Taffner & Taffner
[2021] FamCAFC 68
•21 May 2021
FAMILY COURT OF AUSTRALIA
Taffner & Taffner [2021] FamCAFC 68
Appeal from: Taffner & Taffner [2020] FCCA 1132
Taffner & Taffner (No. 2) [2020] FCCA 2328
Appeal number(s): NOA 60 of 2020 File number(s): BRC 1861 of 2019 Judgment of: STRICKLAND, ALDRIDGE & KENT JJ Date of judgment: 21 May 2021 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Final property settlement orders – Whether the primary judge erred by failing to take capital gains tax liabilities into account – Where one property has been sold and another property has the possibility of being sold – Whether the primary judge failed to give sufficient weight to the appellant’s financial contributions – Appeal allowed in part – Limited re-exercise of discretion to take account of the capital gains tax liabilities – Adjustments made – Appeal otherwise dismissed.
FAMILY LAW – APPEAL – APPLICATION IN AN APPEAL – To adduce further evidence – Where the evidence was not available at trial and assists in the re- exercise of discretion – Application allowed.
Legislation: Family Law Act 1975 (Cth) ss 75(2)(b), 79(4), 81 Cases cited: Concrete Pty Ltd v Parramatta Design and Developments Pty Ltd (2006) 229 CLR 577; [2006] HCA 55
G & G [2001] FamCA 1453
Gronow v Gronow (1979) 144 CLR 513; [1979] HCA 63
House v The King (1936) 55 CLR 499; [1936] HCA 40
Jasapas & Johns(No. 2) [2020] FamCAFC 203
Kioa v West (1985) 159 CLR 550; [1985] HCA 81
Mallett v Mallett (1984) 156 CLR 605; [1984] HCA 21
Pruchnik & Pruchnik(No. 2) (2018) 58 Fam LR 458; [2018] FamCAFC 128
Rosati v Rosati (1998) FLC 92-804; [1998] FamCA 38
Royal Guardian Mortgage Management Pty Ltd v Nguyen (2016) 332 ALR 128; [2016] NSWCA 88
Stead v State Government Insurance Commission (1986) 161 CLR 141; [1986] HCA 54
Division: Appeal Division Number of paragraphs: 78 Date of hearing: 2 March 2021 Place: Brisbane, delivered in Sydney Counsel for the Appellant: Mr Hackett Solicitor for the Appellant: Hirst & Co The Respondent: Litigant in person ORDERS
NOA 60 of 2020
BRC 1861 of 2019APPEAL DIVISION OF THE FAMILY COURT OF AUSTRALIA
BETWEEN: MR TAFFNER
Appellant
AND: MS TAFFNER
Respondent
ORDER MADE BY:
STRICKLAND, ALDRIDGE & KENT JJ
DATE OF ORDER:
21 MAY 2021
THE COURT ORDERS THAT:
1.The Application in an Appeal to adduce further evidence, filed by the respondent wife on 20 November 2020, is dismissed.
2.The Application in an Appeal to adduce further evidence, filed by the appellant husband on 15 February 2021, is allowed.
3.The appeal against the orders made on 21 August 2020, and amended on 28 August 2020, by a judge of the Federal Circuit Court of Australia is allowed in part.
4.Order 16 made on 21 August 2020, and amended on 28 August 2020, be varied by replacing “$122,487.25” with “$92,487.25”.
5.Any party seeking an order as to the costs of Appeal No. NOA 60 of 2020 is to file and serve written submissions on the issue of costs within 14 days of these orders. Written submissions in response are to be filed and served within a further 14 days, with any written submissions in reply to be filed and served within seven days thereafter.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Taffner & Taffner has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
STRICKLAND, ALDRIDGE & KENT JJ:
INTRODUCTION
Mr Taffner (“the husband”) has appealed against a suite of final property settlement orders made by a judge of the Federal Circuit Court of Australia on 21 August 2020 (amended on 28 August 2020) in proceedings between him and Ms Taffner (“the wife”). The primary judge determined that it was just and equitable for the parties’ property to be divided so that the wife received 60.63 per cent, and the husband received the balance of 39.37 per cent.
In order to give effect to that division, the orders provided for the wife to retain a property owned by her (“the K Street property”) and to become the sole owner of a jointly owned property (“the F Street property”), with the parties to take steps to refinance the latter property so that the husband and the wife be released from any obligations under the mortgage that encumbered it. If that could not be done, the F Street property was to be sold. Superannuation splitting orders were also made so that the wife was allocated a base amount of $18,421.43 from one of the husband’s superannuation funds and $122,487.25 from another.
The husband was to retain a property at Suburb J (“the H Street property”) which was owned by him. It was to be refinanced so as to remove the wife from the mortgages. If that could not be achieved, the property was to be sold.
The remaining orders dealt with sundry chattels and bank accounts.
The husband appeals against the property settlement orders, asserting that there was a lack of procedural fairness in the making of the order relating to the H Street property, because neither party sought an order that it be retained by the husband and the primary judge did not raise with the parties the possibility of that order being made. The husband further asserts that the order for retention of that property by him, cast the burden of capital gains tax of that property solely on him, with the effect that the actual division of property was 65.87 per cent to the wife rather than the 60.63 per cent that had been assessed by the primary judge.
The husband also submits that his Honour erred in the exercise of his discretion by finding that (a) contributions made by the parties up until the time of the hearing favoured the wife as to 52per cent against the husband’s 48 per cent, and (b) an adjustment of the order of 10 per cent to that entitlement should be made in favour of the wife pursuant to s 79(4)(d), (e) and (f) of the Family Law Act 1975 (Cth) (“the Act”) (at [118] and [130]). The adjustment that was made was in the lump sum of $190,000, which gives rise to the percentage division noted at the outset.
Before turning to the appeal and to the application to adduce further evidence, it is useful to observe that the primary judge was given very little assistance by counsel who appeared at the hearing (neither of whom appeared in the appeal). His Honour said:
75.A number of observations are necessary about the above assets liabilities and financial resources. First, remarkably no balance sheet was tendered during the course of the trial. Neither did counsel address me on the assets, liabilities and financial resources as I should find them in terms. There were some submissions about add backs but generally no submissions were made about the assets, liabilities and financial resources of the parties. I was left to work it out from the parties’ jumbled material as best as I could.
As his Honour recorded, the submissions of counsel were brief indeed, and only touched on the issues of contribution, adjustments and add-backs. The content and form of the orders that should be made in relation to particular properties were not addressed, although the parties had proposed draft orders in their case outlines. The issue of capital gains tax was not mentioned at all in submissions despite it being agreed that the sale of the K Street property and the H Street property would incur such a liability.
The primary judge was therefore placed in a difficult position and had to do the best he could with almost no assistance. His Honour published reasons on 11 May 2020 in which the percentage division of property was identified. The lack of agreement as to which properties were to be sold or retained made the task of framing orders particularly onerous. His Honour decided not to undertake it himself. Rather, after determining the percentage of the property to be retained by each party, the primary judge invited the parties to bring in short minutes of order saying:
132.No submissions were made to me about the form of order that should be made aware property adjustment the forms of order and proposed by the parties in the case outline is a not self-explanatory. Both presuppose that the [H Street] property should be sold, but it is unclear why that needs to happen. The husband’s interest in the wife’s residence should be transferred to her. It does not appear that that property is encumbered although it may be cross collateralised against the [H Street] property – it is not clear from the evidence.
133.If that property is unencumbered and it was transferred to the wife then she would have net property of $1,194,343. She would require a further $140,157 to make up her entitlement something which would be achieved by superannuation splitting order.
134.In the circumstances, it seems to me it appropriate to seek that the parties agree on the terms of orders to give effect to these reasons and bring those terms into court within the next 21 days. In the event that the parties are unable to reach agreement about the form of order within the 21 day period, each party may provide to the court the form of order for which that party contends together with submissions in support of that form of order and the matter can be determined on the papers.
(As per the original)
The parties were then directed to bring in minutes of order to give effect to the reasons within 21 days.
The parties were unable to agree and belatedly, on 1 June 2020 and 3 June 2020 respectively, forwarded competing draft minutes of order to his Honour along with written submissions. A further set of reasons were published by the primary judge and the final property settlement orders were made on 21 August 2020, and amended on 28 August 2020. It is necessary to read the two sets of reasons for judgment together.
APPLICATIONS IN THE APPEAL TO ADDUCE FURTHER EVIDENCE
On 20 November 2020, the wife filed an Application in an Appeal to adduce further evidence, which included the correspondence between the wife’s former solicitor and the husband’s solicitor regarding the drafting of the minutes of order. At the hearing, the wife contended that this evidence showed the lack of engagement by the husband’s solicitors to reach an agreed minute of order. Since the evidence is not relevant to any ground of appeal, the wife’s Application in an Appeal will therefore be dismissed.
On 15 February 2021, the husband also filed an application to adduce further evidence in the appeal. In order to understand the husband’s application, it is necessary to record that Order 4(a) of the final property settlement orders provided for the husband to retain the H Street property and Order 1(d) required the release of the wife from the mortgage over it. Order 8 applied in the event that the husband could not procure the release of the wife from the mortgage. If this was the case, the property was to be sold, and after payment of the costs of sale, outstanding rates and any capital gains tax (Order 8(e)(iii)), the balance was to be paid to the husband.
The further evidence that the husband proposes to adduce is to the effect that:
·He was unable to refinance the mortgage;
·The property was sold in January 2021 for $1,655,000, with settlement of the sale occurring in February 2021; and
·The best estimate of the capital gains tax payable (as deposed by the husband’s accountant) was $139,476.
The husband submits that this evidence, for obvious reasons, was not available at the hearing and highlights the error of casting the burden of the capital gains tax entirely upon him. More importantly, it is said that this material will be of assistance in any re-exercise of discretion.
There is merit in these points and we will receive the affidavit of the husband filed on 23 February 2021, and the affidavit of his accountant, Mr X, also filed on 23 February 2021. We will also receive the wife’s affidavits in response to the application, filed on 22 February 2021 and 25 February 2021.
THE APPEAL
Did the primary judge err in making the orders as to the H Street property and the associated capital gains tax? (Grounds 1 to 3)
These grounds were argued together and raise the following issues:
·Did the primary judge afford the parties procedural fairness as to the making of orders in relation to the H Street property?
·Were adequate reasons given for making the order?
·Did the orders for the H Street property achieve the intended property division?
·Did the primary judge err in making the orders as to the H Street property?
·Did the primary judge err in failing to take into account the capital gains tax on the H Street property?
Generally speaking, questions as to a want of procedural fairness should be determined prior to other grounds as they go to the integrity of the trial process itself (Concrete Pty Ltd v Parramatta Design and Developments Pty Ltd (2006) 229 CLR 577; Royal Guardian Mortgage Management Pty Ltd v Nguyen (2016) 332 ALR 128). In this case however, that issue is entwined with other issues we have identified. As we shall shortly explain, the issue of procedural fairness falls away in light of the further evidence, so that the focus of the appeal became where the burden of the capital gains tax on the H Street property should have fallen. We shall, therefore, deal with these grounds together.
It is necessary now to give a brief history of the relevant orders sought by the parties from time to time in relation to the H Street property. It must be recognised that each of these orders was sought as part of a package of orders dealing with all of the property of the parties and that the parties’ overall approach to the orders was quite different. In each of the iterations of the proposed orders by each party, the terms of the overall package also changed. We shall, however, only refer to these other changes where we consider it helpful.
In the wife’s Amended Response to the Initiating Application filed on 13 May 2019, she sought orders that she retain the F Street property and the K Street property, the husband retain the H Street property and that there be a cash payment by the husband to the wife to achieve a 65 per cent distribution to her.
The husband filed a Further Amended Initiating Application on 6 June 2019. The primary order he sought was that all three properties be sold and that the net proceeds, after payment of debts and capital gains tax, be divided equally. Alternatively, he proposed that he receive all three properties and pay the wife $804,000.
Both parties filed Case Outlines for use at the hearing. In his, filed on 11 November 2019, the husband proposed that the H Street property be sold and that the net proceeds, after payment of expenses including capital gains tax, be distributed between them so as to achieve a 45 per cent division of all the assets to the wife and 55 per cent to the husband. The wife was to retain the F Street property and the K Street property, but with the mortgage on the K Street property remaining in place.
In the wife’s Case Outline, filed in Court on 12 November 2019, she proposed that she retain the F Street property, that both the K Street property and the H Street property be sold, that the net proceeds be retained until the parties lodged their income tax returns and that upon income tax assessment, the parties’ accountant “provide a statement as to the net Capital Gains Tax payable by each of the parties” (the wife’s Case Outline filed on 12 November 2019, paragraph 5 of her proposed property orders). The wife’s proposed orders do not say how those liabilities were to be paid, but the non-superannuation assets were to be divided so that the wife receive 65 per cent and the husband receive 35 per cent of them. It follows that the liability for the capital gains tax was to be borne in that proportion.
It was common ground between the parties that the K Street property and the H Street property were investment properties and that, as both sets of proposed orders set out in the Case Outlines recognised, their sale would trigger a capital gains tax liability.
Thus, although the orders sought by the parties at the hearing differed as to the overall distribution, they were united in seeking the sale of the H Street property and in recognition of the capital gains tax liability that would then arise.
We now turn to the orders proposed by the parties in June 2020, after the delivery of the first set of reasons for judgment on 11 May 2020.
The wife’s proposed orders provided for her to retain the F Street property and the K Street property, with the husband released from the mortgage over the latter property. If the release could not be procured, the property was to be sold, with the wife to receive the net proceeds. The husband was to retain the H Street property, with the wife to be released from the mortgage. If that could not occur, it too was to be sold, with the husband to receive the net proceeds. The effect of these orders is that any capital gains tax would be borne by the party retaining the net proceeds of its sale.
The husband’s minute of order provided for the wife to retain the F Street property and the K Street property and for him to retain the H Street property. However, the existing mortgages were to remain in place with each party to be solely responsible for the mortgages over the properties retained by them, and indemnify the other against any liability under those mortgages.
That proposal created an obvious difficulty, in that the orders did not end the financial relationship between the parties as envisioned by s 81 of the Act and despite the indemnities, left each exposed to the consequences of any non-payment of mortgages.
In the 21 August 2020 reasons for judgment, his Honour recognised this saying:
2.The parties have now furnished the orders for which they each contend. There is broad agreement about them, but dispute about the incidental or consequential orders that need to be made. Sadly, it is apparent that there was no attempt made by the parties or either of their solicitors to reach agreement about the orders. They have simply sent to my chambers the orders for which they contend and then, without any direction to permit them to do so, they have made submissions on the form of order for which their client contends.
3.I have considered those submissions. I prefer those of the wife. The husband’s submissions suffer significantly because they misstate and mischaracterise my reasons in many respects. They assert that I made findings about matters where no finding was made. For example, what I said in paragraph 132 of my reasons (set out above) is said to be a finding that:
… the mortgage liabilities are “stand alone” mortgages and that there was no clear evidence of any cross collateralisation.
4. I made no such findings.
5.I prefer generally the orders proposed by the wife. They provide for a “clean break” and give greater effect to my reasons than do those proposed by the husband.
Thus the primary judge made the non-superannuation orders proposed by the wife and, because the wife consented to them, the superannuation splitting orders proposed by the husband.
The effect of the orders made in relation to the H Street property was that the husband was to retain the property (Order 4(a)) and procure the release of the wife from the mortgage over it (Order 1(d)). In the event the husband was unable to do so, he was to sell it, and after payment of the selling costs, rates and the mortgage, he was “to discharge any liability in relation to capital gains tax” (Order 8(e)(iii)).
We return to the issue of procedural fairness. The husband submits that because both parties had proposed that the husband retain the H Street property, the primary judge was obliged to alert the parties to the possibility of a different order being made and seek their submissions on it before making any such order. Such a proposition is, generally speaking, unremarkable (Kioa v West (1985) 159 CLR 550 at 582; Jasapas & Johns(No. 2) [2020] FamCAFC 203 at [83]; Pruchnik & Pruchnik(No. 2) [2018] FamCAFC 128 at [45]).
In this particular matter, however, much turns on the effect of the sentence “[b]oth presuppose that the H Street property should be sold, but it is unclear why that needs to happen” (at [132]) and whether it was a finding that the property must be retained or was a question to be answered by the parties in the provision of short minutes of order. Earlier, his Honour had said, without challenge:
88.… there is no evidence before me that the properties are likely to be sold and thereby a capital gains tax liability incurred.
That was, of course, a reference to the proposals before the Court at the initial hearing, where reasons for judgment were delivered on 11 May 2020, and not the draft minutes of order that were put before the Court in July 2020. Leaving aside the husband’s proposed minute of order, which was rightly rejected by his Honour, the only primary proposal before the Court was that the husband retain the H Street property and that it be sold only if it could not be refinanced.
However, the husband took the view that the passage at [132], which we have just quoted, was a finding that the H Street property was not to be sold. If his Honour did make such a ruling in the first set of reasons then there is force in the proposition that the order for the compulsory retention of the H Street property should have been raised with the parties before it was made.
However, the property has not been retained. As events have transpired, the H Street property has been sold because the husband was unable to effect a refinance. This was the outcome he had sought and had been the wife’s alternative proposal. Thus, even if there was procedural unfairness it has not resulted in a miscarriage of justice (Stead v State Government Insurance Commission (1986) 161 CLR 141). We therefore see no point in considering this argument further.
As counsel for the husband properly accepted, the real vice in the orders was Order 8(e)(iii), which casts the burden of the capital gains tax solely on the husband. The effect of this was that the wife received more than 60.63 per cent of the non-superannuation assets.
There is no doubt that the primary judge was aware of the incidence of capital gains tax. His Honour said:
88.Finally, [the husband] argued that I ought to include as a liability for each of the parties the capital gains tax might be payable if the properties that are owned solely in the name of each party are sold. I decline to do so for two reasons. The first is that there is no proper evidence of any basis upon which to assess the capital gains tax that might be payable in the event the relevant properties are sold. Secondly, there is no evidence before me that the properties are likely to be sold and thereby a capital gains tax liability incurred. Thirdly, in the circumstances of the case it seems appropriate that each party should bear their own capital gains tax in respect of their own properties. The amount of the tax that they will have to pay, if any, will be dependent upon their income at the time the capital gains is realised and the marginal rate of tax at the time. There is no evidence about any of those matters before me. I decline to take that into account.
(As per the original)
We interpolate here to say that his Honour’s first comment was entirely correct and that the husband’s submission to the contrary must be rejected.
In his trial affidavit filed on 4 November 2019, the husband set out his understanding of the assets and liabilities of the parties in the form of a table. Next to the words “CGT on [H Street]” appeared “E$175,000” and “[b]ased on figures provided by the family accountant using the valuation figure of $1,625,000” (at page 49).
It is true that this evidence was neither the subject of an objection nor cross-examination but, nonetheless the primary judge was not obliged to accept it. The precise calculation of the capital gains tax payable by the husband should have been the subject of expert evidence, properly given. It is noteworthy that when such evidence was actually adduced before this Court, that figure was significantly lower.
We consider, however, that the primary judge erred by failing to take the capital gains tax liabilities into account. It is well established that even if the capital gains tax has not been calculated, it cannot be ignored if it is foreseeable that it will be payable in the short to midterm.
In Rosati v Rosati (1998) FLC 92-804, the Full Court said:
6.36. It appears to us that although there is a degree of confusion, and possibly conflict, in the reported cases as to the proper approach to be adopted by a court in proceedings under s 79 of the Act in relation to the effect of potential capital gains tax, which would be payable upon the sale of an asset, the following general principles may be said to emerge from those cases:—
(1)Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2)If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3)If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s 75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4)There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.
These principles were explained further by the Full Court in G & G [2001] FamCA 1453:
104.In the course of his oral submissions, senior counsel for the wife properly conceded that although the court in Rosati (supra) was speaking specifically in relation to Capital Gains Tax, the principles therein stated would extend to ordinary (“mainstream”) income tax. We would perhaps go even further, and say that in our view, where property which is held by a party or the parties to proceedings under s.79 of the Act was acquired as part of a business of acquiring, developing and reselling real property for profit (i.e. essentially, as trading stock of that business) then, in valuing that property for the purpose of the proceeding, the Court should ordinarily take into account both the estimated realization costs and the tax (in that case, “mainstream” income tax) which will ultimately be paid on its sale, even if the Court’s orders leave the property in the hands of one party and the sale of it is not seen as an inevitable or even a likely consequence of those orders. We think that statement falls within the purview of the principle stated in paragraph (2) of the above-quoted extract from Rosati.
It follows that the potential capital gains tax liabilities that would arise on the sale of the K Street property and the H Street property needed to be considered. Since the parties had not provided any proper evidence of the likely capital gains tax payable, that consideration could not be achieved. The capital gains tax could not be taken into account on any list of assets and liabilities, and hence in determining the share of the net property each party should receive. However, several formulaic orders exist which would ensure that the payment of such a liability would not disturb the ratio of the division that was arrived at by the primary judge.
For example, in the present case, an order that could have been made was that in the event the H Street property was sold, say within two years of the orders, the wife was to pay to the husband 39.37 per cent of capital gains tax incurred in the sale. Such an order would preserve the division of property which his Honour had found to be just and equitable. It would have also been appropriate to make a similar order as to the K Street property but with the husband to pay to the wife 60.63 per cent of the capital gains tax incurred.
Of course, it is also a possibility that a judge might consider that the appropriate order was that any liability for capital gains tax should lie where it falls but, if so, that should be expressly stated together with reasons as to why that order was just and equitable in all of the circumstances. That is not the case here.
In short, we accept that the effect of the orders made as to the sale of the H Street property cast the burden of any capital gains tax liability onto the husband, with the effect that the actual division of property was not that intended by the primary judge.
This aspect of Grounds 1 to 3 has therefore been established.
Did the primary judge err in making orders not based on the evidence? (Grounds 4 to 7)
It was submitted by the husband that the primary judge erred by making orders for the discharge of the mortgages over the F Street property and the K Street property, as well as making an order for the sale of the H Street property if the mortgage over it was not discharged.
The last point regarding the H Street property is now otiose given that Grounds 1 to 3 have been established.
The list of assets and liabilities constructed by the primary judge does not record a mortgage over the F Street property. This rather obvious fact did not stop the wife from seeking an order that both parties take all necessary steps to discharge the mortgage over it, or prevent the judge from making the order, despite the husband specially raising the point (the husband’s Outline of Submissions filed on 3 June 2020, paragraph 2). Oddly, the wife’s proposed order includes the identification of the mortgagee and the mortgage number, but there is no reference to any such mortgage in her Financial Statement or trial affidavit. However, we can only proceed on the basis of the evidence and, as there is no mortgage over the F Street property, no detriment arises from that order unless one or both of the other mortgages were secured against this property. There is no suggestion that this was the case.
There was a mortgage over the K Street property which the primary judge recorded as being in the name of the wife alone. Again, for a reason that is not readily apparent, the wife sought an order that the parties take all steps to release the husband from the mortgage, and in default, the property be sold. Again, as the wife is to retain the property and as the husband appears to have no liability under the mortgage, there was no point in the wife seeking such an order. Whilst the order was otiose, no detriment has arisen from it having been made.
There is no merit in these grounds.
Did the primary judge err in the assessment of contributions? (Ground 8)
This ground is an appeal from a discretionary judgment, and such appeals are constrained by the principles set out in House v The King (1936) 55 CLR 499. As to whether a particular finding is unreasonable or manifestly unjust, trial judges have a wide ambit of discretion (Gronow v Gronow (1979) 144 CLR 513; Mallett v Mallett (1984) 156 CLR 605 at 621–622).
The primary judge found that the parties’ contributions from the commencement of their relationship to the time of the hearing were equal. That finding is not challenged.
At the time of the commencement of the relationship in 2002, the wife owned the K Street property, then valued at $240,000.
The primary judge said:
101.The parties jointly contributed to a property at [R Street, Suburb G]. The property was purchased for $335,417.00 in March, 2004. It was funded by loan secured over [the wife’s] [K Street] property. The parties moved into that home and when they did so the [K Street] property was rented out. The rent covered the expenses on that property as well as providing the parties with an additional source of income from which they could defray their living or other expenses.
…
103.[The husband] purchased the [H Street] property in September, 2006. Until that time the rent from the [Town W] property was received into his bank account and applied towards the loan repayments on the [Town W] property. He funded any shortfall in loan repayments from his income. After purchasing the [H Street] property any shortfall in respect of loan repayments was funded from the parties’ joint accounts.
…
111.Both parties came into their relationship with some assets. Whilst there was a focus by the parties on the net value of those assets at the time the parties commenced their cohabitation, the real question is the value that those assets brought to the parties’ relationship and the improvement of their financial circumstances. On [the husband’s] case [the wife] had little by way of equity in her real property. She contends that she had significantly more. What is important, however, is that the existence of that property has permitted the parties to expand their assets through the purchase of other real properties, the borrowings for which were secured over [the wife’s] real property. That property commenced to return to the parties an income when they purchased their first joint property and moved into it. The wife’s real property continues to exist in the asset pool. It is a significant contribution by her notwithstanding that it was introduced more than 18 years ago.
This led to the following conclusion:
116.The wife’s initial contributions and how that has been used by the parties over the course of their relationship is important – it should attract some weighting in her favour – but otherwise the parties’ contributions should be seen to be equal. Whilst post separation the parties have behaved poorly in terms of the way in which they have dealt with each other and their financial resources I am not satisfied that those matters should sound in the assessment of the parties’ contribution based entitlement.
…
118.In my assessment contributions ought to be assessed 52% in [the wife’s] favour and 48% in [the husband’s] favour. The introduction by her of her real property has been a significant benefit to these parties for the reasons that I have set out above. It is something which ought to be reflected in the assessment notwithstanding that their relationship has spanned more than 16 years.
The husband submits that these findings downplayed the modest initial equity in the K Street property at cohabitation, that increases in equity were funded by their earnings and renting of the property, and by the husband’s superior earning capacity. We do not accept that that is so, but in any event, the husband’s submissions merely invite us to place greater weight on matters which favour the husband and to substitute our view of the matter. That approach is not open to this Court and error is not demonstrated.
This ground does not succeed.
Did the primary judge err in his assessment of the adjustment made under s 75(2) of the Act? (Ground 9)
It is to be recalled that the primary judge made an adjustment of $190,000 in favour of the wife, to take into account the disparity in their income. That disparity is obvious as appears from the following:
123.I conclude that [the husband] will continue to be employed as a [professional] with [Employer U]. As at the date of the trial his gross salary was $154,065 per annum. I am satisfied he will continue to earn at that rate. He says that until the end of 2025 when his children complete year 12 at school his actual gross salary will be approximately 5 to 10% less than the amount normally allocated to him by [Employer U] because of the need to take leave to care for the children during school holidays. [The husband] also receives additional income from his property at [H Street] which amounts to approximately $8000 net per annum.
124.[The wife] is 49 years old and works as a [professional]. She earns about $500 gross per week in that role. She receives income from her rental property of approximately $435 weekly, government benefits, being carer allowance and family assistance averaging $64 and $57 per week respectively and child support which she asserts is less than required at $231 weekly.
The husband submitted that the adjustment should not have been made because the disparity in earning capacity was merely a reflection of their chosen careers prior to separation. The consideration raised by s 75(2)(b) of the Act, being “the income, property and financial resources of each of the parties … and the … capacity of each of them for appropriate gainful employment”, is widely expressed and not limited in the manner suggested, and should not be so constricted. For example, a person’s capacity to follow their pre-cohabitation employment or to obtain more lucrative positions in an entirely different field may have been adversely affected by years out of the workforce caring for children, regardless of any choice as to an occupation made years earlier.
The husband also submitted that the evidence of the wife showed that her earning potential was greater than her current income. We do not agree. The wife’s oral evidence relied on by the husband does not, in fact, support that submission. Rather, it establishes that work that she had hoped for had not come in, that she was hoping to return to work and grow her business, but did not have a plan and that the children were her focus (Transcript 12 November 2019, p.49 line 24 to p.50 line 25).
This ground fails.
CONCLUSION AND RE-EXERCISE OF DISCRETION
The appeal must be allowed as identified earlier. In that event, the parties asked us to
re-exercise the Court’s discretion to take account of the capital gains tax liabilities, so as to avoid the time and cost associated with remitting the matter for rehearing. The parties were content to rely on the further evidence adduced.
The best estimate of the capital gains tax payable on the H Street property is $139,476. It is an estimate because the husband’s income tax return for the 2020-2021 financial year is yet to be lodged, but this is the best evidence available.
In order to maintain the percentage division intended by the primary judge, the husband submits that the wife should pay to the husband 39.37 per cent of that sum, namely $54,911.70.
That however, is not the end of the consideration.
The H Street property was sold for $1,655,000 which was $30,000 higher than the figure taken into account by the primary judge, all of which will be retained by the husband.
The primary judge took into account that there were three mortgages over this property in the sum of $1,141,811 (each mortgage totalling $940,000.00, $175, 269.99 and $26, 541.01). At the time of sale they totalled $1,207,218.14, as appears from the settlement statement (the husband’s affidavit filed on 23 February 2021, Annexure 6). Presumably, the increase is because the husband was not paying the instalments, and retained for his benefit the income that otherwise would have been applied to them.
Each of these matters should be taken into account. In our opinion, they justify some adjustment in the wife’s favour.
Finally, whilst there is no evidence that the K Street property is likely to be sold in the short to midterm, its sale remains a possibility. That possibility could be taken into account by an order of the kind identified by us earlier in these reasons, or by making a further adjustment in favour of the wife. In the circumstances of this matter, the latter is the preferable course as that course will end any financial dealings between the parties. That property was valued at $475,000 and the adjustment will be modest.
In our view, the wife should pay $30,000 to the husband to take account of the capital gains tax liability on the H Street property and the potential liability in relation to the K Street property.
The wife does not have the funds to make such a payment. The parties agreed therefore that the appropriate course was to vary the superannuation splitting orders accordingly.
We shall therefore vary Order 16 made by his Honour so that the base amount allocated to the wife out of the husband’s interest in Super Fund Q is $92,487.25 (that being the amount of $122,487.25 initially allocated to the wife, less $30,000.00).
COSTS
Costs will be dealt with in chambers pursuant to written submissions.
I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Strickland, Aldridge & Kent. Associate:
Dated: 21 May 2021
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