Volkmann and Drake (Child support)

Volkmann and Drake (Child support) [2018] AATA 2292 (1 May 2018)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2016/SC009778
APPLICANT:  Mr Volkmann
OTHER PARTIES:  Child Support Registrar
Ms Drake

TRIBUNAL:Member K Timbs
DECISION DATE: 1 May 2018
DECISION:

The Tribunal sets aside the decision under review and substitutes the decision that the annual rate of child support is to be 20% of the maximum costs for the children in the Costs of the Children Table from 4 December 2015 until a child support terminating event happens for [Child 2].

CATCHWORDS
Child Support – Departure determination – Income and financial resources of parents – Income from self-managed superannuation fund – Costs and proper needs of the children – Decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

Child support assessments

Mr Volkmann and Ms Drake are the parents of [Child 1] (born 2002) and [Child 2] (born 2004). At relevant times, the Department of Human Services made child support assessments for the children for the Child Support Registrar. Mr Volkmann is the parent liable to pay child support under those assessments.
From 1 December 2015, the Department used an adjusted taxable income of $22,837 equal to his 2015 taxable income for Mr Volkmann. The notional minimum annual rate of child support applied. Ms Drake’ adjusted taxable income was equal to her 2015 taxable income of $131,776, which did not affect the assessment.

Change of assessment decision

On 4 December 2015, Ms Drake applied for a departure from the administrative assessment of child support (change of assessment). On 19 March 2016, an officer authorised by the Registrar determined that from 4 December 2015 to 31 March 2018:
· the combined child support income is to be $256,986; and
· Mr Volkmann and Ms Drake both have an income percentage of 50%.
On 15 June 2016, an objections officer of the Department disallowed Mr Volkmann’s objection to that decision.

Application for review

On 13 July 2016, Mr Volkmann applied for review of that decision. The Tribunal heard the application for review on 13 March 2017.

RELEVANT LAW AND ISSUES

In the usual case, the Registrar assesses the annual rate of child support for a child support period using a formula in the Child Support (Assessment) Act 1989 (the Act). However, a fixed or minimum annual rate may apply if, among other things, a formula assessment results in an annual rate that is less than the nominal minimum annual rate.
Either parent may apply to change the formula assessment (section 98B). The Registrar may change the assessment if the case meets the following three criteria (section 98C):

There is a ground for changing the assessment. (Subsection 117(2) of the Act lists the 12 grounds.)
It is “just and equitable” to make particular changes to the assessment.
It is “otherwise proper” to make those changes to the assessment.

To make a decision on Mr Volkmann’s application for review, the Tribunal considered whether this case meets these criteria.

CONSIDERATION

Evidence considered

The Tribunal considered documents relevant to the decision under review provided by the Department and by the parties. It heard evidence at hearing from Mr Volkmann and Ms Drake. It reviewed the recording of that evidence before making its decision.

Is there a ground to change the assessment?

10. The first step is to decide if there is a ground for changing the assessment. Ms Drake applied for a change of assessment on the ground in subparagraph 117(2)(c)(ia) that the formula assessment:

in the special circumstances of the case …would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child … because of the income, property and financial resources of either parent

When considering whether the outcome of the assessment (the annual rate) is unfair, the Tribunal has regard to the objects of the Act in section 4. The principal object of the Act is to ensure that children receive a proper amount of financial support from their parents and it is a particular object of the Act to ensure that financial support to be provided by parents is determined according to their capacity to provide financial support. In particular, parents with a like capacity to provide financial support for their children are to provide like amounts of financial support. The Tribunal also takes into account that section 4 provides that parents have a duty of support for their children that has priority over all other commitments except those they must meet to support themselves.
The minimum annual rate of child support is a nominal amount of child support that applies to parents who receive Centrelink benefits or similar incomes. In the Tribunal’s view, it is not a proper level of financial support unless the parent needs to use all their resources to meet their own needs.
Mr Volkmann has taxable income of approximately $270,000 in 2010 as a partner at the [service] firm, [Business 1]. He turned 60 in 2011 and retired in accordance with the provisions of his contract. [Business 1] paid him $1,700,000 as a return on his capital investment. He said he paid tax of approximately $500,000 and invested $400,000 in his self-managed superannuation fund. He said he used the rest to pay outstanding legal costs and living expenses. (He incurred approximately $1,000,000 on legal fees in disputes with Ms Drake since their separation.)
The Tribunal noted the annual rate of child support was approximately $17,000 before Mr Volkmann retired. He said he did not arrange his financial affairs to ensure that he could continue to make a similar contribution to the support of the children. He said there was no need “to put anything aside” because he had no obligation in the future to pay anything other than a modest amount of child support because Ms Drake has “massive wealth”. His submission is that it is not legally appropriate that he pay more than the minimum rate of child support in that case and that it is fair to calculate the annual rate taking account his taxable income only.
He submitted that it is not open to the Registrar to make a change to the assessment unless the Registrar:
establish(es) the jurisdictional fact that the administrative assessment is materially wrong because one or both of the parents’ income materially exceeds what the administrative assessment takes into account based on taxable income.
The Tribunal finds Mr Volkmann’s submissions are misconceived. The test in section 117(2)(c)(ia) is not whether the assessment is materially wrong because of income. Rather, the Registrar must consider financial resources and property, as well as income, to decide whether the assessment is unfair in the special circumstances of the case. This is consistent with the requirement to consider financial resources and property when deciding if it is just and equitable to make a particular change to the assessment and the particular object of the Act referred to above. That object refers to parents with similar capacity providing similar amounts of support rather than similar income.
Mr Volkmann might have expected to pay nominal amounts of child support after he retired. However, his duty of support for the children did not end and it does not follow that was fair to Ms Drake, whether or not she had capacity to meet the children’s needs. As the legal fees were not necessary commitments to support himself, his obligation of support for the children had priority over them. In any event, Mr Volkmann did not pay all of the legal costs from his lump sum payment but only those that were outstanding at that time. The Tribunal has no evidence that he had any particular amount in hand from his lump sum payments after meeting those costs to support himself and the children.
In a Statement of Financial Circumstances provided before hearing, Mr Volkmann reported his only income is a defined benefit superannuation pension of approximately $50,000 a year.
Mr Volkmann’s 2016 tax return confirms his evidence that he receives a pension from [Business 1] of approximately $50,000 a year. He also reported assessable income of approximately $4,500 from dividends and franking credits and approximately $51,000 in interest paid from the superannuation fund. (The return states the interest was paid by [Bank 1] from account number [Account 1].) Against this income, he claimed expenses of approximately $82,000 (largely for interest payments). When asked about the interest payments he said his home was effectively unencumbered when he retired and that he borrowed $1,600,000 to “gear up” using his home for security. He said the interest is for those loans.
He listed his only assets as his home, a car, very modest home contents and an interest in a superannuation fund.
Mr Volkmann valued his home at $1,800,000 and reported he has a mortgage of $1,600,000. It is a two storey, freestanding home in the [named region] and he said he bought it in 2001 for $1,600,000. He disputed the Tribunal’s suggestion that movements in the [local] housing market mean it is worth much more than he reported. He said prices in the [named region] “had plateaued” in the last few years and that his neighbour had recently purchased a similar property for $1,500,000. The Tribunal cannot explain the purchase of a similar property by Mr Volkmann’s neighbour. However, movements in [local] property prices are very well reported in the media. In the Tribunal’s view, his evidence on this issue is so unlikely that it affects his credibility. It finds it is a valuable property. Nevertheless, it is his home. The mortgage has been used to fund investments (discussed below) but the Tribunal does not find that his equity otherwise provides him with additional capacity to support the children.
Mr Volkmann valued his interest in his self-managed superannuation fund at $740,000 in his Statement of Financial Circumstances. He provided 2015 financial statements for it that he said he prepared himself. His said his accountant prepared final statements before lodging his return. They are not the best evidence available because they might have been amended by his accountant. Nevertheless, they are the best evidence available to the Tribunal about the value of the fund at the end of the 2015 financial year.
The balance sheet shows debts of $3,123,518 including $740,000 in Mr Volkmann’s trust account. The fund has assets (shares and cash) of the same value. The profit and loss sheet shows income of approximately $251,000. However, includes approximately $200,000 in unrealised capital gains. It paid the balance of approximately $51,000 to Mr Volkmann. (His tax return states it was paid from [Bank 1] account number [Account 1].)
It is unclear how the value of the unrealised capital gain has been taken into account. Mr Volkmann deducted the amount from the income to calculate negative assessable income (because unrealised gains are not taxed) but has not added it to the value of the assets by recording retained profit or allocating it to his trust account. When questioned, Mr Volkmann said that, instead of recording the amount as income, he could have recorded an increase in the value of the shares held by the superannuation fund on the balance sheet. (The Tribunal understands the practice he followed facilitates borrowing from the fund up to the amount of the unrealised gain). It might have been recorded as retained profit and/or allocated to his trust account. However, it was finally recorded, on the face of the document available to the Tribunal, it appears Mr Volkmann’s interest in his superannuation fund was equal to the $740,000 in his trust account and the additional $200,000 in unrealised capital gains.
Mr Volkmann did not provide the 2016 financial statements for the superannuation fund and this is discussed below. In the Tribunal’s view it is likely the value of his interest has increased since then but it cannot make any accurate finding.
The Tribunal noted the payments made on his loan accounts came from the same [Bank 1] account number [Account 1] that he reported paid him interest in his tax return. When pressed about the arrangement, he claimed not to be able to say why that was the case except to say that there were complicated “limited recourse borrowing arrangements”.
The Tribunal also noted that it had directed Mr Volkmann to provide copies of statements for a specified period for all bank accounts in his name, joint names or to which he is a signatory and that he did not provide a copy of account number [Account 1]. He firstly claimed to have done so but conceded that was not the case when the Tribunal referred him to the documents in evidence. He then said he assumed the account was not in his name and that he was not a signatory. The Tribunal asked why he paid and received payments from a account that was not in his name. He said it might be because he did not own the assets in the account because of the complicated borrowing arrangements. Mr Volkmann gave no further details and the Tribunal finds the excuse is vague and unconvincing. The Tribunal infers he did not comply with directions to provide statements for the specified bank accounts in his name.
The Tribunal also noted Mr Volkmann did not provide copies of an account into which [Business 1] paid his pension. He said it pays the pension into another person’s account so that the Department cannot collect child support from a bank account in his name. The Tribunal asked how it could be satisfied he has disclosed all assets and sources of income if others hold money for him. He said the Tribunal should be satisfied on his oral evidence because there is no evidence to demonstrate it is not true. The Tribunal is not obliged to accept oral evidence uncritically. In this case, the evidence is self-serving and the payment of his pension to another person’s account shows he is highly motivated to avoid his legal obligation to pay child support. The Tribunal infers he would similarly hide income or financial resources to minimise his child support liability.
The Tribunal found his response to other directions was also inadequate. He did not provide the 2015 financial statements for the superannuation fund by the return date and did not provide the 2016 financial statements at all. He claimed to have overlooked the 2015 statements and that he could not provide the 2016 statements because his accountant would not prepare them until May 2017.
The many submissions in the Tribunal papers show that Mr Volkmann is highly focussed and meticulous. This is consistent with his long career as [an occupation 1]. The Tribunal finds his excuse for failing to provide the 2015 financial statements on time to be unlikely.
The Tribunal also finds his excuse for not providing the 2016 financial statements is disingenuous. As noted, he prepared the 2015 statement provided to the Tribunal for his accountant to finalise. He might not have prepared the 2016 statements for his accountant by the return date of the directions. If that were the case, he did not technically fail to comply with the direction to provide them. However, he had time to prepare them for the purposes of the review to comply with the Tribunal’s more general direction that he is to provide full and frank disclosure of his financial circumstances to the Tribunal.

32. In Agrippa and Horton,[1] Halligan FM (as he was then) explained that parties have a duty f full and frank disclosure in child support proceedings and explained how decision makers are to deal with non-disclosure:

25. In financial proceedings under the Family Law Act 1975 a party has a duty of full and frank disclosure of all of his or her financial circumstances (Black & Kellner, (1992) 15 Fam LR 343, (1992) FLC 92-287, Weir & Weir, (1992) 16 Fam LR 154, (1993) FLC 92-338). If it is established to the Court’s satisfaction that there has been deliberate non-disclosure, “then the court should not be unduly cautious about making findings in favour of the innocent party. To do otherwise might be thought to provide a charter for fraud” (Weir, above, FamLR at 158, FLC at 79,593).
26. In my view the same principle must apply in the assessment of child support for the same reason. If the SSAT is satisfied that a parent has made a deliberate non-disclosure of his or her financial circumstances, it should be reasonably robust in assessing the non-disclosing parent’s financial circumstances adversely to that parent and in favour of the other parent. That is not to say that it may arrive at an entirely arbitrary result, but rather that it may draw generous inferences adverse to the non-disclosing party about that party’s financial circumstances.
[1] (SSAT Appeal) [2010] FMCAfam 1144 (11 October 2010).

Mr Volkmann claims the assessment is consistent with his capacity to provide for the children but has provided limited documentary evidence to support that assertion. He argues the Tribunal must accept that assertion because finding otherwise would “be to arrive at an entirely arbitrary result”.
In the Tribunal’s view, that is not the case because it is open to make adverse inferences from the limited information available to it. It accepts Mr Volkmann is not employed and has a superannuation pension of approximately $50,000 a year. However, he has had a lengthy career [as an occupation 1] as a partner with a large [service] firm and he received a lump sum payment of least $1,700,000 when he retired in 2011. It is unlikely Mr Volkmann did not have other assets (in addition to his home) on retirement given his income before retirement and the nature of his work. This contention is supported by his management of his superannuation fund, which resulted in significant unrealised capital gains of approximately $200,000 in the 2015 financial year. He has unexplained but “complicated limited recourse borrowing arrangements”, which would not be necessary if he had limited means and has funds in a bank account in another person’s name. Finally, he had the resources available to him to spend approximately $1,000,000 on legal fees since separation from Ms Drake.
All those circumstances suggest Mr Volkmann is a wealthy person with significant income, assets and/or financial resources available to him. The Tribunal infers that is the case and finds he has significantly more capacity to support the children than other parents who are assessed to pay the minimum annual rate of child support. It is not a proper amount of support for the children and is not fair to Ms Drake and the children because of Mr Volkmann’s income, assets and/or financial resources.
In the usual run of cases, parents’ provide for their children from wages or salary that are relatively stable and commensurate with their adjusted taxable incomes. Their financial circumstances are relatively transparent. That is not the case for Mr Volkmann (or for Ms Drake, as discussed below). The Tribunal finds that makes the circumstances of this case special.
It follows from the above that the ground in section 117(2)(c)(ia) applies because, in the special circumstances of this case, the outcome of the assessment is unfair to Ms Drake and the children because of Mr Volkmann’s income, financial resources and/or assets.

Is it fair to change the assessment?

38. The next step is to consider whether it is just and equitable (fair) to make a particular change to the assessment. To do this, the Tribunal considered relevant matters listed in subsection 117(4) set out in the headings below.

Duty to support the children

39. As noted above, Mr Volkmann and Ms Drake have a primary duty to support the children has priority over all their other commitments except the commitments they must meet to support themselves or any other people they have a duty to support (section 4). There is no evidence that Mr Volkmann and Ms Drake have other minor children or other persons they have a legal duty to support.

Income, financial resources, property and earning capacity of the children and the parties

40. The children are full-time students with no capacity to support themselves. They rely on the parties to meet their proper needs.

Earning capacity

The Tribunal has no evidence indicating that the parties are not fully exercising their earning capacity. In particular, it accepts Mr Volkmann’s evidence that he was required to retire in 2011.

Ms Drake

Ms Drake stated in her Statement of Financial Circumstances that she is [an occupation 2] and [another occupation] and that her 2015 taxable income is comprised of a salary, dividends from a company operating family businesses and rental income. She said she thought her taxable income for 2016 would be approximately $140,000 from similar sources. She said that she and the children live in a property owned by a family company built with money from her mother.
She declared assets of $120,000 in a bank account, shares in a public company and a share in real property jointly owned with her siblings that she values at approximately $900,000. She has some superannuation.
Ms Drake also declared interests in three companies owned by her and her family members through trusts. She said she owns 16% of a company operating a business selling [products]; 33% of a company that owns [properties] on which it grazes [animals] (and on which Ms Drake lives) and 33% of a company that owns property on which it grows and sells [another product]. She said she works [as an occupation 2] in the first business, lives on a property owned by the second company and is paid as an employee of the third company. She did not put a value on her interest in the three companies.

45. Following the hearing, at the Tribunal’s request, the Registrar provided tax returns for relevant trusts. (It also provided a tax return for the unrelated [named] Trust that the Tribunal has disregarded.) The Tribunal finds from those documents that the trusts hold significant assets and that the related businesses generate significant income. However, it does not have a full picture of the business operations without the financial statements that it directed Ms Drake to provide.

46. At hearing, Ms Drake described benefits provided by her mother who she said is a wealthy woman. She said her mother spent $850,000 to build the home she lives in with her children, paid legal costs for her of approximately $750,000 and that she paid for a [holiday] for herself and the children (and other family members). As discussed below, her mother also pays for the children’s education. The Tribunal must disregard the income, assets and financial resources of persons who do not have an obligation to provide support for the children, such as Ms Drake’ mother. However, Ms Drake did not comply with directions to provide financial statements for the 2015 and 2016 financial years for relevant companies and trusts and the Tribunal cannot be certain that the benefits did not derive directly or indirectly from the family businesses.

47. Mr Volkmann made assertions in written submissions about the value of property held by Ms Drake through the family businesses and that she has annual income and financial resources available to her of approximately $1,000,000. The Tribunal does not accept all the assumptions on which he bases his calculations. (For example, he refers only to Internet searches to support his assertion about the annual turnover of one company.) However, it gives the submissions some weight because Ms Drake chose not to address them at hearing and has not complied with directions to provide documents with information about the assets held by the family businesses and the income and assets they provide to her. Like Mr Volkmann, she failed to frankly disclose her financial circumstances and the Tribunal cannot make accurate findings about her access to income, assets and property. Therefore, the Tribunal “should be reasonably robust in assessing [her] financial circumstances adversely to [her] and in favour of” Mr Volkmann. While it does not accept the detail of his submission, it accepts the businesses own real property worth many millions of dollars. It finds Ms Drake is a very wealthy woman with access to significant income and financial resources generated by family businesses from the substantial assets owned by family companies.

Mr Volkmann

48. As discussed above, the Tribunal is unable to make specific findings about Mr Volkmann’s income, property and financial resources. However, it has made the general inference that he is also wealthy.

Conclusion

49. The Tribunal is satisfied that Mr Volkmann could meet all the children’s proper needs (discussed below) and Ms Drake confirmed at hearing that she could do the same.

50. The formula would operate in such a case to allocate each parent a proportion of the maximum cost of a child according to their relative incomes. For example, in a case where one parent earns approximately $1,000,000 a year and the other earns approximately $2,000,000, the first parent earns approximately 33% of the combined child support income of $3,000,000. Their child support income percentage would be approximately 33% and they would be obliged to meet that proportion of the cost of the child (either as child support or through meeting expenses while the child is in their care).

51. In this case, both parties failed to frankly and fully disclose their financial circumstances and the Tribunal cannot make accurate findings about their relative wealth. However, there is no evidence that Mr Volkmann has an interest in any ongoing business (other than those in which his superannuation fund has invested) or interest in real property that has similar value to that owned by Ms Drake and her family. In the circumstances, it accepts his assertion Ms Drake is much wealthier than he is.

52. It does not follow, as he would assert, that he has no responsibility for the children and the Tribunal finds it would be consistent with the nature of his duty to support the children for him to meet 20% of the cost of meeting their proper needs.

The children’s proper needs

53. When considering the children’s proper needs, the Tribunal must consider the usual needs of children and is guided by the costs in the Table. It must also consider any special needs and any cost for educating the children in a way expected by the parties.

54. The children have wealthy parents and, in the Tribunal’s view, Ms Drake would need to spend the maximum cost of the children in the Table (for parents with combined child support incomes of two and a half times annualised Male Average Weekly Earnings) to ensure that they shared in the lifestyles of both parents. That is approximately $40,000 for the two children.

55. Ms Drake said she had paid approximately $8,000 for [Child 1’s] [specialist] treatment in the two years before the hearing and that she expected to have to pay more than $9,000 for [specialist] treatment that [Child 2] had started shortly before the hearing. She did not know how much she would receive from her medical insurance. She said she would like some assistance with the cost but when asked to provide evidence of the out of pocket cost she said, “Let’s not bother with that”. In that case, the Tribunal does not propose to increase the annual rate of child support so that Mr Volkmann contributes to the cost of meeting that special need.

56. The children are privately educated in a way expected by both parents at significant expense. Ms Drake asked the Tribunal to increase the annual rate so that Mr Volkmann contributes to the cost even though her mother pays the school fees, as she has done for all her grandchildren. Ms Drake argued it would nevertheless be fair to increase the annual rate because of his duty of support and she said she would pass on any increase in the annual rate to her mother. Ms Drake confirmed her mother does not expect repayment of the education costs from her or from the other parents of her grandchildren. The Tribunal finds Ms Drake’ submissions are unconvincing in that context. It finds that the cost of educating the children does not increase the cost of maintaining the children for Ms Drake and that it would not be fair to Mr Volkmann to increase the annual rate for the private school expenses.

Hardship/necessary commitments

If the Tribunal made the proposed determination, the annual rate would be approximately $8,000. Mr Volkmann has significant income, assets and/or financial resources and the Tribunal is satisfied he has capacity to meet the commitments necessary for his own support and that he would not suffer any hardship if he were also obliged to pay child support of approximately $8,000 a year for the support of the children.
Ms Drake confirmed she is able to meet her own needs and those of the children from her own income and financial resources. They have everything they need whether or not they receive child support from Mr Volkmann. The Tribunal finds she and the children would not suffer any hardship if the Tribunal made, or did not make, any change to the assessment.

Conclusion

The parties and the children would not suffer hardship if the Tribunal made, or did not make, the proposed determination. However, in its view, it is fair to do so because of the nature of Mr Volkmann’s obligation to support the children and because he has substantial capacity to contribute to the cost of meeting their proper needs.
The Tribunal proposes to start the determination from 4 December 2015 when Ms Drake applied for a change to the assessment. In its view, the formula assessment is not likely to accurately reflect the parties’ capacity to support the children at any time before the assessment ends (which is likely to be in 2022 when [Child 2] turns 18 or leaves school). Further reconsideration during the course of another change of assessment process is also unlikely to result in more accurate findings about the parties’ relative financial capacity to support the children. That is the case whether Ms Drake’ circumstances are likely to change (as suggested by Mr Volkmann) or otherwise). In that case, to provide some certainty, the Tribunal proposes that the determination will apply until the end of the assessment for [Child 2].

WOULD IT BE OTHERWISE PROPER TO CHANGE THE ASSESSMENT?

61. The final step is to decide whether it is otherwise proper to depart from the administrative assessment. To do this the Tribunal must consider the effect the determination will have on the cost to the community of supporting children through payment of family tax benefit. It must decide whether this is a proper outcome given parents have the primary responsibility to support their children.

62. Ms Drake does not receive family tax benefit and there would be no change to Commonwealth outlays if the Tribunal made or did not make the proposed determinations. It finds making that determination is otherwise proper in that case.

Conclusion

The Tribunal is satisfied that there is a reason to change the assessment and that it is just, equitable and otherwise proper to make the proposed determination. For those reasons, it will set aside the decision under review and substitute the decision to make that determination.

OTHER MATTERS

Following the hearing, Mr Volkmann requested the member constituting the Tribunal recuse herself from deciding the matter. The member has refused that request and the Tribunal will provide reasons for that decision separately to the parties.

DECISION

[2018] AATA 2292

1 May 2018

Key Legal Topics

Areas of Law

Family Law

Legal Concepts

Jurisdiction

Statutory Construction

Remedies

Procedural Fairness