Vida & Vida (No 2)
[2025] FedCFamC1F 152
•12 March 2025
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Vida & Vida (No 2) [2025] FedCFamC1F 152
File number: SYC 1533 of 2019 Judgment of: ALDRIDGE J Date of judgment: 12 March 2025 Catchwords: FAMILY LAW – PROPERTY – Application for final property settlement orders – Dispute about property pool and values of assets – Financial affairs of the trust, various companies, the husband and his mother were closely intermingled – Where the husband had effective control over a trust – Where the trustee appointed the corpus of the trust to the husband’s mother after the wife raised questions of property division – Value of the trust to be included in asset pool – Whether loans from the husband’s mother are genuine liabilities in the balance sheet – Whether the self-managed superannuation fund was to be treated as segregated or pooled – Discrepancy in business accounts and dispute as to the true value of the business – Where each party pursued an extreme position as to property division – Initial contributions favour the husband – Where contributions during the marriage would be equal but for the funds provided by the husband’s mother – No medical evidence as to future needs or capacity – Whether the husband’s strategy of building wealth in his mother’s name justifies an adjustment – No adjustment to contributions-based entitlements – Uncertainty as to CGT implications – Property to be divided 65 per cent to the husband and 35 per cent to the wife. Legislation: Family Law Act 1975 (Cth) ss 79, 106B
Income Tax Assessment Act 1936 (Cth) Div 7A
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 7.19
Limitation Act 1969 (NSW) s 14
Cases cited: Aitken & Aitken (2023) FLC 94-142; [2023] FedCFamC1A 69
Biltoft and Biltoft (1995) FLC 92-614; [1995] FamCA 45
Chorn and Hopkins (2009) FLC 93-204; [2004] FamCA 633
Jess v Jess (No 4) (2023) 67 Fam LR 615; [2023] FedCFamC1A 189
Kennon v Spry (2008) 238 CLR 366; [2008] HCA 56
Kowaliw and Kowaliw (1981) FLC 91-092
Rosati v Rosati (1998) FLC 92-804; [1998] FamCA 38
Division: Division 1 First Instance Number of paragraphs: 197 Date of hearing: 12–16 August 2024 and 8 October 2024 Place: Sydney Solicitor for the Applicant: Mr Reeve, Marsdens Law Group Counsel for the First Respondent: Mr Katsinas with Mr Blank Solicitor for the First Respondent: Simone Legal Counsel for the Second Respondent: Mr Othen SC Solicitor for the Second Respondent: Newnhams Solicitors The Third and Fourth Respondents: No appearance ORDERS
SYC 1533 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS VIDA
Applicant
AND: MR VIDA
First Respondent
MS B VIDA
Second Respondent
N PTY LTD (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
ALDRIDGE J
DATE OF ORDER:
12 MARCH 2025
THE COURT ORDERS THAT:
1.The parties are to provide to the chambers of Justice Aldridge proposed minutes of order as to the form of final orders that give effect to the reasons for judgment delivered on 12 March 2025.
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 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Vida & Vida has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALDRIDGE J:
These are final property proceedings between the applicant wife, Ms Vida (“the wife”) and the respondent husband, Mr Vida (“the husband”). The second respondent, Ms B Vida (“the second respondent”), is the husband’s mother. She was born in Country GG and immigrated to Australia with the husband’s father in or around 1971. The second respondent has a limited knowledge of English and primarily speaks JJ Language. She was assisted by a JJ Language interpreter throughout the hearing.
At the commencement of the hearing the wife was granted leave to file a Further Further Amended Initiating Application. It seeks orders that a number of transactions that took place between the husband and second respondent and N Pty Ltd (“N Pty Ltd”) and M Pty Ltd (“M Pty Ltd”) as trustee for the Vida Family Trust (“the trust”) be set aside pursuant to s 106B of the Family Law Act 1975 (Cth) (“the Act”). Quite properly, as orders are sought against them, leave was sought to join the two companies as parties to the proceedings.
The application was opposed, principally on the ground that many of the proposed orders involved transactions of which the wife had been aware since June 2023 and some were, it was submitted, inconsistent with orders made in July 2023 and November 2024. It was, however, accepted that some of the transactions only came to the attention of the wife in June 2024. It was also accepted that the affidavits to be relied on by all respondents, which included an affidavit by their accountant, dealt with all the proposed transactions, although not perhaps as fully as they might have had they been aware of the proposed orders.
Taking these matters into account, I considered that the interests of justice were best served by granting leave. None of the parties sought for the third and fourth respondents to be separately represented, nor did anyone seek a further adjournment. A such, the matter proceeded as listed.
At the hearing, the wife sought orders which would see her receive 90 per cent (not a typographical error) of the expanded pool of property which included assets vested in the second respondent. For his part, the husband proposed that he receive 70 per cent of a very much reduced pool of assets. There are, therefore, a number of contested issues as to both the inclusion and value of a number of claimed assets.
BACKGROUND
The wife and husband met in late 1998 and commenced a relationship shortly thereafter. In late 2000, they travelled around Australia for approximately six months and commenced cohabitation upon their return. They married in late 2002.
There are two adult children of the marriage who were 21 and 20 years old at the time of the hearing.
The date of separation was in contention in the lead up to the final hearing. However, in his Case Outline, the husband conceded the spouse parties separated in July 2018. He maintains that the spouse parties were effectively living separately under one roof from July 2005. The husband and wife were divorced in 2020.
Procedural history
The wife commenced the current proceedings in the then Family Court of Australia on 13 March 2019.
On 1 March 2021, the proceedings were referred for arbitration, which occurred some months later. An award was handed down on 20 November 2021 and subsequently registered on 14 January 2022. On 17 February 2022 the husband applied for a review of that award.
The husband’s review application was dismissed on 9 December 2022, although an order was made setting aside paragraph 2 of the award. The husband appealed that decision and the wife then filed a cross-appeal. The Full Court made orders on 18 October 2023 allowing both the appeal and cross-appeal and remitting the review application for rehearing.
On 6 November 2023, I made a number of interlocutory orders including various consent injunctions. The review application was dropped and the matter proceeded as a straightforward property settlement dispute. It was initially set down for trial in June 2024 but subsequently relisted to August 2024.
N Pty Ltd
Throughout the relationship, the husband worked in the business conducted by N Pty Ltd.
N Pty Ltd was established by the husband and his parents in mid-1995. The husband, the second respondent and the husband’s father were named as directors, each with 100 ordinary shares. N Pty Ltd’s primary business was construction. Each of the three directors worked in the business.
In December 1997, a further 30,000 ordinary shares were issued in N Pty Ltd and allocated equally between the three directors.
In 2002, upon the husband’s father passing away, the second respondent inherited her husband’s shares.
In June 2007, the shareholdings in N Pty Ltd were restructured such that the second respondent’s 20,200 shares were transferred to M Pty Ltd as trustee for the Vida Family Trust by way of consideration of $1,206,939, which will be discussed in further detail below. The $1,206,939 was borrowed from N Pty Ltd under terms of a loan agreement dated 19 June 2007.
Vida Family Trust
The trust was one of the main assets in contention.
The trust was established by deed in mid-2007 with M Pty Ltd appointed as the trustee. At that time, the husband was the sole director and shareholder of M Pty Ltd. However, in October 2019, the second respondent was appointed a director of M Pty Ltd.
The wife contended that the assets of the trust should be taken into account as property divisible between the spouse parties and that orders should be made under s 106B of the Act setting aside the many transactions that removed those assets from the effective control of the husband. As I understood her case, she did not suggest that these transactions were undertaken with the intention of defeating her claim. Rather, she asserted that the transactions had the effect of defeating her claim because the property the subject of them would otherwise have been available for division between the parties.
Mr CC, long-term accountant for both the husband and the second respondent, gave evidence that the trust was set up as part of a “restructure” of the second respondent’s shareholding in N Pty Ltd for “tax purposes”.
He said he was first approached for advice as to the second respondent’s N Pty Ltd shareholding by the husband on behalf of the second respondent in December 2006. He prepared a discussion paper which he presented to the second respondent, however, he had mistakenly understood that the husband was purchasing the shares. After being corrected, his evidence was that he “explained to [the second respondent] that in order to achieve the outcomes she sought we would need to sell those shares to a new entity but she would be able to continue to receive income and capital from dividends indirectly paid by [N Pty Ltd]” (affidavit of Mr CC filed 3 July 2024, paragraph 20).
The husband was appointed as the nominator of the trust. Under clause 14 of the deed (Annexure “E” to the affidavit of Mr CC filed 3 July 2024), the nominator may remove the trustee and appoint another at will.
Pursuant to clause 4 to18 of the deed, the trustee may:
·Distribute income to beneficiaries;
·Distribute capital to beneficiaries;
·Invest as it sees fit “whether or not any such investment involves the incurring of liabilities and whether or not it may produce income”; and
·Revoke, alter or add to any provision of the trust deed.
The husband was the nominated beneficiary (Schedule 8). By virtue of their relationship with the husband, the wife and the second respondent were also beneficiaries. Up until 2016, dividends were declared, if not always paid, to the wife, the husband and the second respondent.
This combination of powers, and particularly those of the nominator, gave the husband effective control over the trust. He could cause the entirety of the trust assets to be paid to anyone, including himself. It follows that the assets of the trust are, or at least were, for the purposes of these proceedings, property of the parties or either of them and available for distribution between them (Kennon v Spry (2008) 238 CLR 366).
As mentioned above, in June 2007, the second respondent transferred her shares in N Pty Ltd to M Pty Ltd. The second respondent maintained that these shares were her property and did not form part of the property available for distribution between the spouse parties.
In June 2007, M Pty Ltd borrowed $1,206,939 from N Pty Ltd pursuant to a loan agreement dated 19 June 2007. This sum was then paid to the second respondent in consideration for the transfer of the shares. It matters not that the cheque in repayment went directly from N Pty Ltd to the second respondent.
The loan from N Pty Ltd to M Pty Ltd was identified by Mr CC as being one which fell within Div 7A of the Income Tax Assessment Act 1936 (Cth) and, accordingly, was required to be repaid within seven years. M Pty Ltd received dividends on the shares it held in N Pty Ltd and used them to repay the loan.
Following the transfer, and taking advantage of generous superannuation laws that applied at the time, the second respondent contributed $1,105,113 to Super Fund 1, being a non-concessional contribution of $1 million and a concessional contribution of $105,113.
The legal effect of these transactions was that the second respondent’s shares in N Pty Ltd were no longer owned by her. They were owned by M Pty Ltd as trustee of the trust.
It follows that I cannot accept the following evidence of Mr CC:
37.At the time of the restructure, I was satisfied that [the second respondent] understood and continues to understand that she is the beneficial owner of the [Vida] Family Trust and that the only reason for the restructure was to take advantage of tax benefits of placing funds in superannuation and the added benefit of splitting income.
(Affidavit of Mr CC filed 3 July 2024, paragraph 37)
Neither counsel for the husband nor the second respondent embraced the proposition that the second respondent remained the beneficial owner of the assets in the trust. Whilst it might have been hoped and even expected that M Pty Ltd would act as if the shares were still owned by the second respondent and smile upon her when making distributions, it was not obliged to do so. Indeed, if the actual intention was that the second respondent retain beneficial ownership of the shares, the transfer to M Pty Ltd would be a sham with significant tax consequences. The second respondent obtained the tax advantage by actually disposing of her interest in her shares.
Thus, as I have already said, as Mr CC ultimately accepted in cross-examination and as counsel for the husband and the second respondent accepted in submissions, the legal effect of these transactions was that for the purposes of family law proceedings, the assets of the trust constituted property available for distribution between the parties.
Assets “funded” by the second respondent and owned by M Pty Ltd and the trust
The Town FF property
In mid-2009, M Pty Ltd entered into a contract for the purchase of land at OO Street, Town FF (“the Town FF property”) for $225,000. The deposit of $22,500 was paid by N Pty Ltd.
The second respondent withdrew $225,000 from Super Fund 1 in mid-2009. She was entitled to do so as she had reached the preservation age. She contributed these funds to the trust by way of loan. It was originally recorded as a loan from the husband but that seems to be an obvious error.
M Pty Ltd used $22,500 from the funds received from the second respondent to repay N Pty Ltd for the deposit. The rest of the funds were applied to the balance of the sale price of the Town FF property.
The effect of these transactions was that M Pty Ltd, as trustee, owned the Town FF property and owed the second respondent $225,000.
The Suburb KK property
In mid-2010, M Pty Ltd acquired a property at HH Street, Suburb KK (“the Suburb KK property”). Following Mr CC’s advice, it was purchased by M Pty Ltd in its own right and not as trustee, so as to take advantage of tax losses it had incurred arising from excess franking credits in the order of $168,850.
In mid-2010, the second respondent provided M Pty Ltd with $60,000. It used $28,250 to pay the deposit for the purchase of the Suburb KK property.
In late 2010, the second respondent provided M Pty Ltd with $265,000. This was recorded by M Pty Ltd as a loan from the husband, presumably the second respondent having lent it to him (affidavit of Mr CC filed 3 July 2024, paragraph 55). On the same day, M Pty Ltd paid the balance of the purchase price of $265,500.
The Suburb KK property was sold in late 2011 for $390,000. M Pty Ltd retained that sum and used it to develop the Town FF property.
Cash
In April and July 2014 the second respondent paid $90,000 and $100,000 respectively to the trust. The copy of the trust ledger said to be in regard to the July 2014 transaction records the highlighted transactions as “$100,000 contributed by [the husband] directly to [M Pty Ltd] offset against loans” (Annexure “X” to the affidavit of Mr CC filed 3 July 2024). The true position is somewhat unclear, but these were treated as contributions by the second respondent.
Gifts by the husband to the trust
The husband gave the trust $975,626 between 2015 and 2018 as follows, mainly from non-cash dividends (affidavit of the husband filed 3 July 2024, paragraphs 169–170):
·2015 – $86,500
·2016 – $135,000
·2017 – $58,500
·2018 – $695,626
All this arose from tax complications which Mr CC explained as follows:
64.The Division 7A Loan Account needed to be satisfied within 7 years, otherwise significant and unfavourable tax liabilities would arise. On advice I provided to [the husband] and [the second respondent] from 2008 to 2014, it was resolved that the Trustees were to appoint as significant proportion of the income to a corporate beneficiary. As [M Pty Ltd] was a corporate entity, the appointment of income to it would then minimise any further income tax and it was deferred to a later period.
65.The appointment of income cause [M Pty Ltd] to record unpaid present entitlements (represented by amounts owing to it from the Trust). However, the Commissioner of Tax took a public view from 15 December 2009 that all unpaid present entitlements from an associated trust would be a loan for Division 7A purposes. This was in accordance with its Taxation Ruling TR2010/3 paragraphs 19-26. It was the view of the Commissioner at the time that the private company was providing financial accommodation.
66.[M Pty Ltd] entered into a Loan Agreement that met the conditions of Section 109N of the Income Tax Assessment Act 1936. If the loan agreement had not been entered into the payments following 2010 would have been treated as an unfranked dividend which would have had unfavorable [sic] income tax consequences. Section 109N however requires interest to be paid using the benchmark interest rate and the term of the loan was restricted to the period of 7 years.
67.As a result, and to satisfy the Division 7A Loan, the amounts loaned either needed to be repaid by the Trust or alternatively a dividend declared by [M Pty Ltd]. [The second respondent] could not have loaned the money to the Trust to repay such loan to [M Pty Ltd] as it would have caused her to dilute her super and cash reserves. It would have undone the restructure that had been planned in 2007. The advice I provided was to pay a “paper” dividend from [M Pty Ltd] to the shareholder [the husband]. This created a liability owing to [the husband] and because it was a loan and no cash attached, it was agreed that the “paper” money would be ultimately contributed back by [the husband] to the corpus of the Trust. [The second respondent] understood the assets of the Trust were her assets; she had financed them, and the restructure was simply a mechanism to allow her to take advantage of the generous superannuation laws and minimise income tax. The cash had originally flowed from [N Pty Ltd] where she was a 66.67% shareholder to the superannuation members account in the superannuation fund. All other dividends subsequently paid out were in the “paper” form and were necessary to minimise tax over a period of time.
68.As of [M Pty Ltd] had one shareholder in [the husband] any dividend declared by [M Pty Ltd] was therefore declared by [the husband] as taxable income. [The husband] paid the tax and he was loaned $200,000 from [the second respondent] on 9 September 2019 to meet that tax bill. The rationale was [the husband] and [the wife] had been given trust distributions over the years of $117,263, of which $126,594 remains unpaid by the [Vida] Family Trust. [The wife] kept the tax refunds arising from those trust distributions and franking credits totalling $31,668. In total the amounts [the husband] and [the wife] received of $208,931 were close to the tax [the husband] paid…
(Affidavit of Mr CC filed 3 July 2024, paragraphs 64–68)
Mr CC’s evidence as to the intention of the second respondent is beside the point (even if correct). If you dispose of assets to obtain a tax benefit, you cannot approbate and reprobate by asserting that they remain owned by you. I am not persuaded that the husband’s transfers were actual payments from his assets to the trust. It follows that they will not be considered contributions on his behalf.
Appointment of the corpus of the trust to the second respondent
On 10 August 2018, the wife’s solicitor wrote to the husband raising questions of the division of the parties’ property and property settlement proceedings.
In November 2018, M Pty Ltd resolved to allocate 100 per cent of the corpus of the trust to the second respondent. It also resolved that she could be appointed as a director and secretary of the company.
The effect of this resolution was that the corpus of the trust which had been available for distribution between the parties was no longer available. Section 106B of the Act therefore has potential application, at least as events stood at the time.
Mr CC’s evidence was that the intention of the allocation was not to defeat the wife’s impending property application but was part of genuine estate planning. He said:
77.[The second respondent] had a will drafted [in] July 2009 by [LL Lawyers]. This was updated [in] November 2015 by [MM Lawyers], and further updated [in] November 2018 by [MM Lawyers]. In meeting I held with [MM Lawyers], I verbally outlined the strategy of [the second respondent] and [the husband’s] estate plan. In either 2015 or 2018, and likely before meeting with [MM Lawyers], I drew diagrams to demonstrate the flow of income and capital that could form part of their respective Estates. A copy of the diagrams form part of the exhibits to my affidavit. The purpose of this was to portray how the income and capital would flow from [the second respondent’s] Estate. It would flow into the [husband’s] Testamentary Trust. I did not draft in [the second respondent’s] estate plan diagram the possible structures which could then be utilised to flow the income or capital further as I believed it would be too complex for [the second respondent] to comprehend. In [the husband’s] diagram I did show the entities the [husband’s] Testamentary Trust could flow the income and capital to. These included other companies and trusts such as [M Pty Ltd] or [Vida] Family Trust of which [the husband] was a shareholder and beneficiary of respectively.
78.These testamentary trusts when established are quite flexible and demonstrating that flexibility was the purpose of the diagram for [the husband’s] estate planning. I could have replicated these structures in [the second respondent’s] diagram however chose not to so as to not make it too complex for [the second respondent] to comprehend. The purpose of the diagrams was to demonstrate the assets included below the [husband’s] Testamentary Trust which were legally in [the husband’s] name could be included within the estate planning structure we were setting up for [the second respondent].
79.[The second respondent’s] Estate plan establishes Testamentary Trusts for her sons [the husband] and [Mr XX]. Neither [the husband] or [Mr XX] control the Trusts. The nominators of these trusts are myself, [the husband] and [Mr XX] or a company nominated by us acting by majority resolution. Excerpts of the will of [the second respondent] form part of the exhibits to my affidavit.
80.In conference with [MM Lawyers] and the translator [Ms NN], it was explained to [the second respondent] that assets she believed she owned being the [Town FF] property and the 20,200 shares in [N Pty Ltd] were legally owned by the [Vida] Family Trust. I and [MM Lawyers] explained that to ensure the entitlement to these assets formed part of her estate the Corpus of $1,309,248 would be appointed to her creating a debt due to her. [In] November 2018 the Trustee resolved to appoint 100% of the corpus to [the second respondent] and that [the second respondent] may be appointed as a Director and secretary of the company. [The second respondent’s] will was also executed [in] November 2018. I have and continue to advise this strategy for a number of my clients that are elderly because they don’t understand the assets held in legal structures aren’t legally in their names and can’t be bequeathed. Since the High Court ruled in Fisher v Nemeske Pty Ltd [2016] HCA 11, I typically advise my clients to appoint the asset revaluation reserves and/or corpus to the client’s name so as to create the legal entitlement to an asset. The proceeds from repayment of the debt created will then fall into the testamentary trust upon administration of the clients [sic] estate. Otherwise, if this strategy wasn’t undertaken then the unrealised capital gain will not form part of the client’s estate and it becomes difficult to use the testamentary trust to its full capability.
(Affidavit of Mr CC filed 3 July 2024, paragraphs 77–80)
This evidence is particularly vague as to whether the decision to vest the corpus of the trust in the second respondent, as a consequence of the advice given to the second respondent that she did not own the Town FF property or the shares in N Pty Ltd, was made in 2015 or 2018. Since nothing occurred between 2015 and 2018 relevant to that discussion, it seems unlikely to have been in 2015. As the relevant steps were taken in November 2018, it is more likely than not that the advice was given, and the decision made, in 2018. No explanation was given for waiting until then if the advice and decision was given and made in 2015. There is no evidence that indicates any steps were taken to record or implement the decision before 2018.
The inference that the letter of 10 August 2018 was the catalyst for the vesting of the corpus easily flows.
It is not necessary to determine whether or not there was an actual intention to defeat the wife’s claim because the clear effect of the transaction was to vest the entirety of the assets of the trust in the second respondent and to prevent them being distributed to anyone else, which potentially included the husband or the wife. To that extent, the vesting was “likely to defeat” any claim that could be made against the assets of the trust.
The effect of the letter is that an anticipated claim within the meaning of s 106B is easily identified. Whilst the exact proportion could not be identified at that stage, it is abundantly clear that the wife was entitled to orders that would see her receive a very significant portion of property of the parties or either of them. That included, at that stage, the interest of the husband in the trust and in the superannuation fund (to be discussed shortly), as they then stood. The effect of the transactions in relation to both removed the possibility of orders being made under s 79 in relation to those interests unless they were set aside.
However, the Court will not make orders against third parties unless it is necessary to give effect to the appropriate division of property, taking into account the transferred interests.
Post-transfer of the trust corpus, between 19 April 2023 and 28 April 2023, the second respondent entered into the following documents:
Documents between [the second respondent] and [the husband]
a.Deed of Loan ($350,000 facility) dated […] April 2023 between [the second respondent] and [the husband];
b.Mortgage dated […] April 2023;
c.Deed of Loan ($1,305,500 loaned amount) dated […] April 2023 [the second respondent] and [the husband];
Documents between [the second respondent] and [N Pty Ltd]
d.Circulating Resolution of [N Pty Ltd] last signed […] April 2023;
e.Deed of Loan dated […] April 2023 between [the second respondent] and [N Pty Ltd];
f.General Security Deed dated […] April 2023 between [the second respondent] and [N Pty Ltd];
g.PPSR Registration dated […] April 2023;
Documents between [the second respondent] and [M Pty Ltd]
h.Circulating Resolution of [M Pty Ltd] last signed […] April 2023;
i.Deed of Secured Unpaid Present Entitlement dated […] April 2023 between [the second respondent], [M Pty Ltd] in its capacity as trustee for the [Vida] Family trust, and [M Pty Ltd] in its own capacity;
j.Mortgage dated […] April 2023;
k.PPSR Registration dated […] April 2023;
l.Circulating Resolution of [M Pty Ltd] last signed […] April 2023;
m.General Security Deed dated […] April 2023 between [the second respondent], [M Pty Ltd] in its capacity as trustee for the [Vida] Family Trust, and [M Pty Ltd] in its own capacity;
n.PPSR Registration dated […] April 2023.
(Affidavit of Mr CC filed 3 July 2023, paragraph 100)
In so far as the trust was concerned, these documents created a mortgage over the Town FF property in favour of the second respondent to secure her unpaid present entitlement.
In May 2023, the husband resigned as a director of M Pty Ltd. In December 2023, the second respondent was allotted one share in M Pty Ltd.
In January 2024, a “Deed of Variation” of the trust was executed appointing the second respondent as a nominator of the trust.
On 24 March 2023, the following consent orders were made:
1.Paragraphs 1, 3 and 4 of the arbitral award registered on 14 January 2022 are stayed, in both operation and effect, pending further order or the outcome of the appeal proceeding NAA 6 of 2023.
2.The applicant wife’s application in a proceeding filed 28 January 2022 is stayed pending the outcome of the appeal proceedings NAA 6 of 2023.
3.Pending further order, the first respondent husband is hereby restrained from selling, transferring, mortgaging or in any way encumbering or otherwise dealing with the following –
(a)the property located and situated at [F Street, Suburb G], in the state of New South Wales being the whole of the land contained in Folio Identifier […] except for and up to $350,000 noting the husband has not exercised the encumbrance provided for in orders dated 18 February 2022;
(b)the property located and situated at [K Street, Suburb L], in the state of New South Wales being the whole of the land contained in Folio Identifier […]; and
(c)the property located and situated at [ 1 H Street, Suburb J], in the state of New South Wales being the whole of the land contained in folio identifier […].
4.Pending further order, the first respondent husband is hereby restrained from selling, transferring or in any way encumbering or otherwise dealing with his shareholdings in [M Pty Ltd] (ACN: […]) and [N Pty Ltd] (ACN: […]).
5.Pending further order, the first respondent husband is hereby restrained, in his capacity as nominator of the [Vida] Family Trust, from altering the trustee of the [Vida] Family Trust.
6.Pending further order, the first respondent husband, in his capacity as shareholder and director of [N Pty Ltd] (ACN: […]) is hereby restrained from selling, transferring, mortgaging or in any way encumbering or otherwise dealing with the property located and situated at [2 U Street, Suburb E] in the state of New South Wales being the whole of the land contained in Folio Identifier […].
7.The husband, in his capacity as shareholder and director of [M Pty Ltd] (ACN: […]) is restrained from selling, transferring, mortgaging or in any way encumbering or otherwise dealing with the property located and situated at [OO Street, Town FF] [sic], in the state of New South Wales being the whole of the land contained in folio identifier […], other than to grant to the second respondent a mortgage or charge to the extent of the value of her unpaid present entitlement as at 23 February 2023.
8.The husband, in his capacity as shareholder and director of [M Pty Ltd] (ACN: […]) is restrained from distributing the capital of the [Vida] Family Trust or otherwise dealing with the beneficiary accounts of the [Vida] Family Trust without the prior written consent of the wife, other than to pay out or deal with the second respondent’s unpaid present entitlement (as at 23 February 2023), on the basis that the husband provides written notice to the wife not less than 28 days of any payment or dealing.
9.Pending further order, the first respondent husband is hereby restrained from making repayments to the second respondent, [Ms B Vida], on account of the loan referred to in the first respondent husband's financial statement filed on 8 April 2019 at question 50.
10.Pending further order, the applicant wife is hereby restrained from selling, transferring, mortgaging or in any way encumbering or otherwise dealing with the property located and situated at [D Street, Suburb E] in the state of New South Wales except for and up to a total of $450,000 from 18 February 2022, noting the wife has exercised some but not the entirety of the encumbrance provided for in the orders dated 18 February 2022.
11.The applicant wife is restrained from making repayments to her mother, [Ms PP], and her sister, [Ms QQ], on account of the personal loan referred to in her solicitor’s correspondence to the first respondent husband’s solicitors dated 30 November 2018.
12.The applicant wife must hereby undertake to pay damages incurred to each of the first respondent husband and the second respondent, [Ms B Vida], in their individual capacities and in their respective capacities as shareholders and directors of [N Pty Ltd] (ACN: […]) and the first respondent husband as shareholder and director of [M Pty Ltd] (ACN: […]) which result from the restraints over real property and assets referred to at paragraphs 3 to 9 above.
13.The first respondent husband must hereby undertake to pay damages incurred to the applicant wife which result from the restraint over real property referred to in paragraph 10 above.
14.Within 7 days of receiving the outcome of the appeal proceeding NAA 6 of 2023, the husband and wife must each provide to the second respondent a copy of the judgment of that appeal, together with the reasons for judgment.
15.That within 42 days of receiving the outcome of the appeal proceeding NAA 6 of 2023, the husband must file and serve any response to the wife’s application in a proceeding filed 20 December 2022.
16.Within 14 days of receiving the husband’s response pursuant to the above order, the wife must file and serve written submissions in support of her application in a proceeding filed 20 December 2022.
17.Within 14 days of receiving the wife’s submissions pursuant to paragraph 16 herein, the husband must file and serve any written submissions in respect of the wife’s application in a proceeding filed 20 December 2022.
18.Within 14 days of receiving the husband’s submissions pursuant to paragraph 17 herein, the wife must file and serve any submissions in reply.
19.Within 42 days of receiving the outcome of the appeal proceeding NAA 6 of 2023, the second respondent must file and serve –
(a)any evidence sought to be relied upon in support of the application for costs contained in the second respondent’s amended response to an application in a proceeding filed 14 February 2023; and
(b)written submissions in respect of the orders sought in the second respondent’s amended response to an application in a proceeding filed 14 February 2023.
20.Within 21 days of receipt of the documents referred to in paragraph 17 hereof, the husband and wife must file and serve –
(a)a reply or submitting notice in respect of the second respondent’s amended response to an application in a proceeding filed 14 February 2023;
(b)any evidence sought to be relied upon in respect of the second respondent’s amended response to an application in a proceeding filed 14 February 2023; and
(c)written submissions in respect of the orders sought in the second respondent’s amended response to an application in a proceeding filed 14 February 2023.
21.Within 14 days of receipt of the documents referred to in paragraph 18 herein, the second respondent must file and serve any further written submissions strictly in reply.
22. The orders made by me on 18 February 2022 are discharged.
On 6 November 2023, the following consent orders were made:
1.The Court notes that Orders 3 to 13 of the Orders dated 24 March 2023 shall continue in full force and effect pending further order.
2.By consent and pending further order, the second respondent in her capacity as director of [M Pty Ltd] investments Pty Ltd (ACN: […]) is restrained from selling, transferring, mortgaging or in any way encumbering or otherwise dealing with the property located and situated at [OO Street, Town FF], in the state of New South Wales being the whole of the land contained in folio identifier […], other than to grant to the second respondent a mortgage or charge to the extent of the value of her unpaid present entitlement as at 23 February 2023.
3.By consent and pending further order, the second respondent, in her capacity as shareholder and director of [M Pty Ltd] (ACN: […]) is restrained from distributing the capital of the [Vida] Family Trust or otherwise dealing with the beneficiary accounts of the [Vida] Family Trust without the prior written consent of the wife, other than to pay out or deal with the second respondent’s unpaid present entitlement (as at 23 February 2023), on the basis that the second respondent provides written notice to the wife not less than 28 days of any payment or dealing.
The effect of these matters was to secure the interest in the trust that vested in the second respondent and in furtherance of the intention to vest the corpus in the second respondent. Counsel did not suggest that they offered any further protection against the operation of s 106B and it follows that they fall with the vesting, if it comes to that.
Consequently, the value of the trust will be taken as an asset in determining the property of the parties. It is quite another thing to consider orders setting aside the transactions. As noted above, ordinarily, interference with rights acquired by third parties should be avoided if orders can be framed so as to make that unnecessary.
It has to be recognised that insofar as the current assets of the trust resulted from gifts made by the second respondent (as opposed to transfers for consideration), these are contributions by the second respondent and hence attributable to the husband.
The husband’s loans
The husband contended that he borrowed the following from the second respondent and that the debts remain owing (husband’s affidavit filed 3 July 2024, paragraph 187) (lettering as per original):
Date Amount (a) December 2005 $150,000 (b) May 2009 $100,000 (d) September 2009 $100,000 (e) August 2010 $60,000 (f) September 2010 $265,500 (g) March 2013 $80,000 (h) September 2013 $100,000 (k) June 2015 $80,000 (l) June 2016 $70,000 (m) June 2017 $80,000 (n) June 2019 $50,000 (o) September 2019 $200,000 (p) March 2020 $40,000
Documents purported to be contemporaneous loan agreements for the loans of June 2019, September 2019 and March 2020 were tendered at the hearing (Exhibit 3).
In April 2023, the husband and the second respondent entered into a “Deed of Loan” dealing with the above advances and recording the amounts outstanding (Annexure “H” to the husband’s affidavit filed 3 July 2024). The loan at (h) above seems to be recorded under the date of March 2014 for the same amount, as there is no September 2013 loan in the deed.
According to the deed, it was agreed that the loans would be repaid 30 days after a written notice seeking repayment was sent or when a defined event of default occurs. The outstanding balance could be requested in whole or in part. Interest is payable at the cash rate as determined by the Reserve Bank of Australia from time to time, plus 4 per cent.
The husband expressly acknowledged in the deed that some of the amounts may not have been able to be recovered by the second respondent, being statute barred by s 14 of the Limitation Act 1969 (NSW) (“Limitation Act”) (husband’s affidavit filed 3 July 2024, Annexure “H”, clause 2.3(a) and (b)).
There are a number of difficulties with this deed.
The evidence of the original agreements is scant indeed. All there is was the husband saying “I will pay you back” and the second respondent’s recollection that she would always advise the husband “that the funds would need to be repaid to [her] upon [her] request” (second respondent’s affidavit filed 3 July 2024, paragraphs 23–31). There was no discussion of terms or of interest. There was no request for payment.
The husband asserted that in March 2020 he “repaid” $70,000 of the advances by transferring two motor vehicles to his mother. In cross-examination he agreed that one of the vehicles remains at his property and the other is garaged “near” the N Pty Ltd factory. He uses both, although he said he usually drives the work vehicle. This points to the informal nature of the arrangement and speaks against the transaction being a genuine transfer. Accordingly, the vehicles will be included as add backs in the balance sheet.
No other repayments were made until after the deed was entered into. The husband claims he has paid the second respondent a further $40,126.60 in repayments with such funds sourced from the mortgage over the K Street property (husband’s affidavit filed 3 July 2024, paragraphs 64 and 191). He does not indicate when these funds were paid but presumably it was after the deed as they are not included in the schedule of loans and repayments. No interest has been paid. Even under the deed, there is no fixed date for repayment – only an obligation to pay on receipt of a written demand.
There is no evidence that any demand for repayment has ever been made.
The issue of whether the recovery of the advances was barred by the Limitation Act was never raised or addressed until the time of the deed.
The sum of $200,000 advanced in September 2019 was for the payment of income tax brought about by tax strategies in M Pty Ltd and the trust. If, as the husband and the second respondent assert, these entities were for the benefit of the second respondent, it is puzzling that the husband should bear the burden of the tax liability thus incurred.
Further, as the wife points out, the quantum of the outstanding debts has varied over time:
33.The Husband further provides self-contradictory evidence. The Husband asserts in his affidavit of 21 May 2019 that the following alleged advances of monies are simultaneously a loan from, and a contribution of, [the second respondent]:
33.1 On 17 June 2009 a sum of $225,000.00;
33.2 On 13 August 2010 a sum of $60,000.00;
33.3 On 17 September 2010, a sum of $265,000.00;
33.4 On 10 April 2014 a sum of $90,000.00; and
33.5 On 23 July 2014, a sum of $100,000.00.
34. …
35.Ultimately, the above leads to the conclusion that there was never an intention to create a legally enforceable obligation. Rather, consistent with the appointment of the corpus of the [Vida] Family Trust to [the second respondent], the alleged loan is an ad hoc creation by the Husband in reaction to his receiving the letter from the Wife’s solicitor dated 10 August 2018.
(Wife’s Case Outline filed 9 August 2024)
In any event, on any view of things, the financial affairs of the companies, the trust, the husband and the second respondent were closely intermingled, even if just for tax purposes.
As suggested by the wife, the catalyst for the formal recording of these advances again seems to have been the letter of 10 August 2018, as the husband deposed it was in 2018 that the first steps in the process were taken (husband’s affidavit filed 3 July 2024, paragraph 189).
These matters combine to persuade me that even if these were advances intended to be repaid, about which there is considerable doubt, it is most unlikely that the second respondent was ever going to or will ever take any steps to recover them, especially after these proceedings have concluded. It follows that they will not be included in the balance sheet (Biltoft and Biltoft (1995) FLC 92-614 at 82,127).
Again, however, they must be taken as contributions on behalf of the husband.
A further “Deed of Loan” was entered into in April 2024 dealing with the following advances (Annexure “I” to the husband’s affidavit filed 3 July 2024):
Date Amount February 2022 $50,000 April 2022 $50,000 April 2022 $25,000 May 2022 $100,000 March 2023 $50,000
The deed described these advances as being made for the “Approved Purpose” which is defined as the payment of legal fees by the husband. His evidence confirms that use.
These are post-separation borrowings for the purpose of paying legal fees. There is no basis for that expense being shared between the parties. Consistently with authority, neither they nor the legal fees paid using them will be included in the balance sheet (Chorn and Hopkins (2004) FLC 93-204 at [58]).
The K Street property
The husband owns a property at K Street, Suburb L (“the K Street property”) which he purchased prior to the parties’ relationship. There is now a mortgage over the property in the sum of $284,627.
On 15 April 2019 the parties entered into consent orders one of which was:
1.That the husband be restrained from selling, transferring, mortgaging or in any way encumbering or otherwise dealing with the following:
…
1.3The property located and situated at [K Street, Suburb L], in the state of New South Wales being the whole of the land contained in folio identifier […].
In August 2021 the husband borrowed $300,000 from the existing mortgagor who registered a further mortgage in August 2021. The husband’s explanation was that the first mortgage had a redraw facility which he wished to use but, for internal bank reasons, the “redraw” was made pursuant to a new mortgage.
The husband submitted that he did not breach the injunction because he would have used the redraw facility but for the bank, which insisted on a new mortgage. Be that as it may, the property was further encumbered by a new security which is clearly in breach of the order. A redraw on the existing mortgage would also have been a breach because it would have further encumbered the property.
The critical point is that the husband diminished the value of an asset that was available for division between the parties by borrowing against it and using the proceeds for his own post-separation expenses.
The preferable course is to include neither the borrowing nor the payments in the balance sheet. The effect is that the husband will solely bear the liability for the mortgage.
Super Fund 1
Super Fund 1 is a self-managed superannuation fund established by deed in April 1998. The two current members of the fund are the second respondent and the husband.
The issue for determination is whether a Deed of Rectification entered into in April 2023 should be set aside under s 106B of the Act. The effect of the deed was to acknowledge the fund had always been and would continue to be segregated, thus reducing the husband’s interest, valued by the single expert and using the 2023 accounts, from $1,493,534 to $694,960 (Exhibit 13).
I accept the comments made by the single expert at page 7 of the Valuation Report (Exhibit 11) as to the 2024 financial statements of the entities and adopt the values of the 2023 accounts of Super Fund 1.
The evidence of Mr CC, the accountant, was that his understanding, prior to 1 July 2020, “was that the fund had not been segregated” (affidavit of Mr CC filed 3 July 2024, paragraph 91).
The difference between a pooled fund and a segregated fund is that in the former, all of the assets in the fund are available for the benefit of all members. In the latter, the assets acquired through the contributions of a member are preserved for the benefit of that member alone.
Article 7.4 of the deed establishing the fund empowered the trustee, with the consent of the member, to hold assets acquired with contributions in respect of the member for the specific benefit of the member. It is the exercise of that power that is said to give rise to a segregated fund.
By way of background, the Deed of Rectification recites:
…
GRule 3.5 of the Governing Provisions permits assets of the Fund to be segregated.
HThe parties with to enter into this Deed to:
(a) confirm their understanding that at all times the:
(i)Assets of the Fund were held by the Trustee in proportion to the cash contributions provided by the Members or employer for the Members.
(ii)Members understood that the term ‘split’ had the same meaning as ‘segregate’ which is to hold each of the assets separately by the Trustee for the benefit of the Members in proportion to the contributions made by that Member.
(b)rectify the accounting and tax records from on or around 1 July 2007 to reflect the intention of the Members and the Trustee to split the costs, income, and expenses of the Segregated Assets on a segregated basis.
IThe Trustee, with the agreement of the Members, were empowered to segregate the assets of the Fund for the specific benefit of a Member in accordance with Article 7.4 of the Original Deed and the segregation power permitted under the Governing Rules for each of the Segregated Assets.
JThe parties confirm that it has always been their intention and understanding that from on or around 1 July 2007, the Segregated Assets, all expenses, and income attributable to each Segregated Asset, were segregated for the benefit of the Members as follows:
(i) [V Street]:
(A) 60% for the benefit of [the second respondent]; and
(B) 40% for the benefit of [the husband];
(ii) [4 U Street] – 100% solely for the benefit of [the second respondent]; and
(iii) [6 U Street] – 100% solely for the benefit of [the second respondent].
(Annexure “C” to the affidavit of the husband filed 3 July 2024)
Clauses 3.1 and 3.2 of the Deed of Rectification provided:
3.1 Confirmation
(a)The parties confirm that from 1 July 2007, the Segregated Assets are held by the Trustee for the benefit of the Members in accordance with the power to segregate under the Governing Rules as follows:
(i) [V Street]:
(A)60% for the exclusive benefit of [the second respondent]; and
(B) 40% for the exclusive benefit of [the husband];
(ii)[4 U Street] – 100% for the exclusive benefit of [the second respondent]; and
(iii)[6 U Street] – 100% for the exclusive benefit of [the second respondent].
(b)All corresponding income and expenses relating to each of the Segregated Assets are allocated to the Members in accordance with the proportions set out in clause 3.1(a); and
(c)The Fund is administered by the Trustee within the powers of the Governing Provisions that permit the Segregated Assets to be held by the Trustee on a segregated basis and in accordance with the intention of the Members since 1 July 2007.
3.2 Rectification
(a)The parties shall rectify the financial, accounting and tax records of the Fund since 1 July 2007 to reflect the intention of the Members and the Trustee to:
(i)split the costs, income and expenses of the Segregated Assets on a segregated basis;
(ii)align with their legal understanding that the Assets of the Fund were held by the Trustee in proportion to the cash contributions provided by the Member or employer for the Member;
(iii)remedy the significant cash contribution in 2007 made by [the second respondent] which was applied for the subsequent purchase of [2 U Street] and [4 U Street]; and
(iv)rectify the member balances reported to the ATO.
(b)The parties acknowledge that the Accountant provided the Members with copies of the Income Tax Returns, financial accounts and audited accounts for the Review Period. The Accountant and the auditor of the Fund have advised the Members of the taxation implications of the rectification.
(c)The parties must do and provide all things required by the Trustee to enable the Trustee to rectify the financial, accounting and tax records of the Fund for the Review Period including but not limited to:
(i)amend the financial statements, annual tax returns and audited accounts for the Fund;
(ii)lodge the amended returns for the Fund with the ATO and facilitate the provision of any other information required to be provided to the ATO; and
(iii)executing any necessary documentation to ensure the Fund complies with its current and future obligations under the Regulatory Laws.
According to Mr CC, a property at V Street, Suburb W (“the Suburb W property”) was acquired by the fund prior to 2005. The 2005 accounts show the husband’s closing balance to be $192,334.24 and the second respondent’s closing balance as $284,140.39 (affidavit of Mr CC filed 3 July 2024, p.207). That represents an approximately 40/60 per cent division. That division is arrived at by taking the 2004 closing balances (again, close to a 40/60 per cent division) and taking into account different contributions and expenses. The real significance is the opening balance which might be seen to be taken as referring to the interests in the Suburb W property leading to an inference that the necessary step had been taken to segregate the husband’s and second respondent’s interests in the Suburb W property.
The Suburb W property was acquired in mid-2004 for $350,000 plus stamp duty and legal costs (affidavit of the husband filed 3 July 2024, paragraph 175). The 2004 Super Fund 1 accounts record the Suburb W property as having a value of $362,720.53, alongside other assets of $48,370.63 in cash and $90 in GST credits (Annexure “CC” to the affidavit of Mr CC filed 3 July 2024). There is no evidence of the contributions (either in the accounts or from the parties) so the 40/60 per cent division seems largely to be an assertion. Further, it seems that it is the asset acquired that is segregated under Article 7.4 by agreement with the trustee, rather than following automatically from unequal contributions. There is no evidence of such an agreement.
I do not have the accounts for subsequent years until 2018. However, if they continued to show the segregated amounts as to the Suburb W property there would be no need for Clause 3.1(a)(i) of the Rectification Deed. The doubt as to whether they do is heightened by the fact that the segregation takes place from I July 2007. These matters lead me to consider that it is more probable than not that the segregation of interests did not flow through to the accounts in succeeding years.
In late 2007, the fund acquired a property at U Street, Suburb E and in early 2008 acquired the adjoining unit. The source of funds used to buy these two properties was the contributions made by the second respondent from the sale of her shares in N Pty Ltd. That, on its own, does not evince an intention that the assets of the fund should be segregated. Indeed, the fact that these assets were not allocated to the second respondent and the fact that this remained the case for over 13 years points to the opposite conclusion.
The first “realisation” that the records did not accurately represent the position seems to have arisen only after 1 July 2020 (see the affidavit of Mr CC filed 3 July 2024, paragraph 91).
The husband’s evidence on this issue was:
178.It was always my understanding that the [sic] I had less of an interest in the [Suburb W] property than my mother. It was also my understanding that I had no benefit or interest in [4 and 6 U Street]. I remember talking to [the second respondent] following the purchase in 2008 and using the phrase “Your properties at [U Street].” I understand that, as a consequence of the review undertaken in 2019 in preparation of the arbitration hearing, my accountants realised that [the second respondent’s] and my superannuation contributions had not been segregated. I said to my accountant at the time “That needs to be fixed. It was not my intention to profit from my mother.” I understand this was rectified for the 2020 financial year (but not earlier years). Formal rectification took place by the Rectification Deed referred to in paragraph 181(c) below.
(Affidavit of the husband filed 3 July 2024)
The second respondent’s evidence was:
85.[In] April 2023, I entered into a Deed of Rectification in respect of [Super Fund 1]. The Deed of Rectification was entered into for the purpose of confirming that at all times, [the husband] and I, as the members of the fund, understood that the assets of the fund were held in proportion to the contributions which we each made. I had understood that the terms ‘split’ had the same meaning as ‘segregate’. The effect of the Deed of Rectification was the acknowledgment that:
a.[V Street, Suburb W] was always held 60% for my benefit and 40% for [the husband’s] benefit;
b.[4 U Street, Suburb E] was always held 100% for my benefit; and
c.[6 U Street, Suburb E] was always held 100% for my benefit.
(Affidavit of the second respondent filed 3 July 2024)
There is no evidence contemporaneous with the acquisition of the properties as to the parties’ and the trustee’s intention. There is no evidence of any indication by the trustee that it would segregate the assets at the time they were acquired and no consent to that course by the husband or the second respondent.
These matters combine to persuade me that the segregation of the fund is a recent consideration and that the husband and the second respondent only turned their minds to this issue when it was raised by Mr CC after the arbitration. That is consistent with the form of the Deed of Rectification which operates to segregate the fund and not to give effect to an always existing but unrealised intention for it to be segregated.
It follows then that the effect of the Deed of Rectification is that the interest of the husband in the superannuation fund that was capable of being the subject of a splitting order was greatly diminished in value. At least, as between the parties, his interest will be taken as unaffected by the deed for the same reasons given earlier in relation to the trust.
The value of the N Pty Ltd shares
The final question to be determined is the value of N Pty Ltd and therefore the interest of the husband and M Pty Ltd in it.
At the time the single expert valuer, Mr DD, prepared his report he had the 2023 accounts and draft 2024 accounts.
He was somewhat critical of the draft accounts saying that it would be unlikely that accurate accounts could be produced so quickly (they were dated 5 July 2024). He also noted that they showed a material decrease in sales revenue and gross profit margin and that the husband did not refer to these decreases in his information responses (Exhibit 11, paragraph 1.27). In addition “there appear[ed] to be a range of personal expenses of the Husband or related parties disclosed as business expenses” including betting, purchase of rural supplies and alcohol purchases.
At the tail of the hearing, after cross-examination had finished, the husband tendered the final 2024 accounts. I admitted them over the wife’s objection because they are clearly admissible as business records. However, admissibility is quite a different matter to weight.
The 2024 accounts are significant in that they indicate that the business of N Pty Ltd deteriorated markedly in that year. The evidence as to why is particularly scant. The reasons for that change are within the knowledge of its directors, the husband and the second respondent, and its advisors. Peculiarly, neither the husband nor the second respondent sought to adduce evidence to explain the deterioration or to add to the brief evidence given in passing in cross-examination. In the absence of such an explanation it is easier to accept the adverse inference which is that the deterioration is an aberration which does not reflect the true worth of the business.
The draft accounts for 2024 shows sales as $136,956 (Exhibit 11, Schedule D4) and expenses as $296,029 plus materials and supplies as $114,204 – a total of $410,233. The finalised accounts show income from construction as $136,956 and total expenses of $421,982 which includes materials and supplies of $107,885. There is thus little difference.
Mr CC gave evidence, in very general terms, that the queries or criticisms of the draft accounts made by Mr DD had been addressed in the preparation of the final accounts. As can be seen, the totals have changed little, particularly the expenses. It is not apparent from them how the queries have been addressed.
Of course, it may well be that the expenses noted by Mr DD as appearing to be personal expenses were found to be substantiated as genuine business expenses or excluded from the expenses and taken up in the husband’s loan account. All other things being equal, however, that would see the business expenses reduce, but they seem not to have done so. The broad evidence of Mr CC was not persuasive because of its generality. The husband did not give any evidence responding to Mr DD’s concerns.
The sales, gross profit (sales less the costs of sales) and net profit of N Pty Ltd from 2017 to 2024 (using the expenses from the finalised accounts) was (Exhibit 11, Appendix D, Schedule D4):
| 2024 | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | |
| Sales | $136,956 | $897,045 | $574,127 | $691,545 | $425,503 | $1,324,055 | $1,445,916 | $1,331,441 |
| Gross profit/(loss) | $29,071 | $418,535 | $236,078 | $314,790 | $303,301 | $431,435 | $402,582 | $590,530 |
| Net profit/(loss) | $(235,744) | $96,427 | $(29,809) | $3,810 | $(40,383) | $67,078 | $(138,049) | $69,149 |
Mr DD recorded that he was advised by the husband that “since 2020, his health has deteriorated, and he has worked an average of 20 hours per week in the business” (Exhibit 11, Appendix D, paragraph D.9). The husband added that this had adversely affected the revenue of the business.
The drop in sales from 2020 is readily explained by the deterioration in the health of the husband at that time, as he explained to Mr DD.
The business, however, fell off a cliff in the year ending June 2024. The difference between that year and the previous year, or indeed the previous four years, is remarkable. The difference is exacerbated by 2023 having the highest sales for four years, and by a considerable margin. It is entirely unexplained by the evidence.
These matters combine to persuade me that there must be a doubt as to the reliability of the 2024 accounts or that, for some other reason, the figures are not truly reflective of the business. The unexplained absence is such as to give me pause to take them into account as reflective of the business of N Pty Ltd.
No such criticisms can be made of the accounts for the previous four years which show a general consistency. As I said, the best year of those, by far, was 2023, which makes the 2024 figures even harder to understand and accept as reflecting the value of the business in the absence of cogent explanation.
The result is that it is the 2023 figure which will be used for the value of N Pty Ltd to be taken into account. That, of course, flows through to the other assets whose value is based on the valuations of N Pty Ltd.
Husband’s loans to N Pty Ltd
The husband incurred loans with N Pty Ltd in 2022, 2023 and 2024. The wife accepts that the first two should be included in the balance sheet but opposes the third, relying on the difficulties with the 2024 accounts already discussed. As explained earlier, I was not persuaded that the 2024 accounts should be taken into account in determining the value of N Pty Ltd because I was not satisfied that they were accurately reflective of its business.
The position in relation to the loan account is different. The husband takes part of his income through his loan account which must be repaid within seven years otherwise it is deemed to be a taxable dividend to him (Division 7A of the Income Tax Assessment Act 1936 (Cth)). The income tax return of N Pty Ltd has been prepared based on those 2024 accounts. It follows from the accounts that the husband owes that sum to N Pty Ltd, whether accurately calculated or not. That is an entirely different question as to whether the 2024 accounts should be relied upon in deriving a value of the business.
The sum for 2024 is reasonably comparable to the 2023 accounts, and especially the 2022 accounts.
The 2024 figure will be included.
Legal fees
As I have already explained, add backs for legal fees are made where assets otherwise distributable between the parties have been used for the payment of legal fees (Chorn and Hopkins (2004) FLC 93-204). That does not occur where the fees have been paid with post-separation borrowings. In that case, neither the payment nor the loan is taken into account.
The husband borrowed $350,000 from the second respondent and increased the K Street mortgage by $300,000 for the purpose of paying legal fees. Neither of these will be taken into account. The result is that the add backs for legal fees for the husband will be the sum sought by the wife less $650,000.
THE BALANCE SHEET
It follows that the assets and liabilities to be the subject of division between the parties are the following (excluding entries under $1,000).
OWNERSHIP
DESCRIPTION
VALUE
ASSETS
Real properties
1
W
D Street, Suburb E NSW
$1,120,000
2
H
1 H Street, Suburb J NSW
$1,430,000
3
H
K Street, Suburb L NSW
$792,000
4
H
F Street, Suburb G NSW
$800,000
Bank accounts
5
W
C Bank Account (…85)
$33,823
6
H
Westpac Bank Account (…46)
$4,762
7
H
ANZ Bank Account (…96)
$3,223
Motor vehicles
8
W
Motor Vehicle 3
$14,625
Shareholdings
9
W
T Limited Shares – …at $…each (as at 5 August 2024)
$1,508
10
W
R Limited Shares – … at $… each (as at 5 August 2024)
$11,464
11
H
R Limited Shares – … at $… each (as at 5 August 2024)
$1,405
12
H
S Limited Shares – … at $… each (as at 5 August 2024)
$4,250
Points
13
H
Points Balance for RR Company Membership – Card (…04) – … at $… (as at 29 July 2024)
$2,612
Other interests
14
H
Husband’s 10,100 ordinary shares in N Pty Ltd
$820,667
15
H
Husband’s 1 ordinary share in M Pty Ltd
0
16
H
Husband’s interest in the Vida Family Trust
$2,351,000
17
H
Beneficiary account in Vida Family Trust (as at 30 June 2023)
$5,146
18
W
Beneficiary account in Vida Family Trust (as at 30 June 2023)
$121,430
19
H
Annual leave
$71,035
TOTAL
$7,588,950
ADD BACKS
20
W
Paid legal fees
$218,887
21
H
Paid legal fees
$370,000
22
H
Motor Vehicle 1 and Motor Vehicle 2 (Registration no….)
$70,000
TOTAL
$658,887
LIABILITIES
23
W
C Bank Loan (…88) (being the mortgage encumbering D Street, Suburb E).
$251,300
24
W
TT Financial Services Loan
$10,891
25
H
Loan payable by the husband to N Pty Ltd – 2022
$357,189
26
H
Loan payable by the husband to N Pty Ltd – 2023
$209,718
27
H
Loan payable by the husband to N Pty Ltd – 2024
$370,567
TOTAL
$1,199,665
SUPERANNUATION
28
W
Super Fund 3 (accumulation)
$337,371
29
H
Super Fund 1 (SMSF)
$1,493,534
TOTAL
$1,830,905
NET TOTAL
$8,879,077
CONTRIBUTIONS
Initial contributions
At the commencement of the relationship, the husband owned the K Street property, a property at Suburb SS and a property in Suburb G. Each property was subject to a mortgage. The value of each property at the time was agreed. The husband estimated his equity in the properties by referring to that value and the mortgage statements. No objection was taken to that evidence and it was not the subject of cross-examination.
The value of the equity in each property was $82,062, $267,213 and $74,958 respectively.
The Suburb SS property was used by N Pty Ltd for a few years and the husband’s brother lived there rent free until 2003. From that time, it was rented out. It was sold in early 2015 for $620,000 and the net proceeds were used to reduce other loans.
In late 2001, the wife purchased a property at D Street for $336,055. The purchase was funded by a $17,000 deposit from the husband, a $319,055 mortgage and a $14,000 first homebuyer’s grant obtained by the wife. The husband said he paid a security deposit of $1,000, a deposit of $10,625 and the sums of $10,006.50 and $25,185.90. He also said the parties borrowed $270,000 leaving a cash shortfall of $16,852.10 which was also paid by him, but he cannot now recall the source of the funds.
The evidence does not permit the resolution of the difference, but such a resolution would not have a material impact on the outcome of the proceedings.
The wife and husband moved into the D Street property in 2002. The husband provided the wife with a cheque for $1,800 each month to put towards the mortgage. The wife met the household expenses from her salary.
In early 2004, the property at 2 H Street, Suburb J was purchased in the name of the second respondent.
In late 2004, the property at 1 H Street, Suburb J (“the Suburb J property”) was purchased in the husband’s name for $485,000 funded by way of a mortgage with Westpac.
The husband also had his shares in N Pty Ltd at the commencement of the relationship. There is no evidence as to the value of them at that time.
The K Street and the Suburb G property remain in the husband’s hands with a combined value of $1.59 million. The income from them, from time to time, has been used to assist with the payment of loans.
The husband’s interest in N Pty Ltd also appears in the balance sheet. It has, of course, been the vehicle through which the husband has earned his income. Whilst there is a dispute as to the extent of the role the second respondent has played in the operation of the business, she and the husband are the only two employees of N Pty Ltd of any significance. There is little doubt that if N Pty Ltd had not existed, another corporate structure would have been obtained. In the absence of any evidence as to its value at the time of the commencement of the relationship, it is difficult to place significant weight on it as an initial contribution.
Nonetheless, the initial contributions strongly favour the husband.
Contributions during the relationship
The wife is a professional. She said that from 2001 to 2015 she was employed by N Pty Ltd, earning up to $3,000 per month (Transcript 13 August 2024, p.101 lines 40–41). There was a dispute as to the nature of her work. The husband said that it was merely an income splitting arrangement and that she was not a “real employee”. There is evidence that the wife did carry out some work for clients of N Pty Ltd but it does not establish the full nature and extent of that work.
It is likely that the true position is somewhere between the two versions. In any event, it suited the parties to have this arrangement, whatever it was, for the benefit of the family. However, as any work performed by the wife was done in the capacity of a paid employee of N Pty Ltd, that employment cannot be seen as a contribution by her to the business.
Again, the evidence as to the non-financial contributions is difficult to reconcile. The husband gave evidence of the renovations he carried out to various properties but did not challenge the wife’s evidence that the work was often carried out by others. Payment for these works came from the husband’s income.
The husband asserted that much of the burden of caring for the family was on himself while the wife maintained that those duties fell to her. For example, the husband said he cooked the family dinners most nights. This is difficult to reconcile with his workload which included frequent attendance on work sites which were often not close to Sydney. Again, the probability is that what actually occurred is somewhere between the two extreme versions. For example, again objective evidence suggests that the husband cooked more often than the wife asserted – particularly special meals as the photos of a happy family around the father’s schnitzels attest.
Doing the best that can be done, save for the matter I am about to mention, contributions during the relationship should be regarded as equal.
The parties received the benefit of $1.35 million (the “loans” referred to earlier) from the second respondent in circumstances where it is not to be taken as repayable. The husband’s interest in the trust and Super Fund 1 includes the benefit of the disproportionate contributions made to them by the second respondent (excluding of course, the transfer of her shares in N Pty Ltd, which was a commercial transaction). The difference in the husband’s interest in the superannuation fund being taken as unsegregated as opposed to segregated is of the order of $800,000. Those funds came from the second respondent. These are not inconsiderable sums.
These must be taken as contributions by the husband.
It follows that the contributions of the spouse parties during the relationship favour the husband.
Taking all these matters into account, I consider that the contributions-based entitlements favour the husband as to 65 per cent and the wife 35 per cent.
SECTION 79(4) CONSIDERATIONS
Both the husband and the wife have some health difficulties.
In early 2023 the wife underwent an operation for a medical condition.
The wife takes a number of medications. She described the effect of these medications as follows:
314.My medical conditions make it difficult for me to do any work that requires lifting, and I require assistance from my work colleagues to help me with those types of tasks. I take regular breaks throughout the day at work to relieve the pain that I experience in my joints and wrists.
(Affidavit of the wife filed 5 April 2024)
The wife is currently employed full-time earning approximately $1,898 per week.
The husband has a history of health issues. He commenced regular treatment in September 2015 and underwent surgery in November 2016. The husband says that he is on a lot of medications relating to his medical condition.
The husband said that since 2020 he has had to work reduced hours due to his health issues (Exhibit 11, Appendix D, paragraph D.9).
As I have said, the accounts for N Pty Ltd show a reduced income from 2020 and an unexplained drop in 2024, entirely unsupported by any medical evidence.
Neither party called any medical evidence as to their prognosis or their conditions and the likely future effect of them, particularly as to their earning capacity or the cost of future treatments or care.
It is difficult, on the state of the evidence, to take into account any possible deterioration in health or earning capacity that would justify any change to the contributions-based entitlements. There is no basis for suggesting, on the evidence, that one has a greater future need than the other.
The wife submitted that there should be a 30 per cent adjustment in her favour because the husband treated “and continues to treat his mother’s property as if it were his own” and engaged in a “deliberate strategy of building wealth in his mother’s name” (wife’s Outline of Submissions, paragraphs 63 and 65). This was because:
64. …
64.1Work on properties at [UU Street, Suburb J], [VV Street], have been performed by the Husband or thru [sic] his business and not paid for;
64.2Superannuation contributions far exceeding what would be “normal” have been paid to her;
64.3Tax paid for her;
64.4Loan accounts applied for her benefit from [N Pty Ltd] which she ceased to have any interest in from June 2007;
have all been made available to the second respondent at the cost of the total pool available for distribution between the spouse parties.
In addition, the wife referred to properties acquired by the second respondent.
In mid-1991, the husband purchased a property at UU Street for $115,000 with the assistance of a mortgage. In May 1999, a few months after the parties started dating, the husband transferred this property to his parents for consideration of $17,000. He was unable to explain how that consideration was derived (Transcript 14 August 2024, p.223 lines 14–19).
However, I am quite unable to see how a transfer of property prior to the commencement of cohabitation to one party’s parents, even assuming it to have been for wholly inadequate consideration, has any relevance whatsoever to a division of property some 23 years later.
In early 2001 the parties were travelling in South Australia. The husband became interested in blocks of land for sale in WW Street. The husband then entered into an agreement to purchase two blocks. In early 2002 the properties were acquired by the husband’s parents. The husband said that at all times in relation to these properties he was acting for his parents and that he did not pay anything towards the acquisitions.
I do not see how failing to take up an opportunity to purchase property is relevant in the present division of property. The solicitor for the wife suggested that it constituted waste (i.e. acting recklessly, negligently or wantonly with matrimonial assets – see Kowaliw and Kowaliw (1981) FLC 91-092) but that relates to disposal of assets. You cannot dispose of an asset that was never acquired. Further, there is no evidence as to whether the parties were in a financial position to buy those properties (the D Street property settled in late 2001) or that the WW Street properties turned out to be sound investments.
As to the other points raised above, it would not be unusual for a person in construction to carry out building work for his parents.
Whilst generous superannuation payments were made to the second respondent there was no evidence that they were improper. It was not put that such payments were intended to be at the expense of the wife. The evidence as to the husband paying tax liabilities that arose because of transactions designed to minimise the second respondent’s tax position landed in an unsatisfactory state. There was clearly an intermingling of funds, and it seems more likely that some of the advances made to the husband were to assist with those tax obligations, but the position is not at all clear.
Indeed, the impression I gained was that the husband and the second respondent would take whatever steps were legally available to them to minimise their tax obligations.
Further, some of the steps to which the wife referred fall away as the full value of the trust and the unsegregated value of the husband’s entitlement in the superannuation fund are being taken into account.
Finally, I was not taken to any authority that supported such other matters being taken into account.
The wife referred to the husband’s gambling during the marriage. Again, the evidence, ultimately, was unsatisfactory. There is no evidence that had it not occurred those funds would have been available for distribution between the parties.
I am not persuaded that any adjustment to the contributions-based entitlement is justified on the evidence.
The property will be divided so that the husband receives 65 per cent and the wife 35 per cent.
DISPOSITION
Therefore, for the wife to receive 35 per cent of the property she will need to receive $3,107,677 of the net assets of $8,879,077.
She already has:
Description Value D Street, Suburb E NSW $1,120,000 C Bank Account (…85) $33,823 Motor Vehicle 3 $14,625 T Limited Shares $1,508 R Limited Shares $11,464 Beneficiary account in Vida Family Trust $121,430 Paid legal fees (add back) $218,887 Super Fund 3 $337,371 Sub-total 1,859,108 Less C Bank Loan (…88) ($251,300) TT Financial Services Loan ($10,891) TOTAL $1,596,917
That means she will need an additional $1,510,760.
This outcome can be achieved, if necessary, by the sale or transfer of all or some of the real property owned by the husband and there will be no need to resort to s 106B and assets now held by the second respondent.
It is necessary to recognise that the sale of these properties will trigger a liability for capital gains tax (CGT). I have not taken that potential liability into account in the balance sheet because these properties have been owned for some time and there is no evidence that they are likely to be sold in the short to medium term (Rosati v Rosati (1998) FLC 92-804). The position may be different, however, if the properties are needed to be sold to comply with the order or, if transferred to the wife, they may be sold by her.
Mr DD identified the CGT payable assuming the husband’s income to be zero or $190,000 or more. This led to the following values (Exhibit 12, paragraph 1.15):
Property Estimated tax if husband has no other income Estimated tax if husband has other taxable income of $190,000+ 1 H Street, Suburb J $176,953 $210,815 K Street, Suburb L $117,652 $151,514 F Street, Suburb G $119,860 $153,722
In his final submissions the husband sought the opportunity to raise the funds that would be payable to the wife before being forced to sell or transfer properties. The wife did not oppose that course and it seems reasonable in the circumstances. The proposal, however, was predicated on his receiving the D Street property.
If the husband fails to raise the requisite funds, properties will need to be sold or transferred. The K Street property and the Suburb G property may not be sufficient to pay the wife, in which case recourse ultimately would have to be against the Suburb J property, which is where the husband lives. However, it is either that property to which regard must be had or to the assets of the trust via the provisions of s 106B. The husband eschewed that course.
The husband gave no evidence as to how he proposed to raise the necessary funds. The parties only provided draft minutes directed to his or her case taken at its highest and not to an alternative position. This leaves uncertainty as to how compliance with the final property division could be best achieved. I therefore cannot speculate that properties, possibly including those owned by the trust and N Pty Ltd, will be sold thus creating a CGT liability in the amounts identified by Mr DD in his report. It is impossible to take that liability into account when it is not even known whether any assets are likely to be sold or which ones would be selected.
In oral submissions the husband reiterated his preference to retain all of the real estate, including the D Street property which he wanted the wife to transfer to him and simply pay her a lump sum. At the same time, he conceded that it would be very difficult to raise a cash payment of the order of $4 million (Transcript 8 October 2024, p.397 lines 20–24). He then submitted that he would prefer to retain the Suburb J property as a priority, and then Suburb G thereafter.
D Street has an agreed value of $1,120,000 and if transferred to the husband, would require him to pay the wife $2,630,760. There is no evidence that the husband could or could not raise that sum.
That conundrum is best solved by the wife retaining the D Street property and giving the husband the time he sought to raise some or all of the $1.5 million he must raise.
The question arises as to what should happen if the husband is unable to do so. It will be necessary for properties to be sold or transferred, thus again raising the question of CGT. Being completely unaided by submissions or draft orders dealing with this scenario, I must do the best I can.
The husband, in the event he is unable to pay the required amount within the required time, will have to sell them and pay the proceeds to the wife. In the case of K Street, the husband will, of course, need to discharge the mortgage first.
In that case a CGT obligation will arise. That is not accounted for in the above table.
Another course is to have the husband simply transfer the relevant property or properties to the wife without incurring CGT. The wife would, however, incur that tax if and when she sold the transferred property.
The alternative to letting the CGT liability lie where it falls is to take it into account in determining the amount to be paid. However, neither party suggested that approach. It is also arbitrary in that, unless there was an order for the sale of all of the properties, only some are likely to be sold leading to wrongful gains.
The orders give rise to a differential between the parties of 30 per cent or $2,663,723. That appropriately reflects the differential in contributions discussed earlier.
I find that outcome to be just and equitable.
Given the uncertainties, I propose to publish these reasons and direct the parties to bring in short minutes of order to give effect to them.
I am aware of the caution expressed by the Full Court in Aitken & Aitken (2023) FLC 94-142 against delegating to the parties the responsibility of drafting the nature and form of orders to give effect to reasons for judgment. However, in this case, each of the parties’ proposed orders at trial were based on their respective positions, each of which was extreme. Furthermore, there is the issue of CGT implications depending on the course that is followed. I have clearly articulated what the terms of the orders will be (see the Full Court’s comment in Jess v Jess (No 4) (2023) 67 Fam LR 615 at [26]), namely the wife’s retention of the D Street property and payment to her of $1,510,760, whether by cash payment or transfer of further property.
SINGLE EXPERT’S FEES
An issue arose following the completion of the hearing, whilst judgment remained reserved, regarding payment of the single expert’s fees. He sought an order pursuant to r 7.19 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) compelling the husband to pay the outstanding fees plus interest.
That is an issue that will be determined before I make the final property division orders.
I certify that the preceding one hundred and ninety-seven (197) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Aldridge. Associate:
Dated: 12 March 2025
SCHEDULE OF PARTIES
SYC 1533 of 2019 Respondents
Fourth Respondent:
M PTY LTD
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