Watson and Watson

[2016] FamCA 201

FAMILY COURT OF AUSTRALIA

WATSON & WATSON [2016] FamCA 201

FAMILY LAW – PROPERTY – INTERIM – Whether or not principal debt to the Australian Tax Office in relation to tax years during the marriage should be paid – Where interim order made that required the payment of that debt – Other interim applications dismissed

Family Law Act 1975 (Cth)

APPLICANT: Mr Watson

RESPONDENT: Ms Watson

FILE NUMBER: SYC 7271 of 2015

DATE DELIVERED: 30 March 2016

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 29 February 2016

REPRESENTATION

SOLICITOR FOR THE APPLICANT: Manning Lawyers

SOLICITOR FOR THE RESPONDENT: Newnhams Solicitors

Orders

1. Within seven days, the husband and wife do all things and sign all documents necessary to cause the payment of the sum of $190,953.38 from the trust or controlled monies account of Caldwell Martin Cox, being the proceeds of the sale of the former matrimonial home located at B Street, C Town, to the Australian Tax Office.

2. If either party refuses or neglects to sign (within fourteen (14) days of a written request to do so) any documents necessary to give effect to order 1, the Registrar of the Sydney Registry of the Family Court of Australia is hereby appointed pursuant to the provisions of Section 106A of the Family Law Act 1975 (Cth) to execute such documents on behalf of such party.

3. The husband’s Application in a Case filed 18 February 2016 is otherwise dismissed.

4. The wife’s Response to an Application in a Case dated 29 February 2016 be dismissed.

5. Both parties’ costs of the respective applications be reserved.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Watson & Watson 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 7271 of 2015

Mr Watson

Applicant

And

Ms Watson

Respondent

REASONS FOR JUDGMENT

APPLICATIONS

1. By way of Application in a Case filed 18 February 2016 the husband seeks a partial property settlement in order to fund his Family Law proceedings and a District Court proceeding with the Australian Taxation Office (“ATO”). The husband also seeks an order that the amount of $190,953.38 is to be paid from the proceeds of sale of the parties’ matrimonial home to the ATO to remove the principal which is debt the subject of the proceedings between the husband and the ATO.

2. The husband seeks orders for the following:

   2.1.That the Husband and wife do all things and sign all documents necessary to cause the payment of $50,000.00 from the trust account of Caldwell Martin Cox being the proceeds of sale of the property located at B Street, C Town (“former matrimonial home”) within seven (7) days of the date of making these Orders by way of partial property settlement. (The application does not specify to whom the payment was to be made but at the hearing it was tolerably clear it was to the husband.)

   2.2.That within seven (7) days from date of Order, the Husband and Wife do all things and sign all documents necessary to cause payment to the Australian Taxation Office in the amount of $167,535.58. (This was amended at the hearing to the sum of $190,953.38.)

   2.3.That in the event that either party refuses or neglects to execute a Deed and/or Instrument in compliance with the provision of these Orders, the Registrar of the Family Court of Australia at Sydney is hereby appointed pursuant to Section 106A of the Family Law Act 1975 to execute all Deeds and/or Instruments in the name of the defaulting party and do all acts and/or things necessary to give validity and operation to the Deed and/or Instruments.

3. The wife seeks the following orders:

   3.1.That the husband’s Application in a Case filed 18 February 2016 be dismissed.

   3.2.In the alternate to order 1 above, that the application be adjourned to a date to be fixed following upon valuations being obtained of the items of personalty, furniture and effects in the possession of the husband in “Annexure A”.

   3.3.That within 7 days from the date of these orders, the husband return or cause to be returned to the wife the items of personalty in “Annexure B”;

   3.4.That within 7 days from the date of these orders, the parties do all things and sign all documents necessary to place the funds held by Caldwell Martin Cox in their Trust Account into a controlled monies account with Newnhams Solicitors, to be in joint names and held pending further order.

BACKGROUND FACTS

1. The husband was born in 1964 and he is currently 51 years of age.

2. The wife was born in 1970 and is currently 45 years of age.

3. The parties’ were married in 1991.

4. The parties’ separated on 22 September 2013. A divorce order was made on 9 February 2016.

5. There is one child of the relationship who is now an adult aged 24 years old. He is currently attending D University as a full time student.

6. The wife moved out of the matrimonial home on separation.

7. After separation, the husband and the parties’ son continued to reside at the matrimonial home.

8. The wife says that she has financially supported the parties’ son since separation.

9. Since separation, the wife has re-partnered and currently resides with her de facto partner, Mr E, in rented accommodation. Mr E earns about $3,000 per week.

10. The wife says that neither party brought any significant assets to the marriage.

11. During the marriage the wife was employed full time except for a period of approximately 18 months where she took time off work for maternity leave. After the maternity leave period, the wife returned to work part time for 6 months before returning to work full time. The husband says that when the wife was employed she earned between $100,000.00 and $340,000.00 per annum. The wife is unable to particularise as to her income during the course of her marriage. However, at the time of her retrenchment in 2015, she says that she was earning a gross income of $320,000.00.

12. The wife says that from the date of the parties’ marriage until approximately 1993 or 1994, the husband was employed. From that time, the husband set up and operated his own business. The wife says that the husband sold the business in or about 2008 to F Pty Ltd under an arrangement whereby subsequent to the sale, the husband was employed by them and continues to be employed by them.

13. The husband says that the five relevant tax years during which he operated his business which led to the tax assessment was 1 July 2003 to 30 June 2008. The husband received notices of assessment for these years in September and November 2014.

14. The wife says that the husband told her that he had sold the business for approximately $500,000.00 in 2008. The wife says that she does not know what the husband did with the proceeds of the sale. The wife says that from the time the husband set up the business until its sale, the husband operated a separate business bank account for his business.

15. The wife says that subsequent to the sale of the husband’s business, he acquired a number of motor vehicles, motor cycles, other miscellaneous items such as boats, and factory premises in Suburb G (where he stored the various items). She says that in or about 2013, the husband auctioned these various items of property and that the husband did not consult the wife in relation to the purchase or sale of these items.

16. In April 2006, the parties’ purchased the matrimonial home at B Street, C Town. The husband says that the property was purchased for approximately $980,000.00 while the wife says that the purchase price was $982,500.00. The wife says that at the time of purchase, the parties’ applied for and obtained a mortgage advance from ANZ Bank for the sum of approximately $840,000.00. The husband claims that the balance of the purchase price came from funds generated by the business. The wife does not say where the balance of the purchase price came from other than to make reference to a joint bank account that was established at the time for the purposes of making periodic payments of monthly mortgage instalments.

17. At the time of purchase of the matrimonial home, the parties’ established a joint bank account with ANZ Bank in which deposits and periodic payments were to be made to fund the monthly mortgage instalments. The wife says that she made regular fortnightly payments into this account to pay for the mortgage repayments as well as other expenses associated with the home. Each party continued to operate their own separate bank accounts. The wife says that payments were made from the separate accounts to cover the general household expenses of the home. The husband says that during the marriage he was primarily responsible for paying the household expenses.

18. The wife says that during the course of the marriage, she worked and contributed financially to the family costs such as utilities, at least half of the rent or mortgage every month, school fees, clothing, the majority of grocery bills, along with being the major carer and performing the majority of the domestic responsibilities.

19. In relation to the wife’s role as homemaker and parent, she says that the parties’ child was born premature at 31 weeks. During his childhood, he had congenital complications requiring extensive surgery and rehabilitation. During his early life, she assumed full responsibility for his care, ensuring he attended adequate treatment during this time and was the major care provider, ensuring routine treatment and assessment for the conditions, including managing a mild to moderate hearing loss during his schooling years.

20. Since the purchase of the matrimonial home, the husband says that he used funds earned from his business to undertake a series of improvements to the home from 2006 to 2010 which were worth an approximate total of $227,550.00.

21. The wife says that the husband’s mother passed away in 2013 and that the husband is a beneficiary under her will and has received or is entitled to receive funds from her estate.

22. In or about 2015, the matrimonial home was sold. The wife says that completion of the sale of property occurred on 7 September 2015. The net proceeds of sale after the discharge of the mortgage and other expenses was $449,944.75. This amount is currently being held in the conveyancing solicitors’ trust account. The wife says that after the sale of the property, $449,945.00 was held in a controlled monies account with the conveyancer acting for and on behalf of the parties.

23. When the wife left the matrimonial home after the parties’ separation, she did not remove any items of furniture, effects or any items of personalty. She says that in 2014, the husband packed boxes of her personal items and stored them in the garage for the wife to pick up. The wife attended the home and collected some of the items. The husband said to the wife that she could collect the remaining items at a later date. The wife made arrangements to collect the remainder of the property on the weekend of 5 September 2015, just before the completion of the sale of the property. However, on 4 September 2015, the husband texted her saying, “You can come to the other property and collect your things later”. Following the sale of the property on 7 September 2015, the wife attempted to make arrangements with the husband to collect the items. The husband made no arrangements with the wife to collect the items.

24. On 15 May 2015, the wife received a redundancy package from her employment. At this time, she is attempting to set up a consultancy business as a business coach under the company name, ‘H Pty Ltd’. She currently has a couple of small clients but is yet to receive a salary. She is currently living off her savings and redundancy package.

25. At the date of separation, the wife had a credit card debt of approximately $100,000.00. The debt was incurred prior to the parties’ separation and involved various transactions associated with both of the parties. The wife met the payment of the debt when she received her redundancy package.

26. On 14 May 2015, the wife received a letter from I Lawyers on behalf of ANZ Bank stating that the mortgage for the matrimonial home was in arrears $22,377.69. From the time of separation until this date, the wife assumed that the husband, who was living in the home, was meeting the monthly mortgage repayments.

27. On 15 May 2015, the wife received a letter from J Finance, a Collection Agency, which stated that the Electricity account for the former matrimonial home had not been paid and was in arrears $510.29. The wife says that she understands that the husband failed to pay both the outgoings on the property and the mortgage. The wife paid the electricity bill as her son was living in the property and did not want him to have the electricity shut off. The wife says falling into arrears on this account has adversely affected her credit rating.

28. Since separation, the husband says he has been paying all of the bills for electricity, rates and taxes; a veterinarian bill; the monthly mortgage repayments; and a payment for the preparation of the sale of the matrimonial home.

29. On 26 May 2015, the wife instructed her solicitors to send a letter to I Lawyers and the husband advising that the husband was agreeable to list the property for sale.

30. On 1 September 2015, the wife instructed her solicitors to request that the sale proceeds be placed in a controlled monies account earning interest. Further correspondence was sent to the husband on 17 November 2015 in relation to opening the controlled monies account. The wife informed her solicitors and she believes that they have received no response to the letter.

31. On 25 January 2016, the husband was served with a Statement of Claim from the ATO for arrears of taxation liabilities for his business. The ATO is claiming $552,665.66 including interest and penalties. The tax debt incurred is $167,535.58 with interest and penalties of $385,130.08. During the hearing, the husband revised the figure for the principal tax debt to $190,953.38.

32. The husband says that he had not expected to be served with the Statement of Claim for his outstanding tax debt as he believed that his previous accountant, Mr K, had been liaising with the ATO on the basis that when the matrimonial home was sold, the husband’s tax debt could be paid in full. The husband since became aware that this had not occurred.

33. The husband has now instructed a new accountant, Mr L, to negotiate with the ATO to have the penalties and interest waived or significantly reduced. The husband says that he has been advised by Mr L that “if I am able to pay the principal amount owing of the tax debt of $167,535.38 then the likelihood of the ATO negotiating with regard to waving completely the penalty interest or significantly reduce it is far more likely. If I am able to use the proceeds of sale of the former matrimonial home to pay the amount of $167,535.38 then I will be in a stronger position to obtain a waiver of the interest and penalties with presently amounts to $385,130.08.”

34. The husband says that he understands that if the ATO enters Default Judgment it will make an Application for a garnishee order against the bank account holding the proceeds of sale and take all of the money to satisfy the debt to the ATO which is in excess of the amount that is currently in the trust account. During submissions, it was accepted that as a starting point, the ATO would only be able to access one half of the controlled monies account, given that the husband is the legal owner of only one half of those funds.

35. On 19 February 2016, the husband’s new accountant calculated that the principal amount of taxation owing to the ATO is $190,953.38 excluding interest and other charges.

36. The husband says that he may not be able to plead any defence in the District Court in relation to the ATO matter until he has obtained advice from a barrister specialising in taxation. He says that he has been advised that legal fees for a barrister will cost between $7,000.00 and $10,000.00. The husband’s solicitors have advised him that to file a defence to the Statement of Claim will incur legal costs between $10,000.00 and $15,000.00. There seemed to have been an error in the Statement of Claim served on the husband (the ATO was claiming $1,105,971.00 which was not consistent with the particulars attached to the Statement of Claim). The husband has filed a defence denying liability for that amount but admitting liability for an amount of $190,953.38. The husband’s solicitors have also advised him that he could incur between $20,000.00 and $30,000.00 in legal costs and disbursements in these family court proceedings. The husband says that he does not have any funds or income that is sufficient to meet both of these costs.

37. The husband says that the wife was aware that he had not paid tax when it was due and that it would be paid from the sale of the matrimonial home. The wife has since advised the husband that she denies the liability as a joint matrimonial debt and that the husband should bear the tax liability owing to the ATO. The husband says that he did not have the money to pay the debt as he was meeting all of the expenses of the matrimonial home and of the parties’ son. He maintains that the wife did not contribute anything to the matrimonial home despite earning an income in excess of $200,000.00 per annum.

38. The husband estimates on the balance sheet attached to his affidavit, that the assets held by the parties have an estimated value of around $576,688.00 (without valuing the wife’s motor vehicle; the husband’s motor vehicle and the wife’s new business). The husband points to his tax liability (which he refers to as a joint tax liability), the principal amount of which is $190,953.38.

39. The husband also asserts that the wife has interests in four superannuation funds totalling about $241,000.00.

40. The husband’s employer is F Pty Ltd which is the company that bought his business in 2008. The wife says the husband told her that the business was sold to F Pty Ltd for around $500,000.00. The husband is in secure employment and has a gross salary of $2,593 per week. The wife has been developing her own business for about 10 months but is yet to receive any significant income from that venture.

DISCUSSION

1. The wife denies that the husband’s liability for tax owing to the ATO is a joint matrimonial debt.

2. It seems uncontroversial that the husband’s current tax debt arose from the husband’s non-payment of tax during five years when the parties were together as a married couple and over five years before the parties separated. It also seems highly likely that the income which attracts this tax went towards the acquisition, improvement and maintenance of the matrimonial home and living expenses.

3. The wife’s reasons for not wanting to have any responsibility for this tax debt was firstly because she says that the income derived by the husband from his business was collected by him, paid into a separate bank account in respect of which she had no authority or control and was disbursed by the husband “as he saw fit” without any control, authority or prior discussion with the wife.

4. Secondly, the wife says she has had no proper accounting from the husband of what she said the husband received in 2008 by way of sale proceeds of his business.

5. The wife is seeking 75 percent of the funds held in the controlled monies account plus an additional amount of $42,144.00 (being about $380,000 representing over 84 percent of the controlled monies account). I infer that that claim arises from the wife’s assertion that the husband has not properly accounted to her for the $500,000.00 she alleges he received in 2008. Pausing there, I again note the parties did not separate for another five years. The wife’s claim against the husband would also see her retaining the whole of her superannuation interests. It is consequently the wife’s case that she should receive the bulk of the current known assets, all the superannuation and leave the husband with the tax debt.

1. Mindful of the fact that this is an interim application on untested evidence, I am prepared to find that that is an unlikely outcome of the final proceedings.

2. I find that it is almost inevitable that the tax debt that arises from the income that the husband received in the five tax years from 2003 to 2008 should be paid out of the current net assets held by the parties.

3. Accordingly, I will make the order as sought by the husband that the monies in the controlled monies account can be accessed for that purpose.

4. I am not, however, prepared to entertain any further application by the husband for release of funds for legal fees.

5. The wife has in the alternative sought that personalty, furniture and effects be valued. I note the parties are yet to have a case assessment conference and valuations can be ordered in the normal way in that process. The wife also seeks the return of items of personalty. The wife’s evidence does not provide a proper basis to convince me that either a partial property settlement order or an injunctive order should be made to cause the husband to return personalty. Again that is a matter that can be dealt with in the context of a final hearing.

6. The wife applies for the lawyers for the wife to become a co-trustee with the current firm of lawyers who hold the balance of the proceeds of the sale of the matrimonial home in a controlled monies account. So far as I can tell, the firm of solicitors who currently hold the controlled monies account were a third firm selected by the parties to carry out the conveyancing transaction in respect of the sale of the matrimonial home. No compelling reason was provided as to why I should interfere with the arrangements the parties had previously entered into in relation to that controlled monies account.

I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 30 March 2016

Associate: 

Date:  30.3.16