Vinge and Vinge

[2013] FCCA 2196

FEDERAL CIRCUIT COURT OF AUSTRALIA

VINGE & VINGE [2013] FCCA 2196

Catchwords:
FAMILY LAW – Property – long marriage – portion of husband’s unpaid tax debt included as matrimonial debt – circumstances surrounding the debt are relevant pursuant to s.75(2)(o).

Legislation:

Family Law Act 1975, ss.75(2), 79

Kowaliw & Kowaliw (1981) FLC 91-092
Lee Steere v Lee Steere (1998) FLC 91-626
Brown v Green (1999) FLC 92-873
Hickey v Hickey & Attorney General of the Commonwealth of Australia (Intervenor) (2003) FLC 93-143
D & D [2003] FamCA 473
AJO & GRO (2005) 33 Fam LR 134
Stanford v Stanford [2012] HCA 52
Bevan v Bevan [2013] FamCAFC 116

Applicant: MR VINGE

Respondent: MS VINGE

File Number: CAC 1117 of 2013

Judgment of: Judge Kelly

Hearing dates: 21 and 22 October 2013

Date of Last Submission: 22 October 2013

Delivered at: Adelaide

Delivered on: 19 December 2013

REPRESENTATION

Counsel for the Applicant: Mr Mater

Solicitors for the Applicant: Nicholl & Co

Counsel for the Respondent: Mr Howard

Solicitors for the Respondent: Farrar Gesini Dunn

ORDERS

In full and final settlement of any claim that either party may have against the other now or at any time in the future for settlement of property pursuant to Part 8 of the Family Law Act 1975 as amended:

1. The wife pay to the husband the sum of $116,300 (“the payment”) within 42 days of the date of these orders (“the Settlement Date”).

2. Contemporaneously with the payment referred to in paragraph (1):

   (a)the husband do all things necessary to transfer to the wife at her expense all of his interest in the property situate at Property J being the whole of the property contained in Certificate of Title Volume [omitted];

   (b)the wife do all things necessary to repay all monies owing to the Commonwealth Bank pursuant to the parties’ home loan and overdraft facility and to discharge Registered Mortgages Numbers [omitted];

   (c)the wife do all things necessary to pay the sum of $82,128 to the Australian Taxation Office in discharge of that portion of the husband’s debt for which the parties are deemed jointly responsible;

   (d)from the payment received by him pursuant to paragraph (1), the husband forthwith pay the balance outstanding to the Australian Taxation Office in the sum of $93,997.

3. Thereafter the wife shall retain all debts in her sole name including, but not limited to, the personal loan with the Commonwealth Bank and her HECS debt and indemnify the husband in relation thereto.

4. Thereafter the husband shall retain all debts in his sole name including, but not limited to, his Commonwealth Bank credit card debt and any further debt owing to the Australian Taxation Office and indemnify the wife in relation thereto.

5. The husband retain all items referred to in Annexure A attached to these Orders NOTING such items have been delivered or will be delivered to the husband by the parties’ adult son [X].

6. Thereafter each party shall retain such assets as are currently in their possession for their sole use and enjoyment absolutely, including motor vehicles, any bank accounts or savings, household furnishings and personal effects.

7. Pursuant to s.90MT(1)(a) of the Family Law Act 1975 whenever a splittable payment within the meaning of section 90ME of the Act becomes payable to or on behalf of Ms Vinge Member No [omitted] from her interest in the [P], Mr Vinge is entitled to be paid by the Trustee of the [P] the amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001, using a base amount of $99,034.50 and there is a corresponding reduction in the entitlement Ms Vinge would have had but for these Orders.

8. Paragraph (7) hereof has effect from the operative time.

9. The operative time for the purposes of paragraph (8) hereof is four (4) business days after service of this Order on the Trustees.

10. The solicitors for the husband serve a copy of this Order upon the Trustees of the [P] within fourteen (14) days.

11. Pursuant to s.90MT(1)(a) of the Family Law Act 1975 whenever a splittable payment within the meaning of section 90ME of the Act becomes payable to or on behalf of Ms Vinge Member No [omitted] from her interest in the [A] Super Scheme, Mr Vinge is entitled to be paid by the Trustee of the [A] Super Scheme the amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001, using a base amount of $4,804.00 and there is a corresponding reduction in the entitlement Ms Vinge would have had but for these Orders.

12. Paragraph (11) hereof has effect from the operative time.

13. The operative time for the purposes of paragraph (12) hereof is four (4) business days after service of this Order on the Trustees.

14. The solicitors for the husband serve a copy of this Order upon the Trustees of [A] Super Scheme within fourteen (14) days.

15. In the event the wife is unable to borrow sufficient funds to comply with paragraphs (1) & (2) of these Orders then the parties thereafter shall forthwith do all things and execute all documents necessary to place the former matrimonial home on the market for sale at a price and with an agent to be agreed between them.

16. Upon settlement, the parties shall cause the proceeds of sale to be distributed as follows:

    (a)to pay agent’s commissions and other proper and usual expenses of sale;

    (b)to discharge all debts owing to the Commonwealth Bank of Australia;

    (c)to discharge that portion of the debt owing to the Australian Taxation Office deemed a joint matrimonial debt in the sum of $82,128;

    (d)to discharge the balance of the husband’s debt owing to the Australian Taxation Office in the sum of $93,997;

    (e)to pay to the husband an amount calculated in accordance with the husband retaining total assets equivalent to 50% of the net matrimonial asset pool, less the sum of $93,997 already paid out to the Australian Taxation Office on his behalf (“the amended settlement sum”);

    (f)the balance then remaining to the wife.

17. Each party do all such things and sign all documents necessary to give effect to these orders.

18. If either party fails to take a necessary step in accordance with these orders a Registrar of the Federal Circuit Court, Adelaide Registry, is appointed and empowered, pursuant to s.106A of the Family Law Act 1975 to execute all documents and perform all acts necessary to implement the terms of these orders.

19. All proceedings are dismissed as finalised.

20. Liberty to either party to speak to the Minutes.

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

ANNEXURE A

1. Caravan and half of all camping equipment

2. Bar fridge and freezer

3. Half of the family photos

4. Any presents received by the husband including:

   (a)Coffee machine

   (b)Guitar

   (c)Guitar stand

   (d)Patio heater

   (e)Surround sound system

5. Television and cabinet/buffet from the lounge room

6. Items in the garage including:

   (a)Large fridge

   (b)Half of the Christmas decorations

7. Kitchen equipment:

   (a)Blender

   (b)Half of thermoses

   (c)Electric chopper and juicer

   (d)Coffee cups (travelling set)

8. The husband’s office furniture and supplies (1 x office cupboard and ½ items contained inside)

9. Half of any gifts bought from overseas trips

10. Stereo equipment

11. Any personal items belonging to the husband including:

    (a)Golf clubs

    (b)Fishing equipment

12. Glass unit in lounge room

13. 2 x 2 seater lounges in lounge room

14. Dining room table and chairs in lounge/dining room

15. Coffee table in lounge room

16. Double bed ensemble including mattress

17. ½ garden equipment and ½ statues

18. Playstation III

19. Half of the household Manchester

20. Half of the household crockery

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT CANBERRA

CAC 1117 of 2013

MR VINGE

Applicant

And

MS VINGE

Respondent

REASONS FOR JUDGMENT

Introduction

1. The Applicant, Mr Vinge, and the Respondent, Ms Vinge, began living together in 1987 and married [in] 1988.  They separated in February 2013 but remained living together in the former matrimonial home until July 2013.

2. The husband filed an Application for property settlement on 30 July 2013.  The parties have been unable to resolve the financial issues arising from the breakdown of their marriage and accordingly it falls to the Court to determine these issues.

Background

1. Both parties were working at the time they began living together.  The husband was employed as a [omitted] with his father and the wife was employed as a [omitted].  The husband owned a property at [omitted] which had a very modest equity.

2. The parties’ first child [X] was born [in] 1988 and their daughter [Y] was born [in] 1992.  The wife took time out of the paid workforce following the birth of each child but otherwise continued in paid employment, initially on a part time basis and subsequently resuming full time work in 2005.  The wife is presently employed as [omitted].

3. The husband established his own [omitted] business in 1991, operating as a sole trader.  He continues to run his business on the same basis to the present time.

4. In 1998 the husband’s father died unexpectedly.  The husband was present as his father died and this experience affected the husband greatly.  He became depressed and developed a significant gambling problem in the years following his father’s death.  The wife was unaware of the husband’s gambling problems until 2001 and was understandably shocked to discover the extent of the husband’s losses and the impact upon the family’s finances.

5. Upon being confronted by the wife, the husband agreed to cease all gambling.   By this stage he had accumulated a significant debt to the Australian Taxation Office (“ATO”) and in 2003 the parties took out an overdraft in the sum of $50,000 to discharge the husband’s unpaid taxation liabilities.  Otherwise the wife insisted that the husband take responsibility for clearing his debts and the parties agreed to separate their finances thereafter. 

6. Each party established their own bank account and contributed equally to a joint account for the family expenditure.  From that joint account, the parties would meet the mortgage repayments and household bills. They also contributed equally to household expenditure for food, groceries, holidays and the like.

7. Despite the arrangements put in place by the parties following the husband’s financial mismanagement in the years 2001-2003, the husband continued to struggle with his financial affairs.  He failed to file his BAS returns or make any GST or PAYG payments arising from his business.  He also failed to file any personal Income Tax returns and therefore did not pay any tax for the financial years ending 30 June 2004 through to 30 June 2012.  It transpires that the husband owes over $170,000 to the ATO by way of unpaid taxation, interest and penalties. The wife also failed to file her taxation returns in recent years, but has now attended to this.

8. The wife remains living in the former matrimonial home and continues to work full time in her position as [omitted].  The parties’ daughter [Y] also resides with the wife in the former matrimonial home.  The husband is living in rental accommodation and continues to work full time as a [omitted]. 

The parties’ positions

1. The husband effectively seeks an equal division of the matrimonial asset pool.  He argues that all debts, including his debt to the ATO, should be treated as matrimonial debts, given that the unpaid tax accrued prior to separation.  

2. Given the high level of indebtedness, he proposes that the former matrimonial home be sold and all debts discharged, with the balance then remaining to be divided equally between the parties.  He also argues that the wife’s superannuation should be divided equally between the parties.

3. The wife does not agree that the husband’s taxation debt should be included as a matrimonial debt.  She argues that he should bear responsibility for all debts owing to the ATO (including the original overdraft taken out to pay his earlier ATO debt) and that the net matrimonial asset pool should otherwise be divided equally between the parties.  She proposes that the superannuation pool be divided 75/25% in her favour.

4. In support of her position, the wife argues that the unpaid tax monies did not necessarily find their way back into the family finances, but were spent by the husband on gambling and alcohol.  While she concedes the ATO debt accrued during the marriage, the wife argues that it was the husband’s negligence, or reckless indifference to his financial responsibilities that allowed the situation to spiral out of control, to the point where the ATO debt now equates to over 50% of the net asset pool otherwise available.

Legal principles

1. The relevant legal principles governing any application for property settlement are set out in Part VIII of the Family Law Act. Section 79(1) allows the Court to make such orders in property settlement proceedings as it considers appropriate. Section 79(2) directs that a Court shall not make such an order unless it is just and equitable to do so.

2. In Stanford v Stanford[1] the High Court confirmed that an order adjusting the property interests of the parties can only be made when the Court is satisfied that it is just and equitable to do so.  The High Court went on to note that this condition is easily met in most circumstances where the marriage has broken down, because there will no longer be “the common use of property” by the parties. [2]

   [1] Stanford v Stanford [2012] HCA 52, paras 37-40

   [2] Stanford v Stanford, ibid, para 42

3. In considering the terms of any such order, s.79(4) directs the Court to take into account the parties’ contribution to the maintenance and acquisition of the asset pool during the marriage, including direct or indirect financial contributions, direct or indirect non financial contributions and any contribution to the overall welfare of the family, including in the capacity of homemaker or parent.

4. Section 79(4)(d) directs the Court to consider the impact of any proposed order upon the earning capacity of either party. Section 79(4)(e) directs the Court to refer to the matters set out in section 75(2), factors that generally focus the Court’s attention upon each party’s future needs.

5. Various Full Court authorities have noted that determining a property settlement application involves a four step process.[3] Assuming the Court is satisfied that it is just and equitable to make an order for property settlement, the Court must identify the assets and liabilities arising from the parties’ marriage. The Court should then assess each party’s contribution during the marriage in accordance with s.79(4)(a)-(c). The third step requires the Court to consider the matters set out in s.79(4)(d)-(g), including the future needs factors identified in s.75(2).

   [3] Lee Steere v Lee Steere (1998) FLC 91-626; Hickey v Hickey & Attorney General of the Commonwealth of Australia (Intervenor) 2003 FLC 93-143; AJO & GRO (2005) 33 Fam LR 134

6. The Court should then consider its findings and make appropriate orders regarding the property interests of the parties, ensuring that the proposed orders are just and equitable as between the parties.    

7. The Full Court has recently reminded judges not to fall into error by following the “four step” process too strictly, noting that this approach is not legislatively mandated, but rather provides a structured process towards the ultimate requirement, which is to ensure that a property settlement order is only made when the Court is satisfied it is just and equitable to do so and when the terms of the order itself are also just and equitable.[4]

   [4] Bevan v Bevan [2013] FamCAFC 116 at para.86

8. The High Court in Stanford has set out three “fundamental propositions” to guide trial judges dealing with property settlement proceedings, summarised by the Full Court in Bevan as follows:

   “(1) Determination of a just and equitable outcome in an application for property settlement begins with the identification of the existing legal and equitable interests (as determined by common law and equity); 

   (2) The discretion conferred by the statute must be exercised in accordance with legal principles and must not proceed on an assumption that the parties’ interests in the property are or should be different from those determined by common law and equity; 

   (3) A determination that a party has a right to a division of property fixed by reference only to the matters in s 79(4), and without separate consideration of s 79(2), would erroneously conflate what are distinct statutory requirements.” [5]

   [5] Ibid, para.73

9. It is generally expected that parties should share in the good economic times as well as the bad economic times that arise from their marriage, even if the losses have resulted from the actions of one party.  In Browne v Green the Full Court observed:

   “ … there should be good and substantial reasons for departing from the principle that where there are economic losses incurred in a marriage, those losses should be shared, absent any negligence, recklessness or deliberate dissipation of assets by one party.”

10. In considering whether there are ‘good and substantial reasons’ for departing from this principle, the decision of Kowaliw & Kowaliw[7] is often cited.  In this judgment Baker J said:

    “As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances: 

    (a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or 

    (b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value. 

    Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec. 75(2)(o) to applications for settlement of property instituted under the provisions of sec. 79.”[8]

    [7] Kowaliw & Kowaliw (1981) FLC 91-092

    [8] Ibid at page76,644

11. As discussed in my findings set out below, I am satisfied that the parties’ separation has brought an end to their common use of their matrimonial property and that it is just and equitable to make an order for property settlement. 

12. In considering the terms of the order to be made, the crux of the matter is this: was the husband’s conduct in failing to pay his taxation liabilities in a timely manner sufficiently negligent or reckless so as to justify the Court departing from the usual approach to economic losses?  For the reasons that follow, I conclude that it was.

The trial

1. The trial proceeded before me on 21 and 22 October 2013.  Both parties gave evidence and were cross examined.

2. The husband relied upon the following documents:

   a)Application filed 30 July 2013;

   b)Affidavit of the husband filed 30 July 2013 and 17 October 2013;

   c)Affidavit of [X] filed 17 October 2013;

   d)Affidavit of Mr O, Psychologist, filed 17 October 2013;

   e)Husband’s updated Financial Statement filed 17 October 2013.

3. The wife relied upon the following documents:

   a)Response filed 5 August 2013;

   b)Affidavit of the wife filed 18 October 2013;

   c)Wife’s updated Financial Statement filed 18 October 2013;

   d)Affidavit of [Y] filed 5 August 2013;

   e)Affidavit of Mr H (licensed valuer) filed 18 October 2013.

4. Ultimately, the parties did not rely upon the evidence of their children save as to three sentences in paragraph 4 of [Y]’s Affidavit in relation to the husband’s alcohol use.  Mr H gave evidence but ultimately the parties were able to agree upon the value of the former matrimonial home. 

1. I am satisfied that both parties gave their evidence honestly and to the best of their recollection.  However, as is so often the case in family law proceedings, both parties tended to recall past events in a way that supported their case and their preferred outcome.

2. While the husband endeavoured to give his evidence honestly, he failed to disclose that he had continued gambling well after the financial difficulties that arose in 2001/2002.  The husband only conceded that he had continued to gamble when confronted with documentary evidence indicating his attendance at various gambling venues.

3. The husband’s psychologist, Mr O, was cross examined at some length.  Mr Howard, Counsel appearing for the wife, sought to challenge

   
   

   Mr O’s evidence on the basis of his diagnostic process.  I am not satisfied that the Court should disregard Mr O’s report and clinical conclusions and I consider he gave his evidence in an appropriately professional and neutral manner.  I will discuss the weight and impact of Mr O’s evidence further within these Reasons.

Asset pool

1. The parties ultimately reached agreement in relation to the asset pool and presented a joint list of assets and liabilities in that regard.[9]  The parties also presented a list of items to be retained by the husband from the former matrimonial home.  Neither party sought to include personal effects and furnishings as a separate item within the asset pool and I accept this was an appropriate concession by them, given the modest value involved.

   [9] MFI 1

2. The parties conducted the hearing on the basis of the superannuation interest being dealt with as a separate pool, which was also appropriate, given the value of the parties’ superannuation interests, compared to the net value of the tangible assets owned by the parties.

3. The only issue that remains in dispute in relation to the assets and liabilities is the description of the debt to the ATO and whether this debt and the earlier overdraft debt should be treated as joint debts arising from the parties’ marriage or debts to be retained by the husband alone.  

The 2002 overdraft

1. The wife gave evidence that she became aware of the husband’s gambling in 2001 and that the husband had also incurred a significant taxation debt of approximately $50,000. The husband’s gambling and the subsequent taxation debt caused significant stress within the family.     

2. In late 2002 the parties agreed to take out an overdraft secured against their home to the value of $50,000, to repay the husband’s ATO debt.  The wife was sufficiently concerned by the husband’s past conduct that her agreement to the overdraft was conditional upon the husband agreeing to other conditions regarding the family finances. 

3. Somewhat surprisingly, that overdraft has remained at $50,000 ever since.  While the husband was responsible for incurring the debt, both parties agreed to repay the debt through the overdraft and the wife could have kept an eye on its management across the intervening years, had she so chosen.   

4. In my view this debt falls precisely within the scenario envisaged by the Full Court in Browne v Green.[10] I conclude that the $50,000 overdraft should be included as a joint matrimonial debt.  It is unfortunate that this debt has not been paid down, but it is a misfortune that should fall equally to both parties.

   [10] Browne & Greene, ibid, note 6

The outstanding ATO debt

1. The subsequent taxation debts are in a different category.  The husband was able to rectify his financial arrangements in 2002, as we know that his ATO debt was quantified and ultimately repaid in November 2002, via the overdraft.  Presumably the husband’s accountant assisted him in this regard, but the husband was nonetheless able to provide proper records and instructions to his accountant at the time. 

2. That being the case, it is difficult to understand why the husband then failed to put in place appropriate systems to ensure that he continued to provide proper records and instructions to his accountant in the future.  Yet we know that he did not, as the current taxation debt began accumulating in 2004, the very next financial year.  The total debt now owing is $176,126, of which $11,869 relates to penalties and interest.

3. The husband says he is now aware that he was suffering from Post Traumatic Stress Disorder (“PTSD”) following on from his father’s death in 1998 and that this affected his overall psychological functioning in the following years.  He argues that he was not “wilfully, negligently or recklessly” ignoring his taxation liabilities, or “wasting” family funds through gambling but that this behaviour was a manifestation of his psychological ill health. 

4. The wife rejects this.  She says that the husband was well aware of his taxation responsibilities and that he had every opportunity to put in place appropriate accounting arrangements to ensure that he met these obligations, particularly after the difficulties they had just dealt with.

5. She argues that the husband was negligent or recklessly indifferent by continuing to ignore his taxation responsibilities over the subsequent years.  It would be unfair and unjust to now treat the taxation liability as a joint matrimonial debt, given that she had no knowledge of the husband’s actions, nor any way to intervene or exercise control over the husband’s financial arrangements.

6. The wife further argues that not only was she unaware that the husband was not paying tax each year but that the unpaid tax monies were not being used by the husband for the benefit of the family.  On the contrary, she argued that the husband continued to spend excessive amounts on gambling and alcohol and this is where the ‘unpaid taxation monies’ were spent during the relevant years.

7. In determining whether the husband’s behaviour falls within the exceptions envisaged by Baker J in Kowaliw, it is useful to now consider the evidence from Mr O.

Mr O’s evidence

1. The husband relies upon the evidence of Mr O, clinical psychologist, with regards to his past gambling and his failure to manage his financial affairs. 

2. Mr O concluded that the husband suffered from “… severe depression with other psychological factors leading me to conclude that he continues to suffer from Post Traumatic Stress Disorder (PTSD) which was initiated at the time of being involved with trying to revive his father and failing.”[11]

   [11] Affidavit of Mr O filed 18/10/2013, Annexure A, p.8, point 3

3. Mr O was cross examined as to whether he had identified and considered the relevant diagnostic criteria to diagnose the husband as suffering from PTSD.[12]  Mr O effectively conceded that he may not have addressed each of the Diagnostic Criteria for PTSD within his report, but he was satisfied that the husband’s presentation was such that he met those criteria and that his overall presentation was clearly identified within the discussion leading to his final opinion and within the report overall. 

   [12] DSM (V) Diagnostic Criteria for Post Traumatic Stress Disorder marked Exhibit B

4. With due respect to Counsel, I reject any suggestion that Mr O was somehow revising or revisiting his opinion in response to cross examination.  Mr O was able to respond to the various criteria put to him in cross examination, by reference to his report. Mr O also pointed out, quite rightly, that a patient does not need to meet all of the criteria set out in the Diagnostic Criteria to reach a diagnosis of PTSD. 

5. Whatever the basis of Mr O’s opinion, the significance of his evidence relates to the impact of his psychological diagnosis upon the husband’s behaviour.  In that regard, the most significant finding in Mr O’s report is contained at point 5 on page 9 of his report:

   “Mr Vinge, would have been, in my opinion, severely depressed and experiencing complicated grief during the period of gambling referred hereto, but, in my opinion, whilst he may have indulged more in his favourite form of gambling (“pokies”) he would not have lost control of his ability to limit the use of time and expenditure that this incurred, and whilst he might not have been particularly attentive to these consequences of his behaviour, and therefore unlikely to be able to recall in any details these elements, he does not currently suffer from a Gambling addiction, and, in my opinion, is unlikely to have done so previously.”[13] [my emphasis]

   [13] Affidavit of Mr O filed 18 October 2013, Annexure A, page 9, point 5

6. In passing, I presume that the ‘period of gambling referred hereto’ was the period leading up to 2003, given that it was only during the trial that the husband acknowledged gambling beyond that date.

7. I accept that the husband experienced the death of his father as a deeply traumatic event and that this affected his psychological functioning over subsequent years.  However, I also accept Mr O’s opinion that the husband had not “lost control’ of his behaviour, and that the husband had “…managed to date to perform his duties at work and maintain his commitments at home…”[14].  This concurs with the husband’s own evidence regarding his ongoing and active participation in family life, including coaching the [sport omitted] team, taking on the role of President of the [sport omitted] Club and so on.

   [14] Ibid, page 8, point 4

Conclusion regarding the current ATO debt

1. I conclude that the husband’s psychological functioning was not so compromised in the years following 2004 that he was unable to manage his financial affairs, including those relating to his business and his taxation obligations.  On the contrary, those responsibilities must have been very clear in his mind following on from the consequences of his failure to file taxation returns appropriately in the period leading up to 2003.

2. I further conclude that during the years 2004-2012 the husband had the financial capacity to meet his taxation obligations but failed to do so.  I conclude that his failure was a result of negligence or reckless indifference as to the consequences of his actions (or more correctly, his inaction).

3. As discussed below in my assessment of each party’s contributions, the husband has not established that these ‘unpaid tax monies’ were spent for the benefit of the family, or are somehow now reflected in the matrimonial asset pool.  This is not to say that the family and the matrimonial asset pool did not receive any benefit from the ‘unpaid tax monies’, but the extent to which this may have occurred is unquantified.  The husband certainly did not see fit to use the ‘unpaid tax monies’ to discharge or pay down the overdraft, which would have been an obvious place to start.

4. At the same time, there is no dispute that the unpaid tax would have fallen due during the marriage, in the usual course of events.  Such debts would normally be included as a joint matrimonial debt, at least insofar as the actual tax payable, unless such an outcome was shown to be unjust or inequitable.   

5. Given my finding that the husband was negligent or recklessly indifferent towards his taxation responsibilities, I have no hesitation in concluding that he alone should bear the penalties and interest imposed by the ATO, in the sum of $11,869.   

6. Regarding the unpaid tax debt of $164,257, I conclude that the husband’s negligence or reckless indifference towards his taxation responsibilities was at such a level that it would indeed be unjust and inequitable to include the outstanding ATO debt as a joint matrimonial liability.   The wife had already assisted the husband to get his financial affairs in order once previously, when she agreed to take out the overdraft; she should not be expected to again share equally in the financial consequences of the husband’s carelessness.   I conclude that the husband should bear greater responsibility for this debt, given it has arisen solely because of his negligence or recklessness.

7. I conclude that the ATO debt should be dealt with separately from the remainder of the asset pool. This does not necessarily mean however that the husband should be held solely responsible for this debt. I will return to this issue once I have set out my further findings in accordance with s.79(4) and when addressing the s.75(2) factors, particularly s.75(2)(o).

8. Accordingly the matrimonial asset pool is as follows:

Asset	Wife	Husband	Total
Former matrimonial home at Property J	$575,000
BMW motor vehicle	$6,170
Trailer	$1,800
Nissan Patrol motor vehicle	$2,500
Caravan	$6,500
Tools	$3,500
Business accounts	$3,700
Total Assets	$582,970	$16,200	$599,170
Liabilities
Mortgage secured over former matrimonial home (joint)	$209,442
Overdraft  (joint)	$50,000
HECS debt	$6,100
Husband’s business credit card	$13,500
Total Liabilities Net asset pool	$6,100	$13,500	$279,042     $320,128
Superannuation
[P] as at 30 June 2013	Wife	$198,069
[A] Super	Wife	$9,608
[C]	Husband	Nil
Total Superannuation	$207,677

1. This leaves the net matrimonial asset pool standing at $320,128.  The husband’s remaining ATO debt has not been included at this stage of the adjustments, as I have determined that the balance of the ATO debt outstanding should not be treated as a joint matrimonial debt.  I note however that the remaining ATO debt of $164,257 exceeds 50% of the net asset pool that is available for division between the parties.  The husband’s inaction has had a hugely detrimental effect on the parties’ current financial situation.

Contributions

1. It is helpful to address the wife’s allegations in relation to the husband’s gambling and alcohol expenditure at the beginning of my discussion about the parties’ contributions. 

The husband’s gambling

1. The wife led evidence relating to the husband’s expenditure on gambling and alcohol.  While she did not ultimately argue that the husband’s expenditure on gambling and alcohol should be quantified and included as a specific amount to be “added back” into the asset pool, she certainly argued that he had wasted significant sums across the years, funds that may otherwise have been directed to taxation payments, for example, or to reduce the overdraft.

2. The husband originally denied that he had resumed gambling after 2003.  In the course of the hearing he conceded this was incorrect, but it appears this concession only came about when the husband was presented with subpoenaed records from various gambling venues such as the [omitted] Football Club. 

3. The wife endeavoured to summarise the husband’s expenditure during the years 2003-2011, based on her examination of the husband’s bank records.  She gave evidence to the effect that he had withdrawn over $76,000 from gambling establishments or ATM machines near gambling establishments during the eight year period.  This figure averages out to approximately $180 per week.  Even if the Court accepts the wife’s calculations, I cannot assume that every withdrawal made at an ATM near a gambling venue was spent by the husband on poker machines.

4. The husband was cross examined about his gambling and was shown various bank statements indicating that he had made multiple small withdrawals from ATMs attached to gaming premises.  The husband conceded that a pattern of multiple withdrawals on a single day or consecutive days may have indicated that he was gambling on the days in question.  However, he was not prepared to concede that each and every withdrawal from ATMs attached to these venues was then spent on the poker machines.  The husband pointed out that some of the ATMs were located on the outside of the club or venue and on occasions he may have been withdrawing cash for his own personal use or household expenditure.

5. I am satisfied that the husband continued to gamble after 2003 and that he did so without his wife’s knowledge.  The wife is entitled to feel angry and aggrieved by his duplicitous behaviour, but I am not satisfied that the wife’s interpretation of the husband’s withdrawals is sufficient to conclude that his gambling was at the level claimed by her.  Nor can I be satisfied that his gambling was at a level that could be seen as ‘wasteful’ to the extent that it would become relevant to my assessment of the husband’s overall contribution during the marriage.  Having said that however, it may be that the husband was only able to maintain both his expected financial contribution to the family and his gambling expenditure by relying upon the ‘unpaid tax monies’ for the latter purpose.

The husband’s expenditure on alcohol

1. The wife also argues that, in addition to wasting money on gambling, the husband drank alcohol excessively and wasted family funds on his alcohol purchases.  Again, by examining the husband’s bank accounts, the wife has calculated the husband spent approximately $31,900 on alcohol purchases during the years 2003-2011, which averages to approximately $3,500 per year.  Even if the Court was satisfied that her calculations are accurate, I am not satisfied this level of expenditure could be described as ‘wasteful’ in a way that would require consideration within these property settlement proceedings.   

2. It is not for this Court to determine how much money a party should spend on what may be described as ‘lifestyle’ or ‘discretionary’ expenditure.  Different parties may have a very different view about how funds are best used, whether on alcohol or expensive sporting equipment, new cars or travel, school fees or home renovations.  Again, it may be that the husband’s apparent expenditure on alcohol helps explain where some of the ‘unpaid tax monies’ were spent, but in my view, that is the only relevance of this evidence.

3. I am not satisfied that the wife’s calculations can be taken at face value, in terms of allocating a precise dollar figure. Nor is it the responsibility of this Court to undertake a forensic analysis of the husband’s income and expenditure over a ten year period. 

4. I conclude that the evidence regarding the husband’s gambling and expenditure on alcohol is not sufficient to affect my assessment of his contribution to the acquisition and preservation of the matrimonial assets. As discussed previously, these issues are better addressed when considering the impact of the husband’s unpaid taxation debt, as a fact or circumstance to be taken into account pursuant to s.75(2)(o).

General discussion regarding contributions

1. Taking into account the above discussion, I am generally satisfied that both parties made a significant contribution to the acquisition, conservation and improvement of the matrimonial assets during their relationship.  The husband worked full time throughout the marriage and the wife acknowledged that he was a hard worker and ran a successful business.  Equally, the husband acknowledges that the wife also worked full time in the paid workforce during the marriage, aside from brief periods of leave and part time employment following the birth of their children. 

2. Both parties were actively involved in the children’s care, however I am satisfied that the wife took on the primary role as homemaker and parent and that she attended to these responsibilities in addition to her full time paid employment. The wife made some criticisms of the husband’s involvement within the family unit, but I am satisfied that the husband also contributed to the welfare of the family as a whole, by assisting with parenting responsibilities, participating in the children’s extracurricular activities and so on.

3. The wife received two lump sum redundancy payments during the marriage.  The first redundancy was paid out in March 2007, in the sum of $71,258 and the second was paid in January 2011, in the sum of $46,677.  The wife decided to take a year out of the paid workforce to study and she used the second redundancy payment to contribute ‘her share’ to the family’s finances and to cover the expenses she would otherwise have been paying from her salary. I am satisfied that the wife’s redundancy monies were used for the benefit of the family overall, but not to the extent or in such a way that now requires an adjustment in the wife’s favour. 

1. Finally, I note the wife raised allegations of family violence, which were denied by the husband.  The wife’s allegations are concerning, but in circumstances where the wife is not pursuing any “Kennon” type claim[15], it is unnecessary and inappropriate to make any findings on this issue. 

   [15] Kennon v Kennon 1997 (FLC) 92-757

2. I conclude that the parties’ contributions should be assessed as equal, bearing in mind the ATO debt will be discussed further below.

Section 75(2) factors

General discussion

1. Both parties are 50 years old and are in reasonable health.  The husband may be suffering from depression, as discussed by Mr O, but there is no evidence that this has affected the husband’s capacity to continue working.

2. Both parties work full time and earn a roughly equivalent income.  There is no suggestion that either party will be unable to continue in full time employment for the foreseeable future.  Indeed, one would expect that the husband’s situation may improve once the stress of these proceedings is behind him, particularly if he adopts the recommendations from Mr O in relation to treatment for his depression.

3. Neither party has the care of any child under the age of 18 years.  The parties’ daughter [Y] is studying full time and also works part time.  She remains living with the wife in the former matrimonial home.  While neither parent has a formal obligation to assist with [Y]’s support, the wife clearly subsidises [Y]’s accommodation and meets all outgoings within the household, just as many other parents do across Australia.  It is a rare circumstance where a parent’s financial contribution to the support of their child ceases on that child’s 18^th birthday.

4. Neither parent is in receipt of any Centrelink pension or benefit.  Neither party has re-partnered.  Both parties presently endeavour to live within their means and lead a relatively modest lifestyle, just as they did during their married life together.  It is not anticipated that any order for property settlement will affect either party’s earning capacity.

5. The Court must consider the effect any proposed property settlement order upon the capacity of a creditor to recover their debt.  This is obviously particularly relevant In relation to the ATO.  Clearly, any order for property settlement should not compromise repayment of the debt owing to the ATO.

6. I do not consider that any adjustment is required in favour of either party as a result of my consideration of the s.75(2) factors, save as now discussed below.

Section 75(2)(o): any other fact or circumstance

1. Section 75(2)(o) enables the Court to take into account any other fact or circumstance which the justice of the case may require. I conclude that the husband’s conduct in failing to meet his ATO liabilities is such a fact or circumstance.

2. The husband would argue that his behaviour was not at the level of recklessness or negligence that was envisaged by Baker J in Kowaliw.  While he concedes he was irresponsible in not attending to his taxation obligations, he argues that the monies not paid to the ATO were nonetheless used to the benefit of the family.  Accordingly he says it would be unjust and inequitable that he should now be penalised and bear the sole responsibility for repayment of the full debt to the ATO.

3. The difficulty with the husband’s argument is twofold:  one, he was well aware of the consequences of failing to meet his taxation obligations by virtue of the events that occurred in 2001/02; and, two, he has failed to present evidence to demonstrate that the monies not paid to the ATO were otherwise utilised for the benefit of the family or are somehow now reflected in the asset pool. 

4. Having once found himself in a situation where he had accrued a substantial taxation debt which could only be discharged by taking out an overdraft against the former matrimonial home, it is impossible not to attribute a significant degree of culpability to the consequences of repeating that same negligent or reckless behaviour, particularly when that situation then continued for a number of years.

5. I accept that some of the funds due to the ATO may have been spent for the benefit of the family and in maintenance of the matrimonial asset pool.  Even on the detailed and somewhat loaded analysis undertaken by the wife, she argues that the husband has “wasted” approximately $108,000, well short of the $164,000 in unpaid taxes due to the ATO.

6. I repeat that it is not the responsibility of this Court to undertake a forensic analysis of the husband’s income and expenditure over the years.  However, the unpaid ATO debt obviously has a much greater negative impact on the parties’ financial circumstances now, than would have arisen had the husband met his taxation obligations when they fell due each year.

7. I remind the parties that the Court’s responsibility is to put in place orders that are just and equitable as between the parties.  This requires that I weigh up the general principle that parties should share in the economic ‘ups and downs’ arising from their marriage, against the impact of the husband’s negligence or recklessness which has led to a significant debt in existence at separation.

8. I return to the starting point of this discussion.  To paraphrase Baker J in Kowaliw, such losses should be shared – but not necessarily equally.  Clearly the tax debt accrued during the marriage and had it been paid in a timely manner, would have been absorbed into the family finances across the years.   To that extent, it would not be just and equitable for the wife to be excused all financial responsibility for this debt now.  The question is how to allocate the level of financial responsibility that the parties jointly should bear, as opposed to the level of financial responsibility that the husband alone should bear.

9. There is no mathematical or arithmetic approach that the Court can apply in such circumstances. I take into account the husband’s consistent failure across so many years.  I take into account that the total ATO debt to be paid exceeds 50% of the tangible asset pool otherwise available for distribution. In the circumstances, I conclude that the parties should bear 50% of the unpaid taxation as a joint matrimonial debt, with the husband to retain sole responsibility for the remaining 50% and penalties.  I consider this adjustment reflects an appropriate allocation of financial responsibility between the parties, in all of the circumstances.  

10. Accordingly the net asset pool of $320,128 is reduced by a further sum of $82,128, being one half of the unpaid taxation, leaving net assets to the value of $238,000.

11. I have considered whether to include the whole of the unpaid taxation as a matrimonial debt.  Were that to occur, the net asset pool would be much smaller.  The impact of the husband’s negligence or recklessness would then need to be reflected in a significant percentage adjustment in the wife’s favour when dividing the remaining net asset pool.  In the circumstances, I conclude that identifying the relevant adjustment specifically against the ATO debt is a more transparent and appropriate approach.

Superannuation

1. The wife argues that she should retain the bulk of her superannuation entitlements, as she has been solely responsible for accumulating the superannuation through the contributions deducted from her salary.  She argues that the husband could have made similar arrangements for his own superannuation and retirement benefits, but chose not to do so.  In those circumstances she argues it is unjust and inequitable for the husband to receive anything more than a modest adjustment in relation to superannuation.

2. In considering the parties’ superannuation interests, I generally adopt my findings in relation to the parties’ contributions.  The parties were married for over 20 years.  They both worked hard during their marriage and made a significant contribution to their family and the acquisition of matrimonial assets both through their employment in the paid workforce and through their contribution to the family unit as a whole and this finding also applies to the superannuation interests. 

3. There may be many reasons why the husband did not set aside money with respect to superannuation.  The husband may have been feckless and disorganised but equally, the parties may have considered that the wife’s superannuation would be a sufficient safety net for them in their retirement.  They may have concluded that the husband’s income was better directed to ongoing expenditure at times particularly while they had two young children, for example. The Court cannot know and should not now make assumptions on this topic. 

4. Turning to the relevant s.75(2) factors, I adopt my general findings in that regard. I do not consider that my findings in relation to s.75(2)(o) are relevant to the parties’ superannuation interests, as the husband’s ATO debt is irrelevant to the parties’ investment in superannuation across the years.

5. The husband may well decide to start setting aside superannuation for his retirement but his capacity to acquire any substantial retirement benefit is now limited, given his age. I conclude that it would be unjust and inequitable to have a situation where one party is so disadvantaged in retirement, given the general findings I have made in relation to the parties’ contributions and the impact of the s.75(2) factors generally.

6. Accordingly, I conclude that the parties’ superannuation interests should be divided equally between them. I note the husband has now provided procedural fairness to the relevant Superannuation Fund Trustees and I will make a splitting order directed to each of the wife’s superannuation funds.

Conclusion

1. The parties have both worked hard across their married life together and it is distressing to now see them in relatively parlous financial circumstances.  As discussed, I am satisfied the husband should bear greater responsibility for that situation by virtue of my ruling in relation to the outstanding ATO liability.

2. Based on the above findings, the parties’ assets and liabilities will be allocated as follows:

Asset	Wife	Husband	Total
Former matrimonial home at Property J	$575,000
BMW motor vehicle	$6,170
Trailer	$1,800
Nissan Patrol motor vehicle	$2,500
Caravan	$6,500
Tools	$3,500
Business accounts	$3,700
Total Assets	$582,970	$16,200	$599,170
Liabilities
Mortgage secured over former matrimonial home	$209,442
Overdraft	$50,000
HECS debt	$6,100
Joint share of the ATO debt	$82,128
Husband’s business credit card	$13,500
Total Liabilities Net asset pool	$347,670	$13,500	$361,170      $238,000

1. Based on the above figures, the net matrimonial asset pool stands at $238,000.  As the husband’s ATO debt has been dealt with by including one half of the unpaid taxation as a joint matrimonial debt and the balance to be retained by the husband alone, I conclude that the net asset pool remaining should be divided equally between the parties.  This would result in the husband retain assets to the value of $119,000. 

2. The husband already holds matrimonial assets to the value of $16,200 but will also be retaining his credit card debt to the value of $13,500 leaving him with net assets presently under his control of $2,700.  Accordingly the wife would be required to make a further payment to the husband in the sum of $116,300.  

3. It is important to consider the actual impact of the proposed settlement.  While the husband will be retaining net assets valued at $119,000, he will then need to repay his remaining tax debt and penalties in the sum of $93,997, leaving him with net assets to the value of $22,302, in real terms.

4. The wife is anxious to retain the former matrimonial home and hopes to borrow sufficient funds to discharge the joint debts retained by her (ie the mortgage, overdraft and one half of the unpaid tax debt) and otherwise pay out the husband.  This would involve total borrowings of $463,970, leaving the wife with net assets to the value of approximately $119,000, in real terms.

5. While the differential between the parties’ actual net asset position under the terms of this judgment is stark, neither party is left in a comfortable financial situation.  This is largely due to the fact that the matrimonial asset pool has been dramatically impacted by the husband’s failure to meet his taxation responsibilities in a timely manner across the years.   In the circumstances it is just and equitable that the husband should bear the greater impact of those losses, as discussed above.

6. Hopefully the wife will be able to obtain refinancing and retain the former matrimonial home.  Her mortgage repayments will be significant, given the extent of her borrowings, but she nonetheless retains the benefit of remaining in the property market.

7. The husband may find himself living in rental accommodation for the foreseeable future, but he will be starting with “a clean slate” once his ATO debts are paid out, which will be a considerable relief.  Hopefully he will be able to provide more carefully for his own financial arrangements in the future.

8. Both parties remain in the paid workforce. They have some provision for their retirement by virtue of the superannuation splitting order now made by me. 

9. In the event the wife is unable to obtain finance, then the former matrimonial home will need to be sold. This will affect the net asset pool, as the parties will have incurred the usual costs associated with the sale.  Once the net proceeds of sale from the former matrimonial home are known, the net asset pool can then be clarified and divided equally between the parties taking into account all of the above findings.

10. I now make orders as set out at the commencement of these Reasons and I am satisfied the orders are just and equitable as between the parties.

I certify that the preceding one hundred and thirteen (113) paragraphs are a true copy of the reasons for judgment of Judge Kelly

Associate: 

Date:       19 December 2013

[6] Browne v Green (1999) FLC 92-873