W and W - [2003] FMCAfam 40

FEDERAL MAGISTRATES COURT OF AUSTRALIA

W & W

[2003] FMCAfam 40

Family Law – Child Maintenance – Adult child maintenance – husband’s income – avoidable expenses.

Family Law Act 1975
Child Support Assessment Act 1989

Mee v Ferguson (1986 ) FLC 91-716
Tuck v Tuck (1981) FLC 91-021at 76,227

Applicant:

E A W

Respondent:

G F W

File No:

(P)MLM 8797of 2001

Delivered on:

19 February 2003

Delivered at:

Melbourne

Hearing Dates:

3 & 4 July 2002

Judgment of:

Phipps FM

REPRESENTATION

Counsel for the Applicant:

Mr. Ham

Solicitors for the Applicant:

Findlay Arthur Phillips

Counsel for the Respondent:

Ms Smallwood

Solicitors for the Respondent:

Pearsons

ORDERS

THAT all extant orders in relation to child maintenance be discharged as from 1 July 2002.
THAT the husband pay $150 per week for adult child maintenance for the child K E W born 23 January 1983, commencing 1 July 2002, such payment to continue until she concludes her current applied arts course at Monash University.
THAT the husband pay $250 per week per child by way of child maintenance for each of C R W born 4 May 1986 and C E W born 9 May 1988 commencing 1 July 2002.
THAT the amounts in paragraphs 2 and 3 be increased in accordance with the consumer price index on 1 July 2003 and each year thereafter.
THAT in addition to the sums referred to in paragraph 2 above the husband pay in respect of the children C R W and C E W:
(a)private school fees and schoolbook expenses;
(b)dental expenses.
THAT each party be at liberty to apply within 14 days to vary, suspend or discharge any of these orders.
THAT order number 3 hereof be suspended from 27 January 2003.
THAT any question of costs be reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

(P)MLM 8797 of 2001

E A W

Applicant

And

G F W

Respondent

REASONS FOR JUDGMENT

Introduction

This is an application by the wife for the maintenance of three children of the marriage of the parties. The oldest child, K E W is aged over 18. In respect of her, the application is for adult child maintenance. The other two children are C R W born 4 May 1986 and C E W 1988.
The orders currently in force were made by consent on the 1 August 1999 in the Family Court of Australia at Melbourne providing for $120 per week for each child. That is now $131 per week with cost of living adjustment. The maintenance is being paid for the two younger children only. The husband's position is that he is making a direct contribution to the adult child. The order provided for payment of education and dental expenses.
The wife seeks an order for $300 per week for each of the two younger children plus dental and orthodontic expenses and all school tuition fees. She seeks an order for $150 per week for the eldest
The husband proposes that the order continues at its current level of $130 per week per child with a cost of living adjustment, that he continued to pay the private school fees of the children directly to the school, and he proposes that he pays dental expenses by direct payment to the dentist for the two girls plus the books needed for the two girls schooling as described in their annual booklist. He proposes that he continue to pay private health insurance at the family level including all three children. He proposes no order for the adult child.

Background

The parties were formerly husband and wife. They separated some time prior to the previous order. Issues relating to the support of the two younger children are governed by the provisions of the Family Law Act1975 rather than the provisions of the Child Support Assessment Act 1989. Issues relating to the support of the older child are governed by the Family Law Act 1975.
The husband is a partner in a firm of estate agents. The mother works part-time. The adult child is at university and has some part-time work.

Discussion

Different considerations apply to the adult child and the two younger children. For the younger two children, there is an existing order. Since it is a consent order it can be varied if the court finds that the amount ordered to be paid is not proper or adequate
The relevant provisions of the Family Law Act require a court to pay regard to the objects of principles of Division 7 of Part IV of the Family Law Act which is aimed at ensuring:
a)that children have their proper needs met from reasonable and adequate shares in the income, earning capacity, property and financial resources of both their parents; and
b)that parents share equitably in the support of their children.
Section 60C(2) provides that the duty of a parent to maintain the child has priority over all commitments other than the commitments necessary to enable the parents to support himself or herself.
Section 66H sets out the process for assessing the appropriate level of maintenance. It requires the court to:
a)consider the financial support necessary for the maintenance of a child; and
b)determine the financial contribution or respective financial contributions towards the financial support necessary for the maintenance of child that should be made the parties to the proceedings.
Section 66K provides that in determining the financial contribution towards the financial support necessary for the maintenance of a child, the court must take into account the objects and principles contained in sections 66B and 66C, the income, earning capacity, property and financial resources of each party, and the commitments of the party necessary to enable that party to support himself or herself, as well as the direct and indirect costs incurred by the parent with whom the child lives in providing for the care of the child.
So far as the adult child is concerned there is a threshold requirement in section 66L which is that the court must be satisfied that the provision of maintenance is necessary to enable the child to complete her education.
The older child is aged 19. She is enrolled in a bachelor degree in A A majoring in G B at Monash University. The course is full-time and requires approximately 15 studios per week in addition to 15 scheduled class hours.
She lives in a studio apartment at the house of a business partner of the husband. In return for accommodation she provides babysitting of 15 hours per week or thereabouts. She has a part-time job as a sales assistant at $13 per hour. Because she is a student living away from home, she receives a youth allowance, which fluctuates according to her income. She gave her fortnightly income as $290 from the youth allowance, $170 from employment and about $100 from her father. She put her fortnightly expenses at $998.50. Much of the detail of her expenses was subject to cross-examination. She claimed $230 per fortnight for food. Her phone bill of $45 per fortnight was put as being excessive. The response was that this was a mobile phone. Medical expenses of $15, entertainment of $30 and $65 for clothing were challenged. Toiletries at $16 and uniform for the work at $60 were also challenged.
The major matter of contention in the adult child’s expenses is her expenditure on university materials, class materials, drawing materials, ceramics books and excursions. She says that when she started the course she assumed that the higher education contribution scheme would pay all costs. She found that she had to pay for glass, semester studio fees, safety equipment and other materials and books for subjects. She gave an example of a week's expenses for a specific week at $413.
The only evidence of these expenses came from the adult child. For the purpose of determining the threshold question of whether the husband is liable to pay maintenance for her, it is only necessary to accept that she does have expenses substantially beyond what might normally be expected in a university course.
The test in section 66C is what is necessary to enable the child to complete her education. Submissions on behalf of the husband criticised her evidence as inherently unreliable and said that it demonstrated an irresponsible and unrealistic expectation in determining what is necessary to complete ones education. It was submitted that the impetus behind the application made on behalf of the adult child supported by her mother was one of personal resentment, based on a misguided belief that the husband had ample income at his disposal for distribution to his children. In part, this submission was based on a letter which had been written to the husband by the adult child.
It is apparent that there are mixed feelings in the relationship between the adult child and her father. She had written a letter critical of him, but on the other hand she does appear to enjoy a good relationship with him. The question of motivation can only be relevant to credit. The test under section 66 C is the objective one of what is necessary to enable the child to complete her education. What is necessary in this context has been described by Evatt CJ and Murray J in Tuck v Tuck (1981) FLC 91-021at 76,227 as follows:
“To define ‘ necessary’ as meaning ‘absolutely essential’ is to give the adjective a most stringent definition. That stringency, in our view, is not warranted by the concept expressed very strongly by the Act that the court shall regard the welfare of the child as the paramount consideration. ‘Necessary’ in this context means that the maintenance is needed by the child and that it is reasonable to require the parent to contribute, having regard to the parties financial circumstances and other relevant factors.”
The student allowance received by the adult child is an income tested allowance and so must be disregarded – section 66J(3)(b)(i).
Some of the criticisms of the expenses claimed by the adult child are justified. Applying the test of reasonableness, I think the reasonable figure for expenses apart from university expenses is $150 per week. The university expenses present some problems. Normally, some hundreds of dollars per year is necessary for books for university courses. Access to a computer and connection to the Internet from home is a reasonable necessity for a university student. Again, some hundreds of dollars per year is the cost. The adult child said that there are only 18 in her course. It is therefore unusual and outside the general understanding of what is involved in a university course in terms of cost.
The only evidence is that of the adult child herself. Submissions on behalf of the father criticises her evidence and suggests that it should be rejected as being extravagant and unreliable. It is apparent that the adult child does bear some ill will towards her father for what she sees as a lack of support for herself and her sisters. I consider that she may have exaggerated. Nonetheless, I acccept that she spends some thousands of dollars each year. Doing the best I can on the evidence I have, I assess this amount at $5000, which is about $200 per week for each of the twenty six weeks of the academic year. That is $100 per week averaged over the year.
The adult child currently earns about $80 per week from her part-time employment. Her ability to work is limited by the need to baby sit in return for accommodation. It was submitted that outside the twenty six weeks of the academic year she could work and earn about $400 per week on her own evidence. This assumes no holidays, and no commitments to her studies during semester breaks. It also assumes that full-time employment would be available.
Against, doing the best I can on the evidence, I find that the adult child has an ability to earn an income of $100 per week. This leaves a shortfall of $150 per week.
It follows that the adult child does require maintenance to complete her education. As appears later, the wife has no capacity to contribute to the adult child’s maintenance.
The husband does not dispute a liability to pay maintenance for the younger children. The issue is the amount.
The wife lives in rented premises with the two younger children. She claims weekly expenses for the children of $811 and $387 for herself. Her rent is $260 which she apportions $80 to herself and $180 to the children. She claims $200 per week for food for the children and $60 for herself. She works part-time; 20 – 28 hours a week. Her evidence was that she works the hours she does so that she could be at home for her children was criticised because her hours of work are 11.00am to 6.00pm. It was submitted she overstated her expenses and it could reasonably be anticipated that she spends $20 less on petrol that she spends, $20 less on telephone for the children, $100 less on food for the children, $8 dollars less on fares, $20 less on clothes, and $80 less on school associate expenses each week. It was submitted that pocket money for the children could be halved and that her rental would be only marginally lower if she was to rent accommodation for herself alone and therefore it any allowance for rental attributable to the children should be in the vicinity of $50 – $80 per week total.
Criticism was made of her evidence of her earnings. The criticism is of marginal importance in this case. The evidence suggests gross salary on her part of an average $400 per week.
The most immediate issue in the case is the husband's ability to pay maintenance. A considerable amount of documentation was tendered. In the end, the husband's financial position is clear. He is one of the owners of a Real Estate Agency. Ownership of the agency is through a trust structure. The business is owned by W P E H Pty Ltd as trustee for the W P E H U Trust. The husband's individual ownership was again through a trust, L Pty Ltd as trustee of the G W Family Trust. Submissions on behalf of the wife said that in the financial year 2001 he had an income available to him at $265,917. Submissions on his behalf suggested an income of approximately $238,000. Both of these figures are pre-tax figures.
The issue which the husband raises is that he says that the manner in which the business is managed provides him with only $121,000 per year out of which he has to pay tax assessed on the higher figure of well over $200,000 per year. This is because the business has been retaining a substantial part of its profits and using them to finance expansion. In addition, he has a tax liability with respect to a tax scheme, the P H B S. Deductions claimed in past years have been disallowed by the tax office. The applicant, through his accountant, has accepted an offer to all taxpayers in disallowed schemes which will result in reduced penalties and interest payments. He expects to have a liability of approximately $113,000.
The husband's capital position is his interest in the estate agency. Valuing this is problematic and is not exercise which I can undertake on the evidence available. In his response to the maintenance application he puts a value $300,000 on his business interests. He owns a home which he values at $550,000. It has a mortgage debt of about $350,000. This is an apartment. He purchased the space as a shell and then built it as two apartments, one with one bedroom and one with two bedrooms but built in such a way that they could be converted into a single three-bedroom apartment. For a time, one apartment was rented at $20,000 per year but he has now carried out the conversion so that he has two bedrooms available for his children when they stay with him. He has remarried and his wife works in the real estate business. Both have expensive cars supplied through the business.
A parent’s duty to maintain a child has priority over all other commitments of the parent other than commitments necessary to enable the parent to support himself or any other child or children that the parent has a duty to maintain. There is to be deducted from the parties income unavoidable or compulsory expenses together with necessary living expenses – see Mee v Ferguson (1986 ) FLC 91-716.
The accounts of the business show loan accounts for each of the unit holders. For L Pty. Ltd it is an amount of $330,761 at 30 June 2001, an increase of $155,965 from the previous year. From the evidence of the husband referred to below, I infer that these are retained profits. The accounts of L show that most of its income is distributed to the husband. If all the additional profits of the Estate Agency or even some of them had been distributed, the husband would have substantial additional income. The husband’s evidence is that the practice of retaining profits has continued. The issue is whether the husband's retained profits each year are unavoidable or necessary expenses.
The only evidence of this manner of organising the business is that of the husband. He said that he could not prevented it happening because he was only one vote. In the context of a maintenance application I consider that the retained profits are avoidable expenses. They are treated in the accounts of the business as loan accounts. That is, each year the husband lends a substantial amount of money to the business. There is no evidence of any specific loan agreement and in those circumstances the loan accounts must be treated as being at call. The husband’s evidence is that the business cannot afford to pay out all income given the way it is organised. He does not have to call up all of the loan accounts, or otherwise take steps to prevent the whole of the retention. He needs to have sufficient to pay adequate maintenance.
The husband puts his weekly expenses, including income tax of $1273, at $2507 per week. He husband currently pays for school fees of $100 per week, schoolbooks at $10 per week, and dental expenses of approximately $25 per week. In addition, he pays $252 per week for maintenance for the two children. The wife puts her weekly expenses for the children at $639. That includes nothing for holidays and only $30 per week for entertainment. While it might be possible to make some adjustments to the other items that the wife has claimed in accordance with the criticisms made, in the context of the husband's income, I consider that $630 is a reasonable amount in all circumstances. Taking into account the relative incomes and income earning potential of both parties and their property, I think a reasonable division of these expenses is $500 by the husband and $130 by the wife. Payments by the husband of an increased amount of $250 would result in him paying an extra $12,076 for the two younger children. The $150 per week for the older child is an amount of $7,800 per year, a total additional expenditure will be $20,176. He has the capacity to pay this amount by reducing the amount of the retained profits payable to him from the estate agency business
The application was filed in the Family Court on 18 September 2001. It was transferred to this Court on its first return date of 16 October 2001. It was then adjourned to 13 March for hearing. On that day it was further adjourned until 4th July. At least one of the adjournments appears to have been because the wife wished to obtain further evidence about the husband's income and means. Given the findings I have made, the husband has had the ability to pay the increased amounts since at least the time of the application was made. In the circumstances, I consider it is a reasonable to order that increased amounts and the adult child maintenance commence on 1 July 2002.

I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Phipps FM

Associate: Kwong S

Date: 28 October 2003