Westbrook and Blackburn
[2017] FCCA 2039
•30 August 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| WESTBROOK & BLACKBURN | [2017] FCCA 2039 |
| Catchwords: FAMILY LAW – Property – valuation dispute regarding (business omitted) – husband grossly negligent in purchase of asset – impact of inheritance. |
| Legislation: Family Law Act 1975, ss.75 & 79 |
| Cases cited: Stanford & Stanford (2012) 247 CLR 108 Bevan & Bevan (2013) 279 FLR 1 |
| Applicant: | MS WESTBROOK |
| Respondent: | MR BLACKBURN |
| File Number: | ADC 2900 of 2015 |
| Judgment of: | Judge Cole |
| Hearing dates: | 15 & 16 June 2017 |
| Date of Last Submission: | 16 June 2017 |
| Delivered at: | Adelaide |
| Delivered on: | 30 August 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Dillon |
| Solicitors for the Applicant: | Patrick Liptak |
| Respondent: | Self-represented |
ORDERS
That the wife pay to the husband the sum of SEVENTY-SEVEN THOUSAND, ONE HUNDRED AND TWELVE DOLLARS AND FOUR CENTS ($77,112.04) within sixty (60) days.
That simultaneously with the receipt of the funds from the wife referred to in paragraph 1 of this Order, the husband transfer his interest in the property situated at Property A, in the State of South Australia to the wife free of encumbrances within sixty (60) days, with the wife thereafter to keep the husband indemnified in respect of all or any liabilities or outgoings thereon.
That contemporaneous with the said transfer in paragraph 2 hereof, the husband cause to be discharged or refinanced into the husband’s sole name without reference to the Property A property, the debt due and owing to (omitted) Bank Portfolio Loans account (omitted) and (omitted) and the husband thereafter keep the wife forever indemnified in respect to same.
That any interest the husband may otherwise have in the furniture and chattels in the wife’s possession, the wife’s bank accounts, the wife’s superannuation and the wife’s motor vehicle, vest in the wife absolutely.
That any interest the wife may have in:
(a)the property situated at Property E, in the State of South Australia;
(b)the Mr Blackburn testamentary trust;
(c)the (omitted);
(d)the Ford van and utility motor vehicle;
(e)the furniture and chattels in the husband’s possession;
(f)the (omitted) boat;
(g)the (omitted) Bank account;
(h)the (omitted) Bank account;
(i)the (omitted) Bank trust account;
(j)the (omitted) Bank security deposit; and
(k)the husband’s superannuation benefit;
vest in the husband absolutely.
That the husband indemnify the wife and keep her forever indemnified in respect of any debts due and owing on the property in his possession.
That the proceedings be otherwise dismissed.
That liberty is granted to apply as to consequential orders.
IT IS NOTED that publication of this judgment under the pseudonym Westbrook & Blackburn is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADC 2900 of 2015
| MS WESTBROOK |
Applicant
And
| MR BLACKBURN |
Respondent
REASONS FOR JUDGMENT
The proceedings
These proceedings are for the division of the parties’ property.
The parties to their credit have agreed on a number of issues, however, cannot agree on the value of one of the core assets namely, the (omitted) business owned and operated by the husband.
The husband supports the joint valuation obtained by the parties which states the business value is $192,000 whilst the wife supports the value provided by the subsequent review valuation undertaken on her behalf of $575,000 which in effect is the purchase price paid by the husband in 2012.
In addition, there is the issue of how the inheritance of approximately $1.08 million received by the husband in 2008, should be treated.
An application in a case was listed for the first day of trial seeking the provision of further documents by the husband. That application was dismissed by consent with the wife reserving her rights in respect of the failure to disclose.
Background
The husband was born on (omitted) 1969 and will be aged 48 this year. The wife was born on (omitted) 1970 and is aged 47.
The parties commenced cohabiting in or about 1992 and purchased their first home at (omitted) in 1994.
The parties married on (omitted) 1995.
There are two children of the parties’ relationship namely Ms C who was born on (omitted) 1996 and is aged 21 and X born on (omitted) 2001 who will be aged 16 this year. Both children remain living with the wife.
In 2008, the husband received an inheritance from his late father of approximately $1.08 million (on the husband’s figures $1,090,654[1] although the settled sum for the testamentary trust is $1,083,604.20).
[1] See husband’s affidavit filed on 4 November 2015, 35.
In 2012 the husband purchased the (business omitted) (“the business”) for $575,000. The husband’s evidence is that the purchase price was comprised of $229,000 from his inheritance with the remainder being borrowed from the (omitted) Bank. That loan is an agreed liability of $391,583.00.
The parties separated on 1 January 2014.
The wife and children reside in the Property A property whilst the husband resides in the Property B property.
The evidence
The wife relies on:
a)her Initiating Application filed on 6 August 2015;
b)her Amended Initiating Application filed on 7 October 2015;
c)her trial affidavit filed on 15 May 2017;
d)the affidavit of Mr Liptak (her solicitor) filed on 19 May 2017;
e)her Financial Statement filed on 2 December 2016; and
f)the affidavit of Mr G (valuer) filed on 13 June 2017.
The wife and Mr G gave evidence and were cross-examined. I note that by agreement the parties agreed that each valuer could be in Court through the evidence of the other.
The husband relies on:
a)his Response filed on 4 November 2015;
b)his trial affidavit filed on 24 May 2017;
c)his Financial Statement filed on 24 May 2017; and
d)the affidavit of Mr S (valuer) filed on 18 November 2016.
The husband also refers me to the 2015 and 2016 testamentary trust compilation report and tax returns and the 2015 and 2016 personal tax returns filed by him.
The husband and Mr S gave evidence and were cross-examined.
Orders sought
The applicant wife seeks orders that provide her with the Property A property unencumbered, a sum of $46,290 and the furniture and chattels in her possession.
The wife also seeks a superannuation split that in effect equalises the superannuation policies of the parties.
The respondent husband seeks orders that in effect divide the assets with 65% of the net value in favour of the husband with the remainder to the wife.
No orders were sought at trial in respect of the child X.
The applicant
The applicant was cross-examined by the husband. Her evidence was that while she signed a number of financial documents through the course of their marriage including the loan documents for the purchase of the business, she was not aware of the details of what she was signing. She had delegated responsibility for finances to him, and simply did as she was asked to do when signing the documents.
She was very clear that the decision to purchase the business was the husband’s decision and that it was presented to the family as a done deal. She told the Court that he came home and said he had purchased the (business omitted). She conceded that he had previously indicated that he wanted to buy the business, but did not accept that it was a joint decision.
The respondent
The respondent regularly referred to the purchase of the business as a family decision. He conceded however that at the end of the day he was responsible for the decision.
He gave his evidence in a forthright manner. He acknowledged that he had made no enquiries when he purchased the business save for having a chat with the vendor and I will refer to this in more detail later in these Reasons.
The husband presented as someone who had worked as an (occupation omitted) throughout the marriage in various jobs. He then decided he needed a change and made the decision to purchase the business in 2012.
It was hard to understand however how after many years of providing for his family and making significant financial decisions on their behalf, to amongst other things, buy and sell the various properties in which they resided, he embarked on the purchase of the business. Especially when it was done in such a casual manner and particularly when he was investing an amount that equated to slightly more than half of his inheritance.
His evidence about this did not assist me at all.
The division of property
Prior to making an order pursuant to s.79 of the Family Law Act 1975 (“the Act”), I must be satisfied that in all the circumstances, it is just and equitable to make the order (Stanford (2012) 247 CLR 108).
I acknowledge counsel for the wife referring me to authorities such as Bevan & Bevan (2013) 279 FLR 1 and Chapman & Chapman [2014] FamCAFC 91.
The consideration of whether it is just and equitable to make an order is begun by identifying according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property. As noted above, this has been undertaken by the parties and the joint table is set out below. Having considered that, I consider it is just and equitable for the Court to determine the division of the assets.
Having said that, I consider this matter fits within that category of cases referred to by the High Court in Stanford v Stanford (2012) 247 CLR 108 where it was noted that:
In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife.[2]
[2] Stanford v Stanford (2012) 247 CLR 108, 42.
Furthermore, I note neither party submits that it would not be just and equitable to make an order for the division of the parties’ assets and I accept that submission.
Joint statement of assets and liabilities
The parties to their credit were able to agree on the value of most items. Their joint statement of assets and liabilities is set out below. The sole point of difference is the valuation of the Property F.
Table of assets and liabilities
Assets
Property A, SA
H
$665,000.00
Property E, SA
H
$320,000.00
Blackburn Testamentary Trust
H
$216,537.00
(business omitted)
H
$575,000.00 or $192,000.00
Ford Van
H
$2,000.00
Husband’s ute
H
$46,000.00
Holden (omitted)
W
$2,000.00
Household contents, Property B
H
$5,000.00
Household contents, Property A
W
$8,000.00
Boat – (omitted)
H
$2,500.00
(omitted) Bank business account
H
$34,224.00
(omitted) Bank account
H
$11.00
(omitted) Bank
H
$2,632.00
(omitted) Bank security deposit
H
$15,031.00
(omitted) Bank
W
$50.00
TOTAL ASSETS
$1,893,985.00 or
$1,510,985.00
Liabilities
(omitted) Bank Loan
Joint
$391,583.00
(omitted) Bank
H
$1,113.00
Family and friends
H
$5,000.00
ATO Liability
H
$19,094.00
(omitted) Visa
W
$3,415.68
(omitted) Bank Loan
W
$6,799.00
TOTAL
$427,004.68
Non-Superannuation matrimonial assets
$1,466,980.32 or
$1,083,980.32
Superannuation
(omitted) Superannuation
W
$11,000.00
(omitted) Superannuation
W
$2,288.66
(omitted) Super
H
$104,754.89
TOTAL
$118,043.55
TOTAL NET PLUS SUPER
$1,585,023.87 or
$1,202,023.87
The valuation of the business
The parties by way of a joint letter of instruction dated 19 January 2016, appointed Mr S to undertake the valuation of the business. It was completed by way of a report dated 15 February 2016. The business was valued by Mr S in that report at $192,000.
The wife’s solicitor subsequently instructed Mr G to conduct a valuation of the business (which was to some extent a critique of the valuation undertaken by Mr S). His opinion of the value of the business was based on the information provided by Mr S. That was completed on 31 March 2016 and a copy provided to Mr S on 3 May 2016. His preferred value for the business as at 31 March 2016 was $500,000.
The valuers subsequently met and a joint statement was issued showing their points of agreement and disagreement.
Following that review, Mr G revised his opinion in a letter dated 15 September 2016 to $575,000.
The joint statement of the valuers was issued on 9 September 2016. It is annexure “C” to the affidavit of Mr S filed on 18 November 2016 The report noted amongst other things:
The valuers have each referred to financial information being a document entitled “Blackburn Balance Sheet as at 30 June 2015” and a document titled “Business Name: (business omitted)” indicating net profit for the year 30 June 2015 of $17,504 appended to the Report as Trading Results (Financial Information). The second document is an income statement prepared by Mr S from income tax returns and BAS returns.
The valuers acknowledge the Business was acquired on 1 July 2012 for a purchase price of $575,000. (Acquisition Price).
The valuers agree that the Acquisition Price appears inconsistent with the Financial Information.
The valuers agree that the Financial Information is flawed to some extent.
The valuers have not been able to arrive at a similar valuation because Mr S prefers to rely upon the Financial Information rather than the Acquisition Price whereas Mr G prefers to rely upon the Acquisition Price rather than the Financial Information. The Financial Information is relevant to the extent that it may provide a reliable guide to future maintainable earnings which in turn can be capitalised to provide a value of the Business.[3]
[3] See joint statement of valuers dated 9 September 2016, 6-10.
The joint statement summarises Mr S’s position namely that:
…cost doesn’t necessary equal value and the fact that the original Acquisition Price was for $575,000 it doesn’t mean it was worth that then and it is illogical for that to be the sole justification for its value now. Particularly in the absence of any financial information that supports the value of $575,000 then or now.
…Blackburn did not purchase the Business at market value as he regarded the vendor as a friend, that the business was not subject to proper marketing and that the purchaser did not act knowledgeably or prudently as he did not take professional advice or undertake an examination of the Business with appropriate diligence. If the Business was not sold at market value, the Acquisition Price may not reflect value consistent with Family Law principles.
It is difficult to determine the extent of cash suppressed from revenue as reflected in the Financial Information and consequently by how much sales and therefore profit is understated but on the basis of Mr S’s experience it could be anything between zero and $20,000 a year. However this does not prevent the determination of market value based on the reported performance and comparable sales. The valuation of this business is no different to any other small enterprise with a cash component…There is no support for disregarding all of the available trading evidence and valuing this business solely on the basis of the original purchase price.
The Financial Information presented and used as the basis of the valuation is consistent with the BAS returns and income tax returns submitted to the Australian Tax Office.[4]
[4] Ibid, 11(a) – (d).
Mr G’s reservations include his understanding:
that the Acquisition Price was paid and the details can be objectively established;
that the Acquisition Price is by definition at arm’s length;
that Blackburn had extensive opportunity to consider the operations and results of the Business prior to the acquisition;
that Mr S’s expectation of the extent of suppression of sales does not give due regard to the nature of the Business, specifically there is not a meaningful relationship between sales and cost of sales;
of the profound lack of credibility of the Financial Information;
that Mr S has not given due consideration to the relationship between the Financial Information and future maintainable earnings.[5]
[5] Ibid, 12(a) – (f)
Both gentlemen gave evidence.
Mr G took the view that the purchase price of the business being $575,000 was the best available indication of the current value.[6]
[6] See report of Mr G dated 15 September 2016, 2.4.
In his previous report he had noted in addition to the matters set out above that amongst other things:
a)A number of concerns about the financial statements including the business having $65,601 in funds in a bank account with no interest income disclosed.
b)The sale of the business was the transaction that appeared to have been conducted in the words of the definition of market value in section 1.2 of the report by parties who “have each acted knowledgeably, prudently and without compulsion”.
c)He further stated that while the operating results leading up to the purchase are not known, it appeared from the report that the valuers were considering essentially the same business at 30 June 2015 as existed at 30 June 2012.
d)He did not dispute Mr S’s observations that “the business could best be described as stable”.
e)He has avoided relying on financial statements accompanying the report and notes that Mr S has not recorded any consideration of whether the financial statements account for all income.
f)In paragraph 15.1 of his original report he accepts the comparable sales methodology and states that having considered the characteristics of the business and considered other observations he has formed the opinion that the circumstances upon which the arm’s length transaction took place (when the business was purchased by Mr Blackburn) are comparable to those existing today.
g)He acknowledged the decline in gross profit from $166,538-$146,722 being some 12% and applied that to the value of the business between 2012 ($575,000) and now to reach a figure of $500,000. This was subsequently amended.
Each valuer was provided with the financial statements of the husband which form part of his 2016 tax return. They showed the gross income from the business had risen to $214,988 compared to $167,787 the previous year. Neither valuer considered that affected their position.
Whilst his report raises a number of questions about the work of Mr S, there are a number of assumptions in the evidence of Mr G that I must address.
Was the transaction at arm’s length?
While there are significant issues over the husband’s consideration of the business operations and results prior to the purchase of the business, there is nothing I can point to that would suggest that the husband colluded with the vendor.
Mr G had the impression that the husband had worked in or with the business for some months prior to purchasing it.
The husband in his affidavit of 4 November 2015 states the vendor of the business was a good friend of “ours” before he purchased the business.[7]
[7] See husband’s affidavit filed on 4 November 2015, 46.
This does not accord with his evidence during the trial where he said that at the time whilst he knew him he would not have had him to the home for a barbecue. He did concede however the friendship had grown since he took over the business in 2012.
He did not however accept that he had worked in the business or had any significant idea of its operation before he paid $575,000 for it.
He did not on his evidence inspect the books showing past trading figures, he had no information to compare the performance of the business with previous years nor did he take advice of any sort that may assist him with a purchase of this magnitude.
The business was subject to a lease from the (omitted) City Council that was a five year lease with a five year option. Although no copy of the lease was provided it appeared from the husband’s evidence that the five year term for the option expired on December 2015. Mr S refers to this in his report.[8]
[8] See report of Mr S dated 15 February 2016, 1.4.
At its best he was paying $575,000 in 2012 for a business that may not have permission to operate in three years.
Furthermore, the lease has still not been renewed although the husband’s evidence is that he is confident it will be.
The husband argued that the decision to buy the business was a family one, the husband having put the option to his wife and daughters and everyone approved. This is flatly denied by the wife who says the purchase of the business was presented as a done deal.
Whether or not this is correct the husband conceded that the responsibility for the decision and the complete failure to make any sensible enquiries lay with him.
When questioned on how the purchase price was reached, he advised that the vendor had originally sought $600,000. He told him that he could not afford this and they settled on the sum of $575,000. The basis for that figure was not explained nor was there anything that the husband could subsequently point to support his decision.
At one stage during cross-examination he conceded that he had made more enquiries when purchasing a house than he had with the purchase of this business.
There is no evidence to suggest that the husband in any way did anything that might resemble due process or at least a sensible enquiry prior to committing to the business purchase.
The complete failure to make any sensible enquiries prior to investing such a significant sum is a matter of great concern. It does raise the question of whether the husband was colluding with the vendor; however there is nothing I can point to that would support this conclusion save for the failure to provide or request any due diligence in respect of this transaction.
The alternative then points to a conclusion that the husband was either wilfully reckless or grossly negligent in committing such a significant sum without making the most basic of enquiries about the viability of the business.
In that respect I note financial losses incurred by the parties are generally shared however as Baker J said in Kowaliw (1981) FLC 91-092:
As a statement of general principle. I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec. 75(2)(o) to applications for settlement of property instituted under the provisions of sec. 79.[9]
[9] Kowaliw (1981) FLC91-092, 76,644.
Having regard to the matters set out above, I consider this matter sits within the parameters of sub-paragraph (b) of Baker J’s Reasons.
Knowledge of the business
Mr G assumed that the husband had worked in the business for some months prior to the purchase. There is some suggestion that he had at least a working knowledge of how the business operated. This was denied outright by the husband when he gave evidence.
Furthermore, he appears to paint a slightly different picture of his friendship with the vendor at the time the business was purchased (saying he would not invite him into his house for a barbecue) to his ongoing friendship now. I am not convinced he had an “insiders” working knowledge of the business.
Suppression of sales
Mr G questions Mr S’s comments in respect of the suppression of sales. Mr S’s evidence was clear. In a business such as this, he considered retention of cash of up to $20,000 to be realistic. He did not however accept that more was being retained because in his view this would be impossible to hide in the financial statements.
I note in this context Mr S’s evidence that 80% of the income derived from the business is from group bookings. I am not aware how with group bookings with institutions such as schools and workplaces, it would be possible to suppress sales when the institutions themselves may require a paper trail for their accounts.
I may be wrong on this however I have difficulty finding evidence to support a finding that a significant amount of cash (in excess of $20,000) was being withheld from the financial statements thereby suppressing the income. More than a suspicion is required and I on the evidence before me do not have that.
Financial information and valuation
Both valuers concede that the financial information is less than reliable.
Mr S is criticised by Mr G for not having given due regard to the relationship between the financial information and future maintainable earnings. The difficulty with this is that Mr G does not accept the financial information and therefore relies on the value to the owner as evidence by the purchase price paid for the business.
Mr S however tries to make sense of the arrangement on the basis of the information provided to him. In addition he relies on his experience of valuations noting that he would see two to three cases per year where someone has paid well above the market rate for a business based on their relationship with the vendor.
He did not however attempt to expand on this when advised that the evidence of the husband was that his relationship with the vendor was at the time of purchase far less than what it is now.
It is not open to me to choose a middle ground between the valuers (Commonwealth & Milledge (1953) 90 CLR 157, In the marriage of Lenehan (1987) 11 Fam LR 615).
The Full Court in In the marriage of Georgeson (1995) 19 Fam LR 302 said:
Expert evidence may be adduced as to the proper method to be adopted, in the circumstances of a particular case, to assist the court in forming an independent judgment on the issue of valuation by the application of the appropriate principles. Whilst an expert may thus suggest an approach as being appropriate in a particular case, before accepting it, the court must come to its own conclusions as to whether that approach is appropriate in the circumstances.[10]
[10] In the marriage of Georgeson (1995) 19 Fam LR 302, 317.
Mr G is (and I do not criticise him for this) sceptical of the transaction. He stated during cross-examination that he had never had the experience of someone spending well over half a million dollars without making due enquiry. I can understand his response to this issue.
The evidence however supports a conclusion that Mr Blackburn did not undertake any enquiries. It does not however provide a tangible reason as to why he did not take any steps to investigate the business.
There are many questions swirling around this transaction. The husband’s evidence as to why proper enquiries were not made is unsatisfactory.
The husband’s desire to keep the business rather than have it transferred to the wife for the sum of $192,000 is also noted.
In addition, the husband’s method of accounting remains a mystery. There does not appear to be monthly management reports and it is not clear whether he banks his cash takings. I query how he would have survived if he had been required to borrow the entire amount to purchase the business.
In considering the husband’s evidence at its best, he was naive in entering into this transaction, and chooses to continue to defend it rather than concede that he has paid some $383,000 more than he should have for the asset.
Mr G is right to be sceptical about the transaction. Either the husband has been grossly negligent or is lying.
At present on the evidence before me, I would accept that he has been grossly negligent in applying these funds to the purchase of this business without due diligence or even the most basic of enquiries to ascertain its true worth.
Whilst there are a number of questions regarding the way in which the purchase was undertaken and the financial information subsequently provided, I have more difficulty accepting a value of $575,000 for the business than I do accepting a value of $192,000.
I am not advised what income stream would be required to make the payment of a purchase price of $575,000 worthwhile. I also noted there is nothing to suggest that the husband is able to sustain a lifestyle that would suggest a higher income than that declared.
The most obvious answer is that he paid too much for reasons which are unclear (save and except for his contention that he saw it as a family enterprise) and he is not prepared to concede that he has in effect lost over $383,000.
I would therefore accept on the evidence before me that the value of the businesses is $192,000. I will however refer to what I consider to be the gross negligence or culpability of the husband in applying the funds he received to this asset. I note not only the capital loss of $383,000, but also the ongoing cost of the servicing of the funds borrowed to purchase this asset.
The testamentary trust
It is apparent from the documents produced at trial that the husband is the primary beneficiary of a testamentary trust for one equal part (being one third of the residuary estate) to be held upon the terms of trust as set out in the will.
The husband together with his sisters are the executors and trustees of the will. They are pursuant to the will the trustees of each other’s testamentary trust.
Pursuant to the terms of the trust, the funds held in the trust can be distributed with his consent as primary beneficiary.
There did not appear to be dispute over the fact that the husband controlled the trust funds and directed where they were to be distributed since it was formed.
The parties have agreed that the asset represented by the trust has been included in the pool noting it came from the inheritance the husband received from his father in 2008.
Chronology
The parties were in basic agreement about the chronology of the relationship. There was some small controversy over the date of separation but neither party suggested that anything turned on the fact of whether the parties separated in 2014 or 2015.
Whilst there are some other small points of difference, these can be addressed when considering the contributions the parties made to the acquisition, conservation and improvement of the assets amongst other things.
The steps to be taken
Having determined that it is just and equitable to decide on the division of the matrimonial assets, I propose to undertake a process similar to that set out in In the marriage of Hickey (2003) 30 Fam LR 355.
I have identified and allocated a value for the assets and liabilities held by the parties.
I will then consider the contributions made by the parties to the acquisition, conservation and improvement of the assets amongst other things pursuant to s.79(4) of the Family Law Act 1975.
I will then consider the financial resources and needs of the parties and consider whether any further adjustment should be made.
Finally, I will review the division that I propose to make with a view to ordering that it is just and equitable in all the circumstances.
The asset pool
Having regard to the Reasons set out above, I consider the matrimonial assets and liabilities of the parties to be as follows:
Assets
Property A, SA
H
$665,000.00
Property E, SA
H
$320,000.00
Blackburn Testamentary Trust
H
$216,537.00
(business omitted)
H
$192,000.00
Ford Van
H
$2,000.00
Husband’s ute
H
$46,000.00
Holden (omitted)
W
$2,000.00
Household contents, Property B
H
$5,000.00
Household contents, Property A
W
$8,000.00
Boat – (omitted)
H
$2,500.00
(omitted) Bank business account
H
$34,224.00
(omitted) Bank account
H
$11.00
(omitted) Bank account
H
$2,632.00
(omitted) Bank security deposit
H
$15,031.00
(omitted) Bank
W
$50.00
TOTAL ASSETS
$1,510,985.00
Liabilities
(omitted) Bank Loan
Joint
$391,583.00
(omitted) Bank
H
$1,113.00
Family and friends
H
$5,000.00
ATO Liability
H
$19,094.00
(omitted) Visa
W
$3,415.68
(omitted) Bank Loan
W
$6,799.00
TOTAL
$427,004.68
Non-Superannuation matrimonial assets
$1,083,980.32
Superannuation
(omitted) Superannuation
W
$11,000.00
(omitted) Superannuation
W
$2,288.66
(omitted) Super
H
$104,754.89
TOTAL
$118,043.55
TOTAL NET PLUS SUPER
$1,202,023.87
Contributions
The parties commenced cohabiting in or about 1992. At the date of commencement of cohabitation it appears common ground that they had nominal assets.
There is no great dispute that throughout the marriage the wife was employed in low paying jobs. The husband was employed as an (occupation omitted) and from time to time worked in remote locations.
The parties moved from time to time for reasons generally associated with the husband’s employment or on one occasion for family reasons.
The wife accepts that the husband was the primary breadwinner for the family whilst the wife was primarily responsible for homemaking and caring for the parties’ two children. It is accepted that the husband assisted with this when work commitments permitted.
The parties purchased and sold a number of properties during the period of their relationship which is set out in the wife’s chronology. It is accepted that:
a)They purchased their first home in (omitted) in 1994.
b)In 1999 they sold the property at (omitted) and purchased a property in Property B.
c)In 2003 they sold the Property B property and purchased a property at Property C.
d)In 2006 they sold the Property C property and purchased the property at Property D.
e)In 2008 the husband received his inheritance. The property at Property D was sold and the parties purchased the property at Property E.
f)In 2009 the parties purchased Property A, and rented out the property at Property E.
g)In 2012 the husband purchased the (business omitted) at (omitted).
The parties finally separated on 1 January 2014 on the wife’s evidence, although the husband submits this was 2015. His application for divorce however notes the date of separation as January 2014.
The relationship was for some 19 years and save for the inheritance appeared to operate as a partnership with each party contributing equally to the acquisition, conservation and improvement of the assets.
Put another way, I have difficulty finding anything in the evidence that would suggest that one party should be credited with contributing more than the other in what was a reasonably long relationship in which the parties each carried out their roles as part of the partnership.
Six years prior to the end of the relationship, the husband received his inheritance of approximately $1.08 million.
There is no dispute that funds were applied from the inheritance to:
a)The purchase of the following properties which remain in the parties hands:
i)Property E ($285,000);
ii)Property A, ($260,000 plus proceeds of Property D);[11]
b)The purchase of the business ($229,000 plus (omitted) Bank loan now at $391,583); and
c)Payment of the children’s school fees.
[11] See Husband’s affidavit file on 4 November 2015, 37 – 38, 40.
There is no dispute the renovations were subsequently conducted upon the property particularly at Property A by the parties. The husband says he contributed $150,000 of Estate money to this. This is not conceded by the wife, who submits that she paid for some of these renovations from her earnings.
There is some issue as to whether these renovations were conducted by one party more than the other however I note I am not directed to any evidence as to the increase in value that may have been brought about by these renovations and I also note the parties were either separately or individually continuing to reside in the property.
The parties agree that there is remaining in the trust/inheritance shares to the value of $216,537.
There is no doubt on the evidence before me that the husband in effect lost $383,000 when he purchased the business for $575,000.
Part of the purchase price for the business came from a loan the husband obtained. The loan was in the joint names of the parties. The wife agreed to and signed for the loan for the business of approximately $390,000. That loan remains outstanding.
The husband’s failure to make any reasonable enquiries about the business meant that the parties have also incurred the costs of servicing a loan that should not have been required. These are funds that could have been available to meet family expenses.
I am referred by counsel for the wife to a number of authorities including Hoffman (2014) 51 Fam LR 568 and Fields & Smith (2015) 53 Fam LR 1 in respect of earlier cases that may be of assistance.
I accept the submission that the property does not fall into a protected category, merely because it was an inheritance (In the marriage of Bonnici (1991) 105 FLR 102). I note further that this was not an argument put forward by the husband.
There is no suggestion that the inheritance should be quarantined. The issue is how much weight should be given to it in the circumstances.
I note that counsel refers me to the decision in Aleksovski & Aleksovski (1996) 135 FLR 131, where the Court observed that:
In a long marriage, other factors often assume great significance and ought not be left almost unseen by eyes dazzled by the magnitude of recently acquired capital.[12]
[12] Aleksovski v Aleksovski (1996) 135 FLR 131, 146 – 147.
The husband received a significant sum of money in the last six to seven years prior to the parties separating. How that was applied is relevant to considering what adjustment, if any, should be made.
I consider over one third of the inheritance was lost by the husband when he purchased the (omitted) business. There is no evidence that would suggest that this will be recovered.
I also note counsel’s submission to adjust the pool in favour of the husband by 12.5% to allow for the impact of the inheritance upon the parties’ financial position.
Counsel suggests that the Court may need to consider a wastage argument in the event that it prefers the evidence of Mr S over that of Mr G in respect of the business valuation. I consider an adjustment of 12.5% does bring that to account.
There is no suggestion that the orders sought affect the earning capacity of either party. There is no dispute that the husband will retain the business and therefore the income from the business which on the most recent figures appears to be approximately $60,000 (allowing for capital gain on the sale of his shares in 2016). This does not include any supressed income.
I therefore accept the submission that there should be an adjustment of 12.5% in the husband’s favour being an adjustment of 62.5/37.5 after consideration of the contributions of the parties to be appropriate.
Financial resources and needs
The husband is aged 48 and the wife is aged 47 this year. There is no suggestion that the husband will cease working the (omitted) business into the foreseeable future. In any event he is and remains a qualified (occupation omitted).
Some seven days prior to the trial, the wife also underwent an elective total laparoscopic hysterectomy in the setting of menorrhagia and pelvic pain. She was discharged from hospital on (omitted) 2017. Bed rest was recommended and an adjournment was offered to her however she elected to proceed with the trial.
The wife is engaged as a part-time (occupation omitted). Her evidence is that she would, pending her youngest daughter reaching the age of 18, not be able to undertake full-time employment.
In any event, I have difficulty accepting a position that she will be able to earn a similar income to that of the husband. She is a woman of mature years and I am not convinced she will be able to earn anything other than a modest income.
The husband receives an income from the business. It needs to be noted that the income becomes part of the calculation for the value of the business, in particular, the business goodwill.
This matter was considered to some extent in Wall & Wall (unreported, Full Court of the Family Court, Lindenmayer, Kay and Hannon JJ, 26 October 2000) where a distinction was drawn between personal goodwill and commercial goodwill, with personal goodwill being treated as a factor effecting earning capacity not property.
I accept that the goodwill attached to the (business omitted) is not personal goodwill. I note Mr G considers this when he elects to value the business on the basis of a return to the working owner.[13]
[13] See report of Mr G dated 15 September 2016, 9.
This is a matter where I consider care must be taken not to double dip by including the husband’s income as part of the asset pool and then allowing for it again in the consideration of the s.75(2) of the Act factors.
At the same time I note the concerns raised by both valuers in respect of the financial information provided for the business. I also accept the evidence of Mr G regarding the likely range of supressed income and the likelihood of its receipt by the husband.
I note the submission that the wife will be solely responsible for the school fees of the parties’ youngest daughter for the next two and a half years at the rate of approximately $8,000 per annum.
I do note however the husband’s agreement to pay half of the orthodontic bill that has been recently incurred for X, the parties’ youngest daughter.
I accept that the husband is self-employed and earns a reasonable income. I also accept that I cannot exclude the inference that he may be withholding funds from the declared income.
I note the wife has a qualification as a (occupation omitted) but suffers from bursitis which may preclude work in that field.
Most importantly I note that the wife retains the care of the parties’ youngest child who is aged 15.
The wife’s weekly expenditure is in excess of her earnings and she continues to support the eldest child in that she has remained residing in the former matrimonial home.
I acknowledge the wife receives a part benefit from Centrelink.
I also acknowledge that neither party has an obligation to support another person save as set out above.
I accept that the orders proposed by the wife’s counsel provide secure accommodation for both parties and the children of the relationship.
I note that the husband continues to pay child support in accordance with the assessment.
Finally, I note that the wife in following the husband’s career around the country has to some extent done so at the detriment of her earning capacity.
The husband’s conduct in undertaking the purchase of the business remains a concern for me. Mr S was prepared to accept his conduct on the basis of the firm friendship between the husband and the vendor and the husband trusting the vendor on the basis of that friendship. That was not however supported by the evidence.
The husband in cross-examination as previously stated agreed that whilst he was friendly with the vendor, it was not such a friendship that he would invite him to the parties’ house. The decision to take his word and hand over $575,000 remains unexplained and a concern.
The option that there is a reasonable cash income that is extracted by the husband from the business remains. I cannot point to any significant finding other than the confident evidence of Mr S who suggested that it would not be unusual in any business of this sort to be extracting a reasonable cash amount. I accept his evidence that it is unlikely to exceed $20,000.
I consider this is a matter that I can bring to account under s.75(2)(o) of the Act.
In the circumstances I consider an adjustment of 12.5% to be appropriate.
Conclusion
The wife seeks to remain in the Property A property. The husband says that this is an important adjunct to his business being located a short distance away.
I do not accept this is a sufficient reason to order that the parties swap residences with the wife moving to the Property E property and the husband moving to the Property A property.
I therefore consider it appropriate that the wife receive 50% of the net value of the matrimonial assets part of which should include the Property A property. This would mean that the wife would retain the following:
a)Property A $665,000.00
b)Holden (omitted) $2,000.00
c)Household contents, Property A $8,000.00
d)(omitted) Bank $50.00
e)(omitted) superannuation $11,000.00
f)(omitted) superannuation $2,288.66
Subtotal $688,338.66
The wife would also continue to be responsible for:
a)the (omitted) Visa debts $3,415.68
b)the (omitted) Bank loan $6,799.00
Subtotal $10,214.68
TOTAL $678,123.98
The husband would retain
a)Property E $320,000.00
b)Blackburn testamentary trust $216,537.00
c)(business omitted) $192,000.00
d)Ford van $2,000.00
e)Ute $46,000.00
f)Household contents $5,000.00
g)Boat – (omitted) $2,500.00
h)(omitted) Bank business account $34,224.00
i)(omitted) Bank account $11.00
j)(omitted) Bank trust account $2,632.00
k)(omitted) Bank security deposit of $15,031.00
l)(omitted) super $104,754.89
Subtotal $940,689.89
He would also be responsible for the following liabilities being:
a)(omitted) Bank portfolio loan $391,583.00
b)(omitted) Bank account $1,113.00
c)Family and friends loans $5,000.00
d)ATO liability $19,094.00
Subtotal $416,790.00
TOTAL $523,899.89
The husband will be retaining 50% of the net value of the assets. His contribution through the inheritance is acknowledged as are the extraordinary circumstances that led to his purchase and continuing ownership of the business, including the loss occasioned by his actions and the concerns of both valuers in respect of the financial information supplied.
50% of the net asset pool is $601,011.94. The wife has assets and resources with a net worth of $678,123.98. The proposed orders would require the wife to pay the husband $77,112.04.
If I am wrong on the value of the (omitted) business, then it would be brought to account at $575,000. The husband in turn would not be the subject of criticism for the loss of $383,000 and the encumbrance of $391,583 being the loan for the business.
This would mean the husband would have assets and resources with a net value of $523,899.89 plus $383,000 (being the difference between the valuations) making a net total of $906,899.89. He would also have access to more income, or suppressed income.
The wife would have assets and resources with a net worth of $678,123.98. This would mean that she would receive from the pool of $1,585,023.87 approximately 43% of the assets. If an adjustment is made for the $77,112.04 she must pay pursuant to these Orders reducing her net worth to $601,011.94, then she receives 38.5% of the assets and resources. A division that would account for inter alia the full contribution of the inheritance six or seven years prior to the parties separating, and the additional income received by the husband.
In all the circumstances, I consider the division of the assets as set out in the Orders to be just and equitable.
I therefore make the orders as set out at the commencement of these Reasons.
I certify that the preceding one hundred and sixty six (166) paragraphs are a true copy of the reasons for judgment of Judge Cole
Date: 30 August 2017
Key Legal Topics
Areas of Law
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Family Law
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Equity & Trusts
Legal Concepts
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Remedies
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Constructive Trust
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