Vincent v Smith
[2005] TASSC 103
•4 November 2005
[2005] TASSC 103
CITATION: Vincent v Smith [2005] TASSC 103
PARTIES: VINCENT, Leanne Kay
v
SMITH, Paul Edward
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: BDR M37/2004
DELIVERED ON: 4 November 2005
DELIVERED AT: Hobart
HEARING DATE: 26 October 2005
DECISION OF: Master S J Holt
CATCHWORDS:
Family law and child welfare – De facto relationships – Adjustment of property interests – Relevant considerations – Just and equitable.
Aust Dig Family Law and Child Welfare [496]
REPRESENTATION:
Counsel:
Applicant: C J Bartlett
Respondent: In person
Solicitors:
Appellant: McVeity & Associates
Respondent: In person
Judgment Number: [2005] TASSC 103
Number of paragraphs: 23
Serial No 103/2005
File No BDR M37/2004
LEANNE KAYE VINCENT v PAUL EDWARD SMITH
REASONS FOR DECISION MASTER S J HOLT
4 NOVEMBER 2005
The applicant has applied for an order for the adjustment of interests in respect of the property of the respondent pursuant to the Relationships Act 2003 ("the Act"), s40. The applicant and the respondent were partners living in a personal relationship within the meaning of the Act between 1993 and May 2004.
At the commencement of the relationship the applicant was aged 27 years and the respondent aged 31 years. Neither had assets other than personal effects. The applicant had the care of her two daughters then aged 7 and 8 years. The respondent had no employment and no credit rating. The applicant's mother acquired a house at Risdon Vale subject to a mortgage and the couple lived there with the applicant's two daughters paying rent to offset mortgage payments.
Between 1993 and 1997 the applicant worked on a casual basis as a housemaid at a Hobart motel. She also did craft work as a seamstress selling articles from a site at the Salamanca market. In May 1998 the only child of the relationship was born. Shortly before the birth the respondent acquired a truck from his brother subject to a $45,000 loan from the respondent's parents. The respondent operated the truck for reward for about six months of the year and spent the other six months of the year working with a fencing contractor. He became the primary breadwinner with the applicant being the principal homemaker, but managing to maintain her stall at the Salamanca market. The respondent gradually acquired plant and equipment expanding his business to include machinery hire and excavation work. The balance sheet for his business for the year ended 30 June 1999 shows the business as having assets of about $73,000 and liabilities of about $53,000.
In 2001 it was decided that the best financial opportunities for the business lay on the north west coast of Tasmania. The applicant sold her stall at the Salamanca market for $7,000. This money plus a government first homeowner's grant of $7,000, plus $5,000 contributed by the respondent and the proceeds of the sale of a truck used by the respondent in his business were applied by the couple to purchase a house at Castra Road, Ulverstone, for $116,000. A mortgage with the Commonwealth Bank of about $90,000 was taken out to supply the balance of the funds needed to settle the purchase. The house was registered solely in the name of the respondent who since its acquisition has continued to grow the business and has paid all of the mortgage payments and the other expenses associated with owning and keeping a house.
There was a trial separation in May 2003 when the applicant left for Brisbane. She returned in August 2003, but the relationship came to a permanent end in May 2004.
At the end of the relationship the applicant obtained a division of the household furniture, the use of the respondent's car, had about $1,500 in the bank, about $300 in superannuation savings and some sewing equipment. The applicant also had a credit card debt of about $2,000. The respondent remained in possession of the house at Castra Road. He had about $7,000 in superannuation and continued as the sole proprietor of his cartage, plant hire and excavation business. In addition, the respondent kept a utility motor vehicle for his personal use.
The substantial assets are the house and the business. Valuation evidence, which was not contested, was that in January 2005 the house was worth about $200,000, but with a recent decline in the housing market is now worth about $190,000. At the time of separation the house was still subject to a mortgage to the Commonwealth Bank with about $86,000 owing on the mortgage. As to the value of the business there was evidence from a valuer which neither of the parties disputed in making their submissions. Values assigned by the valuer to the plant and equipment of the business were roughly in line with the written down values stated in the respondent's depreciation schedule accompanying the balance sheet for the business for the financial year ended 30 June 2004. The balance sheet as at the end of that financial year showed the business as having total assets of about $235,000, consisting almost entirely of plant and equipment and liabilities of about $260,000, consisting almost entirely of loans linked to the acquisition of the plant and equipment. In summary, at separation the net equity in the house was about $104,000 and for the business the liabilities exceeded the assets by about $25,000, so that the net worth of assets in the respondent's name was about $79,000 plus the respondent's superannuation savings of about $7,000.
Since separation the respondent has continued to buy and sell equipment for his business and in September 2005, notwithstanding that the hearing of this application for an adjustment of property interests was about to occur elected to further encumber the Castra Road house in order to inject capital into the business and to purchase an excavator for about $200,000. He borrowed $150,000 from Liberty Funding Pty Ltd using the loan to pay out the Commonwealth Bank mortgage, to pay his solicitor about $10,000 and to inject about $50,000 into his business. He sold some equipment and borrowed from Suncorp Metway Advances Corporation Pty Ltd $175,000 secured by a chattel mortgage to acquire the excavator. The Castra Road house is accordingly now subject to a mortgage to Liberty Funding Pty Ltd of $150,000 rather than the Commonwealth Bank mortgage. The balance sheet for the business as at 30 September 2005 shows total assets at that time of about $376,000 and total liabilities of about $411,000 leaving a shortfall of about $35,000. The equity in the house is now only about $40,000 and so the respondent's net worth has gone from about $86,000 at the time of separation in 2004 to almost nothing.
The only items of plant and equipment in the respondent's business which are not the subject of security are a Bedford truck and trailer worth about $21,000. If the house was now sold for about $190,000 then after repayment of the Liberty Funding Pty Ltd mortgage, the balance left would be about $40,000 less sale expenses. If the truck and trailer were also sold about another $20,000 could be added to the pool available for immediate distribution. By the sale of these assets the respondent has an ability to raise about $50,000. These sales, if they occur, may well jeopardise the respondent's business, but that is primarily because the respondent chose to purchase a new excavator for about $200,000 and to link the equity in the Castra Road house to the fortunes of the business.
The respondent's business has always had a high debt to equity ratio and so the profit and loss statements for the several years in which it has been operating show only modest returns. The net profits for the years ended 30 June 1999 to 30 June 2005 have been $24,324; $1,678; $35,443; $4,761; $22,129; $8,123; and $52,270 respectively. The profit and loss statement for the last financial year shows that the $52,000 profit was only achieved because during that year an item of equipment was sold for $52,000 more than its written down value. The acquisition of the excavator and the financing of it was undertaken by the respondent without consultation with his accountant. It may be that earnings from the new excavator will increase the profitability of the business or it may be that the acquisition turns out to be imprudent and will lead to the downfall of the business. Only time will tell. The future of the respondent's business is precarious because of the large debts which have been incurred, because its viability is dependent upon the availability of work and because adverse weather conditions can result in costly equipment being left idle for extended periods. One fact which the respondent does have in his favour is that according to his evidence he has a well established customer base. Notwithstanding this customer base, however, the respondent's accountant, understandably, having regard to the high debts and low profits of the business has not considered it appropriate to list and value goodwill as an asset in any of the balance sheets.
Since separation the respondent has resided at the Castra Road house with a person with whom he has a romantic relationship. The applicant when she moved out initially obtained accommodation for herself and the couple's young daughter at a caravan park before securing Housing Department accommodation in Ulverstone. Since separation the applicant has had a new romantic relationship , but that had ended by the time of the hearing of this application.
The applicant has continued to sell her craftwork at the Penguin market and other events. She has also set up business as a seamstress and retailer at a shop front in Ulverstone, but so far the business has not produced a profit and the applicant is currently in arrears with her rent on the shop which is $130 per week. She remains dependent upon a CentreLink benefit. In December 2004, about seven months after the separation, the applicant obtained seasonal work for a vegetable processor and for the six or seven months to 30 June 2005 she earned from this endeavour about $6,700. Also, since December 2004, pursuant to an interim maintenance order of the Court the applicant has received weekly payments from the respondent of $65.
The couple's daughter is now aged 7½ years and is at school. The fact that she has reached school age has enabled the applicant to set up her own business and undertake seasonal work vegetable processing. The child is in the care of the applicant with the respondent having access at dinnertime on Wednesdays, every second weekend and at other times during school holidays. The respondent pays a small amount for child support, but this amount is significantly less than the actual cost which the applicant needs to spend each week to maintain her daughter.
These are the circumstances of the relationship and the circumstances of the applicant and the respondent since separation. The Act, s40, empowers the Court to make any orders it considers to be just and equitable having regard to a wide variety of matters. Section 40(1) is as follows:
"(1) On an application by a partner for an order for the adjustment of interests in respect of the property of either or both the partners, a court may make any order it considers just and equitable having regard to –
(a) the financial and non-financial contributions made directly or indirectly by or on behalf of either or both of the partners to the acquisition, conservation or improvement of any of the property; and
(b) the financial resources of either or both of the partners; and
(c) the contributions, including any contributions made in the capacity of homemaker or parent, made by a partner to the welfare of the other partner or to the welfare of the family constituted by the partners and one or more of –
(i) a child of the partners; or
(ii) a child accepted by either or both the partners into the household of the partners, whether or not the child is a child of either of the partners; and
(d) the nature and duration of the relationship; and
(e) any relevant matter mentioned in section 47."
The Act, s47(2), is as follows:
(2) In determining whether to make the order and in fixing any amount to be paid under the order, a court is to have regard to the following:
(a) the income, property and financial resources of each partner (including the rate of any pension, allowance or benefit paid, payable or entitled to be paid to either partner) and the physical and mental capacity of each partner for appropriate gainful employment;
(b) the financial needs and obligations of each partner;
(c) the responsibilities of either partner to support any other person;
(d) the terms of any order made or proposed to be made under section 40;
(e) any payments provided for the maintenance of a child in the care and control of either partner;
(f) whether either partner has the care and control of a child of the partner who is under 18;
(g) the age and state of health of each partner;
(h) the standard of living that is reasonable for each partner in all the circumstances;
(i) the extent to which the payment of maintenance to the partner whose maintenance is under consideration would increase the earning capacity of the partner by enabling the partner –
(i) to undertake a course of education or training; or
(ii) to establish a business; or
(iii) otherwise to obtain adequate income;
(j) the extent to which the partner whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other partner;
(k) the length of the personal relationship;
(l) the extent to which the personal relationship has affected the earning capacity of the partner whose maintenance is under consideration;
(m) any other fact or circumstances the court considers relevant."
I have set out in these reasons the general circumstances of the relationship and the parties. The evidence presented at the hearing contained more detail. There was no submission that any of the evidence concerned matters to which little or no weight ought be attached. Accordingly, I have had regard to the whole of the evidence, but have only set out the circumstances in general terms because I consider that that is all that is necessary to explain sufficiently the assessment which I shall make of what is just and equitable. There are, however, two matters to which I need to make specific reference. First is the fact that at the time of separation in May 2004 the net worth of the parties was about $86,000, all in the name of the respondent. By the time of the hearing in October 2005 the net worth of the parties was almost nothing. A question arises as to whether the assets should be valued at the date of separation or at the date of the hearing. The second matter concerns the approach to be taken in assessing the respective contributions of the parties to the assets where one partner is the breadwinner and the other partner is the homemaker.
Although it is usual for the valuation of assets to be as at the date of the hearing the rule is not inflexible. In re Wardmanand Hudson [1978] 33 FLR 196 at 200, the Court said, in respect of the equivalent provisions under the Family Law Act 1975:
"The first question is as to the appropriate date for determining the value of the property in order to decide what orders are appropriate. In times of inflation and in times when values of properties may fluctuate significantly with the passage of a relatively short period, the choice of the correct date at which to determine the matter can frequently be of critical importance. It appears to us that whilst no hard and fast rule may be capable of being laid down, at least in relation to a jointly-owned property or a property acquired or built up by the parties through their joint efforts over a number of years, of which the matrimonial home is the most obvious and most frequently encountered example, the proper time for determining the value of the property is at the date of the hearing of the application under s79. (See generally In the Marriage of Zappacosta (1976) 26 FLR 412 and In the Marriage of Wells (1977) 29 FLR 383.) If the parties to the proceedings were strangers to each other as distinct from being husband and wife then in ordinary circumstances if the court were to make an order severing their joint ownership that consequence would flow as at the date of the order and the parties' rights would be determined accordingly. It appears to us that as a generality the fact that the parties are husband and wife should not prima facie alter that position. Otherwise one party may achieve a substantial wind-fall because of an increase in value over the period of time since the separation, that period of time often being due to no more than delay in the hearing of the application in this Court.
There may of course be a number of circumstances which would indicate that this is not the appropriate time (as to which see for example in the Marriage of Hayne (1977) FLC 76,412 and In the Marriage of Healey (1977) FLC 76,564) and no doubt ultimately each case has to be determined upon its own facts, but in our view as a generality at least within the limited scope referred to above, this is the proper approach."
As to the assessment of the respective contributions and their impact upon any distribution again there are no rigid rules. I refer to the observation of Gibbs CJ in Mallet v Mallet (1983 – 1984) 156 CLR 605 at 610 where he said in respect of equivalent provisions under the Family Law Act:
"However the Parliament has not provided, expressly or by implication, that the contribution of one party as a homemaker or parent and the financial contribution made by the other party are deemed to be equal, or that there should, on divorce, either generally, or in certain circumstances, be an equal division of property, or that equality of division should be the normal or proper starting point for the exercise of the court's discretion. Even to say that in some circumstances equality should be the normal starting point is to require the courts to act on a presumption which is unauthorized by the legislation. The respective values of the contributions made by the parties must depend entirely on the facts of the case and the nature of the final order made by the court must result from a proper exercise of the wide discretionary power whose nature I have discussed, unfettered by the application of supposed rules for which the Family Law Act provides no warrant."
Here, at the time of separation, there was a domestic asset which was of value and particular interest to the applicant, namely, the house at Castra Road. Shortly before the hearing the respondent decided to transfer equity out of the house and into his business being a business in which the applicant had no material interest. It was not producing much in the way of profit and its liabilities exceeded its assets. There was no evidence that there was any urgent or compelling reason for the respondent to enter into the transaction which he did just a few weeks before the hearing. The evidence was that he purchased the excavator and arranged for the financing without consultation with the applicant and without consultation with his accountant. These circumstances, in my view, warrant a departure from the general rule and, accordingly, I will use as my starting point the value of the assets at the time of separation. As I have said the value of the equity in the house; less the liabilities of the business, plus the respondent's superannuation savings amounted to about $86,000 at separation.
In considering how that amount should be adjusted I commence with the proposition that it consists predominantly of the equity which had existed in the Castra Road house to which the parties made not dissimilar financial contributions at the time of acquisition. The accumulation of equity in the property was almost entirely the result of a general increase in real estate values, there not having been much paid off the mortgage between the time of acquisition and the time of separation. Although the respondent paid running costs for the house, the applicant was the homemaker, which was a role which followed from the applicant having the care of the couple's young child. Having regard to the equity being mostly due to a general increase in housing values, the similar financial contributions at the time of acquisition and thereafter the respondent's financial contributions and the applicant's contribution as homemaker I consider that an equal apportionment of the net assets of the couple at the time of separation is a just and equitable starting point.
The other circumstances, in my opinion, roughly balance out. The financial needs of the applicant are greater than the respondent because she has the care of the couple's child. Against this, however, I note that in the past the respondent has provided financial support for the applicant's other two children. The applicant's financial future is uncertain because her new business is in its early stages and the work which she has obtained processing vegetables is seasonal. She has limited employment prospects because she left school at year 10 and has not undertaken further education or training. Similarly, the respondent's financial future is uncertain because of the precarious state of his business. If the acquisition of the excavator turns out to be a sound business investment the profitability of his business may improve. If the acquisition, has resulted in the debt level becoming too high and the business fails I have no reason to think that the respondent could not still obtain labouring work, particularly work associated with cartage, fencing and the use of excavation equipment. In addition, I note that the respondent has qualifications for trade work as a boiler maker/welder. The parties are roughly the same age. There was no suggestion in submissions that either of them suffers from health problems which might curtail earning capacity. Since separation the respondent has had the use of the Castra Road house, but in more recent times the respondent has been paying interim maintenance at the rate of $65 per week and had provided the applicant with the use of a motor vehicle whilst maintaining payments owing to a financing company on that vehicle. There was other small detail as to the circumstances of the parties which although I have not set out in these reasons I have considered and it has not caused me to depart from the starting point which I adopted, namely, that the applicant should receive an amount representing about 50% of the net value of the assets at the time of separation.
I conclude that the order which is just and equitable in the circumstances is an order requiring the respondent to pay to the applicant a sum approximating 50% of the value of the assets at separation. Orders will be made to secure payment by the respondent to the applicant of the sum of $43,000. If the respondent cannot make financial arrangements to facilitate this payment the house and the unencumbered Bedford truck and trailer will need to be sold. These assets are presently the subject of an injunction which I granted at the conclusion of the hearing restraining the respondent from selling or encumbering them pending further order. I will defer making final orders in this matter for 14 days to enable the respondent to endeavour to raise the finance necessary to pay the applicant. I will then hear the parties as to the appropriate form of final orders which should be made to secure payment. Pending final orders, I will not discharge the interim maintenance order for the payment by the respondent to the applicant of $65 per week.
The application stands adjourned for the making of final orders to 9.15 am on Friday, 18 November 2005.
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