Waterman and Waterman
[2020] FamCA 369
•15 May 2020
FAMILY COURT OF AUSTRALIA
| WATERMAN & WATERMAN | [2020] FamCA 369 |
| FAMILY LAW – PROPERTY – Where it is just and equitable to make a property division order – Treatment of assets acquired and liabilities incurred post separation – Whether funds spent on legal fees should be added back to the property pool – Where the husband contends for an adjustment based on his contributions particularly a significant initial contribution with the size of the adjustment contingent on findings as to the size of the property pool – Where the husband contends that an adjustment should be made in his favour to account for matters referred to in section 75(2) of the Family Law Act 1975 (Cth) namely the wife’s earning capacity and his health circumstances also with the size of the adjustment to depend on findings in relation to the property pool available for distribution – Where the wife at final submissions contended that the parties’ contributions during the relationship and post separation should be regarded as equal – Where the wife contends that no adjustment be made for section 75(2) factors – Orders made that result in the property pool being divided equally. |
| Family Law Act 1975 (Cth) ss 75, 79 |
| Bevan & Bevan [2013] FamCAFC 116 Clauson & Clauson [1995] FamCA 10; (1995) FLC 92-595; 18 Fam LR Chorn & Hopkins [2004] FamCA 633; (2004) FLC 93-204; (2004) 32 Fam LR 518 Diggelen & Diggelen [2014] FamCAFC 160 Hurst & Webber [2009] FamCAFC 137 Omacini & Omacini [2005] FLC 93-218 Pierce & Pierce [1998] FamCA 74 Stanford v Stanford (2012) 247 CLR 108 Trevi & Trevi [2018] FamCAFC 173 Wayne & Wayne [2010] FamCAFC 33 Williams & Williams [2007] FamCA 313 |
| APPLICANT: | Mr Waterman |
| RESPONDENT: | Ms Waterman |
| FILE NUMBER: | PAC | 3930 | of | 2015 |
| DATE DELIVERED: | 15 May 2020 |
| PLACE DELIVERED: | Parramatta |
| PLACE HEARD: | Parramatta |
| JUDGMENT OF: | Hannam J |
| HEARING DATE: | 11, 12, 13 November 2019, 17 December 2019 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Kearney SC |
| SOLICITOR FOR THE APPLICANT: | Gayle Meredith & Associates |
| COUNSEL FOR THE RESPONDENT: | Mr Gould Mr Lloyd SC |
| SOLICITOR FOR THE RESPONDENT: | Solari & Stock Lawyers |
Orders
That the husband and wife forthwith do all acts and things and execute all documents required to cause the net proceeds of sale of the properties situated at E Street, F Town (folio identifier …46) and G Street, H Town NSW (Folio Identifier …73) held in a controlled monies account with Solari & Stock Lawyers, to be paid to the wife.
That within 28 days of these Orders, the husband pay to the wife the sum of $82,451.50 ("the said sum").
That in the event that the husband fails or neglects to pay to the wife the said sum in Order 2 hereof by the due date, then the husband shall do all acts and things and sign all necessary documents to effect a sale of the property situate at and known as J Street, K Town, NSW (being the whole of the land comprised in Certificate of Title …) (hereinafter referred to as "the K Town property") by public auction ("the auction") upon the following terms:
(a) The parties are to agree upon the appointment of a real estate agent and failing agreement be an agent as nominated by the nominee of the President of the Real Estate Institute of New South Wales;
(b) The auction shall take place at a time and place nominated by the agent so as to enable the K Town property to be properly advertised for sale;
(c) The reserve price shall, unless agreed upon by the parties, be as proposed by the agent.
(d) Either party shall be at liberty to bid at the auction;
(e) The parties shall each cooperate in every way with the Agent including (without limiting the generality of the foregoing):
(i)making the key available to the Agent;
(ii)allowing inspection of the K Town property at all reasonable times requested by the Agent;
(iii)doing or saying nothing to hinder or prevent a sale being effected;
(iv)ensuring the K Town property, including the grounds, are in a neat and clean condition at the time of inspection by the Agent and prospective purchasers; and
(v)signing all documents requested by the Agents in relation to the listing for sale of the K Town property, except a contract or agreement for sale which has not been authorised by the parties' Solicitors.
(f) The parties shall instruct such Solicitor or Conveyancer as they agree upon to have the conduct of the sale of the K Town property on behalf of the parties or in the absence of agreement reached within 14 days of the date of these Orders, instructs such Solicitor as may be appointed by the President for the time being of the Law Society of NSW ("the Solicitor"), the costs of and incidental of such appointment to be borne equally by the parties as and when they fall due;
(g) Neither party may confer on any Agent, without the consent of the other party, any right to any sole or exclusive agency in respect of the K Town property or to any commission;
(h) The party not in possession is entitled upon reasonable notice, once per fortnight, to enter and view the state of repair of the K Town property;
(i) The husband shall be responsible for and pay the auction expenses payable for the said auction;
(j) That in the event the K Town property is not so sold at the first auction provided herein, then the parties shall do all acts and things so as to list the K Town property to be resubmitted for a further auction within three (3) months of the first auction or such other times as agreed between the parties in writing at a reserved price to be agreed between the husband and wife and failing agreement ten percent (10%) below the reserve price at the first auction and otherwise on the same terms and conditions as the first auction. If the K Town property does not sell at further auction, the parties will do all acts and things so as to continue to auction the K Town property on the same terms and conditions hereof, within two (2) months of the previous auction and reducing the reserve price on each occasion as agreed between the parties and if not agreed, by ten percent (10%) of the previous reserve price as applied to the first auction provided for herein.
(k) That upon completion of the sale of the K Town property the proceeds of sale shall be applied as follows:
(i)in payment of all costs and expenses of sale, including legal costs and disbursements, Agent's commissions, advertising expenses, Valuer's fees and auction expenses, including repayment of any such expenses as have been paid by either or both of the parties;
(ii)in payment of any mortgage registered on the title of the K Town property;
(iii)in payment to the wife of the said sum or such part thereof as remains unpaid together with interest on the sum or so much as remains unpaid from the due date of payment at the rate applicable pursuant to the Family Law Rules; and
(iv)in payment to the husband of the balance.
Each party shall attend any such further auction and in the event that the reserve price set for that auction is not reached will negotiate with the highest bidder and the second highest bidder and will accept the highest offer to purchase made within 10 percent of the reserve price set for that auction unless the husband and wife otherwise agree.
Bank Accounts
That within 14 days the husband and wife do all acts and things and sign all documents necessary to close all joint bank accounts in their names, including but not limited to:
(a) National Australia Bank account number …66;
(b) L Bank account number …60
and pay the balances held in those accounts to the wife.
D Pty Ltd
That within 28 days of the date of these Orders:
(a) The wife do all acts and things and sign all documents necessary as prepared by the husband to transfer to the husband her shareholding and interest in D Pty Ltd A.C.N. …;
(b) That the husband hereby indemnifies the wife against all manner of actions, suits, causes of action, debts, loans, guarantees, liabilities, dues, costs, interests, tax liabilities (including penalties and interest) and demands whatsoever both at law and in equity in relation to D Pty Ltd, both current or at any future time.
General
That unless otherwise specified in these Orders:
(a) each party be solely entitled to all chattels, goods, motor vehicles, furniture, furnishings and any other property in the possession of such party as at the date of these Orders;
(b) each party be solely entitled to any moneys, shares and debentures which stand in such party's name as at the date of these Orders;
(c) each party be solely entitled to any superannuation benefits held in such party's name and each party hereby foregoes any claim they may have to any superannuation benefits belonging to or earned by the other; and
(d) each party be solely liable for and indemnify the other against any debt, loan or liability whatsoever held in such party's name as at the date of these Orders.
Both the Husband and the Wife hereby release the other from all actions, proceedings, claims, demands, costs and expenses whatsoever and howsoever arising which either of them had or may have against the other for or by reason of or in respect of any act, cause, matter or thing.
Section 106A
That in the event that either party refuses or neglects to execute any deed or instrument within seven days of that deed or instrument being forwarded to him or her or his or her solicitor, an officer of the Court is hereby appointed pursuant to Section 106A of the Family Law Act, to execute such deed or instrument in the name of such party and to do all acts and things necessary to give validity to the operation of the deed or instrument. The party in default is ordered to pay all reasonable solicitor/client costs incurred by the party not in default for the purpose of enforcing this order, to be taxed if not agreed.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Waterman & Waterman has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT PARRAMATTA |
FILE NUMBER: PAC 3930 of 2015
| Mr Waterman |
Applicant
And
| Ms Waterman |
Respondent
REASONS FOR JUDGMENT
Introduction
These proceedings concern a property settlement arising from the breakdown of the parties’ 18 year relationship.
Although at earlier stages in their relationship the parties held significant property interests those interests are now very modest. A vast amount of money has been spent on legal fees, particularly by the wife during the course of the proceedings which initially also related to the future parenting of the parties’ two children. The husband contends that it is appropriate to “add back” to the property for distribution and credit each of the parties with all of the funds they have respectively expended on legal costs.
It is the wife’s case that treating legal costs in this manner would bring about an unjust and inequitable resolution of the dispute.
Both parties agree that it would be just and equitable for their property interests to be adjusted but cannot agree about their respective percentage entitlement.
The husband contends that the property interests should be adjusted so that he will receive or retain a 57.5 or 60 percent share of their property and the wife receive between 40 and 42.5 percent, depending on whether the funds spent on legal costs are added back.
Throughout the final hearing it had been contended on behalf of the wife that it is just and equitable for her to receive a 57.5 percent share of the parties’ property and for the husband to receive 42.5 percent. On the day of final submissions, when the wife was represented by different counsel, it was contended on her behalf that a just and equitable result would be brought about by dividing the property interests equally.
Background
The husband who is 52 and the wife who is almost 46 began living together in October 1996. At that stage the wife was working part-time earning around $15,000 a year and studying at university. She had savings of between $11,000-$15,000 and a debt under the Higher Education Contribution Scheme.
At the time the parties began living together the husband owned a property at Suburb M (“the Suburb M property”) which he was leasing to tenants. The value of this property at that time is the subject of a dispute. The property was encumbered by a mortgage debt of around $200,000. The husband also owned a yacht, some household effects and a car which was subject to a lease. He was employed and earning $44,000 a year and had an annual car allowance of $14,000.
In June 1997 the parties purchased a property in Suburb N (“the Suburb N property”) for $230,000. They funded the purchase by means of a loan for $245,000 which was secured by mortgages over the Suburb N property and the Suburb M property. The Suburb N property was registered in the husband’s sole name.
Initially the parties lived in a rented property but the Suburb N property subsequently became their home. This property was renovated by the husband and there is some dispute between the parties about the wife’s involvement in the funding and actual work undertaken in those renovations which is not necessary to resolve for the purposes of setting out the background. The husband was responsible for the mortgage payments while the wife met the parties’ household expenses.
In March 1998 a company was incorporated which later became known as D Pty Ltd (“D Pty Ltd”). The husband, two other business colleagues and the wife each acquired shares in the company. The wife’s shares were ‘D’ class to which no voting rights were attached. The husband subsequently began working full-time in this business which was engaged in professional services.
From the time the D Pty Ltd business commenced each of the parties advanced money to the company that was reflected in a credit loan account. When personal expenses relating to the parties were paid by the business they were debited to the credit loan account.
At some time in 1999 the parties established a joint National Australia Bank (“NAB") account number …37 (“the joint account”) into which the husband deposited his income from D Pty Ltd and rent from the Suburb M property. The parties closed their personal bank accounts when the joint account was opened.
In 2000 as the wife had completed her tertiary qualifications she began working as a professional earning $40,000 per year. She also paid her income into the joint account. The mortgage repayments for the Suburb M property and Suburb N property and all other household expenses were paid from this joint bank account.
In late 2000 the parties began living in the Suburb M property and leasing the Suburb N property.
In 2001 the husband bought out the interest in D Pty Ltd of one of the original shareholders.
The parties were married in … 2001. In the same month they bought land at F Town for $297,500 which was registered in the wife’s name. The entirety of this purchase price was borrowed and the loan was secured by mortgages over the Suburb M and Suburb N properties.
In 2002 the parties obtained a further loan for the purposes of constructing a home at F Town. There is a small dispute between them about the sum borrowed which is not necessary to resolve. It is agreed that the loan was for at least $400,000 and was secured by mortgages over the F Town, Suburb M and Suburb N properties. The parties then entered into a building contract for the construction of the F Town home. The husband also personally undertook much of the electrical work for which he holds a qualification and other work including landscaping. He was also involved in supervision of the works.
In July 2002 the parties bought an apartment in Suburb O (“the Suburb O property”) for $162,000 drawing down upon their existing NAB facility for the deposit and borrowing further money upon settlement.
The wife commenced new employment in June 2003 which resulted in a significant increase in her annual income to $145,000. She has remained employed with that company or an associated entity ever since.
In late 2003 the parties began living at the F Town property.
In 2004 the husband bought a boat for $21,000 with borrowed funds, which were secured over the Suburb M property.
In April 2005 the husband bought out the interest of his second business colleague in D Pty Ltd. The wife became a director and Company Secretary of D Pty Ltd in the same month.
In … 2007 the parties’ first child was born. The wife took six months maternity leave and describes herself as the primary carer of this child. The husband who was working from home was also involved in the child’s care.
The wife returned to work in October 2007, initially for four days per week increasing to five days per week six months later. The parties’ first child was cared for at a child care centre initially two days per week but this was subsequently increased to four and then five days a week.
In late 2007 the husband sold the boat which he had extensively renovated for $53,000 and purchased another similar vessel (“the boat”) with some borrowed funds.
In April 2008 the parties purchased a second property in Suburb M (within the same building as their first Suburb M property) for $550,000 using the NAB loan account. This property was registered in the wife’s sole name. Following renovation this property was leased.
The following month, in May 2008 the parties sold their Suburb O property for $175,000 and used the funds to discharge the loan on that property and reduce the balance of the other loans.
The wife made a number of payments to D Pty Ltd’s superannuation account from around mid- 2008 as superannuation payments had not been made to the company as required.
In March 2010 the parties purchased a rural property in the P Region (“the P Region property”) for $167,000. This property was purchased through the same NAB facility and the loan secured by mortgages over all of the other properties of the parties. There were extensive renovations undertaken to this property which were jointly funded.
In … 2011 the parties’ second child was born. The wife took 10 months maternity leave to care for both of the children. She returned to work in February 2012 initially four days per week which then increased to full-time. By September 2012 both children were attending daycare three to four days per week and the husband cared for them during work hours on the other days when the wife was at work.
The husband’s mother died in 2012 and he inherited $50,000 which was deposited to the joint bank account and applied to household outgoings and living expenses.
In mid-2012 the parties incorporated a company, Q Pty Ltd which was engaged in the business of providing produce directly from farmers to consumers. D Pty Ltd lent the new company about $12,000-$15,000.
In April 2013 in circumstances which are in dispute the wife ceased being a director of D Pty Ltd. It is not necessary to resolve this factual dispute for the purposes of determining this application.
In mid- 2013 the parties sold the Suburb N property for $745,000 and the entirety of the sale proceeds were applied in reduction of the parties various loans. This sale gave rise to a capital gains tax (“CGT”) obligation for the husband.
In late December 2013 the parties separated and the children spent approximately equal time with each of them at the family home in F Town. Each party vacated the property during the time that the other parent cared for the children.
Following this separation the parties continued to operate their finances jointly through their joint account until December 2014 as they had done when the relationship was intact. Each of their incomes from their employment and rental income continued to be deposited into their joint account and their living expenses were also drawn from this account.
Shortly after separation the husband began a relationship with a woman he subsequently married, (“the husband’s wife”) which lasted for a few months.
The parties reconciled in June or July 2014 but that reconciliation was short lived. They separated again on a final basis on 2 August 2014.
On 1 September 2014 the wife was advised that she was eligible to receive securities as part of her annual bonus which would vest 12 months after the grant provided she remained employed by her employer.
The husband then reconciled with his current wife who had a child from a previous relationship, then aged nine.
Following final separation both parties made a number of withdrawals from their joint bank account.
In October 2014 the husband entered into a contract to purchase a property at K Town (“the K Town property”) for $659,400. He paid a deposit of $31,400 which he had withdrawn from the joint account without the wife’s consent.
In October 2014 the parties reached some agreement in relation to parenting and financial issues which was reduced to writing. There is a dispute between them about the terms of this agreement but there is no dispute that they agreed to sell the Suburb M properties and rather than discharge all outstanding mortgages the husband would be advanced $650,000 to complete the purchase of the K Town property as he was unable at that stage to obtain a loan in his own name. There also appears to be no dispute that he was to be responsible for the repayment of that part of the parties’ mortgage loan that was used for the purchase of the K Town property as it otherwise would have been used to reduce the outstanding mortgage loan.
The parties also reached a separate agreement that each of them would be advanced $10,000 from their joint bank account for their own discretionary spending.
On 25 October 2014 contracts of sale were exchanged for the two Suburb M properties (which are comprised of two premises within the one building) for $1.965 million.
In November 2014 the wife moved out of the F Town property into rental accommodation and the F Town property remained vacant. The husband made arrangements for various works to be carried out to F Town property and some of the children’s time with their father continued to be spent at those premises.
The sale of the two Suburb M properties was completed in December 2014. The loans advanced in relation to those properties were discharged and the wife received $31,000 (in adjustment for the funds the husband had withdrawn from the joint account as deposit for the K Town property). The sale proceeds were also applied to each of the party’s (roughly similar) credit card debts, discharge of a loan for the boat and in reduction of the loans for the F Town and P Region properties. The husband also received $650,000 from the sale proceeds almost all of which he used to complete the purchase of the K Town property. He retained a balance of $24,679.
From the date of the settlement of the Suburb M properties in December 2014 the parties ceased operating their joint account on a day to day basis. Any residual funds in that account were to be used to meet their remaining joint expenditure related to their remaining jointly owned property.
The sale of the Suburb M properties gave rise to a CGT liability for both parties.
Around the same time as the completion of sale of the Suburb M properties the parties’ boat sank. The husband subsequently made an insurance claim in relation to the loss.
In January 2015 the Q Pty Ltd business ceased trading.
In February 2015 the husband’s wife as appointer established a discretionary trust of which the husband and his children are beneficiaries.
In April 2015 the husband’s wife began working on a full-time basis at D Pty Ltd and later took on the position as acting General Manager.
In June 2015 the husband received an insurance payment of $42,450 in relation to the boat. He received $7000 less than he was otherwise entitled as he had also purchased the salvaged boat valued at the amount from the insurance company.
The husband commenced proceedings on 12 August 2015.
In January 2016 the husband and his wife began living in rented accommodation. The D Pty Ltd business operated from these premises and met a portion of the rent.
From January 2016 the husband ceased making any repayments towards the joint NAB mortgage. The wife met all the principal and interest repayments on this mortgage which related almost entirely to the $650,000 which had been released to the husband rather than be used to discharge the remaining joint debt. The wife continued to make these repayments up until June 2017 when the mortgage was discharged upon the sale of the F Town property.
In April 2016 the wife sought an undertaking from the husband through his solicitor that he not encumber the K Town property which the husband refused to provide.
In May 2016 the husband obtained a business loan in the name of Q Pty Ltd of $300,000 from the R Bank secured over the K Town property. The wife was unaware of this loan or the purpose for which is was used. The husband has made all of the repayments of interest and principal on this loan and says the borrowed amount was applied to repay money he had borrowed from his father for payment of legal fees and in further payment of legal fees, some living expenses and unspecified outgoings on jointly owned property.
On … 2016 the parties’ divorce was granted.
On 21 November 2016 a wide range of orders were made including for the appointment of a joint expert to value the K Town property, restraints on the husband from dealing with any assets or financial resources of D Pty Ltd and for the parties each to take steps to ready the F Town property for sale. There were also notations made that $324,679 (being the $300,000 refinanced over the K Town property by way of the mortgage with the R Bank and $24,679 retained by the husband) be brought to account as a partial property settlement to him upon final resolution of the proceedings. A notation in similar terms was made with respect to $325,000 that was to be paid to the wife upon settlement of the F Town property.
On 6 December 2016 trial directions were made for the purposes of the final hearing.
In January 2017 the husband’s wife and her child began living with him. In the same month the husband’s wife caused the company established by her to acquire a trading name for the purposes of her business.
In March 2017 the F Town property was listed for sale. The parties entered into an agreement to sell this property on condition that particular works were carried out which were subsequently undertaken by the husband.
The sale of the property was completed in June 2017 and the sale proceeds applied as follows:
a)Expenses associated with settlement adjustment and conveyancing;
b)Approximately $790,000 to discharge NAB home loan/s (though there is a dispute between the parties about the loans to which these funds were applied);
c)$325,000 paid to the wife pursuant to interim orders of November 2016;
d)$10,000 paid to the wife pursuant to interim orders of November 2016; and
e)The balance being ($155,371 according to the wife or $187,905 according to the husband) paid into the controlled monies account of the wife’s solicitor.
In … 2017 the husband married his current wife.
On 28 June 2017 the Q Pty Ltd company was deregistered.
On 11 July 2017 at a court event it was noted that the single expert valuation of D Pty Ltd had not been completed but a company account valuation would be relied on for the purposes of the final hearing.
On 21 July 2017 orders were made bifurcating the proceedings and the parenting dispute was listed for trial in August 2017.
On 16 August 2017 orders were made resolving the parenting dispute. Pursuant to the orders the children live with the wife and are to spend time with the husband half of each school holidays, each alternate weekend (Friday to Sunday) and Wednesday afternoon in the off week.
Although there is some dispute about the date of an agreement to sell the P Region property there is no dispute that this sale was completed in November 2017 and the net sale proceeds of around $220,000 were deposited into the trust account of the wife’s solicitor. The parties agree that the sale proceeds have been used as follows:
a)$92,989 for the wife’s CGT liability resulting from the sale of the Suburb M properties; and
b)$158,104 to pay the husband’s GGT liability arising from the sale of the Suburb N property and Suburb M properties.
In … 2017 the husband’s wife gave birth to their only child.
In early 2018 the husband caused Q Pty Ltd to be re-registered at the behest of the R Bank given the outstanding loan facility in the name of the company.
In July 2018 the wife instructed the parties’ accountant to request a waiver on behalf of each party for the interest and penalty charges associated with their respective CGT liabilities and directed that if successful the monies be deposited into the controlled monies account of her solicitor. The request was successful and the husband received the refund cheque from the ATO directly and spent the proceeds while the wife obtained her refund from her solicitors.
From 2015 and in September of each year thereafter (being the date 12 months after being granted a package of securities as part of her annual bonus) the wife’s securities have vested. In August 2018 the wife became aware that restrictions had been introduced on the trading of these securities for certain executives including herself and that as a result there was a small window within which she was entitled to trade. On 23 August 2018 the wife sold securities within the window for $68,057. She then sold some further securities on 7 September 2018 and received $19,524.
On 14 September 2018 the final parenting orders were varied with minor adjustments being made in relation to the father’s time with the children.
The final hearing proceeded over two days in November 2019.
Following the completion of evidence in November 2019 the proceedings were listed for final oral submissions on 17 December 2019. On this date the wife had instructed new counsel who made an oral application that the proceedings be adjourned for the purpose of filing an application to reopen and adduce further evidence. This application was opposed by the husband. Short reasons were delivered dismissing the wife’s application for adjournment and the parties proceeded to make final oral submissions. Judgment was subsequently reserved.
The Law & Discussion
The approach to the determination of an application for property settlement orders is set out in Stanford v Stanford[1](“Stanford”), which was considered in detail by the Full Court in Bevan & Bevan[2] (“Bevan”).
[1] (2012) 247 CLR 108.
[2] [2013] FamCAFC 116.
The starting point is a consideration of “whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles the existing legal and equitable interests of the parties in the property”[3].
[3] Stanford & Stanford (2012) 247 CLR 108 at [37].
This involves identifying the existing interests and then considering whether having regard to the particular circumstances before me, it would be just and fair to make orders for the alteration of property interests.
I should next consider the matters set out in s 79(4)(a) to (c) of the Family Law Act 1975 (Cth) (“the Act”), that is the financial and non-financial contribution made by the parties to the property and to the welfare of the family constituted by the parties.
I must then consider the remainder of the matters in s 79(4) including the matters referred to in sub-section 75(2) so far as they are relevant, and determine on this basis whether there should be a further adjustment to the parties’ contribution-based entitlements.
Finally, I must then consider the justice and equity of the proposed orders. As was said in Bevan at [86], the just and equitable requirement is “not a threshold issue, but rather one permeating the entire process”.
What are the existing interests of the parties?
There is agreement between the parties as to most of their existing interests which are as set out in the following table:
LIST OF ASSETS AND LIABILITIES | |||
| ASSET | HUSBAND | WIFE | JOINT |
| K Town property | $680,000 | ||
| Balance of controlled monies in wife’s solicitor’s trust account | $143,865 | ||
| ANZ Account …76 | $22 | ||
| R Bank Account …38 | $21 | ||
| R Bank Account (with husband’s wife) (50%) | $144 | ||
| L Bank Account …60 | $2,774 | ||
| NAB Account …66 | $11 | ||
| ANZ Account …11 | $12,922 | ||
| ANZ Account …03 | $17,730 | ||
| ANZ Account …54 | $18,441 | ||
| NAB Account …60 | $309 | ||
| L Bank Account …60 | $2,793 | ||
| Motor Vehicle 1 | $10,000 | ||
| Shares in D Pty Ltd | $118,757 | ||
| Loan Account D Pty Ltd | $849 | ||
| Furniture and contents | $2,500 | ||
| Furniture | $2,500 | ||
| Total Assets | $683,536 | $64,695 | $265,407 |
| LIABILITIES | HUSBAND | WIFE | JOINT |
| R Bank mortgage- K Town | $259,029 | ||
| R Bank Visa | $24,000 | ||
| Loan from husband’s wife | $185,963 | ||
| Loan from wife’s parents | $117,632 | ||
| Total Liabilities | $468,992 | $117,632 | |
| SUPERANNUATION | HUSBAND | WIFE | JOINT |
| Super Fund 1 | $201,251 | ||
| Super Fund 2 | $351,909 | ||
| Super Fund 3 | $2,406 | ||
| Total Superannuation | $201,251 | $354,313 | |
| TOTAL NET ASSETS | $415,795 | $301,376 | $265,407 |
| TOTAL | $982,578 | ||
Dispute concerning existing assets- wife’s share entitlement
The only matter in dispute in relation the parties’ existing assets (as opposed to sums that the husband contends should be added back for the purposes of distribution and interests in respect of which there is no contribution based claim to which I will return) relates to the wife’s entitlement to securities as part of her annual bonus.
According to the husband’s contention an item to be included as an asset of the wife in the balance sheet is her entitlement to 742 shares which are to vest in September 2020 which the husband asserts are valued at $19 each with a total value of $14,098. There is no evidence concerning the value of these securities to which the wife is entitled as part of her bonus associated with her employment and it is not entirely clear how the husband arrived at the value he assets.
In contending that the wife’s entitlement to shares ought to be included as existing property in her hands the husband submits that in the past on each occasion that her share entitlement has vested the wife has sold them at the first opportunity for market value. This he contends can be expected to occur soon after 1 September 2020 when the shares are due to vest. In support of including the share entitlements as property in the wife’s hands the husband relies upon the Full Court decisions of Hurst & Webber[4] (“Hurst”) and Diggelen & Diggelen[5] (“Diggelen”).
[4] [2009] FamCAFC 137.
[5] [2014] FamCAFC 160.
In Hurst the Full Court held relevantly that the Federal Magistrate (as he then was) did not err in treating one of the party’s share options as a financial resource rather than an asset. In that case there had been uncontested expert evidence of the value of the unvested share options with the expert having assessed “both the intrinsic and time value components of the option” separately. Notwithstanding this evidence the Federal Magistrate regarded the share options as a financial resource in the future to the husband and did not include them in the available pool of assets. As observed by the Full Court his Honour did not make a finding that the share options were not property. The majority judges said of this approach: “his Honour did not bring the share options into any pool for division, but rather treated them as a financial resource. We are not prepared to say that that course was not open to him”.
In Diggelen the Full Court considered an appeal in which one of the grounds complained that the trial judge erred by ignoring the husband’s entitlement to share options arising from his employment. In that case there was also evidence of the value of the husband’s share options which were yet to vest. The Full Court concluded that the trial judge’s failure to take account of the unvested options (valued at $575,000) at all was an oversight which was clearly material to his Honour’s determination and for that reason, his Honour’s exercise of discretion miscarried.
The cases relied upon do not require that I bring to account the wife’s unvested share options by including them as an asset in her hands for the purposes of distribution. In circumstances where there is no valuation of the share options, where they are unvested, contingent upon the wife’s continued employment and there is a short window of time in which they are required to be sold and where the entitlements may be considered as a financial resource in her hands I do not propose including them as an asset valued at $14,098 as contended for by the husband.
The remaining disputes between the parties do not relate to the existence of asserted assets and liabilities of the parties but the manner in which they should be treated in adjusting the parties’ property interests.
Is it just and equitable to leave the parties property interests intact?
The question of whether it is just and equitable to leave the property rights intact is easily answered. As was indicated in Stanford the requirement that it would be just and equitable to make an order is in many cases readily satisfied by observing that at [42]:
… 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. … 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 marriage 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. …
In this case, the parties were married for 18 years before separating. Together they acquired many pieces of property which were registered in one of their names or jointly depending on the circumstances. These properties were utilised variously as their family homes or for the purposes of investment. That arrangement came to an end upon separation and the properties previously owned by them have all been sold.
The parties have accepted since physical separation there has not been common use of their property and they accept that this will continue in the future. They both seek adjustment orders but are unable to agree to the adjustment. In these circumstances I am satisfied that it is just and equitable to make orders under s 79 of the Act.
What are the interests that the parties contend should be treated as assets and liabilities for the purposes of adjustment?
The husband’s position that it would be just and equitable for him to receive 57.5 percent of the property of the parties is based upon his contentions about the items to be included as property for distribution. It is contended on his behalf that the Court should not remove any of the assets or liabilities referable to the parties’ financial activities following separation and that various other amounts and in particular the parties’ paid legal fees, disbursements and funds in trust accounts should be accounted for by adding them back to the balance sheet for distribution and crediting them to the relevant party.
It is the wife’s contention generally (with one major exception being the K Town property) that both the assets acquired and liabilities incurred after separation be removed from the balance sheet. In particular it is contended on her behalf that an unjust and inequitable treatment of the parties’ financial arrangement would result if paid legal fees and sums in trust were “added back”.
It is contended by the husband that exclusion of these items is not only incorrect as a matter of principle but is inconsistent with the manner in which the wife’s case was conducted. It is also submitted on his behalf that such treatment of these items would give rise to an imbalance or inequity in the manner in which the balance sheet is constructed as the wife appears to be contending that all sums that reflect the post separation financial circumstances be excluded except for the K Town property acquired by the husband which she contends be included in the balance sheet.
Current bank balances
It is first contended by the wife that various current bank balances in each party’s name be excluded on the basis that it is five and half years since the parties separated and over five years since they continued to operate their financial affairs jointly.
It is contended on behalf of the husband that there is no proper basis for excluding such sums as this amounts to artificially drawing a line in relation to the parties’ roles at separation.
I am of the view that the approach promoted by the wife’s counsel is appropriate so that items owned by a party in respect of which the other claims no specific contribution-based entitlement are excluded from the balance sheet. This includes the various bank accounts in the name of the parties (or in one case an account jointly held by the husband with his wife) opened after the parties ceased operating their financial affairs jointly. So far as liabilities are concerned this would also exclude the husband’s credit card debt incurred after separation especially in circumstances where the parties then outstanding credit card liabilities were both discharged in December 2014 from joint funds (which was also an arrangement that slightly favoured the husband). It is also noted in this regard that the wife’s credit card debt has not been included on the balance sheet listing the parties’ current assets and liabilities.
For these reasons I consider it appropriate to exclude the balances of the parties’ bank accounts opened after December 2014 when their joint financial arrangements came to an end (other than the husband’s R Bank loan which I will consider shortly).
Current liabilities that have a relationship with legal costs are also a matter to which I will return.
Adding back sums expended in legal costs
As has been made clear when considering the husband’s contentions it is central to his case that the amount the parties have spent in the payment of legal costs associated with the proceedings should be added back and credited to the relevant party who paid them.
As also previously outlined it is the wife’s contention that an unjust and inequitable result would occur if the paid legal costs and sums in trust accounts held for payments of costs were added back and credited as having been received by the relevant party. In this regard it is submitted on the wife’s behalf that the Court only needs to look at the amounts expended to date on legal costs compared to the total current property interests of the parties to understand this contention.
The evidence indicates that the amount the wife has paid to date for legal fees plus funds in trust is $699,104 and the fees and disbursements to date plus sums in the trust account in relation to the husband are $478,036. The total spent on legal fees is therefore $1,177,140 which exceeds the total current property interests of the parties being $982,578.
The evidence as to the source of funds for the payment of legal fees contained in the costs disclosure notices of the husband and wife (Exhibits 2 and 3 respectively) is general and non-specific.
The sources of the funds for the costs paid for the husband are listed as:
i. Your income;
ii. Loans from your father and your wife [name omitted];
iii. Monies borrowed from the R Bank and secured by mortgage on your home;
iv. Partial property settlement sums;
v. The insurance claim payment with respect to boat; and
vi. Refund from ATO after payment of capital gains tax.
No amounts are indicated in relation to each of these sources.
The wife’s cost disclosure notice is in similar terms though there is slightly more detail. The relevant paragraph states:
We understand from your instructions that the source of the funds for costs paid to date have been:
3.1. Your income;
3.2. Partial property settlement sums received;
3.3. Loans from your parents;
3.4. An ANZ personal loan (since repaid);
3.5. The sale of [name omitted] shares (granted post separation) being: (sic)
3.6. $49,000 from joint NAB Account ending …37 (withdrawn to equal the amount retained by the husband for the boat); and
3.7. $45,000 from joint NAB ending …37 on separation.
In their respective affidavits the parties in effect repeat the contents of the cost disclosure notices. Although the wife in particular was cross-examined about the source of her funds for legal costs no real greater understanding about these matters can be gleaned from cross-examination.
There appears to be no dispute between the parties that the evidence of each of them in relation to the source of funds for legal costs, although general, is broadly accurate. There is no dispute that the husband continued to earn an income following separation, borrowed money from his father, his wife and the R Bank, that he received the benefit of money which the parties agreed would be characterised as partial settlement sums and also received an insurance claim payout and a refund from the ATO.
Similarly, there is no dispute that the wife continued to earn a good income following separation and received some funds on the sale of F Town which the parties agreed to be characterised as a partial property settlement. Further, although there is a dispute in relation to whether moneys advanced by the wife’s parents are required to be repaid, the fact that funds were advanced by them and that the wife took out a bank loan did not appear to be a matter in dispute. There is also undisputed evidence of the wife receiving funds each September when she sold her shares which formed part of her annual bonus. There is also clear evidence of the withdrawals she deposes to making from the joint bank account, only $45,000 of which she identifies as being used for the payment of legal fees. In other words, each of the parties is able to point to evidence in support of their general statements to the effect that there were many sources other than joint funds used for the purposes of legal expenses.
The most recent Full Court authority dealing with adding back amounts expended by a party on legal fees is Trevi & Trevi (“Trevi”)[6]. In that decision Murphy J for the majority considered the line of authority dealing with this issue and in particular Omacini & Omacini[7] (“Omacini”) where the Full Court summarised that addbacks fall into “three clear categories”. These are where the parties have expended money on legal fees, where there has been a premature distribution of matrimonial assets, or where there has been “waste” or wanton, negligent or reckless disposition of assets. His Honour observed that two fundamental premises emerge from Omacini and the authorities preceding it, that “adding back” is a discretionary exercise which should only be exercised where justice and equity requires it and that in cases which are not exceptional justice and equity can be achieved by the exercise of a different discretion, usually by taking up the same as a relevant section 75(2) factor.
[6] [2018] FamCAFC 173.
[7] [2005] FLC 93-218.
Murphy J went on in Trevi to add that further propositions must be added to those just discussed in respect of paid legal fees which is a particular category of addback of its own. In this regard his Honour referred in particular to what the Full Court had to say in Chorn & Hopkins[8] (“Chorn”) at [56] and following:
In summary, we consider that the above mentioned decisions of the Full Court establish that, while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.
If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
If funds used to pay legal fees have been generated by a party post‑separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post-separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post‑separation income or acquisitions.
[8] [2004] FamCA 633; (2004) FLC 93-204; (2004) 32 Fam LR 518.
Murphy J made it clear that these paragraphs from Chorn are an attempt to establish “guidelines” for the treatment of paid legal fees within section 79 proceedings and as such should be distinguished from “binding principles of law”.
Murphy J said in Trevi that the delineations referred to in Chorn such as “the funds used existed at separation…such that both parties can be seen as having an interest in them” or “funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours” cannot be seen as determinative in the exercise of discretion but, rather as informing it. His Honour also referred to the reason why paid legal fees “occupy a particular position in the consideration of addbacks” being the presence of section 117(1) of the Act which means that a failure to add back legal costs will amount to a pre-emptive decision about one party paying the other party’s legal costs where it is appropriate in all the circumstances for such an addback to be made.
It is contended on behalf of the husband that it is artificial to delineate the source of the funds used by each party for the payment of legal fees as there would be funds available from a variety of sources to which each of the parties had access over the five and a half years since separation. He submits that that it is not possible for the Court to conclude that the money spent by the wife on legal costs must have come from sources only available to her in the post-separation period. In this regard the husband relies on the wife’s own evidence of her drawing from the parties’ joint bank account. It is contended on the husband’s behalf that the idea of drawing a line at separation and treating any money earned after separation as the parties’ own funds would be to ignore the way the parties structured their affairs.
In my view it is not appropriate to add back the amounts paid by the parties by way of legal fees to achieve justice and equity in relation to the property division under consideration. The parties separated almost six years ago and agree that they severed their joint financial arrangements in December 2014. Although they have not identified with great clarity the source of particular amounts used in payment of legal fees, there is no dispute that each has generated an income since December 2014 on their own endeavours and each is able to identify sources other than joint funds for the purposes of payment of legal fees. To the extent that there were some withdrawals from joint funds, there is other evidence that indicates that the parties themselves took steps at the time to equalise the amounts that each had drawn.
Finally, the impact in dollar terms of adding back the paid legal costs must not be ignored. If this approach were taken and the parties treated as if they had already received almost $700,000 in the case of the wife and around $480,000 in the case of the husband the wife may receive very little equity in the existing assets. Where the actual funds available for distribution are significantly less than the amount paid in legal fees I accept the contention that there is a real risk of injustice if such an approach is taken.
As I do not propose adding back paid legal costs then the party’s loans obtained and debts generated for these purposes will also not form part of the balance sheet for adjustment.
R Bank Loan
In addition to items that were specifically identified by the parties as relating to legal fees, the balance sheet also included the R Bank loan in the husband’s name which he secured by a mortgage over the K Town property which had been purchased by funds in which both parties had an interest. At the time of final trial this loan which had originally been for $300,000 stood at $259,029. It is contended by the husband that this be brought into account as a joint liability.
I accept the proposition of the wife that this liability should not be included in the balance sheet when regard is had to the way in which the loan came about and the manner in which the parties considered that it should be treated at the time. It is to be remembered that the husband purchased the K Town property from joint funds realised on the sale of the two Suburb M properties. Subsequently the husband borrowed $300,000 through the company Q Pty Ltd and secured the loan over the K Town property even though the wife had requested an undertaking through his solicitor that he not encumber this property which undertaking was not given. The husband then utilised the loaned funds for his own purposes which in the main appear to have been spent on payment of his legal fees and repayment of a loan to his father advanced for the same purpose. It was subsequently agreed between the parties and noted in orders dated 21 November 2016 that the sum secured by the mortgage together with $24,679 which was surplus remaining from the $650,000 advanced (which the husband used for purposes other than the purchase of K Town) was to be characterised as a partial property settlement to him.
I do not understand the basis upon which a debt obtained by the husband (albeit secured on joint property) came to be regarded by the parties as property and this was not explained in the proceedings. I can only take the notation made with the parties’ consent on 21 November 2016 to indicate that in the final property settlement the wife should not bear any responsibility for the $300,000 loan obtained by the husband for his own purposes. I accept the submission made on behalf of the wife that including the current balance of the loan in these circumstances would amount to converting that sum to a debt for which the wife would be partially and unfairly responsible (which was not the intention of the parties at the time).
For the foregoing reasons this liability is excluded from the balance sheet.
Adding back to account for other interests
The wife had sought in the case conducted by her counsel at the hearing to add back the amounts paid to each of the parties by way of partial property settlement together with other sums that each of the parties received that could arguably be characterised as joint property to which each had made a contribution. On the final day when the wife was represented by different counsel it was submitted on her behalf that nothing of this nature should be added back to the pool for distribution in order to achieve justice and equity between the parties.
It had been the husband’s case throughout the proceedings that the Court should not account for these other interests in the manner that had been contended for by the wife as it would amount to the Court engaging in some form of accounting for the parties’ financial dealings over the five and half years since separation which is not warranted as a matter of principle or can properly be undertaken in this case. Rather, he submitted that the appropriate course is to include the amounts expended by each party on legal fees and disbursements in the proceedings and not include any other items identified as had been urged by the wife. For the reasons given I do not propose accounting for the financial dealings of the parties since separation by including the amounts expended by each party on legal fees and disbursements in the proceedings.
As it had been urged by both counsel engaged by the wife at hearing and a different counsel engaged for the purposes final submissions that I not add back the sums expended on legal costs the husband had an alternate way of approaching the proceedings if this approach were taken in order to achieve a just and equitable outcome, albeit that this was not his preferred position. The husband’s alternate way of approaching the property settlement if expenditure on legal costs is not added back is to submit that his contributions entitle him to a greater percentage distribution given the smaller pool for distribution than would have been the case if legal costs were added back.
In the draft joint balance sheet that had formed the basis of the hearing, and was again discussed in the course of final submissions, apart from the paid legal fees, disbursements and funds in trust there were various other interests which had been proposed at various stages could potentially be accounted for by adding back to the property pool.
It was observed by the wife’s counsel in the course of final submissions that the total funds utilised by the parties for their own purposes that comprised this list is similar but slightly favours the wife. In these circumstances the wife’s counsel did not press the approach that had been taken by her previous counsel and seek that these sums be added back. As explained the husband also did not seek to add these sums back to achieve justice and equity between the parties as he approached the matter another way.
In other words neither party is now seeking to add back any of the amounts that had previously been argued by the wife to be joint funds utilised by the parties for their own purposes. In the course of submissions however counsel for the husband identified that an anomaly would arise because this approach would involve disregarding the $325,000 received by the wife which the parties previously agreed (and noted in the 21 November 2016 orders) would be characterised as a partial property settlement in her hands.
Once again the context in which the 21 November 2016 notation and the way in which the case was conducted must be considered. Both parties agreed at all times that the K Town property should be included in the pool for distribution. This is in my view correct as it recognises that the $650,000 (less $24,679) which was received by the husband from the sale of joint property was used by him for the purchase of the K Town property without requiring any further borrowing. The effect of including this property in the pool for distribution is similar to treating the $650,000 as if it were a partial property settlement.
As a matter of principle the joint funds received by the wife as a partial property settlement ($325,000) should be brought to account for the purposes of final adjustment. It may be considered that bringing this sum to account is confounded by the fact that the notation contained in the 21 November 2016 orders was made in similar terms with respect to $324,679 in relation to the husband. Ordinarily, this may also mean that this sum should be brought to account for the husband as well. However, to include the $300,000 as both a partial property settlement (and add it back on this basis) and as a liability for which the husband alone is responsible would amount to double counting.
I also do not propose bringing to account the $24,679 utilised by the husband for his own purposes on this basis, as I have not strictly accounted for all sums in this manner. For example I did not bring to account the $45,000 the wife deposes to withdrawing from the parties’ joint account and spending on legal fees when considering whether to add back the much larger sum she has expended for that purpose.
There had also been various other contentions made by both parties in the course of the hearing (such as an argument advanced by the wife concerning a benefit to the husband from alleged non-justifiable claims for business expenses through D Pty Ltd) which were quite properly not pressed at the final hearing as there was no basis to support the same.
In light of the foregoing discussion, I find the assets and liabilities of the parties for the purposes of property adjustment to be as set out in the following table:
LIST OF ASSETS AND LIABILITIES
ASSET HUSBAND WIFE JOINT The K Town property $680,000 Joint balance of controlled monies held in wife’s solicitor’s account $143,865 L Bank Account …60 $2,774 Motor Vehicle 1 $10,000 Shares in D Pty Ltd $118,757 Loan account D Pty Ltd $849 Husband furniture and contents $2,500 Wife furniture $2,500 Add back: wife’s partial property settlement $325,000 Total Assets $683,349 $337,500 $265,396 LIABILITIES HUSBAND WIFE JOINT No liabilities SUPERANNUATION HUSBAND WIFE JOINT Super Fund 1 $201,251 Super Fund 2 $351,909 Super Fund 3 $2,406 Total Superannuation $201,251 $354,315 TOTAL NET ASSETS $884,600 $691,815 $265,396 TOTAL $1,841,811
Contributions
Under s 79(4) of the Act, in considering the order that should be made in property settlement proceedings, I must take into account the financial and non-financial contributions directly or indirectly made to the acquisition, conservation or improvement of any of the property of the parties and the contributions made to the welfare of the family and the children, including contributions as a homemaker or parent.
The husband’s case in relation to contributions is a little unclear. The general tenor of final submissions made on his behalf seems to be that his contributions should be regarded as being equal to those of the wife but it also seemed to be suggested that his initial direct financial contribution should be regarded as sufficiently weighty to support a finding of greater contributions overall.
In final submissions it was submitted on the husband’s behalf that counsel who appeared for the wife at the final hearing conceded the greater contribution of the husband particularly having regard to his initial contribution of the Suburb M property and that the husband’s case had been conducted on the basis that this concession had been made.
In the wife’s Outline of Case (Exhibit 9) under the heading (Summary of Argument) it is stated that “the husband’s initial contributions of property at the time of the commencement of co-habitation will be found to be superior to those of the wife, but not significantly so”. At a later point the following is said:
At the date of separation, the wife submits that the parties’ contributions should be found to be equal.
Post-separation the wife alleges that she has contributed more than the husband, which should raise her contributions generally to 55 percent.
In the course of interchange between the bench and counsel on the first day of the trial in relation to objections to evidence the wife’s counsel said that the wife took the position that as at the date of separation the parties had made an equal contribution and had understood that was also the contention of the husband but accepted that the Court may find otherwise.
In the course of the same interchange the husband’s counsel referred to his Case Outline (Exhibit 7) in which at paragraph 13 the following is written under the heading “During the relationship – October 1996 to August 2014”:
Without diminishing the contributions of either the husband or the wife over the 18 years of their relationship, it is contended that an assessment of their different and disparate contributions over this time leads in inexorably to the conclusion that there is no basis upon which to distinguish one from the other during this period.
In my view a fair reading of both the Outlines of Case and transcript of the interchange in the course of the proceedings is that the parties both took the position that the direct and indirect financial and non-financial contributions made by them to the property, welfare of the family and children was equal throughout the currency of their relationship but each asserted in the post separation period to have made a greater contribution than the other.
In the course of final submissions made on behalf of the wife by a different counsel it was then submitted that the contributions of each party up until the date of the hearing were equal. It appeared to be maintained by the husband that he had made the greater contribution as at the date of final hearing especially having regard to his significant initial contribution.
In my view the evidence supports the contention of the wife at the final hearing for the following reasons.
There is no doubt that the husband made a significant initial contribution to the parties’ relationship as he brought to it a valuable property which was leased and provided them with a rental income at a time when the husband himself was earning significantly more than the wife who was a student. Importantly, the property was also able to be utilised to secure a mortgage over the first of the properties the parties acquired together, the year after they began living together.
From this early stage when the parties purchased the Suburb N property they both began jointly contributing to the renovation and development of that property. Both parties were also responsible for the payment of expenses to the extent they were able to contribute given their respective incomes. By 1999 the parties’ finances became effectively completely intermingled when they closed their personal bank accounts and established a joint account. Both deposited their respective incomes into this account (together with the rent from the Suburb M property) and expenses were paid from this account including the mortgage repayments over the Suburb M property.
From 2000 the parties began living in the Suburb M property and leasing the Suburb N property and by this stage the wife had begun to earn a more substantial income as a professional. I accept the submission of the wife’s counsel that by the time the wife began working as a solicitor this increased the parties’ joint borrowing power enabling them to embark upon further dealing in real property.
The next property bought by the parties at F Town, after they were married was registered in the wife’s name with the entirety of the purchase price being borrowed and the loans secured by mortgages over the Suburb M and Suburb N properties.
The direct financial contribution of the wife increased significantly in June 2003 when she began working for a new employer and earning $145,000 per annum. By this stage she was earning more than the husband who was engaged in the D Pty Ltd business.
The wife’s income continued to increase over time and the parties together bought and sold a number of properties which they renovated. Although there is some dispute between them about the extent to which the wife contributed physically to the renovations it is conceded by the husband that these disputes do not need to be resolved.
Once the parties had children the nature of their contributions shifted a little as they also both took on roles as homemaker and parent.
Against this background I must consider further the contention that the husband’s initial contribution should result in a finding that favours him which may be quantified as five percent in percentage terms.
In accordance with the principles in Williams & Williams[9] the Court must not simply have reference to the value of an item as at the date of the commencement of cohabitation without reference to its value to the parties at the time of the hearing as this may not give adequate recognition to the importance of the contribution at the time of the hearing.
[9] [2007] FamCA 313.
In Williams, the Full Court at [26] considered that:
…there is force in the proposition that a reference to the value of an item as at the date of the commencement of cohabitation without reference to its value to the parties at the time it was realised or its value to the parties at the time of trial, if still intact, may not give adequate recognition to the importance of its contribution to the pool of assets ultimately available for distribution towards the parties. Thus where the pool of assets available for distribution between the parties consists of say an investment portfolio or a block of land or a painting that has risen significantly in value as a result of market forces, it is appropriate to give recognition to its value at the time of hearing or the time it was realised rather than simply pay attention to its initial value at the time of commencement of cohabitation. But in so doing it is equally as important to give recognition to the myriad of other contributions.
The Full Court in Williams also referred to Pierce & Pierce[10] in which the Full Court at [28] said:
In our opinion it is … a question of what weight is to be attached, in all the circumstances to the initial contributions. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution.
[10] [1998] FamCA 74.
There is no doubt that the husband made a valuable initial contribution in that he brought the Suburb M property to the parties’ relationship. It is not possible to place an exact value on this property at the time and but there is no doubt that the husband had considerable equity in it (of around $200,000). This property was not sold separately as at a later point the parties had also purchased the other premises within the same building and sold them together for $1.965 million dollars. On the assumption that approximately half of this value can be attributed to the original Suburb M property owned by the husband there can equally be no doubt that it is a significant item of property. This property was also in a sense the foundational property for the parties’ initial joint borrowings as the loan for the first property they purchased together in Suburb N was secured by mortgages over both properties.
The foregoing observations must be considered in the context of the parties’ relationship as a whole. The relationship was quite lengthy and as time went by each of the properties that the parties then owned were all provided as security for other purchases. The significantly superior income earned by the wife of itself also increased the parties’ capacity to borrow for further purchases. In these circumstances I consider that the value of the initial contribution to the totality of the parties’ property dissipated over time such that I assess the total financial contribution made by each of the parties throughout the relationship to be similar.
Following separation, I am of the view that the parties’ contributions continued to be equal. Until December 2014 they continued to operate financially in the same manner as they had done when the relationship was intact. They also continued to both be involved in the care of the children. At different points in time each of the parties had the benefit of living in one of their jointly owned properties and although there is some dispute concerning these matters each of the parties undertook work to prepare the properties for sale. Following the sale of each of the properties various debts of the parties were paid out including credit card debt and other funds were used to meet their resulting taxation debts. It was also the wife’s efforts as a professional that resulted in both parties’ penalties and interests on their CGT debts being waived and the wife also agreed to the husband receiving $650,000 from the sale of the Suburb M property rather than applying those funds to an outstanding mortgage.
The parties also each raised many contentions that the other party had gained access to joint funds by making various withdrawals for their own purposes but as previously discussed neither party argued that these disputes be resolved and in any event it appears that each of them obtained roughly similar amounts in this manner.
Each party has also had access to other benefits such as the wife having sold shares that form part of her bonus and the husband drawing on the credit loan account with D Pty Ltd (albeit that the wife also received some benefits of this nature in the post separation period).
The wife has born a greater degree of responsibility for the care of the children following separation though the husband’s contributions in this regard are also substantial.
In all of the foregoing circumstances I assess the total contributions made by each party as set out in section 79(4)(a) - (c) to be equal and accordingly no contribution based adjustment is required to be made to afford justice and equity to them.
Section 75(2) Factors
In considering property adjustment orders I also must have regard to the matters referred to in s 75(2) so far as they are relevant.
In summary it is the position of the husband that these matters favour him in particular having regard to the wife’s earnings and earning capacity as demonstrated in the past and in light of the evidence concerning his health.
As explained it had been the husband’s contention in final submissions that there should be a five percent adjustment in his favour on the basis of his contributions and he had contended throughout the proceedings that a further adjustment of two and a half percent to take into account the matters referred to in s 75(2) would bring about a just and equitable result. However, it is his position that if the Court were make findings about a significantly smaller pool for distribution (as has occurred) then the s 75(2) matters increase such that he should receive 60 percent of the assets available for distribution. Towards the end of final oral submissions the husband’s counsel went further and submitted that 15 percent adjustment in the husband’s favour for s 75(2) matters could be appropriate in all of the circumstances.
In summary it is the wife’s position that no adjustment to the contributions based entitlement should be made for s75(2) matters.
The wife has the primary care of the parties’ two children now aged 13 and nine. The husband concedes that the wife meets a greater proportion of the children’s expenses and that he does not pay any child support to her. The parties have agreed that there will be no payment of child support in the future.
The wife is currently 46 and there is no evidence to suggest that she is not in good health. She concedes that because of her training as a solicitor and current position she has a superior earning capacity to that of the husband. In her Financial Statement of November 2019 she discloses a total average weekly income of $5,557.
In her affidavit the wife deposes to being eligible to receive a bonus by way of 75 percent in cash and 25 percent in securities which vest 12 months from the date of grant provided she remains employed by her employer. She deposes to having received between 695 and 1386 securities each year since 2014. It is not possible to value the securities component of the wife’s bonus.
Under cross-examination the wife confirmed that bonuses are not guaranteed, that the bonuses she has received have varied and that she was unable at the time of giving evidence to determine whether she would be receiving a bonus and how much it would be. She agreed that she had received a cash bonus in September 2019 of $37,500 (before tax) and a grant of unvested shares. Although the value of these unvested shares is unknown they must be treated as a financial resource available to the wife.
The wife also has superior superannuation entitlements to those of the husband and it may be expected that she will continue to accumulate superannuation in this manner. In summary it suffices to say that the wife receives and is likely to continue to receive a greater income and have greater financial resources available to her than the husband.
The husband who is 52 contends that he has a significant relevant issue with his health that affects his capacity for employment. An affidavit was filed in the proceedings by a medical practitioner who treats him for a neurological condition which causes “exertion related weakness, fatigue and occasional Opthalmoplegia” (eye muscle weakness). The doctor describes this condition as life long and although there is no definitive cure the husband is treated through medication. The doctor deposes that the condition has a wide range of expression from mild weakness through to severe and that the husband is “currently mildly affected, and stable”. Of relevance to the husband’s capacity for work the doctor reports:
He is limited to working part-time, self-employed hours only as this flexibility means if he has an “off” day he can miss work and catch up another time without jeopardising his employment. He works the equivalent of two to two point five days per week on average, sometimes a bit more but in the time I have consulted him he had not been able to work full-time. This pattern of work is very likely to be his future pattern of work ability for the projected future.
Under cross-examination the husband spoke of working much more than two to two and a half days a week. The husband agreed that he was working on a full time basis for D Pty Ltd and said he was attending the business of the company most days each week. When it was put to him that he worked between 30 and 40 hours per week, the husband denied doing so and explained “[b]ecause of my illness, some weeks I work all week and other weeks I’m unable to work. But I can do my electronics from bed and those sorts of things, which I do”.
The husband’s treating medical practitioner explained under cross examination that he had formed the view, taking into account information given to him by the husband, that the husband could work two to two and a half days per week without causing deterioration or being deleterious to his medical condition. The doctor maintained that the husband’s health condition means that he would not have the capacity to work full time in the future, explaining that the majority of patients with this condition are not able to work full hours.
The doctor was also informed of the husband’s evidence that he works much more than two to two and half days per week. The doctor observed the following:
Like any self-employed person, there’s going to be a large range of activities which are undertaken, some of which he can do without any problems when his symptoms are quiescent, but when he is affected – when he has what he calls one of his off days, it’s quite variable as to what work activity he is going to be able to undertake, as would be the pattern you would expect in anyone who has a neurological disorder which can, in any day, rob them of all sorts of difficult neurological capacities.
In summary the doctor’s evidence as to the impact of the husband’s condition on his capacity for work was unshaken even after being informed of the husband’s evidence of his current work arrangement.
It was submitted on behalf of the wife that in light of the husband’s evidence of his contributions to the relationship by undertaking renovations and other difficult manual work that the husband’s condition does not really impact his employment and should not cause the Court concern about the his capacity to earn an income in the future.
Having regard to the largely unshaken evidence of the husband’s treating medical practitioner I consider that the husband’s health condition has the potential to reduce his capacity to work full time in the future.
I accept as a general proposition that the husband also has his wife’s income and earning capacity available to him as a financial resource. I do not accept the contentions of the wife in relation to a benefit to the husband through his wife’s discretionary trust as the matters contended for were not the subject of cross-examination. There is nonetheless the undisputed fact that the husband’s wife successfully runs her own business.
The husband has the ongoing financial responsibility for his young child but does not bear any financial responsibility for his wife’s other child from an earlier relationship even though that child has lived in his household for some time.
Although it had been contended throughout the final hearing on behalf of the wife that her ongoing primary care of the parties’ two children should result in an adjustment in her favour of about two and a half percent, in final submissions this was not pursued. It is the wife’s position that her superior earning capacity is balanced by her ongoing majority care of the children such that there should not be any adjustment made for these matters.
In determining an appropriate adjustment for s 75(2) matters it is contended on the husband’s behalf that the amount the parties would receive under the respective proposals in dollar terms be considered. The authorities support that an appropriate way to consider the justice and equity of the proposal of each party is by reference to the dollar amount contended for[11]. In this regard as previously foreshadowed the husband contended that not only would a 10 percent adjustment in his favour on the pool for distribution under consideration be proper but it may need to extend to a 15 percent adjustment to bring about justice and equity between the parties. He submitted that a 15 percent adjustment would amount to about $150,000 which is less than half of the wife’s gross annual salary or less than one year of the disparity in salary between the parties.
[11] See Clauson & Clauson [1995] FamCA 10; (1995) FLC 92-595; 18 Fam LR and Wayne & Wayne [2010] FamCAFC 33.
In relation to the wife’s proposal the husband submits that it would be significantly inequitable when considered in dollar terms as he would not receive any portion of her superannuation interest and would only receive $155,000 from the controlled monies account. It is submitted on his behalf in light of the total assets and having regard to the contributions and financial circumstances of the parties that this would be a grossly inequitable result.
It is proposed by the wife that the property available for distribution be divided equally between the parties and that if possible this should see the wife retain her superannuation interest. The husband also seeks to retain his interest in the K Town property. The only other items of real value are the monies held in the trust account of the wife’s solicitor and the shares in D Pty Ltd (both of which are jointly owned) together with the husband’s own superannuation interest.
The wife’s proposed orders would see her retain the balance of the controlled monies and transfer her interest in the D Pty Ltd shares to the husband.
On the wife’s proposal where the distribution is equal there clearly is a disparity between the parties in the cash received by them because of the current ownership of their property interests. In this sense there can be no comparison in dollar terms between the amounts received by each of the parties. The real question is whether justice and equity will be achieved by the parties receiving an equal interest in their property in light of their contribution based entitlement and future circumstances.
Consideration of the fact that the husband will not receive any portion of the wife’s superannuation interest under the orders proposed by her and that he would receive no cash from the controlled monies account does not cause me to consider that such a proposal would bring about an inequitable result in light of the total assets and having regard to contributions and financial circumstances of the parties.
The reality of the application for adjustment of interests under consideration is that although the parties had considerable assets in the past those assets have dwindled significantly since separation. Although the husband may justly feel entitled to a portion of the wife’s superannuation interest given the circumstances in which it was earned, he remains the owner of a property that he was able to purchase with joint funds and treat as if it were solely his own. Having regard to these matters and in all of the circumstances I am satisfied that a just and equitable result will be brought about by dividing the assets equally and I propose making orders along the lines of the wife’s proposed orders (Exhibit 20).
Conclusion
The final orders will see the wife receive 50 percent and the husband also receive 50 percent of the total pool of assets ($1,841,811). Each parties’ percentage interest equals $920,905.50.
Final property orders
Both parties sought orders that the wife would transfer to the husband her interest and shareholding in D Pty Ltd. In these circumstances such an order will be made and the D Pty Ltd shares will be recognised accordingly.
The wife is to retain or has already had the benefit of:
Motor Vehicle 1 $ 10,000
Her furniture $ 2,500
Add back: partial property settlement $ 325,000
Super Fund 2 $ 351,909
Super Fund 3 $ 2,406
Total $ 691,815
The husband is to retain:
The K Town property $ 680,000
Loan account D Pty Ltd $ 849
His furniture and contents $ 2,500
Shares in D Pty Ltd $ 118,757
Super Fund 1 $ 201,251
Total $ 1,003,357
The wife will also retain the joint balance in the controlled monies account ($143,865) and the L Bank Account …60 ($2,774) and the husband will be required to pay her an adjusting payment of $82,451.50 to maintain his ratio of assets.
The orders that I make are as set out at the forefront of these reasons for Judgment.
I certify that the preceding one hundred and ninety five (195) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Hannam delivered on 15 May 2020
Associate:
Date: 15 May 2020
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