WARNER & WARNER
[2013] FamCA 495
FAMILY COURT OF AUSTRALIA
| WARNER & WARNER | [2013] FamCA 495 |
FAMILY LAW – PROPERTY – Application for property settlement orders – Whether just and equitable to alter property interests and rights – Stanford v Stanford [2012] HCA 52 considered – Where at issue is the wife’s shareholding in a company incorporated in 1976 and controlled by her parents along with her position as a discretionary beneficiary of two trusts controlled by her father – Where the wife holds shares in the company but which carry no voting rights; where she has no control whatsoever of the company; cannot influence its operation or future direction and has no means to bring about the winding up of the company – Where the single expert was justified in his reluctance to assign a present value to the wife’s one hundred D class shares in the company – Where the company was treated as a financial resource of the wife – Where the parties’ amassed their present net assets with the financial assistance from the wife’s father – Where the husband understated his income to the court, the wife and the Child Support Agency – Consideration of factors under s 79 and s 75(2) of the Family Law Act 1975 (Cth) – Where the financial and non-financial contributions of the parties up to the date of settlement were assessed at 30 per cent to the husband and 70 per cent to the wife in respect of the net pool of assets and superannuation – Where an adjustment pursuant to Section 75(2) of 10 per cent made in favour of the husband of the net value of the pool of property and superannuation.
| Family Law Act 1975 (Cth) |
| Mallet & Mallet (1984) FLC 91-507 Ramsay & Ramsay FLC 92-742 Stanford v Stanford (2012) HCA 52 |
| APPLICANT: | Ms Warner |
| RESPONDENT: | Mr Warner |
| FILE NUMBER: | SYC | 5933 | of | 2011 |
| DATE DELIVERED: | 26 June 2013 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Stevenson J |
| HEARING DATE: | 11,12,13 March 2013 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Lethbridge SC with Ms Hausman |
| SOLICITOR FOR THE APPLICANT: | KDB Holmes Solicitors |
| COUNSEL FOR THE RESPONDENT: | Mr Kenny |
| SOLICITOR FOR THE RESPONDENT: | Campbell, Paton and Taylor |
Orders
That each of the parties do all things and execute all documents required to effect the sale, for the best price reasonably obtainable of the property known as “Y”, C Street, Town G in the State of New South Wales being the whole of the land contained folio identifier … and to distribute the proceeds of sale as follows:
1.1in payment of agents commission and expenses and legal costs of and incidental to the sale
1.2in payment of all outstanding rates
1.3in discharge of the Westpac Bank mortgage secured on the title
1.4in payment of 37% of the balance to the husband
1.5in payment of the balance to the wife.
That each of the parties do all things and execute all documents required to effect the transfer by the Ms Warner Family Trust to the husband of:
2.1the business known as “Business S”, including stock, plant and equipment
2.2the property situate at and known as D Street, Town A in the State of New South Wales being the whole of the land contained in folio identifier …
2.3the property situate at and known as E Street, Town A in the State of New South Wales being the whole of the land contained in folio identifier … .
That, simultaneously with the transfers prescribed by order 2 the husband discharge the Westpac mortgages, other than that secured on the title to the Y property, and any other loans in the name of the parties and/or F Pty Limited and shall thereafter indemnify the wife in relation to those liabilities including:
3.1commercial bill
3.2business overdraft facility
3.3business credit card
3.4Rocket Investment loan
3.5Rocket Access Equity loan
3.6All debts of Business S.
That, pending implementation of orders 2 and 3, the husband shall pay the Westpac mortgage and other loans in the names of the parties and/or F Pty Limited as and when instalments fall due.
That, simultaneously with the implementation of orders 2 and 3, the husband shall:
5.1resign as director of F Pty Limited
5.2transfer his shares in F Pty Limited to the wife or her nominee
5.3transfer to the wife his loan account with F Pty Limited
5.4transfer to the wife any right to unpaid dividends in respect of his interest in F Pty Limited.
That, simultaneously with the implementation of orders 2 and 3, the wife shall:
6.1resign as a director of H Pty Limited
6.2transfer her shares in H Pty Limited to the husband or his nominee
6.3transfer to the husband her loan account with H Pty Limited
6.4transfer to the husband any right to unpaid dividends in respect of her interest in H Pty Limited
6.5transfer to the husband her interest in the partnership known as Warner Partners.
That, subject to these orders:
7.1each of the parties is declared to be solely entitled to all items of property currently in his or her respect possession, noting that they agreed on the distribution of the contents of the “Y” property at a court event on 13 June 2013
7.2each of the parties shall assume sole liability for any debt attached to a motor vehicle to which he or she will become solely entitled pursuant to these orders and declarations.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Warner & Warner has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 5933 of 2011
| Ms Warner |
Applicant
And
| Mr Warner |
Respondent
REASONS FOR JUDGMENT
the proceedings
Ms Warner and Mr Warner are in dispute as to settlement of property. At the commencement of the trial, there were also issues in relation to parenting orders for their three children:
L born in July 2000 (12)
N born in July 2002 (10) and
O born in October 2005 (7).
Fortunately, Mr and Ms Warner resolved parenting issues and entered into consent orders on 15 March 2013. These orders provided that the parties have equal shared parental responsibility. N and O spend time with their father for six days per fortnight; half of all school holidays and on special occasions. L, who is a boarder at I School at Town Q, spends time with his father for half of all school holidays. The children otherwise live with the mother. N and O will attend I School for their secondary education, upon the wife’s undertaking to be responsible for tuition and boarding fees.
The wife is a minority shareholder in a company known as R Pty Limited which is controlled by her father, Mr U, and holds substantial assets. A significant issue in the proceedings was the value of the wife’s shareholding. The wife is also a discretionary beneficiary of two trusts which are controlled by her father.
On 15 March 2013 I reserved my decision. I was on the point of delivering judgment when the wife’s solicitor filed an Application in a Case on 6 June 2013. The relief sought by that application is now irrelevant, as the parties reached agreement as to the distribution of certain chattels on 13 June 2013. On that date, I was advised of an agreement on the value of a rural property known as “Y” which departed from that reached at trial. I refer below to the circumstances and terms of this agreement.
Background
Mr U was born in 1934 and is presently aged 79 years. His wife, Ms U, was born in 1941 and is 71 years old. They have a son and three daughters.
In December 1975 Mr and Ms U incorporated a company known as V Pty Limited, of which they are both directors. Mr and Ms U hold five shares and one share respectively in this company. V Pty Limited is the trustee of the T Settlement Trust and holds power of appointment of the trustee.
The wife and her three siblings are discretionary beneficiaries of the T Settlement Trust. She has received a regular distribution of $5,000 per month from V Pty Limited since she was approximately 25 years old. These payments are debited to her loan account with V Pty Limited (annexure DAT1 to the affidavit of Mr U sworn on 7 March 2013).
R Pty Limited was incorporated in April 1976. Mr and Ms U hold one A class and one B class share respectively in this company. These two shares carry sole voting rights and entitle the holders to receive dividends during the life of the company. The A and B class shares confer no right to receive a distribution of capital on the winding up of the company.
The wife and her three siblings each hold one hundred shares in R Pty Limited. Her shares are D class and those of her brother Mr W and sisters ( Ms X and Ms Z) C, E and F class respectively. These shares entitle the holders to receive dividends and participate in a distribution of capital on a winding up of the company. The unchallenged and uncontradicted evidence of Mr U was that the wife and her siblings have never received dividends from R Pty Limited.
The husband was born in 1967 and is presently aged 46 years. The wife was born in 1971 and is 41 years old. They began to live together in 1996 or 1997 in an apartment at Suburb AA owned by the wife’s parents. They occupied this property on a rent-free basis until they purchased their first home at BB Street, Suburb CC in May 1999.
The parties married in May 1998 and separated on 22 March 2011. They commenced cohabitation in 1996, according to the wife, or 1997 on the husband’s account. They thus lived together for 14 or 15 years.
The purchase price of the Suburb CC property was $690,000, which in part came from a mortgage advance of $345,000 from the Westpac Bank and a cash contribution of $320,000 by the wife’s father. The balance of the purchase money came from the proceeds of sale of a share portfolio held by the parties. It was common ground that they accrued the share portfolio from the wife’s distributions of $5,000 per month from the T Settlement Trust. The share portfolio was sold for $170,000.
In 1998 the wife’s father arranged the purchase of a hospitality business for her and each of her two sisters. For the purpose of this purchase, Mr U caused to be established the Ms Warner Family Trust.
The trustee company is known as F Pty Limited, of which the husband and wife are directors and shareholders. The wife holds power of appointment of the trustee of the Ms Warner Family Trust.
Between 2000 and 2004 the husband operated his own trading business known as Business DD. He had previously been an employee of a similar operation. Business DD was sold in 2004, apparently for no profit, and the husband became its employee. He received a salary of approximately $70,000 per annum.
The wife worked in “Business EE” hospitality business and the husband assisted with bar work on weekends. When the business was sold in July 2003, the wife received $188,350.
The parties injected the sale proceeds of “Business EE” into the acquisition of a rural property, known as “Y”, at Town G in the central west of New South Wales.The purchase price was $852,000, which was funded by a Westpac Bank advance of $600,000, $188,350 from the sale proceeds of “Business EE” and a cash payment of $120,000 or $124,000 from the wife’s father. Mr U guaranteed the Westpac mortgage advance.
The parties carried out extensive renovations to the historic homestead at Y after they sold their Suburb CC property in 2003. The sale price was $1,350,000, of which part was applied to discharge the Westpac Bank mortgage. The husband said that the parties received approximately $900,000 from the sale proceeds of the Suburb CC property, of which “a large chunk…went into [Y]”.
In November 2003 the parties purchased the property FF Street, Suburb GG in the sole name of the wife. The purchase price of $895,000 was funded entirely by borrowings of $940,000 from the Westpac Bank. The parties lived in this home until they moved to Y late in 2006.
In July 2004 the wife’s father established a discretionary trust known as the HH Trust. The trustee company is known as JJ Pty Limited, in which the wife and her sister Ms Z each hold one ordinary share. The wife’s sister has since become the sole director and Mr U holds power of appointment of the trustee.
The Ms Warner Family Trust has received distributions from the HH Trust. These distributions amounted to $50,000 in each of the 2008, 2009 and 2010 taxation years and $25,000 in 2011, being a total of $175,000.
As noted, throughout the parties’ cohabitation the wife received a distribution of $5,000 per month from the T Settlement Trust. These payments are debited to the wife’s loan account with V Pty Limited. Similarly debited are school fees and other expenses associated with the parties’ children which have been paid by Mr and Ms U.
When the parties moved to Y in late 2006, the husband commenced employment in a business known as Business S. They caused F Pty Limited, as trustee for the Ms Warner Family Trust, to purchase this business in January 2007 for $270,000. The purchase money came from a business loan from the Westpac Bank. The parties also obtained an overdraft of $150,000 and a business credit card with a limit of $20,000.
In February 2007 the wife sold the Suburb GG property for $842,000, thus incurring a loss of approximately $120,000. That loss was absorbed by an increase in the mortgage secured on the Y property from $600,000 to $72,000.
In July 2007 F Pty Limited as trustee for the Ms Warner Family Trust purchased the properties D Street and E Street, Town A for $345,000 and $155,000 respectively. These properties constitute the business premises of Business S. The parties caused F Pty Limited to borrow $450,000 from the Westpac Bank to fund the purchase of these properties.
Prior to the purchase of Business S the husband obtained the relevant licences. He operated this business on seven days per week until about 2010, when he stopped trading on Sundays.
In July 2010 the wife’s father caused the incorporation of a company known as KK Pty Limited. Mr and Ms U are directors and they and their four children are shareholders. This company is trustee for the T Unit Trust, in which there are five unit holders, including F Pty Limited as trustee for the Ms Warner Family Trust. Each of the unit holders has a 20 % interest in the T Unit Trust.
In 2010 the T Unit Trust purchased a factory property in Melbourne for $10,022,079. The purchase of the factory was funded by a Westpac Bank loan of $10,000,000 to a company known as J Pty Limited, which is trustee of the T Settlement Number 2.
Mr U controls the T Settlement Number 2, as he and his wife are the sole directors of J Pty Limited. J Pty Limited advanced a sum of $2,275,704 to F Pty Limited and the other unit holders when the factory premises were purchased in 2010. Neither the wife, the husband nor F Pty Limited made any cash contribution to these transactions.
In June 2010 the wife’s father provided to her an amount of $200,000 to reduce the parties’ Westpac Bank debt. She deposited this money into the parties’ Rocket Access Equity Loan account.
In March 2011 the parties incorporated a company known as H Pty Limited, in which they are the sole directors and shareholders. The husband operates a contract labour business via this company.
The parties separated on 22 March 2011, when the wife and children moved from Y into rented accommodation at Town MM. Since the separation the wife’s mother has provided a total of $42,200 to enable her to pay rental.
On 8 April 2011 the wife withdrew $155,965 from the parties’ Rocket Equity Access account and paid this money to her father. She made an additional payment of $12,500 to Mr U on the same day.
After the parties’ separation the children lived with the wife and spent time with the husband each alternate weekend from Thursday afternoon until Monday morning and every other Thursday night. The parties shared the children’s school holidays. I have referred above to the parenting arrangements put in place by the final orders made by consent on 15 March 2013.
The husband’s child support liability has been assessed at nil, a result which came about in circumstances to which I refer below in these reasons. The wife is employed in a clerical role on three days per week between 9:15am and 3:00pm and earns about $400 net. Otherwise, she relies upon her parents to assist with the financial support of the children.
At the beginning of 2013 the parties’ son L began to attend I school at Town Q as a boarder. As noted, the same arrangements will apply to the secondary education of N and O. The fees and associated expenses are and will be met by the wife’s father.
In September 2011 the wife resigned as a director of JJ Pty Limited and KK Pty Limited. She continues to be a discretionary beneficiary of the T Settlement Trust and the HH Trust and holds shares in R Pty Limited.
Approach To These Proceedings
In Stanford v Stanford [2012] HCA 52 the majority of the High Court of Australia held as follows:(paragraph 35)
It will be recalled that s 79(2) provides that “[t]he court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order”. Section 79(4) prescribes matters that must be taken into account in considering what order (if any) should be made under this section. The requirements of the two sub-sections are not to be conflated. In every case in which a property settlement order under s 79 is sought, it is necessary to satisfy the court that, in all the circumstances, it is just and equitable to make the order.
Their Honours further observed as follows:
In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship. And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by apply s 79(4).
The Evidence and Witnesses
The applicant wife relied on the following affidavits:
1.Ms Warner (the wife) sworn on 6 March 2013
2.Mr U (the wife’s father) sworn on 7 March 2013
She also relied on her Financial Statement verified by affidavit sworn on 6 March 2013. The wife and Mr U both gave oral evidence in her case.
The respondent husband relied upon his affidavit sworn on 6 March 2013 and Financial Statement of the same date. He swore an affidavit on 28 February 2013, by which he verified answers to specific questions from the wife’s solicitors. The husband was the only witness in his case.
The following three single expert witnesses provided reports:
1.Mr NN, a chartered accountant who valued various corporate entities of the parties and the wife’s parents.
2.Mr OO, a real estate valuer who assessed the worth of the Y property.
3.Mr PP, a real estate valuer who assessed the worth of the properties D Street and E Street, Town A.
Only Mr NN was required for cross-examination by counsel for the husband.
The Assets, Liabilities and Financial Resources
At trial, the parties agreed on the ownership and value of the following non-superannuation assets:
1
Wife’s interest in the HH Trust
Nil
2
Rural property Y (J)
$1,450,000
3
Warner Partners (J)
$14,000
4
Shareholding in H Pty Limited (J)
Nil
5
Jewellery (W)
$10,000
6
Westpac account (H)
$1,500
7
Westpac account (W)
$5,694
8
Westpac account (W)
$1,141
9
Household contents (W)
$10,000
10
Household contents (H)
$2,000
11
Ski lodge time share (H)
$3,000
The parties also agreed on the ownership and value of the following superannuation assets:
1
BT Superannuation (H)
$57,708
2
QQ, Macquarie Bank, MLC & RR Superannuation Funds (W)
$22,477
There were issues as to the following assets and alleged add-backs:
1
Wife’s shareholding in R Pty Limited
2
Wife’s interest in the T Settlement Trust
3
IAG Shares (W)
15
Money withdrawn by wife from Rocket Equity Loan Account
16
Money withdrawn by husband from Ms Warner Family Trust
17
Farm Bike
18
Ms Warner Family Trust
As noted, on 12 June 2013 the parties reached a different agreement as to the value of the Y property. An unsuccessful auction was held on 7 June 2013, at which the highest bid was $1,200,000. The agreement of the parties was reduced to writing in the following terms:
By Consent
(1) That the court is asked to note:
(a)the parties’ agreement that the value of the property [Y] should be taken to be 1.2million rather that 1.45 million being the value agreed at trial,
(b)that the variation in value has been brought about by submission of the property for sale by public auction on 7 June 2013 and the parties’ subsequent agreement accept the highest bid made at that auction as indicative of the present fair market value of [Y]; and
(c)that as a consequence of these matters it is now agreed that the courts’ final orders should provide for the sale of [Y] which was previously opposed by the husband, any variation in the actual sale price to be apportioned between the parties in the propositions equivalent to the parties overall entitlement for property settlement as determined by the court.
(2)That to the extent necessary the parties be granted leave to reopen their cases to put the abovementioned matters before the court on the hearing of the respective applications for property settlement.
The farm bike was included in the husband’s list of assets but omitted from that of the wife. Similarly, the IAG shares were included in the husband’s list of assets but omitted from that of the wife. The parties’ respective Financial Statements contained the only evidence relevant to these alleged assets.
There was no reference in the wife’s Financial Statement of 6 March 2013 to IAG shares owned by her. The wife thus made no admission against interest in respect of IAG shares and that alleged asset cannot be included in the balance sheet. The husband’s Financial Statement of 6 March 2013 referred to a farm bike to which he attributed a value of $500. On the basis of that admission against interest, the farm bike will be included in the list of assets at a value of $500.
In my view, the evidence did not establish that the husband withdrew $96,000 “against the parties’ joint equity in the assets of [Ms Warner Family Trust]”, as contended on behalf of the wife. The husband has exercised sole effective control of the rural assets of the Ms Warner Family Trust since the separation but, in my view, there was insufficient evidence that he alone had the benefit of sums totalling $96,000. In fact I was not taken to particular withdrawals, nor a calculation of the amount of $96,000. Accordingly, I will not add this sum back from the list of assets.
The husband sought to add back as an asset an amount of $155,964 which the wife withdrew from the parties’ Rocket Equity Loan Account on 8 April 2011. The wife maintained that she paid this money to her father and the husband indicated that he accepted that proposition. He said: “I have no idea whether [the wife] paid $150,000 which she withdrew from the Rocket account to [her father]. If she says she did, I don’t doubt that. I don’t criticise her for that”.
It should be remembered that the wife’s father provided a sum of $200,000 to her in June 2010 and that her uncontradicted evidence was that she deposited this money into the parties’ Rocket Equity Loan Account. Accordingly, this payment of $155,964 to Mr U was some $44,000 less than the amount which he provided for the parties’ joint benefit only ten months prior to their separation. In these circumstances I see no justification for adding that amount back to the list of assets. Effectively, that step would bestow on the husband a portion of money which could be considered the property of Mr U.
A single expert, Mr NN, valued inter alia the wife’s interest in the T Settlement Trust, R Pty Limited and the parties’ interest in the Ms Warner Family Trust. There was no other evidence as to the value of these interests and entities. Mr NN attributed a nil value to the interest of each of the parties in the Ms Warner Family Trust, having identified an excess of liabilities over assets. The balance sheet submitted on behalf of the husband attributed a value of $1,480,218 to the assets of this trust and identified liabilities totalling $1,872,882. These figures accord with a balance sheet as at 30 June 2012 prepared by Mr NN (exhibit 2).
The assets and liabilities of the Ms Warner Family Trust fall into two distinct categories. Firstly this trust holds the assets of Business S and carries the associated liabilities. The trust also holds the Landrover used by the wife and the Hilux and tractor in possession of the husband and carries the associated liabilities.
The second category of assets and liabilities of the Ms Warner Family Trust reflect this trust’s unit holding in the T Unit Trust. In broad terms, therefore, the assets and liabilities of the Ms Warner Family Trust consist of its interest in the Melbourne property, which is under the control of the wife’s father, and the rural assets in Town A.
Each of the parties wished to separate the assets and liabilities of the Ms Warner Family Trust into these two categories. Their joint intention, if such is practically achievable, was that the husband retains the Town A rural enterprise and the wife becomes solely entitled to interest in the Melbourne property.
It seems to me that this result would be appropriate from the perspective of each of the parties. The husband would retain a means of earning an income in an industry in which he has qualifications and experience. The wife would become solely entitled to a property interest which, in reality, is controlled by her father and falls within the umbrella of his business enterprises. That being so, I consider that the assets and liabilities of the Ms Warner Family Trust should be treated on an individual basis and included in the balance sheet accordingly.
The Ms Warner Family Trust holds the following rural-based assets:
1
D Street & E Street, Town A (as per valuation of Mr PP)
$475,000
2
Business S (goodwill)
$278,062
3
Plant and Equipment
$85,899
4
Merchandise
$268,211
5
Motor Vehicles
$93,603
These figures, with the exception of real estate values, were extracted from the balance sheet prepared by Mr NN as at 30 June 2012.
The corresponding rural-based liabilities of the Ms Warner Family Trust are as follows, as extracted from the affidavit of the wife (paragraph 147):
1
Commercial bill
$775,000
2
Business overdraft
$55,452
3
Business credit card
$18,560
4
Rocket Asset Equity loan
$238,887
5
Toyota Hilux
$8,342
6
Landrover
$44,810
7
Tractor
$39,692
The wife also included in this list the Rocket Home Loan liability of $720,000, which I understand in fact to be a joint debt of the parties.
The wife’s proposal would see her retain the Landrover and the corresponding debt of $44,810. I was taken to no evidence as to the value of the Landrover. Accordingly, the best I can do is omit this asset and the associated liability from the balance sheet, on the assumption that there would be very little equity in the vehicle.
The Melbourne-based assets and liabilities of the Ms Warner Family Trust consist of its interest in the T Unit Trust, which was valued at nil by Mr NN. Neither party took issue with that expert opinion. Accordingly, there is no necessity to include these assets and liabilities of the Ms Warner Family Trust in the balance sheet. I will make orders which will constitute the wife the sole owner of this interest in the T Unit Trust.
In his report Mr NN valued the wife’s interest in the T Settlement Trust at “between nil and $75,000”. He later amended his valuation to a range of nil to $125,000.
It is true that the wife is but a discretionary beneficiary of the T Settlement Trust. She will thus continue to receive financial benefits only as a result of a favourable exercise of discretion by her father. Accordingly, there can be no guarantee whatsoever that she will receive any distribution in the future. On the other hand, she has received regular distributions of $5,000 per month since she was approximately 25 years old. This pattern has thus been constant for sixteen years and nothing in the evidence suggested any likelihood of a departure from well-established practice.
In my view, the test to be adopted is the financial reality to the wife of her position as a discretionary beneficiary of the T Settlement Trust. That reality includes the facts that she has received distributions amounting to $60,000 per annum for each of the last sixteen years and that she enjoys a loving, supportive relationship with her parents.
In these circumstances, in my view it is highly likely that there will be a continuation of the arrangement whereby the wife receives a distribution of $5,000 per month from this trust. It thus seems appropriate to me that Mr NN’s upper figure should be adopted for present purposes. I will accordingly accede to the submission on behalf of the husband and include the wife’s interest in the T Settlement Trust in the list of assets at a value of $125,000. The question of the husband’s contribution to this asset is, of course, an entirely separate matter.
The single expert, Mr NN, valued the wife’s one hundred D class shares in R Pty Limited at $275,550. Perhaps it is an overstatement to say that Mr NN attributed that “value” to the wife’s shareholding, he wrote in his report:
1. Based on the foregoing comments, I am reluctant to place any value on the parties’ interest in [R] Pty Limited. If I were to make a “best” guess as to the present value of [the wife’s] interest in [R] Pty Limited I would say between $275,000 and $550,000. The value of [the husband’s] interest in [R] Pty Limited is nil.
Mr NN’s “foregoing comments” included the following:
Value of the interest of [the wife] in [R] Pty Limited
·[The wife] has a potential one quarter interest in assets that were valued at $27,991,588 at 30 June 2012 (allowing for the “A” and “B” Class shareholders to receive $1 each for their shares on a winding up), a “face” value of approximately $7,000,000.
·In the event that [the wife] becomes entitled to the $7,000,000, under the current tax system, the amount would be taxable. In calculating the likely tax if the amount were received in one tax year and the current taxation rates applied (I have assumed that the Capital Profit Reserve arose on post CGT Assets), there are sufficient franking credits to virtually wholly frank the $7,000,000 in full, which means that after tax [the wife’s] potential quarter interest would have an after tax “face” value of $5,500,000 approximately.
·[R] Pty Limited’s function in the “[T] Group” appears to be or have been to act as a recipient of distributions from “[T] Group” Trusts paid or unpaid, for those distributions to have been taxed at the company rate of tax (currently 30%) and for the after tax funds to have been lent back to the “[T] Group” to fund its operations.
In addition to funding the “[T] Group” operations, the after tax funds have been used to pay dividends to the “A” and “B” Class shareholders, the level of dividends being $6m in 2010 and $5m in 2011 and 2012. The Dividends at that level appears to be recent, but potentially, an on-going event, based on the Retained earnings having been as high as $30,990,481 a 30 June 2009 compared to $24,439,580 at 30 June 2012.
In the 2012 financial year the Dividend paid or proposed exceeded the after tax income of that year, the Net Profit after Tax was $317, whereas the Dividend was $5,000,000. If Dividend payments exceeding the Net Profit after Tax for more than six (6) years, [the wife’s] interest in [R] Pty Limited could be reduced to $Nil.
·Although [R] Pty Limited has a Capital Profits Reserve of $3,152,008, there is no potential for any further capital appreciation of assets or realisation of capital gains as all of the Company’s assets are current assets with no prospect of capital gain or appreciation in value (provided the present asset mix persists) which could add to the value of the Company.
·The shareholders who hold the “A” and “B” Class share are [Mr U] who is 79 years of age, he has a life expectancy of nine (9) years and [Ms U]. She has a life expectancy of sixteen (16) years. As both of the parties are not known to me nor is their current state of health I have used the “normal” expectation of life which I referred to in note 6 above from ABS Life Tables. [The wife] has not ever received any Dividends from [R] Pty Limited, based on the advice to me from [Mr M]. Using the past as a guide to future behaviour, it is probable that [the wife] will not receive a Dividend from the Company whilst the current “A” and “B” Class shareholders hold their shares. Even assuming that there are no further dividends paid to “A” and “B” Class shareholders or assuming that the Income of [R] Pty Limited is restored to its pre 2012 level, which would allow the level of Dividend to be funded to the greater part out of the future years after tax income, a substantial discount must be applied to arrive at the present value of the $5,500,000 potential asset that [the wife] may have available to her in the future. I have chosen sixteen (16) times (the life expectancy of [Ms U] as the possible date [the wife] may have the benefit of her interest in [R] Pty Limited) and even then I must assume that whoever owns the “A” and “B” Class shares at that time will agree to her accessing her interest in [R] Pty Limited. The present value of $1 in 16 years is 22 cents at a 10% discount rate, 15 cents at a 12.5% discount rate and 11 cents at a 15% discount rate.
·I have calculated that [the wife’s] interest in [R] Pty Limited has a “face” value of $5,500,000 after tax. I have considered the possibility the current dividend policy of the Company and the fact that it only receives income at the discretion of two (2) “[T] Group” Trusts, could mean that the Company in 6 years+ will have no value. I have also considered the possibility that the earliest [the wife] may have access to her value could be sixteen (16) years, which means a discount of between 78% and 89% to arrive at the possible future value of that interest.
There was no dispute that the wife has never received a dividend from R Pty Limited in the entire thirty seven years of its existence. Nothing in the evidence suggested to me that there is any likelihood of a change in this long entrenched position, such that the wife will receive dividends from this company at any time in the future. The only certainty is that she has a right to participate in a distribution of assets on the winding up of the company. Of course, there can be no certainty as to the extent of the company’s assets at that time.
The wife’s D class shares carry no voting rights, thus it is abundantly clear that she has no control whatsoever over this company. She has no way of influencing its operation or future direction in any way at all. In particular, she has no means to bring about a winding up of the company.
The power of a shareholder to cause the winding up of a company was considered a matter of significance in assessing the value of that person’s interest by the High Court of Australia in Mallet and Mallet (1984) FLC 91-507.Gibbs CJ held (at p79,115):
…In determining the value of shares it is necessary to take into account both the earning power of the company and the value of its capital assets…In many cases the real value of the shares will depend more on the former than on the latter. Where, however, the company is merely a convenient means of holding the assets, and the person who owns the shareholding in question is able to put the company into liquidation at will, the real value of the shares will be likely to be the amount which the holder would receive if the company were voluntarily wound up. And since the purpose for which a valuation is made may affect the court’s attitude…there is much to be said for the view that the court will be more ready to value shares on a liquidation basis in a case such as the present than in a revenue or even in a compensation case. (references omitted)
As set out above, Mr NN identified the role of R Pty Limited in the “T Group” as the recipient of dividends for the purpose of payment of tax at the company rate. R Pty Limited then lends money back to the T Group to fund its operations. Additionally, R Pty Limited distributes substantial dividends to Mr and Ms U in their capacity as holders of the “A” and “B” class shares.
In Ramsay and Ramsay (1997) FLC 92-742 Warnick J identified several significant considerations in the valuation of a party’s shareholding: His Honour stated (at p83,999):
(a)A question to be answered in each case, and as to which expert evidence may be admissible, is whether there is a market for the shareholding;
(b)If there is a market, evidence of the market value is highly likely to be relevant, even if there is no intention to sell;
(c)It is however, unhelpful for valuations to focus on the lack of a market in establishing a value to the shareholder. Any allowance for lack of realisable value is best made by the court, in all the circumstances of the case, particularly the presence or absence of other assets which are disposable;
(d)In cases where there are no realisable assets, the market value of the shareholding will usually be critical, not only to the division of property, but perhaps even more so, to the orders made;
(e)If, on the facts of the case, there is any prospect of the minority shareholding party gaining control of the company, the question of the probabilities of that event is likely a question for the court. If that is so, although the valuers ought be concerned with is the value of the party if he/she gains control, as well of course as the value if the party remains a minority shareholder;
(f)Similarly, if there is any issue about them, questions of the probabilities of particular benefits being received by shareholding party in the future, are likely best left to the court, but again value was ought assess the value of the shareholding, both on the basis of the benefit is received and that that it is not.
It seems to me that a company in the position of R Pty Limited, which plays the role above described within the “T Group”, would be highly unlikely to attract market interest. In any event, the Articles of Association contain prohibitive restrictions on the transfer of shares. Article 26 provides as follows:
Subject to regulations 23, 24 and 25 hereof, a member (or a person entitled to transfer a share in consequence of the death or bankruptcy of a member) may transfer any of the shares registered in the name of such member or deceased or bankrupt member to:
(a)another member;
(b)a prescribed relation (as defined hereunder) of such firstmentioned member or deceased or bankrupt member; or
(c)a person whom the directors have nominated as a person whom it is desirable to admit to membership, or
(d)any other person provided that the holders for the time being of not less than three fourths of the total number of issued shares of the company other than the shares to be transferred consent in writing to the transfer.
For the purposes of this regulation the expression “prescribed relation” shall mean child or other issue, son-in-law, daughter-in-law, father, mother, brother, sister, nephew, niece, wife, husband, widow or widower.
Article 27 provides:
Subject to regulation 26 hereof, the directors may in their absolute discretion and without assigning any reason therefore refuse to register any transfer of shares to a person of whom they shall not approve.
In his report Mr NN arrived at his “best guess” estimate of the value of the wife’s shareholding in R Pty Limited by applying a discount rate “between 78% and 89%”, having regard to the life expectancy of her father and mother at nine and sixteen years respectively. These expectancies were extracted from tables published by the Australian Bureau of Statistics. In his oral evidence, Mr NN said that his “ultimate discount rate was 90% to 95%”.
The written submissions on behalf of the husband summarised a series of reported decisions of this court and selected a discount rate of 65% as appropriate in the present circumstances. On that basis, the written submissions on behalf of the husband assigned a value of $3,575,000 to the wife’s shareholding in R Pty Limited. With all respect, I am unsure why that approach should find favour with the court. As I understand my task I am required to make a finding as to the value of the wife’s shareholding having regard to the facts of this case, including the reality of her position in relation to R Pty Limited.
That reality for the wife includes the following considerations:
· she has never received a financial benefit of any kind from the company
· she is entitled to receive dividends but has never done so in the 37 years of the company’s existence
· she has no voting rights and accordingly no control over the operation of the company
· she has no means of bringing about a winding up of the company
· she has no means of assuming control of the company
· she cannot transfer her shares to a person outside the group prescribed by Article 26
· her parents may refuse, in their absolute and unfettered discretion, to register any transfer of her shares
· she has a right to participate in a distribution of assets on a winding up of the company at an unknown time and will receive an amount which cannot be predicted at this time.
All of these considerations persuade me that Mr NN was well justified in his reluctance to assign a present value to the wife’s one hundred D class shares in R Pty Limited. That exercise seems to me to be fraught with difficulty and, in my view, a far safer course is to treat this shareholding as a financial resource of the wife.
Liabilities
The parties agreed that their liabilities outside the Ms Warner Family Trust were as follows:
1.
Rocket Investment Home Loan (J)
$720,000
2.
Westpac Visa Card (W)
$1,590
In his Financial Statement, the husband disclosed that he has a Westpac Visa Card debt of $1,888. Given that the marriage ended in March 2011, it seems highly likely to me that both credit card debts are post-separation liabilities of the parties. In any event, these debts are similar in amount and I propose that they be excluded from the balance sheet for simplification.
I thus find the assets, liabilities and financial resources of the parties to be as follows:
Non-Superannuation Assets
1.
Y property(J)
$1,200,000
2.
Warner Partners (J)
$14,000
3.
D Street and E Street properties (Ms Warner Family Trust)
$475,000
4.
Business S (Ms Warner Family Trust)
$278,000
5.
Plant and equipment (Ms Warner Family Trust)
$85,899
6.
Merchandise (Ms Warner Family Trust)
$268,000
7.
Motor vehicles (Ms Warner Family Trust)
$93,603
8.
Jewellery (W)
$10,000
9.
Westpac Bank account (H)
$1,500
10.
Westpac Bank account (W)
$5,694
11.
Westpac Bank account (W)
$1,141
12.
Household contents (W)
$10,000
13.
Household contents (H)
$2,000
14.
Ski lodge time share (H)
$3,000
15.
Farm bike (H)
$500
16.
Interest in T Settlement Trust (W)
$125,000
$2,573,337
Superannuation Assets
17.
BT Superannuation (H)
$57,708
18.
QQ Super, Macquarie Bank, MLC and RR Super Superannuation (W)
$22,477
$80,185
Total Assets and Superannuation
$2,653,522
Liabilities
1.
Rocket Investment Home Loan (J)
$720,000
2.
Commercial bill (Ms Warner Family Trust)
$775,000
3.
Business overdraft (Ms Warner Family Trust )
$55,452
4.
Business credit card (Ms Warner Family Trust )
$18,560
5.
Rocket Asset Equity loan (Ms Warner Family Trust )
$238,887
6.
Toyota Hilux debt (Ms Warner Family Trust )
$8,342
7.
Tractor debt (Ms Warner Family Trust )
$39,692
$1,855,933
Financial Resources
1.Wife’s shareholding in R Pty Limited
2.Wife’s status as a discretionary beneficiary of the HH Trust
Contribution
At the commencement of cohabitation the husband’s only significant asset was a motor vehicle. The wife possessed a motor vehicle, an unquantified amount of savings and furniture. Neither party had a liability of any magnitude at the commencement of their relationship.
As noted, the wife received $5,000 per month as a distribution from the T Settlement Trust throughout the parties’ cohabitation. It emerged during the oral evidence of the husband that these payments were used to accrue a share portfolio prior to the purchase of the Suburb CC property in May 1999. The husband said that they sold this share portfolio for approximately $170,000. The wife’s father also contributed $320,000 to the purchase of this property. Funds provided by Mr U thus accounted for approximately 71% of the purchase price of the Suburb CC property.
In August 1998 the wife’s father purchased “Business EE” hospitality business for the wife for a sum of $225,000. Neither party made any contribution to the purchase money. Both parties worked in the business, in the husband’s case in addition to his full time job in the trading business.
The hospitality business was sold in July 2003, when the wife received a net amount of $188,350. She contributed this money to the purchase price of the Y rural property. The purchase price was $852,000, which otherwise came from a mortgage loan of $600,000 and the sum of $120,000 or $124,000 provided by the wife’s father.
The Suburb CC property was sold for $1,350,000 in November 2003, when the parties received a net sum of approximately $900,000. They invested a significant proportion of these funds in substantial renovations and improvements to the homestead at Y. It was common ground that the parties significantly overcapitalised this property.
In November 2003 the parties purchased in the wife’s sole name the property FF Street, Suburb GG for $895,000. They borrowed $940,000 to fund this purchase and made a loss of approximately $120,000 when this property was sold in February 2007. That loss was added to the mortgage debt secured on the Y property, which has always been guaranteed by the wife’s father.
Since 2007 the Ms Warner Family Trust has received distributions totalling $175,000 from the HH Trust. The last such distribution occurred on 30 June 2011.
The wife’s father provided a cash contribution of $120,000 or $124,000, as well as $188,000 from the sale proceeds of the hospitality business when the parties purchased Y in 2003. That total sum of $308,000 constituted approximately 36% of the purchase price of $852,000.
The wife’s father effectively thus provided for the parties’ benefit the following lump sums:
Purchase of Suburb CC property
$490,000
Purchase of Y
$308,000
Distributions from HH Trust
$175,000
Distributions from T Settlement Trust in addition to $5,000 per month (annexure DAT1 to the affidavit of Mr U)
$100,000
Total:
$1,073,000
I have undertaken this calculation only to illustrate the magnitude of the direct financial contributions made by the wife’s father on her behalf. This figure excludes the distributions of $5,000 per month and the sum of $170,000 generated by the sale of the share portfolio. The husband acknowledged: “We could not have lived our lifestyle without the generosity of [Mr U]”. In my view, it is unlikely that the parties would have amassed their present net assets without this substantial financial assistance from the wife’s father.
There was no issue that the husband worked extremely hard throughout the parties’ relationship. Both the wife and her father freely acknowledged his industry. For example, he worked in Business S seven days per week for a period and thereafter for six days per week. In my view, the husband deserves full credit for his hard work over several years.
The converse of that proposition is that the wife was the primary carer for the parties’ children and undertook principal responsibility for homemaking during the marriage. She readily acknowledged that the husband played a role in the care of the children and the household tasks. She agreed that he bathed the children and delivered them to and collected them from daycare, as well as taking the boys to their sports. She acknowledged that he did approximately half of the cooking. In general terms the wife said: “He was very good at pulling his weight with everything except washing and ironing”.
As noted, the husband has paid no child support since the separation. The husband conceded in cross-examination that his nil child support assessment “did not reflect my drawings from [F Pty Limited] and [H Pty Limited]”. It became apparent that he understated his income substantially to the court, the wife and the Child Support Agency.
The 2012 Financial Statements for H Pty Limited and the Ms Warner Family Trust show that this company paid “management fees” of $72,000 to the trust. The fact is that the husband received this money, which equates to some $1,380 per week. In his Financial Statement of 6 March 2013 the husband deposed to a gross weekly income of $400. In cross-examination, however, he conceded “I have had available to me at least $1,500 per week since July 2011”.
Mr and Ms U have continued their generosity to the wife and the children since the separation. Mr U gave uncontradicted evidence that his wife has provided some $42,000 to their daughter to enable her to pay rent and he has paid the children’s school fees.
Business S has been under the effective sole control of the husband since the separation. Between 30 June 2011 and 30 June 2012 the creditors of the business have increased by approximately $317,000 (2012 Balance Sheet Ms Warner Family Trust exhibit1). The husband said in cross-examination that, to facilitate payment of bank interest “the creditors have been delayed a little bit”. He conceded that the asset position has worsened”.
By an interim application of 15 December 2011 the wife sought orders for the sale of the “Y” property.The husband opposed the application, which was refused on 16 April 2012. In cross-examination the husband conceded that “the sale would have led to a very substantial reduction in debt. I accept that a sale would probably have halved the interest bill. Yes, possibly there has been a significant diminution in our assets”. In this context, it should be remembered that “Y” is a hobby farm, rather than a viable rural enterprise.
On behalf of the wife, it was contended that contribution should be assessed at 70% to her and 30% to the husband in respect of the Town A-based assets. Leaving aside the substantial financial injections by Mr U on behalf of the wife, I consider that in broad terms the parties would have made equal contributions. In substance, they adopted complementary roles into which they each injected substantial effort. I appreciate that the husband made no contributions to the wife’s interest in the T Settlement Trust.
The direct financial contributions on behalf of the wife clearly warrant a weighting in her favour. Realistically, in my view, it is highly unlikely that the parties would have acquired their present net assets without these substantial contributions on behalf of the wife. Having regard to the generosity of Mr U, I am satisfied and find that contribution should be assessed at 30% to the husband and 70% to the wife in respect of the net pool of assets and superannuation.
Section 75(2) Factors
The husband and wife are aged 46 and 41 respectively and both are in good health. They each have the capacity to earn an income, although the husband’s qualifications mean that he is in a superior earning position. He has the relevant licences for Business S. The husband has a history of great application to his employment and, in my view, he is likely to re-establish himself financially once he recovers from the personal impact of the separation and these proceedings.
Pursuant to the final consent orders of 15 March 2013, N and O spend eight nights per fortnight with the wife and the balance of term time with the husband. L is a boarder at I School and it is anticipated that N and O will progress to the same secondary education. As noted, the husband pays no child support and Mr U meets L’s boarding and tuition fees.
The most significant section 75(2) factors are the wife’s shareholding in R Pty Limited and her position as a discretionary beneficiary of two trusts controlled by her father. She has received a regular payment of $5,000 per month for sixteen years and lump sums totalling $100,000, between December 2006 and December 2008, from the T Settlement Trust. The HH Trust distributed a total of $175,000 to the Ms Warner Family Trust between June 2008 and June 2011.
I have no reason to consider that there will be an end to or interruption of the wife’s parents’ generosity to her. As well, she has an expectation of distribution of capital upon the winding up of R Pty Limited.
On behalf of the wife, it was properly conceded that section 75(2)(o) factors favour the husband. On the other hand, he is a fit 41 year-old man with employment qualifications and skills, and a history of hard work. Balancing these considerations I am satisfied, and I find, that there should be an adjustment in favour of the husband of 10% of the net value of the net pool of property and superannuation.
Result
The result is that I find that the parties’ net assets and superannuation should be distributed between the parties in the ratio of 40% to the husband and 60% to the wife. The parties’ net assets, including superannuation, are valued at $797,589. 60% of that figure equals $478,553 and 40% amounts to $319,036.
In my view, it is appropriate that the husband retain the assets and assume the liabilities associated with Business S. He should also retain the assets which are currently in his possession, as will be the case with the wife. The net sale proceeds of the Y property will be divided between the parties so as to achieve a division of the parties’ net assets and superannuation in the ratio of 40% to the husband and 60% to the wife on that basis.
The husband will thus take or retain the following assets and superannuation:
1.
Warner Partners (J)
$14,000
2.
D Street and E Street properties (Ms Warner Family Trust)
$475,000
3.
Business S (Ms Warner Family Trust )
$278,000
4.
Plant and equipment (Ms Warner Family Trust )
$85,899
5.
Merchandise (Ms Warner Family Trust )
$268,000
6.
Motor vehicles (Ms Warner Family Trust )
$93,603
7.
Westpac Bank account (H)
$1,500
8.
Household contents (H)
$2,000
9.
Ski lodge time share (H)
$3,000
10.
Farm bike (H)
$500
11.
Superannuation
$57,708
$1,279,210
He will assume the following liabilities:
1.
Commercial bill
$775,000
2.
Business overdraft
$55,452
3.
Business credit card
$18,560
4.
Rocket asset equity loan
$238,887
5.
Toyota Hilux debt
$8,342
6.
Tractor debt
$39,692
$1,135,933
The husband will thus hold net assets and superannuation to the value of $143,277, which falls short of his entitlement of $319,036 by $175,759. That shortfall must come from the net proceeds of sale of the Y property.
The wife will take the following assets and superannuation:
1.
Jewellery (W)
$10,000
2.
Westpac Bank account (W)
$5,694
3.
Westpac Bank account (W)
$1,141
4.
Household contents (W)
$10,000
5.
Interest in T Settlement Trust (W)
$125,000
6.
Superannuation
$22,477
$174,312
She will assume responsibility for none of the liabilities which appear in the balance sheet. Accordingly, the wife will hold net assets and superannuation to a value of $174,312 which falls short of her entitlement of $478,553 by $304,241. That shortfall must also be met from the net proceeds of sale of the Y property.
The sale price of the Y property is as yet unknown, so I will structure my orders to reflect in percentage terms a distribution of the net proceeds in the ratio of the shortfall of the parties’ respective entitlements to the net pool. The property has an agreed value of $1,200,000 and is subject to a mortgage of $720,000, leaving a net value of $480,000. $175,759 is approximately 37% of $480,000 and $304,241 the balance of 63%. Accordingly, I will order that the husband and wife receive 37% and 63% respectively of the net proceeds of sale of the Y property.
I certify that the preceding one hundred and five (105) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Stevenson delivered on 26 June 2013.
Associate:
Date: 26 June 2013
Key Legal Topics
Areas of Law
-
Family Law
-
Equity & Trusts
-
Commercial Law
0