Thorpe and Allendale

[2018] FamCA 215

FAMILY COURT OF AUSTRALIA

THORPE & ALLENDALE [2018] FamCA 215

FAMILY LAW – PROPERTY – where there were various disputes about initial contributions, post-separation contributions and how to treat financial contributions to step-children – where a retrospective valuation was done of the wife’s contribution but that was not how the parties saw that value when the relationship began – where there was a dispute about the value of the husband’s business, the main asset of which was a register of clients providing consistent income – assessment favours husband.

Evidence Act 1995 (Cth)
Family Law Act 1975 (Cth)

Af Petersens & Af Petersens (1981) FLC 91-095
Georgeson & Georgeson (1995) FLC 92-618
Kowaliw and Kowaliw (1981) FLC 91-092
Ogilvie v Adams [1981] VR 1041
Steinbrenner & Steinbrenner [2008] FamCAFC 193
Townsend and Townsend (1995) FLC 92-569

APPLICANT: Mr Thorpe

RESPONDENT: Ms Allendale

FILE NUMBER: MLC 4268 of 2015

DATE DELIVERED: 9 April 2018

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: 6, 7 March 2018

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Wilson

SOLICITOR FOR THE APPLICANT: RT Legal

COUNSEL FOR THE RESPONDENT:	Mr Williams
SOLICITOR FOR THE RESPONDENT:	Pearsons Lawyers Pty Ltd

Orders

1. By 4 pm on 31 May 2018, or such other time as the parties agree, the wife:

   (a)pay to the husband $172,000;

   (b)pay to the husband such sum as satisfies paragraph 11 (incorrectly numbered to include 12 and 13 ) of the orders made on 4 December 2017; and

   (c)provide to the husband a discharge of his liability to the Westpac Bank arising out of the mortgage encumbering the property at B Street, Suburb C.

2. The parties forthwith do all things necessary to sell the property at D Street, Suburb E and upon the settlement of the sale, the proceeds be disbursed to pay:

   (a)all costs and commissions of the sale;

   (b)the mortgage to the Westpac Bank encumbering the Suburb E property in such amount as is sufficient to discharge it; and

   (c)the balance to the husband.

3. In default of compliance with paragraph [1], the property at B Street, Suburb C be sold by the parties jointly and upon the settlement of the sale, the proceeds be disbursed as follows:

   (a)First, to pay any costs commissions and expenses of the sale;

   (b)Secondly, to discharge the mortgage encumbering the property;

   (c)Thirdly to pay to the husband such sum as will satisfy paragraph 1(b);

   (d)Fourthly, to add the net proceeds thereafter to the assets referred to in paragraph [57] of the reasons for judgment this day in substitution for the net sum shown for the real property at Suburb P and to then divide those proceeds to give effect to paragraph [82] of the said reasons.

4. That both parties have liberty to apply in respect of the implementation of paragraphs [1] to [3] hereof.

5. That to the extent that the wife so requires, the husband provide her with the necessary documents to sign to relinquish her interest in the loan accounts of the entities referred to in the reasons this day and the wife execute and return that release, whereupon the husband shall be responsible for any liability arising out of the wife’s relinquishment.

6. To the extent necessary, the husband transfer to the wife the registration of the … motor vehicle in the wife’s possession.

7. That each party otherwise retain, and the other party relinquish any interest in, any property in that party’s possession as at the date of these orders.

8. That save as to issues of costs, all extant applications are otherwise dismissed.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Thorpe & Allendale has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

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 r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 4268  of 2015

Mr Thorpe

Applicant

And

Ms Allendale

Respondent

REASONS FOR JUDGMENT

1. Mr Thorpe (“the husband”) and Ms Allendale (“the wife”) began living together around the end of 2004 or early 2005.  Their relationship of about 10 years ended in 2015.  During those years, they married.  They did not have children from the relationship but each had children from former relationships who were, at times, part of the family.  At the time their relationship began, each was still married and each took some time to extricate themselves from the financial affairs of those marriages.

2. The present dispute requiring court intervention is generally about:

   (a)What initial contributions did each make and what impact did those have?  How do those contributions affect the assessment of the parties’ overall contributions?

   (b)How to deal with the unchallenged existence of an Australian Taxation Office debt which the wife says was run up by the husband at a time when he was in receipt of a substantial income from the family business and whether she should contribute directly or indirectly to that debt?

   (c)Accepting that the husband introduced the business interest which has earned significant profit and which was the primary (but not the sole) source of family support, were the respective contributions during the relationship otherwise much the same?  If not, how should they be assessed?

   (d)Is there a debt owed to the husband’s aunt extant from prior to the parties’ cohabitation and if so, how should that be treated?

   (e)How should the husband’s one-third interest in a property at Suburb P be treated where there is an acknowledged life tenancy affecting it?

   (f)What is the value of the husband’s interest in the financial planning business now?

   (g)How, if at all, should an adjustment be made for the disparity in the parties’ earning power and any other relevant factors of the nature described in s 79(4)(e) of the Family Law Act 1975 (Cth) (“the Act”)?

   (h)Should “add-backs” be considered here relating to income earned by the husband subsequent to separation along with various sums of money from the sale of modest assets but which money no longer exists?

   (i)Finally, what are the assets and liabilities of the parties and how should they be divided?

The parties’ positions

1. The husband was the applicant.  He sought orders that the former home be sold and after payment of the usual outgoings, the proceeds be divided equally.  In respect of a second property at Suburb E, he sought its sale and that he retain the proceeds.  Leaving aside minor or ancillary items, if those orders were made on his assessment of the parties’ assets, he would be receiving about 77 per cent on the basis that the Suburb C property was also included as an asset.  I consider that would not be a just and equitable outcome when, from an holistic point of view, all of the parties’ contributions are taken into account and some modest adjustment is made for the disparity between their earning capacities. 

2. The wife was the respondent.  She sought to retain the former home but with the husband first discharging any encumbrance.  She agreed that the husband could retain Suburb E and that she keep her car.  She otherwise sought an order that the assets fall as the parties had more or less agreed. Such an alteration (on the husband’s list of assets) would ironically also amount to about 77 per cent but in favour of the wife.  For the reasons just articulated, I consider that that would not be a  just and equitable outcome.

The evidence

1. The parties relied on limited affidavit material. Indeed, as I observed in the hearing, some matters were set out that could not have had any relevance to the issues in dispute. The parties’ written evidence indicated the level of mistrust and unhappiness, each with the other. If ss 55 and 56 of the Evidence Act 1995 (Cth) were the focus, this evidence was not only a distraction and waste of time but cost each party unnecessary legal fees.

The relevant focus

1. The husband is aged 53 years and the wife 51.  The husband is a professional whose business is the focus of these proceedings.  He operates that under a variety of corporate structures.  The wife is employed in administration.

2. In December 2004, the wife separated from her husband and left the home in which she then lived.  That is the property at B Street, Suburb C.  She then commenced the relationship with the husband who organised a rental property in which they were both to live along with the wife’s children.

3. When the cohabitation commenced, the wife had not long completed her studies as a teacher and required assistance from the husband for financial support. 

4. Over the ensuing years, the wife’s children lived with the parties for the majority of most fortnights and the husband’s two children joined them for five nights a fortnight as well as school holidays.

The focus on initial contributions.

1. The husband said that his business at the commencement of the relationship had been mentioned in previous affidavits as having a value of $1.2 million.  He explained that that valuation was “arrived at 2004.  I was in partnership with Mr F (sic)”.  Significantly, what I understood him to be saying was that he purchased the interest of Mr F rather than “50 per cent of his interest” as he described it in the affidavit.  Importantly, he said that this arrangement was financed through the K Bank.  He made reference to how the K Bank valued the business and in settling with Mr F, there was an agreed value of $1.2 million. 

2. The husband agreed that the impression he had given was misleading.  I find that the paragraph was infelicitously worded and gave the impression that his interest in the “business” was worth $1.2 million in 2006.  Whilst the husband must ultimately take responsibility for the truth of the evidence to which he deposed under oath, a lawyer drew and endorsed that affidavit. 

3. The focus of cross-examination was on a financial statement filed in this court in proceedings between the husband and his former wife. The financial statement sworn by the husband in May 2005, so just after cohabitation had commenced in the present relationship, showed the “nett value – [J Pty Ltd, G and H Trusts]” at an estimate at $64,575.  However, an asterisk to that statement took the reader to an annexure which showed the gross value of those entities at an estimated $767,500 less debts of an estimated $638,350 and an estimated nett value of business of $129,150.  From that, the annexure concluded that the “50 per cent interest” was an estimated $64,575.

4. The picture portrayed in the financial statement must be seen as confusing.  It was not clear whether the reference to “50 per cent interest” was intended to mean that he acknowledged that his then wife had half or that Mr F had a half.  His evidence was that the partnership ended in 2004 and that he borrowed from K Bank to purchase Mr F’s interest.  Thus, the interest referred to in the financial statement must be seen as subsequent to acquiring the interest of Mr F.  There is substance to that inference because the same annexure refers to an K Banking business loan of $523,000.  If he had not purchased the interest of Mr F by May 2005, the subsequent purchase using the K Bank would have seen the debt significantly rise. The confusion can be clarified by reference to the financial statements of the relevant entities (now in evidence as Exhibit W2). 

5. The documents show that the G Trust profit in 2005 was all distributed to the husband, the wife and the husband’s children.  The balance sheet shows an K Bank loan of $520,547.  The H Trust showed no reference to Mr F save that there was a beneficiary loan to the “F Family Trust” in 2004 but no such debt in 2005.  The combined evidence of the husband and the documents makes it more probable than not that the husband had paid out Mr F by the time cohabitation commenced and was therefore the controlling person over the assets of the trusts. Unfortunately, none of this was apparent from the husband’s own evidence but it became clearer when the financial statements were tendered by the wife who was challenging the extent of his contribution. In reality, I accept his documents as indicating there was a contribution greater than he seemed to acknowledge.

6. The most plausible explanation for the confusion is that the husband and his former wife had an interest in one half of the business with Mr F. The husband’s dispute with his former wife in this Court did not conclude until well after this relationship had commenced.  The husband had bought out Mr F when he began this relationship but he had not bought out his then wife when he filed his financial statement for proceedings with her.  He subsequently did. The three entities which formed the basis of the business in 2005 disclosed the following net assets:

   J Pty Ltd  $204,468

   H Trust  -4501

   G Trust  23,942

7. On the basis of the disclosure by the entities, the husband had an equity of about $176,000. 

8. In 2005, the husband and his former wife had a single expert witness in their proceedings from the accounting firm L Group who the husband said valued the business interest at $760,000. The evidence of L Group was not put before me but it does not seem controversial because the wife relied upon what the husband said in cross-examination about this value for the purpose of showing what he brought into the present relationship. In my view, the only inference open is that the husband’s evidence was inaccurate about that.

9. I conclude that the husband’s interest was somewhere in the vicinity of $176,000.  In my view, it matters little because what is clear from the financial statements of the entities, the “client register” had been valued at around $250,000 and that is what was used to fund the income of the parties at substantial levels over the duration of their relationship.

10. However, from that value of the business, the husband had to satisfy his obligations to his former wife, live a reasonable lifestyle supporting a number of children, purchase a property at Suburb E and then later, engage in litigation with his own lawyers.  It is impossible to quantify these figures and neither party produced any such evidence to assist but it is common ground that the income generated from the client register was large over the ensuing years.

The wife’s home

1. A dispute arose about what the wife initially contributed.  In 2005, her income with her responsibilities for young children was limited.  Her major (if not only) asset was the interest she had in what was to become the main home in the present relationship and which is the subject of the present dispute.  When the relationship commenced, the home was owned by the wife with her former husband.  Upon leaving that relationship, such was her financial position that the husband provided her with accommodation and paid her expenses.

2. The husband’s evidence was that when the relationship commenced, the wife’s property was worth $300,000.  He said he knew that (and not the subject of objection) because the M Bank valued it that way and he knew there was at $225,000 mortgage.  Apart from settling with her former husband by taking over that mortgage, the wife had to find a further $33,800. 

3. The wife’s evidence was simply that she purchased her former husband’s interest for $33,833 in the orders made in November 2007.  I do not accept the accuracy of her evidence.  Whatever the retrospective valuation was, and in this case, it was agreed that the parties had recently had a single expert witness retrospectively attribute to the home the figure of $380,000, they both understood at the time their relationship commenced in 2005 that there was limited equity in the property.  In 2007 when the wife settled with her former husband, the husband used his line of credit to pay out the $33,833.  There is no evidence otherwise to indicate why that course was necessary other than that the wife could not afford to fund more than the existing mortgage. Of the husband and the wife, I found the husband a much better historian notwithstanding my earlier comments about his inaccuracy about his own business valuation. 

4. The distinction between the retrospective valuation of $380,000 and what was understood by the husband and the wife at the time as $300,000 only makes a difference to the size of the contribution the wife brought to the relationship.  I find that regardless of what the wife now says, the understanding of both parties in 2005 was that the equity was modest.  I draw those conclusions from the fact that in giving evidence, the wife indicated that she did not know the level of her mortgage with her former husband but she acknowledged that the National Australia Bank provided money to clear the M Bank mortgage in 2008.  The best evidence available to me is the National Australia Bank’s loan drawdown home loan document which indicates that two years after this present relationship commenced, the loan was in the vicinity of $225,000 and that was also the evidence of the husband. The wife’s uncertainty means it is more likely that he is correct.

5. Thus, depending upon what view one takes of the value of the Suburb C home in 2005, that is, whether one looks at it retrospectively or, as I do, accepts what the lending bank and the parties did, the wife contributed somewhere between $40,000 and $122,000.

6. Based on the analysis of the husband’s initial structure, I am satisfied he brought in much more than the wife in real terms, even if not in dollar value terms, by virtue of the use to which the parties then put those assets over the decade of their relationship.  In assessing contribution below, that use of the assets rather than some dollar value, has to be taken into account.

7. It is also significant to acknowledge that in the very early period of this relationship, the wife was earning only a minimal amount working part-time. She was responsible generally for the running of the household and the care of children.  Her other income source was plainly from, and she relied upon, the husband and the business.

8. The modesty of the wife’s income can be seen in her taxation return tendered in evidence.  No document was produced from any bank records to indicate how the lending institutions saw her at the time nor was any court document arising from her settlement with her former husband, called into question. 

The parties’ relationship and their respective contributions during it

1. Very little evidence was tendered to indicate what the parties did during the relationship. Counsel for the husband said that the court had to take into account the husband’s contributions towards the support he provided to the wife’s children.  It was conceded by the wife that the primary source of the parties’ income from the husband funded the private education of her children although she did receive child support from her former husband.  In addition, the home which was mortgaged was funded from the same source but then again, the husband had the benefit of the accommodation and at times, his children lived there as well.  The parties’ general living expenses were paid predominantly from the husband’s earnings.  The wife did work in the business at times and by the very nature of the business structure put in place for taxation purposes, the husband and the wife had the benefit of income splitting.  It is unclear how all of their expenses were paid but there now remains within the entities, a number of loan accounts showing money owing not only to the wife but also the various adult children.  Against that, there is a significant liability of the husband which would no doubt have to be met if the loans were called in.

1. It would not be fair to the husband to ignore the contribution he made simply because he had the benefit of structures for tax purposes that other Australians might not have had, because the wife too enjoyed that benefit.  Her children who were not the husband’s legal responsibility, enjoyed not just private education but also accommodation and the participation in the parties’ lifestyle. 

2. There was a modest dispute about whether the wife’s former husband made any contribution to the support of his children primarily in relation to their private education.  The husband had given evidence in other proceedings that the wife had used her child support to support her own children and I accept that she did make that contribution.  Her evidence was that the children had the private education because the husband insisted upon it.  Whether or not he did, it was a concession that as the children were her legal responsibility, the husband made a contribution which assisted her and importantly, he did not seem to have an objection to so doing.

3. In summary therefore, the parties enjoyed an affluent lifestyle from which their respective children benefited. That lifestyle came from the income-earning asset that the husband brought in at the commencement of the relationship.  That cannot be ignored and I consider it significant.

The husband’s debt to his aunt

1. The husband claimed he owed his aunt the sum of $100,000.  Initially, the wife said that that was disputed.  The wife’s written response was to make no comment to his debt assertion in his trial affidavit.  However, there is no dispute that this money was advanced to the husband and he gave a plausible explanation as to how it arose.  The debt occurred prior to the present relationship commencing and as such, the wife could say nothing about it.  That is so because she conceded she knew little about the financial position. Importantly, this loan is shown in the company’s books of account. It was examined by valuer Mr N and the accounts record annual payments of interest to the aunt.  The husband asserts that upon his retirement, the sale of the business or the death of his aunt, this money will have to be repaid.  This is not a situation in which the debt is “statute barred” (see Ogilvie v Adams [1981] VR 1041). I am satisfied that this is a genuine debt of the husband.

2. Although there was no submission about it, I have considered the position as outlined by the authority of Af Petersens & Af Petersens (1981) FLC 91-095. It was not seriously suggested that the debt would not have to be repaid. As I have indicated above, the husband maintains it will have to be and there is the annual disclosure of the interest in the tax records. I will therefore treat the debt as one that must be paid and Valuer Mr N treated it that way as well for his calculations.

The property at O Street, Suburb P

1. Another issue related to the question of the husband’s entitlement to a share in a property at O Street, Suburb P.  It was not controversial that he has become a one-third owner from the estate of his mother. His interest (and that of the other co-owners) is subject to the life tenancy of his mother’s former partner.  The value of the husband’s interest in Suburb P was also not controversial.  It is accepted at $400,000.

2. The husband maintained that this was “not an asset of the marriage” but that ignores the fact that it is an interest in property.  I am not sure what the reference to “asset of the marriage” was intended to mean.  The wife as aware of the interest and said that her lawyers had sought to have an actuary calculate the present day value of the husband’s interest but they had failed to respond.  I am also not sure what that was meant to infer but there seems no dispute that the interest exists.  Counsel for the wife said that he was treating it as a “financial resource”.  That too can be misleading because the husband acknowledges the legal interest but subject to the life tenancy.  Although there was no submission about this, as a matter of law, he cannot sell his interest during the lifetime of the tenant without making alternate arrangements.  Even if an actuary was brought in, it could only be in relation to the question of when it might be likely that the husband could have access to his legal entitlement.  As it was common ground that the value of this asset was a “financial resource” I shall take it out of the list of assets but take into account that the husband will have the benefit at some stage in the future.  The uncertainty of that future time arises from the absence of any evidence as to the age and state of health of the life tenant.

The tax debt

1. In his list of liabilities, the husband included a taxation debt of $383,000.  At the commencement of the proceedings, counsel for the wife asserted that this was a disputed amount.  It emerges that it is not in dispute that the husband has that debt.  The nub of the dispute is that at the time of separation, the husband owed $160,000.  The only issue was that notwithstanding the husband’s substantial earnings, he chose to pay things other than his tax.  That was not entirely accurate because the husband did make payments albeit the tax debt continued to mount. This dispute requires an examination of what the husband did with his money.

2. I find that he paid approximately $28,000 per year on the mortgage encumbering the home in which the wife was living.  The wife made a modest $3000 payment.  If one takes into account that this is the third year since separation, at $28,000 a year, the amount begins to mount up.  The husband paid $14,000 or thereabouts towards the wife’s own taxation bill.  He paid the mortgage on the Suburb E property and, until April 2017, Suburb E was without a tenant so there was nothing to offset those costs.  He had private school fees albeit recently, only for one child.  He rented accommodation for himself as the wife had the benefit of the former home and it was not suggested that his rental was extravagant or inappropriate.  All of those expenses must be taken into account.

3. However, the most significant expense was in the capital reduction on a commercial bill that underpins the business.  That debt is currently $1.2 million and the wife is a co-borrower. She is exposed to that sum and if a default occurred, whilst the lender might endeavour to recover through the business, any real property that the wife has would be a potential source of recovery. 

4. This large borrowing in one form or another can be traced back to not just the acquisition of the husband’s share from Mr F and indeed, his former wife, but also to the acquisition of the register of clients that ultimately provides the commission that created the profit.  The husband pays $18,257 per month off the capital as a requirement of the bank; that is $219,000 per annum.  The interest component on that debt is deductable for tax purposes and was taken into account by the expert witness in valuing the husband’s interest in the business.  Each year a substantial portion of the profit of the business has been used to sustain the debt requirements of the bank.  It was submitted by counsel for the husband that the court should take into account that $131,000 per year had to be met from the net profit.

5. None of this finite detail was challenged by the wife.  It was the wife’s evidence (paragraph [41]) that although she had access to the bank accounts and records, she did so in her capacity as bookkeeper and to pay bills.  She said:

   I had no real knowledge or understanding of the business itself.

6. The knowledge of the wife in relation to much of the financial circumstances of the various entities and in particular the husband, was therefore limited.  That was extended to her understanding of the taxation liability.  There was much cross-examination of the husband about why these tax liabilities arose and ultimately, the taxation portal documents were produced but they simply confirmed that at times payments were made and others were not.  The wife had the opportunity to comment on the husband’s assertion as to the taxation liability and simply responded by saying that she had no comment.

7. I find that the taxation liability exists.  I accept that the debt has risen since separation but how much of that relates to the period prior to separation, I am unable to say on what has been provided.  I find that the husband has made payments on the taxation portal subsequent to separation.

8. Having regard to the evidence of the husband as to what he has paid, I have no reason to distinguish between the debt now and the debt at separation having regard to the financial commitments that the husband has met since separation.

The business valuation now

1. The single expert witness appointed by the court was Mr N of Q Accountants.  Mr N prepared a report which was provided to the parties in January 2018.  He was asked to value the interests of the parties in H Trust, G Trust and J Pty Ltd. 

2. Mr N opined that the H Trust had no equity but there were loans owed to people within the family of $613,529.  He found there was a negative equity of $301,817 in the G Trust and with loans of $64,351 there was an overall negative interest of $366,168.  In the J Pty Ltd he found there was $822,301 equity and a loan of $639 so he calculated a net interest of $822,940.  The combination of the three entities meant that the equity was $520,484 against which loans would have to be paid if they were called upon of $677,241 leaving a shortfall of $156,757. Notwithstanding the expert evidence indicates that the business has no value, the parties had agreed to approach the matter differently as I will now show.

3. The wife’s counsel called for Mr N to attend.  When Mr N arrived, counsel for the husband indicated that notwithstanding the figures to which I have just referred, his client was prepared to accept that the gross value of the entities was $1.8 million against which there as a liability of $1.2 million or in other words, a net equity of $600,000.  When Mr N was called, that concession was ignored by the wife.  Notwithstanding the figures to which I have just referred, the wife wanted to argue that the opinion of Mr N was wrong.

4. The difficulty in this issue lies in the fact that there were net tangible assets of $822,940 in one of the groups but by the time the other liabilities were offset, much depended upon what happened to the loans.  If those loans are called in, there is a shortfall.  Ironically, one of those loans is by the wife.

5. Mr N was asked to undertake the valuation task. He did so on the basis of the capitalisation of future maintainable earnings.  The result can be seen above.  However, he was criticised by the wife arising from some advice she had received from another forensic accountant whose evidence was not put before the court and who was not called to give evidence.  It was suggested to Mr N that what he should have done was to calculate the last three years of profit and then average them.  It was said that this was the “usual” valuation practice after which, a multiplier could be applied to the average.  The multiplier is a subjective judgment of the expert factoring in a number of risk issues.  Mr N rejected the suggested approach saying that averaging was not an appropriate method and he did not use it.  He said that he wanted to look at the trend and in his view, profitability of this business was in decline. There is no correct approach as to the valuation of a business (Georgeson & Georgeson (1995) FLC 92-618, 81,218). Absent any contrary evidence, I am not in a position to say that Mr N was wrong about his methodology.

6. Mr N conceded that he had been given a schedule of payments received by the husband up until December 2017 from which he extrapolated a figure mathematically to arrive at what was anticipated to be earned by the business in 2018.  The figure he calculated was less than that which had been earned in the 2016-2017 financial year. 

7. Counsel for the wife submitted in final address that the Mr N methodology was based on speculation, the absence of solid figures not to mention the estimates of the husband.  I reject that.  Undoubtedly, what Mr N was doing was speculating as to whether or not the income stream would continue.  In the three years to the end of June 2017, the husband’s income stream remained relatively constant.  The commissions dropped substantially in 2017 but that was made up by “fees received for services rendered”.  Mr N was not prepared to concede that the change which the husband attributed to legislation, indicated that there was no difference.  He showed that the commissions had dropped by $100,000 between 2016 and 2017 and he only had the 2017 fees for service to work with.  He said that he concluded that the appropriate methodology was to use the same figure in 2018 as had been received in 2017.  The annexure provided by the husband condensed the streams of income so Mr N was in error by splitting the two streams of income as he did.  He conceded that he had construed the fees as part of the commission income but if that was not the case, he thought, and I agree, the value most likely would be lower. I gave counsel for the wife an opportunity to recall the husband because that issue had not been put to him in cross-examination.  Counsel declined to do so.

8. If Mr N had incorrectly assessed the projection for 2018 based on a false assumption about the two steams of income, the only difference would be that there would be a drop in income for 2018 but that would depend upon whether I accept that the fee for services stream of income was correctly estimated.  I accept what Mr N says that the fee for service stream is the best evidence that he has.  In any event, it is hard to see how it assists the wife bearing in mind the analysis that Mr N undertook as to the net value of the business.

9. Even if I took the alternative course of having Mr N do a valuation based upon averages of three years, that only marginally increases the earnings to be then applied to the multiplier.  That too would make little difference to the summary that Mr N gave me when I compare it with the concession made by counsel for the husband that the court should use a net equity of $600,000.

10. The expertise of Mr N was not challenged.  There was no challenge to the multiplier.  Indeed, it was said that the wife’s “shadow” expert used the same multiplier.  The issue was perplexing because none of this makes any difference to the $600,000 concession by the husband. Indeed, it ought be obvious that the value of assets is increased by the concession rather than using any of the figures considered by Mr N.

The motor car

1. The only other asset about which the parties had a disagreement as to value was the motor vehicle 1 that is to be retained by the wife.  She valued it at $4000 and the husband valued it at $11,000.  There is no evidence to show the correct valuation and neither party explained how they obtained the figure that they did.  Mr Wilson of counsel for the husband acknowledged that the whole issue was de minimis.  In my view, the best evidence here is that of the wife which amounts to an admission against interest and I propose to accept the value of the motor vehicle 1 at $4000. 

Debts

1. There are other debts including a Westpac Bank overdraft.  The wife agrees that the overdraft exists but her view is that she should not take responsibility for it.  She pointed to the fact that at separation, the debt was $22,800 and it has now risen to $40,000.  For the same reason as I have already set out in relation to what the husband has been paying rather than his tax, I can understand how this debt continues to rise.  In my view, the debt as claimed should be allowed.

Assets of the parties

1. The husband also claimed that he had a Visa debt of $30,000.  Counsel for the wife conceded that the limit on that debt had been $26,000.  I am not sure why this is a disputed debt but it seems to fall into the same category as the tax debt and the business overdraft and I propose therefore to allow it.

2. Accordingly, I find the assets of the parties are as follows:

   House, Suburb C  $975,000

   Less mortgage  369,000               $606,000

   Property at Suburb E  $600,000

   Less   400,000               $200,000

   The group of companies                  $1,800,000

   Less Westpac Bank Bill  1,200,000               $600,000

   Motor vehicle 1  $4,000

   motor vehicle 2  $32,000

   Less debt   25,000  $7,000

   Motor cycles  $32,000

   Less finance  $20,000                  $12,000

   Husband’s boat  $10,000

   Sub-Total  $1,439,000

   Less liabilities

   Westpac overdraft  $40,000

   Westpac Visa card  10,000

   Australian Taxation Office                  $383,000

   Loan to aunt  $100,000

   National Australia Bank Visa                $30,000               $563,000

   Net Equity  $876,000

Superannuation

1. It seems that each party also has a superannuation interest with an K Bank fund. The wife has more than the husband but it would not be unreasonable to describe both as modest. Neither party sought a splitting order and it was not the focus of the final addresses of counsel. Notwithstanding the Court has power to determine what those interests are and how, if at all, they should be altered, that was not the position of either party and I have not considered the matters further. In respect of superannuation being a consideration under s 75(2) of the Act, it was not suggested that these interests have any real effect on the parties’ future economic circumstances.

Add-Backs

1. In her outline of case, the wife concluded with a statement that there should be “Addbacks”. These were listed as income earned by the husband after separation, a ski boat sold by the husband and two motor bikes sold by her. An issue identified as being in dispute included the “substantial income retained by the Husband post separation”. Nothing more was said about it so it remained unclear what the wife was arguing. Clearly, the same sort of argument came to the fore in relation to the treatment of the tax liability.

2. Because nothing much more was said about it, I consider that I should indicate why I have excluded the “addbacks”. In respect of the sold vehicles, it was common ground they should be excluded because the money had been received and used for whatever purpose each party thought appropriate at the time. Life cannot hang in suspended animation. More importantly, in respect of the income earned, although it seems to have contended by the wife that the money received was dissipated other than it should have been, the evidence does not support that assertion. A second question must be asked whether, having regard to what did happen to the money, does justice and equity require that what is now said to be missing, should be taken into account somehow. How does one quantify that loss or dissipation having regard to the exigencies of life? The authorities relevant to this sort of approach urge consideration of cases such as Kowaliw and Kowaliw (1981) FLC 91-092 and Townsend and Townsend (1995) FLC 92-569 to name two. Nothing further was said about the issue and I have therefore based my determination on the taxation issue. “Add-backs”, so called, should be the exception rather than the rule unless they fit into one of the categories such as those just mentioned. Absent submission on the point, I consider this has explained why I have ignored the outline on that point.

The wife’s debts

1. There are two other debts that the wife claimed. There are her arrears of her own tax liability which she put at $20,000 and her own credit cards which she estimated to be $8900.  I do not know the connection between these liabilities and the parties’ assets and, unlike the business overdraft and the Visa card which were clearly operative during the relationship, there is no evidence to assist me as to where these particular liabilities come from.  I will however take into account that the wife has those liabilities but not add them into the formal calculations above.

The Suburb P property

1. Secondly, there is then the issue of the Suburb P property which has been described as a financial resource. I shall leave that as part of the adjustment in favour of the wife under s 75(2) on the basis that one day in the future, the husband may have access to it but it cannot have much weight because I know nothing about the likelihood of the husband being able to access it nor how he would get his one-third share with two other registered owners.

   FINAL SUBMISSIONS

2. Mr Williams for the wife submitted that the Court should adopt a position that the wife was not now obliged to contribute towards the tax debt because the husband had access to the income stream. He submitted that in the alternative, it should be the amount at the time of separation which was conceded as $160,000.

3. Mr Williams then addressed the valuation exercise of Mr N and repeated his approach taken in cross-examination. I have already dealt with that position.

4. In respect of the business debt, Mr Williams proposed that an indemnity by the husband was not sufficient to protect the wife and that if the husband did not produce a discharge of the wife’s liability, the business should be sold. In my view, that would not advance the wife’s interests at all because her property interest would be most likely the target of the mortgagee because it is the most accessible asset.

5. Whilst the aunt’s debt was contentious during the trial, Mr Williams accepted it in final submissions but said it was a matter for the Court as to whether it was to be called up. I have also dealt with that earlier.

6. In terms of contribution, it was submitted that the wife’s contributions were greater than those of the husband or at least the same. For the reasons set out, I reject that. Although he acknowledged the problem of the impact of a future maintainable earnings valuation on s 75(2), as I mention below, Mr Williams submitted that the husband was retaining the greatest asset which was his earning capacity. What he did not say was that he was also taking the largest debt and could lose everything if the income stream was diminished and could not satisfy the debt. He urged the court to make a significant adjustment in favour of the wife.

7. Mr Wilson of counsel for the husband submitted that the business valuation was based on the capitalisation of the earning stream and when one took into account the notional salary to owner, the husband could be seen as earning $109,000 whilst the wife was earning $75,000 and that was not much different. He submitted that the Tax debt had to be paid and the sale of Suburb E would not achieve that. I accept that. He submitted the husband’s contribution in respect of the wife’s children had to be taken into account and I have done that.

8. Overall, Mr Wilson submitted that the husband’s contributions were greater than the wife and in so far as s 75(2) was a consideration, the only difference was the earning capacity just mentioned and any adjustment should therefore be modest.

Assessment

1. The court is obliged to holistically assess all of the contributions of the parties.  Undertaking it that way, I find that the husband’s initial contribution was greater than that of the wife simply because he brought in the significant income-earning business.  Whilst the wife contributed some capital from the interest she had in her home, I find that that has only modestly increased since the relationship began as a result of market forces.  The husband made a significant contribution to that home in paying the mortgage commitment from the business resources.  Whilst the mortgage has increased, there is no evidence to tell me why that was associated with any of the other assets and counsel for the wife conceded that in final address.

2. There was little, if any, evidence about the non-financial contributions of the parties during their relationship and accordingly, I have presumed that neither disputes that each did the best they could.

3. During the relationship, only two issues distinguished the parties’ contributions from each other.  The first relates to the significant earnings of the husband.  The second relates to his contribution to the children of the wife.  I accept in both cases, the genesis of his earning power came from the assets that he had prior to the relationship commencing.  Save for those two, I accept that otherwise, over the life of this relationship, the parties generally contributed in much the same proportions.

4. After separation, the husband continued to make the payments from the same source of funding.  Whilst all of that has been taken into account, the husband fulfilled his obligation to support the wife by providing the mortgage payments.

5. I assess the overall contributions of the husband as being greater than the wife. 

6. As Coleman J said in Steinbrenner & Steinbrenner [2008] FamCAFC 193 at some point, the court must move from the qualitative to the quantitative. To achieve a just and equitable distribution of the assets, that quantity has to here reflect the gap between the parties’ contribution rather than some percentage figure although it can be done that way. The ultimate division or outcome must reflect the underlying value of the respective contributions. Here, with the modest assets, it is helpful to look at a global approach on a percentage basis and having regard to my finding above, that discernible gap here should be a differential of 20 per cent. I would therefore divide the equity in the assets based on contribution at 60 per cent to the husband and 40 per cent to the wife.

7. As part of the exercise under s 79(4) of the Act, the court must take into account a number of factors. I am very conscious here that the argument of the wife is that there is a significant difference between the parties in terms of their earning capacity. However, it would be double dipping to load a large percentage or adjustment in favour of the wife on that basis as was urged by counsel for the wife because, whether I use the Mr N value or that which seemed otherwise to be what both parties were finally accepting, that value (the $600,000) is attributable to the capitalisation of the future maintainable earnings of the business. I cannot give the wife a portion of the asset which includes capitalised income and then give her another portion because the husband earns more than she does. Despite that, there is justification for an adjustment in favour of the wife because the husband can earn more than the wife. Mr Wilson for the husband pointed to the fact that if that logic was used, the court should be restricted to what Mr N said was an appropriate salary to an owner of $109,000. That is clearly not what the husband can draw from the business but having regard to the capitalisation of the value of the income stream, any further adjustment beyond could not be justified.

8. I also take into account that the husband has the future benefit of $400,000 in the Suburb P property.  I take into account also that the wife has two modest debts but the husband has a substantial liability for debts which will affect his access to funds.  He must also meet a large tax debt which has arisen from earnings in which the wife has directly and indirectly shared.

9. The underlying value of the assets is a matter that the court must take into account.  In the wife’s case, her proposal was that she should have the Suburb C home without encumbrance.  That is unrealistic when there is so little equity for the parties to adjust.  The husband is obliged to pay the large tax bill and if that was paid by instalments, it could only come out of the income steam that has been capitalised if I accept, as I have, that he is obliged to fund the capital commitment monthly under the commercial bill. The capitalisation approach therefore substantially reduces his net income picture.  There is no indication that he is currently being pressed by the Tax Office to meet any liability under threat of litigation.  Needless to say however, he is taking on the risk that the liabilities would have to be met. 

10. In discussion with counsel for the wife I incorrectly observed that his client had the prospect of being called upon to meet a liability to the business because of the beneficiary loan accounts. As counsel for the husband quite properly pointed out, that observation was incorrect and indeed it was the reverse. Counsel for the wife had by that point, and with the same ignorance as mine, submitted that wife needed protection from being called upon to meet the debt to the business in the loan accounts. Having accepted that counsel for the husband was correct that it is the reverse of what I had said, justice and equity requires that the husband have that same protection. In my view, the wife must give that right to claim that debt away bearing in mind that Mr N says that the capitalisation of future maintainable earnings as he valued it, takes into account the potential for the family loans to be paid. It is a modest amount and as the debt would now not have to be paid, that is another factor that favours an adjustment in favour of the wife under s 75(2)(o).

11. I am very conscious of the risk of an assessment based on percentages can distort a just outcome particularly where there is a very modest amount of assets. Thus, it is important to focus on the underlying value of what those percentages represent.

12. A division which gave the wife 40 per cent would leave her with very little but so too, whilst the 60 per cent would leave the husband with much more, he will be carrying significant debt to maintain the modest value of what that 60 per cent represents. I could not confidently say here that  a sale of the business would produce the dollar values in net terms that the parties have agreed upon in their respective outlines of argument. If Mr N is correct and the creditors who are owed money under the loan arrangements called in those loans, the husband would have very little. However, that is the way this case was conducted and I am conscious that there are risks for each party.

13. Thus, I take those matters into account when considering an adjustment because of the relevant section 75(2) factors. Here, the “financial resource” that the husband has, and his greater entitlement by virtue of the contributions as I have assessed them, along with a modest adjustment in favour of the wife for the disparity of earnings as just indicated, warrants a further adjustment in favour of the wife to the extent of 10 per cent.

14. A just and equitable outcome therefore means that the assets of the parties as articulated above should be divided equally.

I certify that the preceding eighty-three (83) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 9 April 2018.

Associate: 

Date:  9 April 2018