Warfe and Hopwood
[2008] FMCAfam 182
•12 March 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WARFE & HOPWOOD | [2008] FMCAfam 182 |
| FAMILY LAW – Property settlement – 14 year cohabitation – 4 children – wife making large capital contributions from inheritances – wife keeping further significant investment portfolio from inheritance as separate property during cohabitation – significant but much lesser capital contributions by husband from pre-marriage assets and inheritance – assessment of contributions – incidence of capital gains tax. |
| Family Law Act 1975, ss.75(2), 79 |
| Hickey & Hickey; A-G for Commonwealth (Intervener), [2003] FamCA 395; (2003) FLC 93-143; (2003) 30 Fam LR 355 Coghlan & Coghlan, [2005] FamCA 429, (2005) 33 Fam LR 414, (2005) FLC 93-220 Rosati & Rosati, [1998] FamCA 38, (1998) FLC 92-804, 23 Fam LR 288 |
| Applicant: | MR WARFE |
| Respondent: | MS HOPWOOD |
| File Number: | PAC 1082 of 2007 |
| Judgment of: | Halligan FM |
| Hearing dates: | 18 and 19 February 2008 |
| Date of Last Submission: | 19 February 2008 |
| Delivered at: | Parramatta |
| Delivered on: | 12 March 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Blackah |
| Solicitors for the Applicant: | Martin Bullock Lawyers |
| Counsel for the Respondent: | Mr Kenny |
| Solicitors for the Respondent: | Maclarens Lawyers |
ORDERS
Within 60 days, the wife shall-
(a)pay the sum of $400,000 to the husband or at his direction; and
(b)cause any joint debt of the parties secured on the Property S in the State of New South Wales or the Property C in the State of New South Wales to be discharged.
On the wife complying with Order (1), the husband shall do all things and sign all documents necessary to transfer to the wife all his interest in the property at S, and in the Telstra shares jointly owned by the parties.
Otherwise, each party is entitled to the exclusion of the other to all property and resources in his or her possession or control.
Pursuant to s.106A, Family Law Act 1975, if either party fails or refuses to sign a document necessary to give effect to this order, a Registrar of the Court may sign the document on behalf of the party.
Otherwise all outstanding applications are dismissed other than in relation to costs.
IT IS NOTED that publication of this judgment under the pseudonym Warfe & Hopwood is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PARRAMATTA |
PAC 1082 of 2007
| MR WARFE |
Applicant
And
| MS HOPWOOD |
Respondent
REASONS FOR JUDGMENT
Introduction
These are property settlement proceedings under the Family Law Act 1975.
Both parties propose that the wife retain the former matrimonial home at C, the jointly owned property at S, the contents of the home, and her car, shares and cash, in return for a cash payment to the husband. The dispute revolves around the quantum of that payment. Ultimately, counsel for the husband sought a payment to the husband of $550,000 (rather than the $800,000 sought in the husband's application), while the wife proposed a payment of $150,000.
At the commencement of the hearing, counsel for the wife indicated that the wife was not pressing the child support orders set out in her Response.
Background
The husband is aged 47, the wife 45. They commenced cohabitation in late December 1990 or early January 1991, married in October 1991, and finally separated in December 2004, having been separated from March to August/September 2004.
There are four children of the marriage, J born in 1992, aged 15, E born in 1993, aged 14, H born in 1995, aged 12, and M born in 1996, aged 11.
Both parties have entered new relationships, but neither is cohabiting.
The evidence
At the commencement of cohabitation, the wife was working as a personal assistant at a major corporation within the Media Industry, having commenced work there in 1984, and the husband was unemployed. He re-commenced employment soon after the commencement of cohabitation.
At that time, the wife was an equal beneficiary with her brother, her sole surviving sibling, in the estate of her deceased mother. Her father, for whom no provision had been made, was contesting the will. The estate comprised a house property, in which the wife's father lived, some cash, and a significant investment portfolio with ANZ Trustees. The wife and her father remained on good terms, and the wife secured the consent of her father and brother to various advances from the estate against her ultimate entitlement, which I will detail later. At cohabitation the wife also owned a motor vehicle that the husband said was worth $9,000, and various shares her mother had bought for her as an infant and which were transferred to her when she turned 21. She still owns those shares. She also had a superannuation interest with ComSuper of an undisclosed value.
At cohabitation the husband had $25,000 from a property settlement from his previous marriage. Shortly after the commencement of cohabitation, the wife traded in her car on a new model, receiving a trade-in allowance of $9,000, and the husband paid the balance of the purchase price, $15,000, from his funds.
In early 1992 the parties jointly purchased a property at N for $170,500, using a $105,000 loan secured on the property and a $70,000 advance on the wife's inheritance for the balance of the purchase price and costs of purchase. The funds contributed by the wife represented 40% of the costs of acquiring this property.
The wife took paid maternity leave around the births of J in 1992 and E in 1993, returning to work full time between the birth of the two children, and part time, two days per week, after the birth of E.
The wife's father died in about 1994, after which the realisation and distribution of the wife's mother's estate proceeded. The wife also received an inheritance from her father's estate.
The wife received from her mother's estate half of the investment portfolio with ANZ Trustees, comprising shares and some cash. She received the balance of her inheritance in cash, by advances before her father died, and by distributions as administration of the estate moved to completion after her father's death. A significant part of the cash she received came from the proceeds of sale of her mother's home. The cash funds she received from her mother's estate, and the use to which those funds were put, is as follows:
·During 1991, the wife received three payments totalling $11,348.57, the last of which, for $5,000, she applied towards the costs of the parties’ wedding.
·In 1992, the wife received $70,000, contributed to the purchase of the N property.
·In early 1994, the wife received $16,000 which she applied towards the purchase of a family motor vehicle.
·In 1995, the wife received $330,000, which she applied to the purchase of the L property, the acquisition of which I will refer to shortly.
·In 1995 she received $15,000, used for various incidental expenses after the acquisition of the L property.
·In 1996 she received $10,000, used for a family holiday to Queensland.
·In 1996 or 1997 the wife received $16,000, being funds from the estate transferred to the wife's investment portfolio account and then transferred in two sums, of $12,000 and $4,000, to the wife's separate ANZ account. $9,942 of this was spent on landscaping at the L property.
The wife also used funds from her separate bank account, sourced from her inheritance and thus part of the funds above identified, to buy a family motor vehicle in 1997 for $39,606, to pay for landscaping to the L property in 1997 in the sum of $23,210, and to buy in the parties’ joint names 2,000 Telstra shares in late 1997 for $3,900.
In relation to the last dot point above, it was submitted on behalf of the wife that she received a further $12,000 and $16,917 from her mother's estate. The evidence shows that a cash distribution was made by ANZ Trustees into the wife's investment portfolio account of $16,917 during the 1996/1997 financial year, as appears from Annexure O to the wife's primary affidavit. The same annexure also shows two distributions to the wife in that year from that account of $12,000 and $4,000. The balance of the $16,917 distribution remained in the wife's separate account. The wife's evidence at para 23 of her primary affidavit of having drawn $12,000 from the ANZ fund in September 1996 is consistent with Annexure O. I am not satisfied the wife contributed separate amounts of $12,000 and $16,917, but rather contributed a total of $16,000, in two drawings of $12,000 and $4,000, from the distribution of $16,917, and that she retained the balance of that distribution in her own separate account.
When the division of the wife's mother's investment portfolio with ANZ Trustees was finalised in 1996, the wife received shares then worth $291,903.86. She has retained these shares as her own separate property ever since, the only disposition of any of those shares resulting from the compulsory acquisition of the wife's shares in Rinker and Alinta following take-overs in 2007. The wife's investment portfolio account presently comprises the remaining shares and cash funds, apparently derived from dividends and, in 2007, the acquisition price for the Alinta shares. At some stage, the wife availed herself of dividend reinvestment schemes with BHP and CSR, but the evidence does not establish when she did so, for how long she did so, the number of shares thus acquired, or the dividend income foregone to do so.
The wife withdrew funds from time to time from the earnings of the investment portfolio account and contributed them to the expenses of the parties and their household.
The wife also received $64,588.75 from her father's estate in late 1994. She deposited these funds to her separate bank account and subsequently applied them to the purchase of the L property.
In 1995, the parties jointly purchased a property at L for $515,000. The husband said the wife contributed $385,000 from funds received from her mother's estate and the parties jointly borrowed the balance. He said the wife also paid stamp duty of $40,000 from moneys she received from her mother's estate. The wife said the parties borrowed $130,000 and she contributed the balance of the purchase price and costs of acquisition from the inheritance from her father's estate, a $330,000 distribution from her mother's estate, and other funds she had in her separate account from her mother's estate. Thus the wife suggested that she contributed in excess of $394,500 to complete the purchase and meet the costs of purchase while the husband said her total contribution was $425,000. I accept the husband's evidence as to the specific amount of the wife's contribution. On the husband's evidence, the wife contributed about 76% of the moneys required for this purchase.
The parties moved to the L property on its acquisition, and leased the N property to the husband's sister at a rental of $300 per week initially, and later $350 per week, which was deposited to the parties’ joint account. There is no suggestion this was not a market rental.
When the wife sought to return to work after the birth of H, there was no position for her, and she continued on paid leave until she took further maternity leave at the time of M’s birth. Shortly after M’s birth, the wife accepted retrenchment, receiving $34,839.07 in December 2006 as the payment of her entitlements. In early 1997, the wife received $48,063.64 from her superannuation fund, and rolled over the balance in that fund of $7,933.23 into another fund. This roll-over is part of her current superannuation interest with Colonial First State.
The husband was unemployed in late 1997 for about four months. During this period, the parties suspended repayments on their mortgages.
In 2000, the parties jointly purchased a house property at S for $138,000. The parties refinanced the N property borrowing $240,000, a sum sufficient to pay out the pre-existing debt secured on that property, to meet the acquisition costs of the S property and to furnish that property. The S property was let as a holiday rental, and the income retained by the agent in trust to cover expenses on that property. The mortgage on the N property was serviced with the rent on it and a monthly transfer of $800 from the wife's inherited investment portfolio with ANZ Trustees.
In mid 2003, the parties bought vacant land at C in the wife's sole name for $445,000, and had a home built on the land. To finance the C project, the parties established a flexible mortgage loan account with the NAB, in effect a line of credit. Until the home was occupied in about April 2005, the parties and children lived in rented premises at C. The parties separated before the home was ready for occupation.
In late 2003, the parties sold the L property for $980,000. The parties sold the N property in early 2005 for $480,000. The net proceeds of sale of both properties were deposited into the joint line of credit account. On discharge of the mortgage over N, the monthly transfer of $800 from the wife's investment portfolio account with ANZ Trustees was made to the joint line of credit account.
The husband said he received an inheritance totalling $163,000 from his mother's estate, $153,000 of which he said he deposited into the line of credit account to be used for the construction of the home on the C land and $10,000 of which he retained in a separate account in his sole name. The wife said that in 2004, the husband received a total of about $149,000 that he deposited to the joint line of credit account, and a final distribution in an unknown amount that was not deposited to the joint account.
In the absence of the bank statements being put into evidence to show the actual amount of the deposit to the line of credit account, and of any evidence to confirm the actual amount of the husband's inheritance, I accept the wife's evidence that $149,000 was deposited to the joint account. I also note that in relation to these funds her evidence was of two separate deposits for specific sums of money. I accept the husband's evidence that he retained $10,000 in a separate account in his sole name.
Throughout the parties’ cohabitation, the husband's income was deposited to the parties’ joint bank account, from which account the parties’ mortgage repayments were met. The wife maintained a separate bank account, which she used for her own personal needs. From time to time after the distribution of her mother's estate, she transferred funds from the managed fund with ANZ Trustees to the parties’ joint account. Of total income earned in the investment portfolio account from 1 July 1997 to December 2007 in the sum of $251,012.79, $244,781.54 was drawn by the wife. Of income earned in the account from July 1997 to June 2005, shortly after separation, in the sum of $169,881, $149,524.04 was drawn by the wife. I am satisfied the wife contributed the moneys so drawn during cohabitation to household purposes, including her own personal expenses, and to joint accounts from which mortgage payments and other living expenses of the family were met.
During cohabitation, the parties divided household chores, he mowing the lawn, dusting, polishing, vacuuming, mopping and washing the dishes after the evening meal, she cleaning the bathrooms, washing the clothes and cooking. When not at work during the week, and on weekends, the husband assisted in child care and with the children's extra curricular activities.
At separation, the wife retained the furniture, appliances and effects of the parties. The husband sold some AMP shares, receiving $4,284 that he applied towards establishing a new household.
The husband continued to deposit his income to the parties’ joint line of credit account until the end of August 2006, after which he deposited $600 per week to that account for child support. The wife after separation continued to deposit $800 per month from her investment portfolio account to the joint line of credit account. The wife increased that sum to $1,000 from December 2006 and to $1,200 from October 2007. From the joint account, the wife drew funds to pay for the completion of the construction and landscaping of the C home, and for living expenses for herself and the children. She continues to draw living expenses for her household from the joint line of credit account. The husband also used the joint account for his living expenses until August 2006, including his rent of $270 per week from about February 2005, increasing to $300 per week in December 2005. In 2007, the husband transferred $10,000 out of the joint account for his own benefit. Otherwise, he has not drawn funds from the joint account since August 2006.
In 2005, the wife commenced working on a casual basis up to four days per week during school holidays with a major supermarket. In February 2007 that employment became permanent part-time, two days per week from 9.00 am to 4.00 pm. The wife said she is unable to work other than part time due to her child care responsibilities, although she admitted she was available to work more than she does at present. The wife said there was no further work available with her current employer, and she does not appear to have sought any other part time employment.
In May 2006, the husband purchased a house property at A. The whole of the purchase price and the stamp duty was borrowed. His sister and a friend guaranteed the loan and are registered proprietors of the property with the husband, each having a 1% interest. They do not hold their interests beneficially. It is agreed that the husband has no equity in this property, and it should effectively be ignored in the determination of these proceedings.
The husband has incurred a significant MasterCard debt and borrowed funds from his sister to assist with his living expenses, but it was not suggested on behalf of the husband that these debts should now be taken into account in the property settlement, the husband accepting the list of assets and liabilities submitted in the wife's case, with the exception of selling costs and Capital Gains Tax on a sale of the S property and the division of the items into two separate pools.
The husband is employed as a Managing Director on a salary of $130,000, plus car, laptop computer, mobile phone and internet connection. He spends time with the children on alternate weekends from Friday afternoon until Monday morning, and for 1 week during term school holidays and for 2 weeks during the Christmas holidays. The children otherwise live with the wife.
The three eldest children attend private Catholic high schools, and it is intended that M will do likewise once she commences high school next year. The husband cannot afford to contribute to the private school fees in addition to the child support of $600 per week and his other commitments at present. He said that depending on the property settlement payment he received, he hoped to be able to contribute half the cost of the children’s private school education in the future. The wife is meeting the full cost of the children's private school education.
The applicable law
Property settlement proceedings fall to be determined by reference to s.79. The court may make such order as it thinks appropriate (s.79(1)), but must not make an order unless satisfied it is just and equitable to do so (s.79(2)). In deciding whether to make an order, and if so what order, the court must have regard to those of the considerations in s.79(4), including s.75(2), the provisions of which are incorporated into s.79(4) by reference, as may be relevant in a particular case.
In Hickey & Hickey; A-G for Commonwealth (Intervener), [2003] FamCA 395; (2003) FLC 93-143; (2003) 30 Fam LR 355, the Full Court of the Family Court of Australia explained the preferred approach in determining property settlement proceedings under s.79, as follows (FamCA at [39]; FLC at 78,386; Fam LR at 370):
“39. The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s.79. That approach involves four inter-related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss.79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss.79(4)(d), (e), (f) and (g), (“the other factors”) including, because of s.79(4)(e), the matters referred to in s.75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case: Lee Steere and Lee Steere (1985) FLC 91-626; Ferraro and Ferraro (1993) FLC 92-335; Davut and Raif (1994) FLC 92-503; Prpic and Prpic (1995) FLC 92-574; Clauson and Clauson (1995) FLC 92-595; Townsend and Townsend (1995) FLC 92-569; Biltoft and Biltoft (1995) FLC 92-614; McLay and McLay (1996) FLC 92-667; JEJ and DDF (2001) FLC 93-075 and Phillips and Phillips (2002) FLC 93-104.”
Where the pool of divisible assets and resources includes a superannuation interest, the court must apply the same decision making process to that interest, whether or not a splitting order is sought in relation to it (Coghlan & Coghlan, [2005] FamCA 429, (2005) 33 Fam LR 414, (2005) FLC 93-220). Further, in determining the pool of divisible assets and resources at the first step of the decision making process, the preferable approach is to place superannuation interests in a separate pool, especially where a splitting order is sought, although the court retains a discretion to include the superannuation interests in the same pool as the other assets and resources (Coghlan & Coghlan, above). Circumstances where inclusion of superannuation interests in the same pool as other assets and resources include “where the parties agree that (that course) should be adopted, or where the Court is satisfied that the superannuation interest is indeed property within the meaning of the definition of property contained in s.4(1), or if the interest is not within that definition, but is of relatively small value in the context of the value of the other assets in the case, or there are features about the interest which leads the Court to conclude that this would be an appropriate approach” (Coghlan & Coghlan, above, per Bryant CJ, Finn and Coleman JJ, Fam CA at [61], Fam LR at 428, FLC at 79,643).
The pool of divisible assets, liabilities and resources
The parties agreed as to the identification and value of the assets, resources and liabilities of the parties, except for an allowance for costs of sale and capital gains tax (CGT) on a possible sale of the S property. In addition, there are CGT issues in relation to the possible sale of any of the wife's shares, and in relation to some of the wife's shares acquired under take-overs in the latter half of calendar 2007. There is an issue as to whether the wife's investment portfolio account should be placed in a separate pool and treated differently to the other assets.
It was agreed between the parties that the size of the parties’ respective superannuation interests in relation to the other assets meant it was appropriate not to place those interests in a separate pool.
CGT issues
In Rosati & Rosati, [1998] FamCA 38, (1998) FLC 92-804, 23 Fam LR 288, the Full Court (Ellis, Lindenmayer and Kay JJ), said (FamCA at [6.36], FLC at 85,043, Fam LR at 314)-
“6.36 It appears to us that although there is a degree of confusion, and possibly conflict, in the reported cases as to the proper approach to be adopted by a court in proceedings under s.79 of the Act in relation to the effect of potential capital gains tax, which would be payable upon the sale of an asset, the following general principles may be said to emerge from those cases:¾
(1) Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2) If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3) If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s.75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4) There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.”
The S property
It was submitted on behalf of the wife that an allowance should be included for costs of sale and CGT on a possible sale of the S property. The husband opposed this.
The wife's evidence was that she proposed to use cash from the investment portfolio account to pay out the NAB joint line of credit account. She said that the property at S in her opinion would not achieve a sale price commensurate with its agreed value, and would in any event take some time to sell. Hence, she said that she would use any cash remaining in the portfolio account and otherwise sell shares to generate a fund to pay the husband his property settlement. The wife gave no other evidence about her intentions in relation to the S property.
Based on that evidence, a sale of the S property does not appear to be in prospect in the foreseeable future.
I am not satisfied any allowance for costs of sale or CGT should be made in relation to the S property, even at a discounted rate, either in calculating the pool of divisible assets or under s.75(2), because-
a)No order is sought or likely to be made for its sale.
b)While this property has some characteristics of an investment property, namely letting the property as a holiday house, the parties and children also enjoyed holidays there, and there is no evidence as to any intention the parties may have had in relation to this property in the future.
c)On the evidence, there appears no risk the property will have to be sold in the foreseeable future unless an order was made for a payment to the husband that exceeded the wife's ability to fund from the investment portfolio account. Based on the agreed value of the shares forming part of that account, the cash in the account, the agreed figure for the joint line of credit account the wife intends paying out, and evidence of Mr P as to the CGT payable if the wife sold all her shares at the agreed current value, it would require an order for a payment to the husband of more than $625,000, which is in excess of what he seeks, before the wife would need to sell the S property. Thus, no order is likely that would require the sale of the property to satisfy it.
Prospective sale of shares
No figure for CGT arising from the sale of shares was included in the list of assets and liabilities as advocated on behalf of either party.
Mr P, a forensic accountant, gave evidence in the wife's case as to the CGT liability of the wife if she sold all her shares as at
30 September 2007 and as at 31 January 2008. The parties agreed to adopt the values Mr P used as at 31 January 2008 as the values at trial.What, if any, CGT liability the wife will incur depends on how much of her shareholding she will need to sell to satisfy a property settlement order. But the amount she will need to pay must be derived from the net value of the pool of divisible assets, in the calculation of which CGT on probable asset sales is usually included.
To break a circular argument, I will proceed on the basis of the assets and liabilities omitting any allowance for CGT on prospective share sales, which is the basis on which the parties have presented their cases, and take the incidence of CGT on any likely share sales into account in finally determining the amount of the payment the wife must make to the husband at the third and fourth stages of the decision making process.
CGT on shares subject to take-over
Certain shares in the wife's investment portfolio account are in companies that have been the subject of successful take-overs in the second half of calendar 2007, namely Alinta and Rinker Group.
The wife received $162,651.39 in payment for her Alinta shares, which is held in the investment portfolio account. This gave rise to a capital gain of $155,022.27, half of which is assessable for tax in the 2007/2008 tax year, according to Mr P’s unchallenged evidence.
The position with the wife's Rinker Group shares is less clear. According to
Mr P, these shares were suspended from trading in August 2007 after a take-over. They remain listed in statements from ANZ Trustees as shares held by the wife at the take-over price. Mr P’s evidence was that the take-over value of those shares, $14,250.60, would result in a capital gain of $11,599.60. Whether the wife will have to declare a capital gain for her Rinker Group shares for the 2007/2008 tax year is not clearly illuminated by the evidence. In his report,
Mr P has treated the Rinker Group shares in the same way as the other shares, which might suggest he was of the opinion that the need to declare a capital gain on them had not yet arisen. However, in oral evidence, when asked about the CGT payable on the Alinta shares, he treated the Alinta and the Rinker Group shares together, suggesting the capital gain on the Rinker Group shares had crystallized.
I note that Mr P’s oral evidence was that the CGT on both these parcels of shares would be $30,753. However, using his methodology, the CGT is in fact $30,074.04. That is, the capital gain on the Alinta shares is $155,022.27, and on the Rinker Group shares is $11,599.60, a total of $166,621.87, half of which, $83,310.94, is taxable. Based on Mr P’s assumption of $30,000 income other than from capital gains, and using the tax scales he used, this taxable gain would be taxed at the rate of 31.5% for the first $45,000, or $14,175, and at 41.5% thereafter up to $120,000 of capital gains, that is, 41.5% of the balance of $38,311, or $15,899.04, a total of $30,074.04.
Ultimately, I propose to proceed on the basis that the wife's capital gain on both the Alinta and Rinker Group shares has crystallized. That means the wife will have a CGT liability for the current tax year, based on a capital gain of $166,621.87, of $30,074.04.
Neither party addressed this issue in submissions. However, I am satisfied that this is a liability the wife will incur upon lodgment of her 2007/2008 tax return. Based on Rosati (above), this should be included as a liability in the list of assets and liabilities, as it relates to part of the cash component of the investment portfolio account. As it is directly attributable to an asset the wife seeks to treat discretely from the other assets, the liability should be similarly treated if I accept the wife's position.
Two pools or one
As to the issue whether there should be two pools or one, I am satisfied that the investment portfolio account should be treated separately to the other assets. The wife inherited this asset, the husband made no contribution to its acquisition, the wife assiduously kept this asset as her own separate property during cohabitation, and there has been no intermingling of it with any other property of the parties. As just alluded to, the CGT liability on the Alinta shares, payment for which forms part of this account, should be similarly treated.
Findings as to pools of divisible assets
I therefore find that the assets, resources and liabilities of the parties are as follows-
Item Description Title Amount 1 Former matrimonial home at C Wife $960,000 2 Property at S Joint $290,000 3 2,000 Telstra shares Joint $9,500 4 Wife's bank balance Wife $4,474 5 Wife's motor vehicle Wife $53,000 6 Wife's furniture Wife $40,000 7 1,520 BHP shares Wife $59,325 8 737 CSR shares Wife $2,248 9 85 CBA shares Wife $3,999 10 184 One Steel shares Wife $608 11 737 Rinker shares Wife $13,286 12 Wife's Colonial First State Super interest Wife $27,170 13 Wife's REST Super interest Wife $1,415 14 Husband's bank balance Husband $1,592 15 Husband's motorcycle Husband $10,000 16 Husband's MLC super interest Husband $150,171 17 NAB mortgage line of credit Joint -$198,000 18 Total $1,428,788
In addition, the wife has the investment portfolio account, the value of which is agreed at $991,664.63, comprised of cash of $230,236.45 and shares and units in a unit trust worth $761,428.18. The wife will have a CGT liability in relation to this asset of $30,074.04. That is, the net value of this asset of the wife's is $961,591. I intend to treat this asset and liability separately from the remaining assets and liabilities.
The assessment of contributions
It was submitted on behalf of the husband that the husband's contributions to the totality of assets should be assessed at 30%. There was no submission on behalf of the husband as to the proper assessment of contributions if, as was submitted on behalf of the wife, the wife's investment portfolio account was treated separately from the other assets.
It was submitted on behalf of the wife that the parties’ contributions to the assets other than her investment portfolio account should be assessed as favouring the wife in the proportions 80:20, while the husband should be assessed as having made no contribution to her investment portfolio account.
As already indicated, I am satisfied the wife's investment portfolio account should be treated separately from the other assets. In relation to this account, it was submitted on behalf of the husband that he had made an indirect contribution to this asset because he had contributed all his income during cohabitation, while the wife had retained some of the income derived from this asset. It was also submitted that the husband made an indirect contribution to this asset because the wife had reinvested some dividends on some of the shareholdings in this investment under dividend reinvestment schemes.
However, the evidence shows that overall the wife withdrew all but $6,231 of the $251,013 earned by her investments in that account, and I am satisfied she contributed these funds to the family, a contribution I take into account as a contribution by the wife of her investment income. It was also put on behalf of the husband that the wife had used the line of credit account to meet living expenses after separation, increasing the debit balance of that account at a time when she had available to her income from her investments that she did not access but preserved. In fact, the evidence is to the contrary. The wife's drawings from income from 1 July 2005 to 31 December 2007 exceeded income earned during that period by over $14,000.
In relation to the dividend reinvestment schemes, while there is evidence the wife did participate in dividend reinvestment schemes for her BHP and CSR shares, there is no evidence of when she did so, for how long she did so, how much dividend income was reinvested, or how many shares she thus acquired.
In the circumstances, I am not satisfied that the husband in fact has made any contribution to this asset, and hence I assess the contributions to it as 100% by the wife.
Otherwise, during their nearly 14 year cohabitation, both parties have made extensive contributions from income, although the husband was the primary breadwinner for the family after the birth of the second child. The wife's contributions of income have included not only her income from employment, but also income derived from her investment portfolio account. Most of the income derived from her investment portfolio account with ANZ Trustees that accrued during cohabitation was contributed to the family expenses. Since separation, both parties have continued to contribute financially from their respective incomes to the support of the children. Until about August 2006, the husband also continued to contribute to the other outgoings on the former matrimonial home at C and the expenses of the wife's household.
Both parties have made extensive non-financial contributions, although the wife was the primary homemaker and parent from the birth of the first child. Those contributions have continued since separation.
Both parties also injected significant amounts of capital into the marriage.
The total cash received by the wife from her mother's estate and contributed by her was $468,348.57. She also received and contributed $64,588.75 from her father's estate. This total cash contribution by the wife of $532,937.32 was made between 1991 and about 1997. Funds from the inheritances were used for the purchase of the parties’ homes at N and L, and the wife's contributions from her inherited funds represented 40% and 76% respectively of the acquisition costs of those properties. When ultimately sold, the proceeds of sale of both these properties were directly contributed to the costs of the home at C.
In addition to these capital injections made by the wife, she also contributed moneys received on her redundancy from her position within the Media Industry, for whom she had worked since 1984, totalling $82,902.71. An indeterminate part of this was attributable to the wife's employment for about 6 years before cohabitation commenced.
And the assets for division between the parties include the shares the wife had at the commencement of cohabitation.
The husband brought in $25,000 at the commencement of cohabitation, and received an inheritance of $159,000, all of which I am satisfied he contributed in a relevant sense, despite $10,000 of this inheritance being deposited into the husband's separate account. The balance of this inheritance, received relatively late in the parties’ cohabitation, was directly contributed to reduce the parties’ mortgage.
Despite the significance and size of the husband's capital contributions, the wife's were far greater. In fact, her contributions from inheritances were almost three times greater in raw dollar terms than the husband's contributions from funds at cohabitation and his inheritance, and the difference between the capital contributions of the wife from inheritances and the husband's capital contributions from funds at cohabitation and his inheritance, again in raw dollar terms, represents more than a quarter of the present value of assets other than the wife's investment portfolio account.
However, despite these mathematical comparisons, the assessment of the parties’ contributions is not, and cannot be, a mathematical exercise. Both parties have made significant non-financial contributions which must be given proper weight and effect. Over time, the accretion of non-financial contributions, and of financial contributions from income to expenditure in support of the family rather than the accumulation of assets, dilutes the significance of capital injections by either or both of the parties.
Nonetheless, I am satisfied that the relative size of the wife's financial contributions from her inheritances is so great that they must affect significantly the overall assessment of the parties’ contributions. When the very significant financial and non-financial contributions by both parties over nearly 14 years of cohabitation, and their respective contributions since separation, are placed in the balance with the wife's shares owned at the commencement of cohabitation and the capital injections from her inheritances, the husband's contributions from his funds at the commencement of cohabitation and his inheritance, and when regard is also had to the funds contributed by the wife from her redundancy, I am satisfied that the contributions to the assets other than the wife's investment portfolio account should be assessed as favouring the wife in the proportions 57.5/42.5.
In relation to the parties’ respective superannuation interests, there is no separate evidence to assist in assessing the parties’ respective contributions, other than the evidence that the wife had a superannuation interest at the commencement of cohabitation, part of which she rolled-over on her redundancy from her employment within the Media Industry, in the sum of $7,933.23, and this roll-over is now represented in her present superannuation interests. While there is evidence the wife was employed within the Media Industry from 1984, there is no evidence of when her superannuation interest arising from her employment within the Media Industry commenced. There is no evidence of how that superannuation interest accumulated over time, or what it was worth at the commencement of cohabitation. Nor were any submissions addressed to the court on behalf of either party as to the assessment of contributions to the superannuation interests. In those circumstances, I assess contributions to the superannuation interests overall in the same proportions as to the other assets apart from the wife's investment portfolio account, that is in the proportions 57.5/42.5, favouring the wife.
While this may appear to assess the husband’s contributions as greater than was submitted on his behalf, this in reality is not so because his case was put as to the assessment of contributions to the totality of the parties’ assets, whereas I have assessed his contributions as to the assets and resources apart from the wife's investment portfolio account. A 42.5% share of the limited pool represents a 25.4% share of the total net assets and resources, before any allowance is made for the incidence of CGT on share sales that will be necessary to effect the necessary payment to the husband.
The assessment of non-contribution considerations
It was common ground that there should be no further adjustment to the parties’ respective contribution based entitlements by reference to the non-contribution considerations, including those under s.75(2), except for the prospective incidence of CGT on share sales by the wife necessary to generate the funds to pay the husband his proper entitlement, and subject to one further qualification.
It was submitted on behalf of the husband that the court should take into account the fact that the husband's superannuation interest was not a presently realisable asset. This of course is the case with the wife's superannuation interests too. This is a matter that can be taken into account at this third stage of the decision making process. While both parties’ superannuation interests have this feature, the husband's superannuation interests are worth considerably more than the wife's, and hence when dividing the parties’ property, a greater part of what the husband receives will be in a presently non-realisable form. On the other hand, it also points to the husband being in a stronger position than the wife on the maturity of the parties’ superannuation interests, so far as those interests alone are concerned. Overall, this is a feature that favours the husband, especially when the overall imbalance in capital assets it taken into account, and despite the husband's much stronger position in relation to income earning capacity.
In relation to the CGT issue, the husband's contribution based entitlement to the assets excluding the wife's investment portfolio account, before any allowance for CGT, is worth $607,235, of which he already has net assets and resources of $161,763. This would necessitate a payment by the wife to the husband of $445,472.
The wife has cash of $230,236 in her investment portfolio account with which to pay the CGT on the disposal of her Alinta and Rinker Group shares of $30,074 and to discharge the joint line of credit account debt of $198,000. This will take all but $2,000 of her available cash, meaning that effectively the whole of the payment to be made to the husband will have to come from share sales, and will attract CGT.
The determination of the precise CGT implications for the wife of an order for any particular payment to the husband cannot be calculated. This is because the capital gains vary among the shares from parcel to parcel, it cannot be determined which shares the wife will in fact sell, and the evidence of Mr P is based on share values that differ, albeit relatively slightly in aggregate, to the value agreed as at the date of hearing, and the CGT implications of the share price movements reflected in the different aggregate values cannot be determined.
I will therefore adopt a broad brush approach. The proportion of the total value of shares that represented capital gains on Mr P’s calculations was 81.09%. I will assume that the sale of shares to make a payment to the husband will entail a similar rate of capital gain.
Thus, if the wife were to sell shares to generate a fund of $445,472, a capital gain of $361,221 would crystallise, of which half is assessable for tax. Based on Mr P’s assumption that the wife's non-capital gain income to be $30,000 per annum, and my finding that the wife will have to declare a taxable capital gain on the Alinta and Rinker Group shares of $83,311, the wife's taxable income before any capital gain from share sales is brought to account is $113,311. Using the tax scales in Mr P’s evidence, CGT that would be payable on a sale of shares to the value of $445,472 at 41.5% on $36,689 and 46.5% on $143,921, a total of $82,149.
It is necessary to discount the husband's contribution based entitlement to take the incidence of CGT into account. However, a reduction in the contribution based payment to which the husband would be entitled by either 42.5% of the above calculated CGT, being his overall contribution based entitlement, or by 58.5%, being the proportion of the share portfolio to be sold for the payment above mentioned, would not be mathematically sound, since the CGT on the lesser payment to the husband would be less.
Doing the best I can on the available evidence, and repeating that the decision making process in property settlement matters is not an exercise in mathematics, but involves various discretionary considerations, and taking into account the fact the husband will have a larger currently unrealisable superannuation interest than the wife as part of his entitlement, I am satisfied that a payment to the husband of $400,000 would give appropriate recognition to the probable incidence of CGT the wife would incur on the sale of shares to generate a fund with which to satisfy any property settlement order.
A payment to the husband of $400,000 would enable him to repay his credit card debts and his debts to his sister, and to reduce the mortgage loan on his home to a relatively modest level, less than $100,000. He would retain his superannuation and his motorcycle. He would continue to enjoy a superior income earning capacity compared to the wife. The sale of shares worth $400,000 would give rise to a CGT liability of the wife of around $73,500, using the above methodology. She would retain the C and S properties, both unencumbered, her motor vehicle, furniture, shares and superannuation, she would receive the jointly owned Telstra shares, and she would retain shares in her investment portfolio account worth in the order of $288,000. I acknowledge that these results are before any outstanding legal costs of either party are met. This in my view would be an appropriate result, having regard to all the relevant circumstances.
A just and equitable order
It was common ground that the appropriate form of order should be to require the wife to make a specified payment to the husband and for the husband to transfer his interest in the S property to the wife. It would also be necessary for the wife to secure the husband's release from liability under the joint line of credit facility, and based on her stated intention to discharge that liability from funds in her investment portfolio account, she should be required to discharge that liability.
There did not appear to be any real controversy about how long the wife should be given to make the payment to the husband, the husband seeking payment in 90 days and the wife proposing payment in
60 days. Further, when I raised during final submissions what was to happen to the parcel of jointly owned shares in Telstra, which had been overlooked in the orders each party sought, it was agreed that they should be transferred to the wife, and that I should proceed on the basis that they will not be sold and hence the wife will not incur a CGT liability in the foreseeable future on them.
Thus, the appropriate order is for the wife to pay the husband $400,000 and to discharge the joint line of credit debt within 60 days, for the husband thereupon to transfer to the wife his interest in the S property and the jointly owned Telstra shares, and that otherwise each party retain property in his or her possession or control.
I certify that the preceding eighty-four (84) paragraphs are a true copy of the reasons for judgment of Halligan FM
Associate: Deanne Bush
Date: 12 March 2008
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