] who are now both adults living independently of the parties.

Issues

1. Although the parties had a lengthy marriage and the factual disputes between them were not overly significant they were unable to settle the matter as they were at odds as to whether there should be certain notional add backs to the property pool, what weight should be given to gifts and inheritances received during the relationship and whether there should be provision for ongoing spouse maintenance.

Evidence

1. In support of her case the wife relied on:

   a)Her Amended Initiating Application filed by 13 March 2013;

   b)Her Affidavit filed 8 February 2013;

   c)Her Amended Financial Statement filed 8 February 2013;

   d)The Affidavits of Dr W filed:

   i)19 March 2012; and

   ii)13 March 2013.

2. The husband relied upon the following material:

   a)His Response filed 29 November 2011;

   b)His Affidavit filed 13 February 2013; and

   c)His Financial Statement filed 13 February 2013.

3. The parties tendered a balance sheet[2] and the husband tendered a printout of a bank account statement from the [C] Credit Union.[3]  He also handed up an Aide-Memoire setting out the contended notional add backs.[4]

   [2] Exhibit C1

   [3] Exhibit H1

   [4] Marked H2

4. Both parties and Dr W were cross-examined.  Both the husband and wife impressed as honest and forthright witnesses.  Where their evidence differed I am satisfied they each gave an honest recollection of the event but that recollection may have been affected by the passing of time or influenced by the nature of their conflict. Throughout these reasons I will refer to a number of facts.  Any such reference should be regarded as a finding of fact unless a contrary intention is clear from the context.

5. In the early years of the relationship the husband worked as a [omitted] and the wife in administrative roles.  The husband moved to [omitted] in 1984 to take up a [omitted] position.  The wife joined him in August of that year.  They returned to Australia in 1990.

6. In 1991 the parties purchased a [omitted] business which was built up over the years through their hard work and the acquiring of neighbouring [businesses].  The wife carried out the administrative duties associated with the business and the husband conducted the [omitted].  When the business was purchased the wife’s father gave the parties $63,000 to assist them.  They had also borrowed funds from the bank.  In 2001 they sold part of the [business] for $65,000 and in 2003 a further part was sold for $120,000.  The proceeds of sale were applied to reduce debt.  In late 2004 the remainder of the business was sold for $275,000 and the proceeds used to pay off business debt, the mortgage on an investment property, the majority of the mortgage on the family home and invested.

7. Throughout the relationship the parties had purchased a number of pieces of real estate.  Their initial property in [omitted] was purchased in 1981 and sold in the late 80’s.  They each contributed similar sums towards the purchase of the land.  A kit garage type structure was built with living accommodation incorporated into it.  This was built by the parties and trades people known to the husband.  When the property was sold they received $35,000.  In 1988 they purchased an investment property in Queensland selling it in 1991.  They used the proceeds of sale towards the deposit on a property in [G] in which they lived.  They sold this property in 1996 and moved to another property they had purchased in [G].  There was a mortgage over this property however this had been paid out by the time they sold it in September 2009.  The parties realised $401,971 from the sale.

8. In 1996 the parties acquired a block of land in Fiji by trading some boats and hire equipment with the owner.  They still own this property.

9. In September 2000 they purchased an investment property in [B] for $150,000.  In 2002 the wife’s father gave the parties $100,000 which was used to reduce the mortgage on the property.  In August 2002 the parties purchased an undeveloped block of land next to the [B] property for $35,000.  They paid cash for this property.  It remains undeveloped.  The parties retain both lots.

10. The parties purchased a Catamaran in 2007 for $250,000.  They agree it is now worth $175,000.

11. During the relationship the wife and/or the parties received a number of gifts and inheritances from her family particularly her father.  I have already referred to $63,000 and $100,000 received from her father in 1991 and 2002.  Further to these sums I find that the wife’s father gifted $3,000 in 1983, $50,000 in 2006, $5,000 in 2007, $10,000 in 2008 and $1,000 in 2009.  She also received an inheritance from her aunt in 1986 in the sum of $17,000 and a further inheritance from her grandmother in 1994 for $11,000.  These sums amount to $260,000.

12. In 2004 the wife commenced working in [omitted] and in the following year took on a second job.  The husband had returned to [occupation omitted] in 2005 earning approximately $75,000 per annum.  He took a more lucrative position with an [omitted] company in 2006.  He was earning approximately $160,000 a year in this position.  In 2008 he took up a position in [omitted] earning $105,000.  In 2009 the parties retired although this was to prove temporary.  The husband returned to work in June 2010 just prior to the parties’ separation.  He initially worked at [omitted] but since 2011 he has worked in remote South Australia.  In 2011 the wife returned to the workforce taking a casual position at a [omitted] but she did not maintain this employment for long.

13. The proceeds of sale from the [G] property referred to above were invested in a joint account and used to make repairs to the Catamaran and fund the early stages of their retirement.  At separation the wife transferred $390,653 into another account in her sole name.  In late 2010 she purchased a unit on the Gold Coast [Property S] for $358,750 using the funds in this account.  She also used $8,000 to purchase white goods and drew down further sums to pay legal costs and meet other living expenses.

14. In 2012 the wife was diagnosed with breast cancer, underwent surgery and received chemotherapy treatment. This year she received radiotherapy.  She faces an uncertain future in relation to her health and has incurred a number of expenses in relation to this treatment.  The wife has also suffered significant mental health issues since the parties’ separation including a month long admission to a psychiatric clinic in 2011.  She gave evidence of having been admitted to hospital on a number of occasions with suicidal thoughts.  She is currently under the treatment of Dr W, psychiatrist.  His evidence was that the wife suffered from a chronic Major Depressive Disorder and was emotionally fragile.  He opined that she was seriously psychologically damaged by the fall out of the relationship breakdown and the uncertainty surrounding her physical health.  Although Dr W gave evidence of the wife receiving medication to manage her anxiety and depression he considered her condition to be so serious that the only time she would not be experiencing anxiety was when she was asleep.  He said she was in no fit state to work or cope with any pressure.

15. The husband gave evidence of enjoying reasonable health although he had a back problem.  This did not appear to preclude him from working.  I accept his evidence though that he intends to retire at 60 already having tried to retire a few years ago.

Legal Approach

1. In determining property proceedings the court is firstly required to identify according to ordinary common law and equitable principles the existing legal and equitable interests of the parties in the property that is available for distribution between them. It is then necessary to determine whether it is just and equitable to make an order altering the parties’ interests in the property. If so satisfied the court must then consider the contributions made by each of them under the various s.79(4) considerations before looking at their future needs by reference to the s.75(2) factors. [5] 

The property of the parties

[5] S79(2) & (4), Stanford (2012) HCA 52. See Hickey & Hickey & Commonwealth (2003) FLC 93-143, 30 FamLR 355 for approach prior to the High Court decision in Stanford

Notional Add Backs

1. It is open to a court, in appropriate circumstances to exercise its discretion and notionally add back into a pool of assets for distribution funds that no longer exist.  The adoption of that course will depend on the facts of each case.  The Full Court of the Family Court in AJO v GRO[6] summarised the three categories of such cases:

   a)Where the parties have expended money on legal fees[7];

   b)Where there has been a premature distribution of matrimonial assets[8]; and

   c)Where a party has by a course of conduct reduced the value of an asset or where the party has acted recklessly, negligently or wantonly with the matrimonial assets effectively reducing their value.[9]

   [6] (2005) 33 Fam LR 134 at p144, (2005) FLC 93-218 at p79,617

   [7] DJM and JLM (1998) 23 Fam LR 396; (1998) FLC 92-816

   [8] Townsend (1994) 18 Fam LR 505; (1995) FLC 92-569

   [9] Kowaliw (1981) FLC 91-092; (1981) 7 Fam LR N13

2. In Kowaliw[10] Baker J held that if a party carries out a course of conduct intended to reduce or minimise the value of matrimonial assets or acts “recklessly, negligently or wantonly” with those assets then such conduct and the economic consequences that follow should be taken into account when considering the provisions of s.75(2)(o).

   [10] (1981) FLC 91-092 at p76,645; (1981) 7 Fam LR N13

3. Ryan FM, as her Honour then was, in AB v GB (No 2)[11] considered the approaches to be adopted in cases where assets have been wasted or there has been conduct by one party such that the family has suffered economic loss. Her Honour held that economic loss may be treated as a premature distribution of the asset pool and added back as an asset of the party who has had the benefit of the funds rather than being considered under s.75(2)(o) as the later approach may lead to an unjust result if the s.75(2) findings are applied to a depleted asset pool. In that case the husband had gambling losses amounting to $80,000 which her Honour treated as a notional add back but he had also stopped making payments on a mortgage leaving the bank to take recovery action. Her Honour found the husband was reckless in not paying the mortgage and made an adjustment in the wife’s favour under s.75(2)(o).

   [11] (2005) 34 Fam LR 82

4. In this case the husband argued that the asset pool has been depleted by the wife unilaterally withdrawing funds from their joint account into her own name at separation and subsequently purchasing a unit on the Gold Coast which is now worth less than what she paid for it.  He argued that as a consequence of the wife acting without recourse to him in purchasing this property they not only lost capital value in the property, expenses were incurred in making the purchase and the opportunity to earn interest on the cash at bank was denied them.  He contended the sum of $44,407 should be added back accounting for the loss in value and expenses associated with the purchase.

5. Counsel for the wife argued that the wife could not be criticised for purchasing a home to live in in the circumstances of the parties having sold their former matrimonial home to live on the boat upon retirement but separating.  Although it was conceded the wife acted unilaterally and could have discussed her intentions to purchase the property with the husband it was submitted there was no legal restraint on her using matrimonial funds.  Mr Fleetwood argued the wife used the money to purchase property rather than squandering the money by gambling and there was no evidence she paid too much for the property or the loss in value was in any way attributable to her use of the property.

6. There is no evidence of the wife behaving “recklessly, negligently or wantonly” in using the joint funds to purchase the property or causing the value of it to diminish.  In cases where a joint decision is made and a property suffers a loss in valuation the parties would ordinarily share the extent of that loss just as they would share the profit on any gain in value.  It was urged upon me to treat the wife’s use of the funds as a premature distribution of the matrimonial property.  I accept the husband did not get an opportunity to have a say in how the funds were utilised and understand why he is disappointed in the decline in value and loss of investment earnings.  Despite the merit in the husband’s argument I also accept the wife should not be criticised for purchasing a home to live in.  She was not working at the time so if she was to rent a property the joint funds of the parties would have been utilised or the husband would have had to assist by paying a greater sum in spouse maintenance.

7. In exercising my discretion, on balance, I am of the view that the amount sought by the husband to be added back should not be.  I may have come to a different conclusion if the wife had utilised the money to fund an extravagant lifestyle or had behaved recklessly, negligently or wantonly.  In this case the purchase of a home in which to live does not warrant adding back the loss in value and associated expenses.

8. The husband also argued that the wife’s legal fees in the sum of $40,500 should be added back.  These fees were drawn from joint funds whereas the husband paid for his legal fees from post-separation earnings.  I am satisfied that it would be unfair to the husband if the wife’s legal fees were not added back into the pool.  Included in the figure is $9,000 for a forensic report the wife obtained from an accountant in relation to a Division 7A Capital Gains Tax issue arising out of the sale of the business a number of years ago.  Each party will have a liability arising but to date are unsure as to the extent.  It was agreed at trial that they would each allow $30,000 for it.  The report obtained by the wife was not requested by the husband and appears to have been obtained as part of the wife’s preparation for these proceedings.  For these reasons I will include that sum in the total legal costs added back.

9. I find from the evidence that at the date of the hearing the property pool of the parties is:

ASSETS	POSSESSION	VALUE
Property S	Wife	320,000
[1] Property B	Joint	355,000
[2] Property B	Join	165,000
Lot [omitted], Fiji	Joint	32,000
46ft catamaran “[omitted]”	Joint	175,000
Four (4) surfboards	Husband	1,500
[T] credit union account	Husband	3,000
[A] Death Benefit Policy	Husband	4,155
[omitted] collection	Husband	12,000
1992 Dellca motor vehicle	Husband	5,000
2000 Vectra motor vehicle	Wife	1,750
2006 Triumph motorbike	Husband	99,000
[C] bank account	Wife	100
[C] bank account	Wife	88
Furniture	Wife	5,000
[Q] Superannuation	Husband	210,094
[M] Superannuation	Wife	911
Notional Add back of Legal Fees paid by Wife	Wife	40,500
TOTAL ASSETS	1,430,098

LIABILITES
Estimated division 7A	Wife	30,000
Estimated division 7A	Husband	30,000
TOTAL LIABILITIES	60,000

TOTAL NET VALUE 1,370,098

Is it just and equitable to alter the property interests?

1. In Stanford[12] the plurality held:

   In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship.  It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife.  No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship.  That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship.  And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end.  Hence it will be just and equitable that the court make a property settlement order.  What order, if any, should then be made is determined by applying s 79(4).

   [12] [2012] HCA 52

1. I am satisfied that it is appropriate in this case to alter the property interests of the parties in light of the demise of their lengthy marriage and the fact that the maintenance of the current legal ownership of their property would not afford them justice and equity.

Contributions

1. It was argued on behalf of the husband that in light of the long marriage, contributions should be assessed as equal or a slight adjustment of around 2% in the wife’s favour for the gifts and inheritances received from her side of the family.  Mr Fleetwood argued on the wife’s behalf that despite the lengthy marriage there should still be a finding of greater contribution on the wife’s part of some 10% to 15% because the gifts and inheritances were significant.  It was argued that $260,000 received in the context of the property pool warrants particular consideration.  Around $166,000 was received in the last 8 years of the marriage.  It was also argued that the $63,000 given by the wife’s father when the [business] was purchased was a springboard that assisted the parties to achieve the financial position they find themselves in today.  The evidence suggested the husband’s family also assisted by way of providing guarantees at the time the business was set up.

2. With the exception of the provision of the guarantee and the gifts and inheritances I am satisfied the overall contributions of the parties should be assessed as equal.  I accept the wife’s argument that the extent of the gifts especially in the last 8 years but also to a certain extent the $63,000 given in 1991 warrants a significant adjustment.  I assess that adjustment at 8%.

3. For these reasons I find contributions should be assessed at 58% to the wife and 42% to the husband.

Section 75(2) factors

1. Having determined the contribution elements the court is required to have regard to the provisions of section 75(2). The significant considerations in this case are the age and health of the parties as well as the capacity for gainful employment.

2. Both parties retired in 2009 but this was short lived.  The husband is 58 years of age and works in a remote part of Australia.  I am satisfied he does not have any significant health difficulties preventing him from engaging in gainful employment but he is desirous of retiring in the next couple of years.

3. The wife is 59 years of age and has suffered significant health problems in recent years.  The evidence is that she is not capable of working due to her mental health condition.  Her medical future is also clouded as a consequence of her treatment for cancer.

4. When I weigh these factors I am satisfied there should be an adjustment in the wife’s favour of 7%.

Are the orders proposed just and equitable?

1. Having found that the contributions of the parties should be assessed at 58% to the wife and 42% to the husband and that there should be an adjustment in the wife’s favour for the s.75(2) factors in the amount of 7% I am satisfied the overall property adjustment division should be 65% to the wife and 35% to the husband. It is necessary however when altering the property interests of the parties to step back and assess whether the actual orders proposed will provide justice and equity for the parties in the context of the findings as to the appropriate distribution. The wife has sought a periodic spouse maintenance order but the husband argued that if I was persuaded to make a spouse maintenance order I should consider doing so by way of a lump sum order to enable the parties to have a clean break. That was not opposed by the wife. Therefore I propose to consider the spouse maintenance application before I look at the overall orders.

Spouse Maintenance

1. The court was assisted by written submissions on behalf of the wife in relation to this issue.  Mr Fleetwood also made some brief submissions.  In the written submissions the wife sought $734 per week for 5 years.  In oral submissions the figure submitted was $780 per week or if a lump sum was to be ordered then 5% of the pool.  On the evidence I am satisfied that the wife is unable to adequately support herself given her current medical circumstances.  The evidence of Dr W was clear in that regard.  She is unable to work.  I accept the wife’s average weekly expenses set out in her financial statement at $972.

2. The husband has the capacity to pay spouse maintenance.  When the matter first came before the court on 5 December 2011 consent orders were made for him to pay the wife $300 per week.  This was increased to $500 per week by consent of the parties on 26 March 2012.  He has met his obligations under the orders.  In his financial statement the husband set out his average weekly expenses.  Apart from the amount allocated to entertainment and hobbies I am of the view the estimates given withstand critical scrutiny.  I would reduce the amount allocated for entertainment from $215 to $100 per week. 

3. When I take that reduction into account I am satisfied that currently the husband has capacity to pay the wife $644 per week.  He is due to retire in the next two years and for that reason I do not consider he will have that capacity for the 5 years the wife seeks a maintenance order.  I am also satisfied it would be just and equitable for the parties if I make a lump sum order so that they are able to have a clean break.  Allowing for the benefit to the wife by receiving a lump sum rather than periodic payments, in my view an appropriate lump sum order would be 3% of the pool.

4. Accordingly I find that the overall division between the parties should be 68% to the wife and 32% to the husband. 

5. This finding is significantly at variance from the proposals of either party and given there are a number of pieces of real estate, a sizable amount in superannuation but only modest bank account deposits it will be necessary to hear further submissions on what specific orders would provide justice and equity between the parties.  This is particularly so in light of the capital gains tax consequences that would attach to any sale of the [B] properties.  I propose to allow the parties the opportunity to reach agreement as to appropriate orders consistent with my findings and failing agreement the matter will be listed for further submissions as to how the orders should be drafted.

I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of Judge Lapthorn

Associate: 

Date:  11 June 2013