Witt and Witt and Anor
[2007] FMCAfam 681
•20 September 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WEST & WEST & ANOR | [2007] FMCAfam 681 |
| FAMILY LAW – Property settlement – bankrupt husband – vested bankruptcy property – former matrimonial home – small property pool – contributions – future needs of wife – interests of the creditors. |
| Family Law Act 1975 (Cth) ss.79, 79(4), (11), 75(2), 75(2)(ha) Bankruptcy Act 1966 (Cth) ss.35, 58, 108, 109 |
| Mallett v Mallett (1984) 156 CLR 605 Clauson & Clauson (1995) FLC 92-696 DJM & JLM (1998) FLC 92-816 |
| Applicant: | MS WEST |
| First Respondent: | MR WEST |
| Second Respondents: | MR W & MR N AS TRUSTEES OF THE BANKRUPT ESTATE OF MR WEST |
| File Number: | MLM 8428 of 2006 |
| Judgment of: | O'Sullivan FM |
| Hearing date: | 24 April 2007 |
| Date of Last Submission: | 10 July 2007 |
| Delivered at: | Dandenong (heard in Melbourne) |
| Delivered on: | 20 September 2007 |
REPRESENTATION
| Counsel for the Applicant: | Ms Dellidis |
| Solicitors for the Applicant: | Lander & Rogers |
| Counsel for the First Respondent: | No appearance |
| Solicitors for the First Respondent: | No appearance |
| Counsel for the Second Respondents: | Ms Gobbo |
| Solicitors for the Second Respondents: | Piper Alderman |
ORDERS
That Mr W & Mr N as Trustees of the bankrupt estate of Mr West (“the Trustees”) do all such acts and things and sign all such documents necessary to transfer to the Wife all of their right, title and interest in the real property situate and known as Property B, more particularly described in Certificate of Title Volume [X] (“the real property”) within 28 days.
That contemporaneously with paragraph 1 herein the Trustees provide a withdrawal of caveat [X] to the Wife held over the real property.
That the Wife be solely responsible for the Property B council rates and the Centrelink debts and indemnify the Husband from the said liabilities.
That the Wife shall refinance the St George Bank mortgage [X]and indemnify the Husband and the Trustees from the said mortgage.
That in the event the Wife fails to refinance the St George Bank mortgage then:
(a)the Trustees (and if necessary the Husband) sign all documents and do all things necessary to transfer to the Wife the real property to be held on trust for sale (“the sale”) and the real property be forthwith sold altogether out of Court (“the sale”) and upon completion of the sale, the proceeds of the sale be applied:
(i)firstly, to pay all costs, commissions and expenses of the said sale;
(ii)secondly, to discharge the existing mortgage and any other encumbrance affecting the real property; and
(iii)thirdly, the whole of the remaining balance to the Wife.
(b)That pending the completion of the said sale:
(i)the Wife have the sole right to occupy the real property and to pay all rates and taxes and like apportionable outgoings of the real property as they fall due;
(ii)the Wife hold her respective interest in the real property upon trust pursuant to these orders.
That paragraphs 7, 8 and 9 of these orders are binding on the Trustees of the CBUS Superannuation Fund (“CBUS”).
That pursuant to section 90MT(1)(b) of the Family Law Act 1975 that, whenever a splittable payment becomes payable in respect of the interest held by the Husband in the CBUS Superannuation Fund (Membership Number [X]) the Wife, or her heirs, executors or assigns, be then paid 95% of such splittable payment, and that there be a corresponding reduction in the entitlement the Husband would have received in the CBUS Superannuation Fund but for this order.
That these Orders have effect from the operative time.
That the Operative time for these Orders is five (5) business days after service of the final sealed Orders upon CBUS.
That there be liberty to apply to each party and the Trustee in relation to the implementation of order 7.
That the Wife retain all superannuation currently held in her name.
That the Wife retain for her sole use and benefit the 1996 Ford Falcon motor vehicle.
That unless otherwise specified in these orders and save for the purposes of enforcing any monies due under these or any subsequent orders:
(a)The Wife be solely entitled to the exclusion of the other to all other property (including choses-in-action) owned by or in her possession as at the date of these orders (the furniture, personal possessions, and like chattels in the property being deemed to be in the possession of the Wife).
(b)Monies standing to the credit of the parties in any joint bank account are to become the property of the Wife.
(c)Insurance policies remain the sole property of the owner/beneficiary named thereon.
(d)Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders.
(e)Any joint tenancy of the parties in any real or personal estate is hereby expressly severed.
That in the event the Husband or the Trustees neglects or fails to execute any instrument pursuant to these orders, the Registrar of the Federal Magistrates Court of Australia at Melbourne be appointed to do so, pursuant to section 106A of the Family Law Act 1975.
The application of the Wife filed on the 2 October 2006 is otherwise dismissed and removed from the pending cases list.
AND THE COURT NOTES:
That the Trustees of the CBUS Superannuation Fund have been provided procedural fairness.
The applicant have leave to mention the matter in the event she wishes to make an application for costs.
IT IS NOTED that publication of this judgment under the pseudonym West & West is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLM 8428 of 2006
| MS WEST |
Applicant
And
| MR WEST |
First Respondent
And
| MR W & MR N AS TRUSTEES OF THE BANKRUPT ESTATE OF MR WEST |
Second Respondents
REASONS FOR JUDGMENT
Introduction
This matter concerns an application for property settlement pursuant to section 79 of the Family Law Act1975 (“the Act”). The issue in these proceedings was the future of a home for the wife and her children, following her husband’s bankruptcy and his decision to leave the family to their own devices.
The proceedings were commenced by an application filed 2 October 2006 by Ms West (“the wife”).
The first respondent is Mr West, also known as Mr West (“the husband”) who was made bankrupt on 29 August 2006.
The second respondents are the Trustees of the husband’s bankrupt estate who were appointed on 29 August 2006 (“the Trustees”).
By virtue of the relevant provisions of the Bankruptcy Act 1966 the property of the husband is vested in the trustees of his bankrupt estate.
The effect of the husband’s bankruptcy on any property jointly owned with the wife is that the joint tenancy is severed and the Trustees become tenants in common with the wife.
Pursuant to section 79(11) of the Act the Trustees of the husband’s bankrupt estate were joined as second respondents to the proceedings.
On 27 November 2006 the matter was listed for final hearing.
The Hearing
The matter came before the Court for final hearing on 24 April 2007. Ms Dellidis of Counsel appeared for the wife, Ms Gobbo of Counsel appeared for the Trustees and there was no appearance by the husband.
Despite the husband having been given ample opportunity to do so he filed no responding material to this application. The husband only attended Court on one occasion, 10 April 2007.
The husband appeared in person on that day and orders were made amongst other things that he file a response and financial statement along with any affidavit on which he intended to rely. The husband failed to comply with this order.
At the hearing on 24 April 2007 the husband was called but did not appear in Court as mentioned previously.
There had been no contact made with the Court by or on behalf of the husband to explain his failure to comply with previous orders or attend the final hearing.
The Court was satisfied that the husband was aware of the proceedings and that the wife and the Trustees may proceed should he fail to comply with previous orders. Accordingly, the Court granted leave to proceed to hear and determine the matter on the evidence before the Court despite the absence of the husband.
Evidence
The wife relied on the following material at the final hearing:
·her amended application filed 19 March 2007;
·her affidavit filed 19 March 2007; and
·her financial statement filed 5 April 2007.
The Trustees relied on:
·their response filed 18 April 2007;
·the affidavits of Mr N filed 20 November 2006 and 23 April 2007; and
·the affidavit of Anthony Dyrenfurth filed 11 April 2007.
In accordance with directions made at the conclusion of the hearing both the wife and the Trustees filed submissions upon which they also relied.[1]
[1] The Trustees filed submissions on 29 May 2007, the wife filed submissions on 26 June 2007 and the Trustees in reply on 10 July 2007.
Position of the parties
In their response the Trustees sought that the former matrimonial home be sold and the net proceeds, following payment of the cost of the sale and the discharge of the mortgage be divided equally between the Trustees and the wife.
At the hearing and in written submissions the Trustees’ position was:
a)the property of the marriage ought not include vested bankruptcy property; and
b)there should be no adjustment in the wife’s favour.
The wife sought orders that she retain 95% of the non superannuation assets and there be a splitting order in relation to the husband’s superannuation in the same percentage terms whilst she would also retain her superannuation.
Credit
As mentioned previously, the husband did not file any material or participate in the final hearing. In short it appears that the husband has left the wife to prosecute these proceedings. Given this, in drawing conclusions, the Court has had to rely in large part on the evidence of the wife on matters to do with the parties’ contributions and future needs.
In submissions the Trustees took issue with the credibility of the wife.[2] The Trustees criticised the wife for relying on only one of her affidavits at final hearing. The Trustees contended that the wife’s material (which it appears had been prepared by her pro bono solicitor) contained lay opinion and numerous unsupported assertions.
[2] Paragraph 28; 35-37of the Trustees submissions filed 29 May 2007
However, in doing so, the Trustees submissions ignored that in the absence of the husband’s participation in the proceedings the Court’s findings will, in large part, be based on the wife’s evidence.
The wife was cross examined vigorously by Counsel for the Trustees. The wife presented as nervous and emotional which was understandable given the unfortunate circumstances that brought this matter to the Court.
The wife, it appears from her presentation had little formal education. She presented at times as vague in answers to questions put to her by Counsel on behalf of the Trustees.
Whilst at times the wife appeared to have difficulty answering questions put to her, I do not believe that difficulty was intentional on her part. Overall, I accept she was doing the best she could in difficult circumstances and I accept her evidence.
The law
Section 79 of the Act empowers the Court to make orders altering the property interests of the parties. In making a determination about the issues, the Court is required to undertake a four step process as follows[3]:
a)firstly, the Court is required to identify the net assets or property available for distribution as at the date of hearing.
b)secondly, the Court must assess the contributions of the parties to the acquisition, conservation or improvement of the property as provided in sub-ss.79(4)(a),(b) and (c) of the Act. Contributions include both financial and non-financial contributions, direct and indirect contributions and contributions made to the welfare of the family in the capacity of homemaker or parent.
c)thirdly, the Court must consider the matters set out in the remaining subsections of s.79(4) which incorporate s.75(2) of the Act. These matters broadly require a consideration of the financial position and resources of the parties, their age and state of health, their necessary commitments in supporting themselves or any other person, issues of child support, the effect of the marriage on the earning capacity of either party, the effect of any proposed order on the earning capacity of either party.
d)fourthly, the Court is required to determine, in light of the findings arising from the first three steps, what order is just and equitable in the particular circumstances of the matter.
[3] Hickey & Hickey (2003) FLC 93-143 at 78,386
Following the various steps required of the Court pursuant to section 79 of the Act, I bear in mind what was said by the Full Court in D & D as follows[4]:
[4] D & D [2003] FamCA 473
“The task of the Court in proceedings under section 79 is not akin to an accounting exercise. The task is to determine the facts of each case carefully to decide what is appropriate and just and equitable in the circumstances. There cannot be expected to be a universal answer to that question on any given set of facts. It is of the essence of judicial discretion that different minds may comfortably arrive at different conclusions. By and large, marriage is a joint venture where parties can expect to buffer each other from the winds of misfortune that blow during the course of their relationship. The degree of the buffer may depend on how much individual sailing they do without consultation or indeed contrary to the wishes of the other. But there can be no certain answer to how much that should be when applying
s.79 principles.”
The “overriding requirement” of section 79 is that considerations of justice and equity should inform each step of the process.”
I will consider each step in turn. However before doing so, it is important to set out the submissions made on behalf of the wife and the Trustees on the issues that should inform the Court’s approach.
Submissions on the effect of the husband’s bankruptcy
Whilst there was no dispute on the approach to the property settlement exercise itself, both parties made submissions on the issue of the impact of the husband’s bankruptcy and the treatment of any vested bankruptcy property.
Submissions filed on behalf of the Trustee on 10 April 2007 set out a summary of the relevant statutory provisions and their background:
“7.Schedule 1 of the Bankruptcy and Family Law Legislation Amendment Act 2005 (the Amending Act) relating to the interaction between family law and bankruptcy came into effect on 18 September 2005. Accordingly, in so far as is applicable, the Wife’s Amended Application is governed by the provisions of the Amending Act. Schedule 2 of the Amending Act came into effect on 18 March 2005 and the balance on 15 April 2005.
…
14.Under the Amending Act, two new paragraphs were inserted in the definition of matrimonial cause including paragraph (cb) to section 4 of the FLA which provides that:
“(cb) Proceedings between:
(i) a party to a marriage; and
(ii) the bankruptcy trustee of a bankrupt party to the marriage;
with respect to any vested bankruptcy property in relation to the bankrupt party…”
15.The term vested bankruptcy property is defined in section
4 of the FLA as:
“vested bankruptcy property in relation to a bankrupt means property of the bankrupt that has vested in the bankruptcy trustee under the Bankruptcy Act 1966. For this purpose property has the same meaning as in the Bankruptcy Act 1966.”
16.By reason of the Amending Act, section 79 of the FLA now reads:
“(1)In property settlement proceedings the court may make such order as it considers appropriate:
(a) in the case of proceedings with respect to property of the parties to the marriage or either of them altering the interest of the parties to the marriage in the property; or
(b) in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage altering the interest of the bankruptcy trustee in the vested bankruptcy property;
including:
(c) an order for a settlement of property in substitution of any interest in the property ; and
(d) an order requiring:
(i)either or both of the parties to the marriage; or
(ii)the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines…”
17.The term “property settlements” [sic] is defined in section
4 of the FLA to mean:
proceedings with respect to:
(a)the property of the parties to a marriage or either of them; or
(b)the vested bankruptcy property in relation to a bankrupt party to a marriage.”
18.The Amending Act also introduced amendments to the Bankruptcy Act which had the effect of recognising the new power under section 79(1) of the FLA to alter the interests of the bankruptcy trustee in the vested bankruptcy property.
19.Section 58 and 59 of the Bankruptcy Act deal with vesting of property upon a sequestration order being made.
The Amending Act provides in section 59A that:
“sections 58 and 59 have effect subject to an order under Part VIII of the Family Law Act 1975.”
20.Section 116 of the Act defines the property which is divisible among the bankrupt’s creditors and subsection (2) defines property that is not within that description. The Amending Act further introduces a paragraph to subsection (2) which provides:
“(9)Any property that, under an order under Part VIII of the Family Law Act 1975, the Trustee is required to transfer to the spouse of the husband.”
21.In addition, section 35 has been inserted into the Bankruptcy Act which provides:
“(1)If, at a particular time:
(a)a party to a marriage is a bankrupt; and
(b)the trustee of the bankrupt’s estate is:
(i) a party to property settlement proceedings in relation to either or both of the parties to the marriage; or
(ii) an applicant under section 79A of the Family Law Act 1975 for the variation or setting aside of an order made under section 79 of that Act in property settlement proceedings in relation to either or both the parties to the marriage; or
(iii) a party to spousal maintenance proceedings in relation to the maintenance of a party to the marriage;
then, at and after that time, the Family Court has jurisdiction in bankruptcy in relation to any matter connected with, or arising out of, the bankruptcy of the bankrupt.
(2)Subsection (1) does not limit the Family Court’s jurisdiction under section 35A.
(3) In this section:
“property settlement proceedings” has the same meaning as in the Family Law Act 1975.
“spousal maintenance proceedings” means proceedings under the Family Law Act 1975 with respect to the maintenance of a party to the marriage.”
In closing submissions filed on 29 May 2007 the Trustees position was:
“15.… that:
(a)having proper regard to the Amending Act, the net property of the marriage ought not to include the vested Property insofar as it is required in discharging the liabilities of the Husband’s bankrupt estate;
(b)ultimately, having regard to the evidence, insofar as the vested Property is concerned, it is not appropriate to make any order in favour of the Wife.
Amending Act
16.Against the background of the principles outlined above and their, now, statutory expression in section 75(2)(ha), there is no warrant to read the Amending Act in a way that places greater weight on the interests of the non-bankrupt spouse against the interests of creditors of the bankrupt spouse as represented by the Trustee. Neither is there anything in the language of the new sections which suggests any intention that the family law jurisdiction take precedence over the bankruptcy jurisdiction in any respect. Rather, the provisions expedite the administration of both the family law and bankruptcy jurisdictions by granting power to the Family Court to make orders in both.
17.Accordingly, here, the net property of the marriage ought not to include the vested Property at least insofar as it is required in discharging the liabilities in the Husband’s bankrupt estate. Those include the rights of RACV Finance Ltd as creditor and the, equally legitimate, rights of the Trustee. The Trustee is appointed pursuant to the BA and required, by the provisions of that Act, to get in and protect the bankrupt’s property for the benefit of creditors (BA, section 116; see generally BA sections 134 and 129).
The Trustee, being bound to so act, is entitled to be paid, as the Act also provides (BA, section 162). Similarly, the BA provides for the costs of the petitioning creditor to be paid (BA, section 109).
…
21.… However, as this case demonstrates, where the value of the vested bankruptcy property may exceed the liabilities in the bankrupt spouse’s estate, the Amending Act would give the Family Court power, if considered appropriate, to order the Trustee to pay any surplus remaining in the estate, upon discharge of the bankrupt’s liabilities, to the non-bankrupt spouse. In the absence of the Amending Act, any such vested bankruptcy property would, by operation of the BA, be returned to the bankrupt spouse upon discharge (see BA section 153).
22.Moreover, the Amending Act provisions cannot be read as giving precedence to the family law jurisdiction over the bankruptcy jurisdiction without being, at the same time, beyond the power of the Commonwealth Parliament to make laws with respect to matrimonial causes (Commonwealth Constitution, section 51(xxii)), marriage (Commonwealth Constitution, section 51(xxi)), bankruptcy and insolvency (Commonwealth Constitution, section 51(xvii)) or matters incidental thereto (Commonwealth Constitution, section 51(xxxix)):
(a)the Wife’s assertion of rights in the vested Property, as against the Trustee, is not a matrimonial cause but a dispute as to property between a non-bankrupt spouse and a third party to the marriage. The dispute does not arise out of the marital relationship between, or divorce, of the Husband and the Wife, but out of the Husband’s bankruptcy, as a result of which property has vested in the Trustee (and cf. FLA, section 4, definition of “matrimonial cause”; see also, generally, Russell v Russell (1976) 134 CLR 495);
(b)any right given by the Amending Act provisions to the non-bankrupt spouse to claw back “vested bankruptcy property” would not constitute a law with respect to bankruptcy and insolvency. The non-bankrupt spouse is a stranger to the realisation of the bankrupt’s property for the benefit of creditors to which laws as to bankruptcy are directed (see generally Privy Council decisions in Attorney-General (British Columbia) v Attorney-General (Canada) [1937] AC 391; L’Union St Jacques de Montreal v Belisle (1874) LR 6 PC 31 and Royal Bank of Canada v Larue [1928] AC 187).To take away property vested in the trustee in bankruptcy for the benefit of a third party to the bankruptcy is not a law with respect to bankruptcy.
In this respect, we note that the machinery of the Amending Act is inserted into the FLA rather than the BA. The obvious implication is that the Amending Act was not intended to be a law with respect to bankruptcy but a law expediting the administration of both the family law and bankruptcy jurisdictions by granting power to the Family Court to make orders in both.
23.Further, any reading of the Amending Act provisions which permitted an adjustment of rights in the vested Property in favour of the Wife to the detriment of the Trustee’s (already vested) rights would hinder the administration of the bankruptcy laws because prospective rights of the
non-bankrupt spouse would always be a contingent interest in the “vested bankruptcy property” in relation to a bankrupt spouse. The trustee in bankruptcy could, as a result, not act to realise property until such time as the Court made (or refused to make) an order under Part VIII of the FLA.”
The wife submitted that the Court could determine disputes in proceedings between her, (as a party to a marriage) and the Trustees, (as trustees of a bankrupt party to the marriage) with respect to any vested bankruptcy property as these were proceedings arising out of the marital relationship.
“2.To submit as the Trustees do at paragraph 22, that this Court does not have jurisdiction to interfere with vested bankruptcy property because it does not arise out of the marital relationship is contrary to a plain reading of s.4(1)(cb) of the Family Law Act. and s.116(2)(q) of the Bankruptcy Act which provides that “…any property that, under an order under Part VIII of the Family Law Act, the trustee is required to transfer to the spouse of the bankrupt” does not become property divisible amongst the creditors of the bankrupt” pursuant to s.116(1) of the Bankruptcy Act.
3.Further, the Court ought have regard to the Second Reading Speech of the Attorney-General in which Mr. Ruddock referred to the purposes of the Amending Act as:
·“to clarify the rights of the bankruptcy Trustee and the non-bankrupt spouse and to offer certainty as to the competing claims of creditors and the non-bankrupt spouse…”
·“to ensure that all issues are dealt with at the same time…”
·“to allow the courts exercising family law jurisdiction to consider the non-financial contributions of a non-bankrupt spouse to the acquisition of family property…”
·to enable a Court exercising family law jurisdiction “to make an order against the relevant bankruptcy trustee as part of the property adjustment order, allowing the trustee effectively to stand in the shoes of the bankrupt spouse.”
·“to offer procedures and protections to the non-bankrupt spouse that were not previously available.”
·to enable the Court to “be on notice about the interests of creditors of a bankrupt spouse and can take those interests into account…”
“4.In seeking the Orders that she does, the wife does not, as asserted in the Trustees’ submissions, invite the Court to read the Amending Act in a way that is beyond power conferred to the Federal Parliament by the Constitution (at paragraph 22). The wife is seeking that the competing interests of the parties be clarified and their interests crystallized, taking into account the legitimate interests of third party unsecured creditors as forecast by the Attorney General in his Second Reading Speech.
5.The submission at paragraph 16 that there is nothing “in the language of the new sections which suggests any intention that the family law jurisdiction take precedence over the bankruptcy jurisdiction in any respect” is not supported. The Court ought have regard to the priorities before distribution in bankruptcy pursuant to s.109 of the Bankruptcy Act in light of s.116(2)(g). This provision specifically excludes from the divisible property that which is subject to an order under the Family Law Act. Such a provision highlights that it is not Bankruptcy Act principles that apply, but Family Law Act principles.
6.The wife adopts the view expressed by His Honour Federal Magistrate Walters in a paper given to the 12th National Family Law Conference in October 2006 entitled “Some Aspects of the Interaction of Bankruptcy with Family Law” that the inclusion of relevant disputes between the spouse (or former spouse) of a bankrupt and the bankruptcy trustee within the definition of “matrimonial cause” in FLA s.4(1) means that the manner in which the Family Law Courts are likely to reconcile the competing interests of spouse and creditor is by reference to, and by application of s.79 of the Family Law Act”.
7.The Court’s jurisdiction in the determination of this dispute pursuant to s.79 of the Family Law Act is a discretionary one where justice and equity prevails in the balancing of the parties’ competing interests.
8.It is submitted that the proper approach is to take into account all of the property of the parties to a marriage including superannuation and the vested bankruptcy property with the Trustees and determine the outcome based on the relevant provisions of the Family Law Act, including s.75(2)(ha), using the approach identified by the Full Court in Hickey & Hickey (2003) FLC 93-143.”
The Trustees principal submission was that vested bankruptcy property ought not be included in the pool. Given the plain words of the Act and that these are recent amendments it is not surprising the Trustees were unable to point to a case where this course of action had been taken.
The wife in submissions referred to a paper delivered by Federal Magistrate Walters on the interaction between bankruptcy and family law.[5] At paragraph 95 of that paper, His Honour in reference to how the Court should approach the ‘multifaceted and interwoven set of claims and disputes’ that are involved in these matters said:
“In my opinion the answer lies in a methodical application of the basic principles relating to the resolution of property settlement disputes in Family Law Courts.[6]”
[5] ‘Some Aspects of the Interaction of Bankruptcy with Family Law’ 12th National Family Law Conference Perth 2006
[6] see paragraph [27] above and Hickey & Hickey (2003) FLC 93-143
The wife’s application was brought pursuant to section 79 of the Act. At paragraph 149 in the above paper Federal Magistrate Walters noted:
“… the ability of a creditor to recover his or her debt has not been given automatic or prima facie (or, indeed, any) priority over the non-bankrupt spouse’s claim.”
I accept the submissions of the wife as to the approach the Court should adopt for the purposes of this property settlement exercise. I am satisfied that in this case the former matrimonial home (notwithstanding that the husband’s interest in it became vested bankruptcy property) should be included as a part of the pool at step
1 and the Court should follow the steps outlined at paragraph 27 above.
Background
Before turning then to those steps, it is appropriate to set out the findings regarding the factual background based on the evidence before the Court.
The wife is 51 years old and the husband is 54 years old.
The parties commenced cohabitation in 1983 and were in a relationship for 13 years before marrying in October 1996.
The parties have 7 children who were born between 1984 and 1992. The children’s ages range from 15 to 23. Only the three youngest children remain living with the wife.
In 1989 the wife was involved in a motor vehicle accident. In March 1996 the wife received a compensation payment in the amount of $100,000.00.
In August 1996 the husband and the wife obtained a loan from RACV Finance to purchase a motor vehicle.
As referred to earlier the parties married in October 1996.
In September 1997 the parties purchased Property B (“the former matrimonial home”) for $137,500.00. The parties were registered on the title as tenants in common.
To fund the purchase of the former matrimonial home, a mortgage was obtained in both parties’ names from St George Bank in the sum of $123,800.00. The wife also contributed to the cost of the purchase from the compensation payment referred to above.
On 20 June 2002 a judgment debt was entered against the husband in the sum of $8,122.38 in favour of RACV Finance.[7]
[7] Exhibit “ASD3” to Affidavit of Anthony Dyrenfurth filed 11 April 2007
Also in 2002 the wife commenced work as a trolley collector.
In September 2004 the wife was advised of a debt in the sum of $14,585.41 owing to Centrelink due to an overpayment of Centrelink benefits.
The parties separated on a final basis on 22 September 2004 when the husband left the former matrimonial home.
On 28 February 2006 the husband was served with a bankruptcy notice and a creditors’ petition was filed by RACV Finance on 20 April 2006.
The husband was made bankrupt on 29 August 2006. The Trustees were appointed the same day and a caveat was lodged over the former matrimonial home on 30 August 2006 by the Trustees.
The application presently before the Court was filed on 2 October 2006. Subsequently, an application for divorce was filed by the husband on 24 October 2006 and a decree nisi was granted on
5 December 2006.
On 10 April 2007 there were final parenting orders made by consent.
The husband has remarried and is working as a tradesman. The husband’s statement of affairs show his income as $33,280.00.[8]
[8] Exhibit “PN2” to Affidavit of Mr N filed 20 November 2006.
First step-The asset pool
The only assets of any real significance for the purposes of these proceedings are the former matrimonial home and the husband’s superannuation interest.
At the commencement of the hearing the parties set out their respective position/s on the property pool. The wife and the Trustees agreed on the value of the former matrimonial home and the value of the mortgage. In relation to the assets the Trustees submitted the pool ought not include the vested bankruptcy property in so far as it is required in discharging the liabilities of the husband’s bankrupt estate.
| Asset | Wife’s value | Husband’s value | Trustees value |
| Non Superannuation Assets | |||
| Former matrimonial home | $210,000 | Unknown | $210,000 |
| Wife’s car 96 Falcon | $4,000 | Unknown | - |
| Total Assets | $214,000 | ||
| Liabilities | |||
| Former matrimonial home mortgage | $102,000 | Unknown | $102,000 |
| Centrelink debt | $14,584 | Unknown | - |
| RACV Finance debt | $8,122 | Unknown | $69,000 |
| Total Liabilities | $126,988 | ||
| Superannuation Assets | |||
| Wife’s superannuation | $9,000 | Unknown | - |
| Husband’s superannuation | $50,000 | Unknown | |
| Total Superannuation | $59,000 | - |
The Trustees did not provide submissions on the value of property that was not vested bankruptcy property. However, as set out below, the Trustees did take issue with the wife’s evidence on a number of items to be included in the pool. As referred to earlier there was no evidence from the husband.
Social Security Debt
The wife’s position was that this debt ought be considered a joint debt of the marriage. The Trustees took issue with this and said there was no evidence led to support this. However exhibits “A1” “A4” “A5” and “A6” provided the basis for the wife’s claims in this regard. In the absence of any evidence to the contrary and despite the objection of he Trustees, I am satisfied there is sufficient evidence that the debt exists. I accept the debt should be included for the purposes of property settlement.
Debt to RACV
The wife’s submissions on this issue were:
“1.The parties incurred a debt in 1996 to RACV Finance Limited.
2.The wife was cross-examined at length in relation to the RACV Finance Loan Application bearing her signature.
3.Her evidence was that: she “did not know what it was all about”; she is “not a very good reader or a very good writer.” She “did not consider it [her] loan”; she was “not working at the time.” She “signed the contract because [she] had good credit rating”, but “nothing was explained to [her]”. She “trusted him [the husband] at the time… He knew what he was signing and [she] didn’t.”
4.The wife was not privy to the nature of the debt. The debt did not bring any benefit to the family. The vehicle was used by him alone - the wife gave evidence that he “sometimes drove me and the children. I never drove it.”
5.The husband’s vehicle has since been repossessed and is not available for division.
6.The husband failed or refused to service the modest sized debt subsequent to separation, even though he continued in the same employment and without any further application of his income to the wife’s and children’s household expenses.
7.The husband failed to take any steps to minimize the losses or to make any attempt to repay the debt.
8.He failed to defend proceedings that resulted in a judgment debt against him made by the Melbourne Magistrates’ Court on 20 June 2002 in the sum of $8,122, comprising the RACV Finance Ltd. claim of $6,425, plus interest and costs.
9.The husband failed to meet that judgment over the next
4 years, despite working.10.The husband failed to pay the debt within 21 days of being served with a Bankruptcy Notice on 28 February 2006.
11.The husband failed to enter into any arrangement with the creditor to avoid being made bankrupt on 29 August 2006.
12.The wife had no knowledge of the unpaid debt or any of the proceedings instituted by RACV Finance against the husband or any of the events leading up to his bankruptcy, until she was sent notice of a caveat placed over the former matrimonial home on 1 September 2006. She did not in any way contribute to the bankrupt husband’s insolvency.
13.It is submitted that the husband’s conduct in relation to meeting the liability to RACV Finance, the creditor’s petitioning costs and the Trustees’ in bankruptcy administration costs ought be found to meet the test as set out in Kowaliw (1981) FLC 91-092 where by His Honour Justice Baker said at page 76,644:
“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 between 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 minimize the effective 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 minimized their value.”
14.It is submitted that the wife in these proceedings was the innocent victim of her partner’s dealings and whilst the Court can note the “roller coaster principle” which dictates that spouses who have previously received the benefits of their partner’s successes should be prepared to share in the “downside” of such ventures, regard ought be had to the words of Chisolm J. in Re Sabri: Ex parte Brien and ANZ Banking Group Ltd (1997) FLC 92-732 at 83,871:
“There is force in this as a general proposition, but in my view it cannot be taken as an absolute rule, if only because it treats all marriages as the same. Its force is less than overwhelming in cases where one spouse misleads the other, or fails to alert the other to the true position. Further it can be argued that the creditors who did business with the bankrupt spouse had remedies available to them: they could have required security, or a guarantee from the other spouse or some other entity or person.”
15.In exercising its discretion, the Court is also directed to the comments of the Full Court of the Family Court in Billtoft (1995) FLC 92-614 in reconsidering the position of unsecured creditors that there is no requirement that the rights of the unsecured creditor must be considered and dealt with prior to the Court making an order under sec 79 nor is there a rule of priority as between a creditor and a spouse. The rights of a creditor must not be ignored, rather they must be balanced against the rights of the spouse.”
Correctly in my view, the wife’s submissions on the issue of the RACV Finance debt acknowledged she was subject to rigorous cross examination on the matter.
The Trustees submissions were that the RACV Finance liability was a joint debt and should be included as a debt of the marriage along with the costs of that debt (including their legal and other costs to which
I will turn to next).
The Trustees submissions criticised the wife for her evidence regarding this debt. It is true her acknowledgement that she signed the application for the loan that gave rise to the debt was elicited in cross examination. The Trustees criticised the wife for her claimed ignorance regarding the initiation of proceedings to enforce the debt to RACV Finance. However, the Trustees do not mention that the husband could not be personally served with the initiating process for the judgment debt.[9] Whilst the matter was finely balanced I accept the wife’s evidence she was not aware proceedings had been instituted to enforce the debt.
I also accept the wife’s position that the husband’s conduct in large part brought about the circumstances where the debt arose to RACV Finance, the bankruptcy occurred and the husband’s share in the former matrimonial home vested in the Trustees.
[9] Paragraph 8 Affidavit of Mr N filed 23 April 2007
Ultimately, I accept the wife’s evidence that she did not understand what she was signing nor the nature of the debt. However, I will include this as a debt of the parties. In doing so I note the wife proposed orders contemplated she would take steps to discharge at least the original debt.
Trustees’ legal and other costs
The Act recognises that the Court consider the interests of the creditors of the bankrupt spouse as part of the property settlement exercise.
A more difficult matter arises where, as is the case here, the costs of the Trustees (which have priority by virtue of the relevant provisions of the Bankruptcy Act 1966) far exceed the debt due to the creditors.
In submissions the Trustee estimated the amount required to pay out the husband’s bankrupt estate was not less than $69,000. The Trustees noted that the vested bankruptcy property (i.e. his share of the former matrimonial home) was the only asset of the husband’s bankrupt estate.[10]
[10] Paragraph 4 - Submissions filed 29 May 2007
The wife’s submissions on this issue were:
“1.The Trustees for the bankrupt estate of the husband seek that their costs be paid from the pool.
2.Their costs are estimated to be at least three times the original debt of the husband to RACV Finance.
3.The Trustees determined they would become party to these proceedings to pursue an $8,000 debt all the way to final hearing - they did so with open eyes as to the possible cost consequences, as do all parties to Family Law proceedings which have as their starting point the principle that each party bears its own costs.
4.Outstanding legal fees themselves are generally not taken into account as a liability. The Trustees’ costs ought not be included in the pool as a joint liability, to be deducted from the gross value of the said pool. To do so would be akin to notionally adding back legal costs paid by one party from private, post-separation funds, rather than joint marital funds. Such costs ought be met from the husband’s share (if any) of the pool.
5.The wife’s has incurred legal fees, prior to engaging Lander & Rogers, in the sum of approximately $4,000.
6.Lander & Rogers have acted on behalf of the wife on a pro bono basis through the Public Interest Law Clearing House (PILCH).”
Of the Trustees legal and other costs, (associated with a debt of $8,122.38) there were $13,500.00 in petitioning creditor’s costs and $25,750.00 in legal fees as well as $17,568.25 for the Trustees remuneration and disbursements. Those costs constitute a large portion of a very small asset pool.
In submissions on her behalf the wife’s position was that these costs ought not be included as to do so would be tantamount to adding back legal costs post separation.
The Trustees relied on the relevant provisions of the Bankruptcy Act 1966 for why their costs ought be included as a joint debt of the marriage.[11]
[11] Paragraphs 17 & 30 Trustees submissions filed 29 May 2007
In DJM & JLM (1998) FLC 92-816 the Full Court said at 85,262:
“11.6. For reasons set out in Farnell, s.117 provides that each party to proceedings under the Family Law Act shall bear their own costs unless the Court otherwise orders. Failing to add back monies expended by parties on costs frequently has the effect of defeating the policy of s.117 by permitting the pool of available assets for distribution between the parties to be diminished by any monies that either of the parties have managed to spend on their costs up to the date of trial. We are of the view that the normal approach ought be to add costs already paid back into the pool. Whilst there may be cases where that approach is inappropriate, the reasons why it is not taken ought normally be spelt out.”
In this case I note the Trustees costs are over five times the amount of the judgment debt which the Trustees, I can only assume, cognisant of their duty to the creditors, have chosen to incur.
In this case given that the effect of adding legal and other costs of the Trustees would be to reduce the net pool by almost 25%. I do not believe it is appropriate to include those costs. The Court was not pointed to authority that required the interests of the Trustees by way of recovery of their remuneration and other costs be taken into account, only the interest of the creditors.
In the paper referred to at paragraph 35 above, Federal Magistrate Walters set out at paragraph 149 a list of “principles, considerations or factors” likely to be relevant to the “balancing exercise” that is the property settlement process where the interests of the parties to the marriage and those of the creditors of a bankrupt spouse are involved.
In my view those factors are relevant to the determination of this matter. They were as follows:
“a)Any order that the Court might be minded to make which is likely to impact upon a creditor in the sense of affecting the creditor's rights must be "reasonably necessary, or reasonably appropriate and adapted ..." to effect a just and equitable division of property between the parties to the marriage and must take into account the legitimate interests of that creditor (see FLA s. 90AE(3) and(4)).
b) The Court might be minded to consider, including in the context of (for example) an "add back", or in the context of deciding whether or not to "ignore" a debt:
i)whether 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 whether a party "... has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value”. (see Kowaliw)
ii)The non-bankrupt spouse's knowledge of the events leading to the other spouse's bankruptcy, including (for example) the nature and degree of the non-bankrupt spouse’s involvement in the business or investment activities of the bankrupt spouse, and whether, and to what extent, the non-bankrupt spouse "… has either benefited from, or contributed to, the bankrupt spouse's insolvency".
iii) When and how a relevant debt was incurred by the bankrupt spouse, and whether, for example, the debt was incurred "in deliberate or reckless disregard of (the non-bankrupt spouse's) potential entitlement under s. 79".[12]
iv)The factual circumstances surrounding the commencement or continuation of the property settlement proceedings – including, for example:
[12] See Biltoft (1995) FLC 92-614, Kowaliw (1981) FLC 91-092 and ASIC v Rich (2003) FLC 93-171
(1) whether the parties’ marriage has broken down and/or the parties have separated; and/or
(2) whether property settlement proceedings are or appear to be a strategic or tactical plan or initiative designed, in some way, to insulate the assets of the family (or a member of the family) from creditors, or to otherwise prevent creditors (or the Trustee on their behalf) from recovering their debts, or an appropriate part thereof.
v)Whether a creditor knew or ought to have known of a claim or potential claim by the non-bankrupt spouse to the bankrupt spouse's property prior to or at the time that the debt was incurred.
vi)Whether and in what manner the creditor pressed or pursued – directly or indirectly – his/her rights in relation to the payment of the debt prior to bankruptcy, or prior to the commencement of proceedings in the relevant Family Law Court, and whether the creditor did so in a timely fashion.
vii)Whether, by words or conduct, a creditor (or Trustee) led or permitted the non-bankrupt spouse to form a reasonable view that the debt would not be pressed, pursued or enforced, and whether (and in what way) the non-bankrupt spouse was thereby induced – whilst acting in good faith – to change his/her financial position.
viii)Whether, by words or conduct, the non-bankrupt spouse led or permitted the creditor (or Trustee) to form a reasonable view that the non-bankrupt spouse's actual or potential entitlements under the FLA would or might not be pressed, pursued or enforced, and whether (and in what way) the creditor (or Trustee) was thereby induced – whilst acting in good faith – to change his/her financial position.
ix)Whether either of the spouses has failed to make a full and frank disclosure of his/her financial position at all relevant time.
x)Whether the Trustee has failed to make a full and frank disclosure of all relevant information as it relates to the identification and valuation of the property comprising the vested bankruptcy property, and a full and frank disclosure of all relevant information relating to provable debts.
xi)The overall financial circumstances of the non-bankrupt spouse and the children of the parties during the period since the incurring of the relevant debt or debts, and at the time of the property settlement proceedings (including the effect on the non-bankrupt spouse and the parties' children of the orders proposed by the parties to the proceedings).”
When regard is had to each of those ‘principles considerations or factors’ in the context of this matter, the relevant evidence for which is set out in the wife’s submissions at paragraph 60 above, I am satisfied it is not appropriate to include those costs.
In coming to that conclusion I note the interests of the creditors will be considered at the third step in his exercise where those can be weighed against the other parties to this matter.
Rates Arrears – Shire of Property B
There was no issue taken in relation to the debt for the rates arrears.[13] Accordingly it will be included as a debt of the parties.
[13] see Exhibit A8
Superannuation
Pursuant to the relevant provisions of section 116 of the Bankruptcy Act 1966 the interest of the husband’s superannuation is exempt property for the purposes of the administration of his bankrupt estate. The Trustees did not submit to the contrary. However the Trustees did submit that it was preferable to treat superannuation and non superannuation assets separately for the purposes of this exercise.
The Full Court In the marriage of C & C (2005) 33 Fam LR 414 considered the relevant provisions of Part VIIB including the manner in which a Court should formulate the asset pool and in particular whether the Court should effectively adopt a two pools approach, one for property as it is defined in s.4(1) and a separate pool for superannuation. Concerning the different approaches, the majority held:[14]
“…that the preferred approach to the determination of property settlement cases must be to prepare in addition to the list of items of property (which would clearly fall within the definition of that term in s.4(1)), a separate list containing any superannuation interest or interests (valued according to the Regulations if a splitting order is sought in any application before the Court, or if no such order is sought, valued either according to the Regulations or otherwise). This of course is the approach which the trial Judge adopted in this case.
Then for the reasons we earlier gave, whether or not a splitting order is sought on either party’s application, the parties’ contributions to both the property (as defined in
s.4(1)) and also to the superannuation interests should be assessed. The other factors in s.79(4)(d), (e), (f) and (g) would then need to be considered. Specifically in the context of s.79(4)(e), that is the s.75(2) factors, any division of the property (as defined in s.4(1)) and any “division” of any superannuation interest (in the sense of an allocation of the base amount) based respectively on the assessments of the parties’ contributions to the property and to any superannuation interest, would then be considered.Similarly, the parties’ future superannuation prospects (be they in capital or income form) would also need to be considered. The overall justice and equity of the ultimate award (including any proposed splitting order or the need for such an order) would then be considered.”[14] C & C (2005) 33 Fam LR 414
Comparatively speaking, superannuation is a significant asset for the parties in this case and it would be prudent to treat superannuation separate to other assets from the parties’ marriage.
Conclusion on first step
Given the above I find the assets of the parties at the time of the hearing to be $214,000 less liabilities $126,988 leaving a pool of $87,012 (not inclusive of superannuation) as set out below. In terms of the parties superannuation assets those findings are also set out below.
It was agreed by both the Trustees and the wife that the husband has accrued $50,000 in his superannuation fund. The wife on the other hand has $9,000 in superannuation.
The wife sought a superannuation splitting order. The wife provided evidence that the trustees of the husband’s superannuation fund had been afforded procedural fairness.[15]
[15] see Exhibit “A12”, “A13” and “A14”
| Non-superannuation assets | |
| Former matrimonial home | $210,000 (net equity $108,000) |
| Wife’s 1996 Ford Falcon motor vehicle | $4,000 |
| Total assets | $214,000 |
| Liabilities | |
| Joint mortgage to St George Bank | $102,000 |
| Wife’s debt to Centrelink | $14,584 |
| Parties rate arrears for Shire of Property B | $2,282 |
| Parties RACV Finance debt | $8,122 |
| Total liabilities | $126,988 |
| Superannuation assets | |
| Wife’s CBUS Superannuation | $9,000 |
| Husband’s Superannuation | $50,000 |
| Total superannuation assets | $59,000 |
| Total net pool | $146,012 |
Second step-Contributions
I now turn to the second of the steps in the exercise under section 79, namely an assessment of the parties’ contributions within the context of section 79(4)(a) to (c).
Submissions
In relation to contributions the wife submitted:
“s.79(4)(a) direct financial contributions
1.The wife received a TAC compensation payment of $100,000 on 22 March 1996.
2.This award permitted the parties to buy a house, having lived in Government housing for the entirety of their relationship up until that time.
3.Exhibit “A11” in these proceedings indicates that at the very least, the wife contributed at least $13,000 plus $9,909 towards the purchase. This document also explains the wife’s mistaken earlier assertion that she had paid $9,000 in conveyancing fees.
4.There is no evidence the husband contributed anything to the purchase of the matrimonial home.
5.Counsel for the Trustees queried whether the wife gambled the money or spent it on recreational pursuits such as the movies. This was rejected by the wife.
6.The wife also gave evidence she purchased a van, paid for her and the husband’s wedding on 20 October 1996 and applied the remainder to the benefit of the family and specifically “on the children”. She deposed to having applied these funds to the mortgage repayments and the family’s living expenses.
7.The wife worked in paid employment when not involved in the full-time parenting of the children or when not impeded by her injuries.
8.In addition to being the primary caregiver to seven children (see below), the wife worked in paid employment during the marriage.
9.The husband also worked, however his income varied considerably during cohabitation and did not equate to more than income equivalent to modest part-time employment. The wife gave evidence that the husband’s income was applied to the mortgage repayments and her income was applied to the family’s and children’s day to day expenses.
10.The husband made no other financial contributions. He left the family home abruptly and without notice at separation, leaving the wife and children with just $50 in a joint account.
11.In the nearly three years since separation, the husband has not made a single payment towards the mortgage. The wife has been meeting all mortgage repayments alone. She has preserved and maintained the primary asset of the parties whilst effecting a capital reduction in the size of the mortgage secured over the property.
s.79(4)(c) welfare of family
1.The wife was the primary carer of seven children.
2.The wife was the primary homemaker.
3.The wife made significant contributions to welfare of the family in circumstances where she deposes to abuse of herself and the children. She intervened to protect the children from the husband. Her parenting role was made more onerous as a result.
4.Three children remain living with the wife, and until recently, four were still living with her. All are still studying and all are financially dependent upon her.
5.The husband has not sought, nor had, any contact with the children in the nearly 3 years since separation. She has parented the children alone and without any support from the husband.
6.Final Orders were made by consent on 10 April 2007 providing for the wife to have sole parental responsibility for the children and that the husband’s time with the children be reserved.”
Conclusion on second step
The Trustees took issue with the wife’s evidence regarding her initial financial contributions to the purchase of the former matrimonial home.[16] Put simply the Trustees submitted the wife did not contribute anything like what she claimed towards the purchase of the former matrimonial home.
[16] see paragraph 5 – Affidavit of Anthony Dyrenfurth filed 11 April 2007
As noted earlier, given the absence of the husband, there was no evidence of any contribution by the husband to the purchase of the former matrimonial home. On what is before the Court I am satisfied the wife made substantial contributions to the purchase of the former matrimonial home.[17]
[17] see also Exhibits “A9” and Annexure “SMW2” to the wife’s affidavit
The Trustees acknowledged the uncontroverted evidence of the wife’s role as a homemaker and wife was as a major non-financial contribution on her part.
I find that the wife’s direct financial contributions were greater than the husband’s and note:
·the wife contributed to the acquisition, conservation and improvement of the former matrimonial home;
·the direct financial contribution from the wife’s compensation claim;[18] and
·since separation the wife has maintained the home and has been solely responsible for the mortgage and other utilities bills without any financial assistance from the husband.[19]
[18] see paragraph 13 & 18 of the wife’s affidavit
[19] see paragraph 8 of the wife’s affidavit and Exhibits “A2” “A9” and “A10”
In relation to non-financial contributions I find:
·the wife was the primary care giver to seven children;[20] and
·the wife has the ongoing care of three children who are still at home and 2 who are under the age of 18 years and subject to the parenting orders of this Court;[21] and
·the wife had the primary responsibility for the children’s physical, mental, emotional and intellectual needs; and
·throughout the course of the marriage and since the husband had very little to do with the children;[22] and
·the wife’s role as homemaker and all the tasks that role involves was uncontroverted.
[20] see paragraph 20 of the wife’s affidavit
[21] ibid
[22] ibid
In relation to the parties other contributions on what is before me I am satisfied the wife’s contributions have been consistent and exceed those of the husband. There is no evidence before the Court to contradict this.
I note that the wife has since final separation maintained the former matrimonial home as a ‘home’, in all senses of that word, for the sake of the children.
I accept the submissions on behalf of the wife that she made the majority of the contributions and that this is the case having regard to:
·specific and large financial contributions on her behalf made for the benefit of the parties (eg. TAC payment)[23];
·the history of her primary responsibility for caring for the children;
·having raised seven children whilst working on and off throughout the duration of the marriage;
·her post separation contributions in reducing the mortgage which was uncontradicted.
·her post separation contributions are providing for the care and welfare of the children; and
·her ongoing responsibility for the three youngest children.
[23] see Annexure “SNW-2” to wife’s affidavit filed 19 March 2007
Given this and the absence of evidence regarding the husband’s contributions I accept the wife made the majority of the contributions to the parties’ assets.
In summary, on the basis of contributions for non superannuation assets the wife submitted, and I accept, the parties non superannuation assets ought be divided 85% in her favour.
Turning then to superannuation there was limited or no evidence provided as to financial contributions at various times to the parties superannuation funds.[24] The situation was the same in relation to growth rates of the husband’s superannuation fund.[25] Accordingly,
I propose to assess the parties’ contributions globally.
[24] see Exhibits “A12” and “A13”
[25] see Exhibit “A12”
In relation to contributions regarding superannuation assets the above findings on contributions to non superannuation assets are also relevant. On what is before me and given it appears the wife supported the husband and maintained the home whilst he worked there is no reason why a similar adjustment ought not be made to the superannuation assets.
Third step-s.75(2) factors
I now turn to the third step in the process of apportioning the assets available for distribution between the parties.
The Trustees submitted that no adjustment for these factors was warranted given the evidence. However the Trustees submissions regarding the wife’s evidence at this stage ignores the absence of evidence to the contrary on behalf of the husband.
The Trustees submitted:
a)the only support for the wife’s claim for an adjustment of the pool in her favour was her non financial contributions as homemaker and wife;
b)there was no medical evidence led on behalf of the wife regarding her “medical status”; and
c)the wife has been (and continues to be) since the end of the marriage in receipt of child support payments from the husband.
In relation to these factors the wife’s position was:
“s.75(2)(a) age and health of parties
1.The wife was in a motor vehicle accident and was compensated for serious pain and suffering and economic loss as reflected in her award of $100,000.
2.She described the residual effects of the accident as including having no sense of smell, chronic neck pain, headaches and a permanent limp. She gave evidence she “goes to physio now and then” however is not under the care of a doctor for those effects.
3.Against medical advice, she works, but only part-time.
4.The wife deposed to her state of health limiting her income earning capacity and gave evidence that her lack of success in obtaining a better paying job is influenced by her age. She is 51 years old.
5.The husband has no health issues and works full-time
46 hours per week.s.75(2)(b) income property & resources of parties and employment capacity
1.The wife collects trolleys at a supermarket on a part-time basis earning approximately $420 each week, or $22,000 annually.
2.The wife is 51 years old, has limited education, limited capacity to read and write, limited work skills and health issues.
3.She is unlikely to ever work in anything other than unskilled jobs. Such work is low-paying.
4.The husband earns at least $44,000 gross annually.
He works 46 hours per week.5.He has the capacity to continue working, earning more than double than that of the wife.
s.75(2)(c) care of minors
1.The wife has the sole responsibility for parenting two children under 18, both of whom live with her and are emotionally and financially dependent upon her.
2.The husband has not sought to see, nor seen, the children since separation.
3.The wife has borne, and will continue to bear, the sole responsibility for housing, feeding, clothing and educating the children without respite.
s.75(2)(d) necessary commitments to support oneself and duty to maintain others
1.Living with the wife is the child, L, aged 19 years, who remains in tertiary education. L is in receipt of Youth Allowance payment from Centrelink in the sum of approximately $98 each week and is undertaking full-time study at [X]. L cannot afford to house, feed, dress and educate herself on $98 per week, even with pocket money earned from a part-time job.
2.The husband has a prima facie duty to maintain her.
He does not so do.3.The wife has and will continue to fulfill her duty with sacrifice and difficulty. Part N of the wife’s Financial Statement illustrates the degree of frugality with which she and the children live.
4.The husband has no duty to maintain any other children.
s.75(2)(f) eligibility for Commonwealth Government benefit
1.The wife receives Family Assistance payments for the child M, 15 years, by way of Family Tax Benefits totaling approximately $100 per week
2.The wife receives into her bank account on behalf of the child S, 17 years, a Youth Allowance in the sum of approximately $93 per week
s.75(2)(ha) effect of any proposed order on ability of a creditor to recover debt
1.This is the primary section to be considered in determining how the competing claims of the Trustees and the wife in this case are to be resolved under s.79 of the Family Law Act.
2.RACV Finance is owed the modest sum of approximately $8,000 pursuant to a creditor’s petition.
3.The ability of RACV Finance to recover its debt is but one factor of many that the Court is required to take into account and is not to be given priority over the other
16 factors in s.75(2).4.The wife adopts the views expressed by the authors of CCH Australian Family Law and Practice at paragraph [40-750] that “if the legislature had intended that creditors’ interests have any priority, the legislature would have said so”.
5.If the Court were to accede to the wife’s proposed Orders, there would be an “effect” upon the dividend of the unsecured creditor, RACV Finance. However, such a finding does not mean the Order ought not be made, provided the Court has taken this matter into account. Even a positive finding that the order will result in a creditor’s claim being totally defeated cannot prevent such an order being made.
6.It is submitted that RACV Finance in this case would be unlikely to see any of the monies owing to it even if the Court were to accede to the Orders sought in the Trustees’ Response as a result of the priorities prescribed by sections 108 and 109 of the Bankruptcy Act. The result would be perverse in that the matrimonial home would be sold, the wife and children forced from their home, the Trustees’ costs would be met whilst RACV Finance would remain out of pocket.
s.75(2)(j) extent to which wife has contributed to the property of the other party
1.It is as a result of the wife’s contributions as homemaker and parent to the parties’ seven children that the husband had greater freedom to earn an income during the marriage and to accrue a greater superannuation benefit than the wife.
2.The wife has been making extra contributions from her meager salary to her superannuation fund since separation.
3.The husband has not contributed to the wife’s superannuation fund since separation.
s.75(2)(l) need to protect party who wishes to continue in parenting role
1.The wife has had the primary parenting role throughout the marriage. She has spent her adult life raising the seven children of the marriage.
2.She wishes to complete her role as parent by supporting the three children living with her through to their adulthood and the completion of their education.
s.75(2)(m) financial circumstances relating to a party cohabiting with another person
1.The wife has not re-partnered.
2.The husband has remarried.
3.His second wife has a 15 year old son who lives with the husband and his new wife.
4.There is no evidence in admissible form as to the financial circumstances of the husband’s cohabitation.
s.75(2)(na) child support
1.The wife has sole responsibility for the financial support of the two youngest children.
2.The husband is assessed to pay $146 per week for the two youngest children.
3.As at 7 April 2007, the husband is in arrears of child support in the sum of $1,732.
4.The husband has no legal obligation to support any other children.
s.75(2)(o) any fact or circumstance which the justice of the case requires to be taken into account
Superannuation
1.The husband accrued a superannuation interest of $50,000 subsequent to cohabitation commencing.
2.The wife accrued $9,000 superannuation since cohabitation commenced.
3.Her lesser contribution is reflective of the fact that she was primarily raising the parties’ 7 children when not in paid employment.
4.Since separation, the wife has been making personal additional contributions of $20 per week or $40 per fortnight, which contributions have been matched by a
co-contribution by the Commonwealth Government. She has necessarily been living on less money as a result of such a sacrifice for her longer term future, in circumstances where the husband has been paying no mortgage repayments, only minimal child support, and is in arrears of child support.5.Given the small size of the wife’s superannuation entitlement and the wife’s immediate needs, she ought receive from the husband’s superannuation entitlement a split in her favour in the same percentage as that to be applied to the non-superannuation assets.”
Conclusion on third step
The orders that I propose making in this matter will not affect the earning capacity of either party.
The Full Court in In the Marriage of Clauson (1995) FLC 92-595 said:
“It has long been recognised that in most cases the most valuable “asset” a party can take out of the marriage is a substantial, reliable income earning capacity.”
The husband it appears is earning a modest income and there is nothing to suggest this will not continue. The wife, should she be able to, is likely only to earn half of what the husband does. I also note the wife received a TAC compensation payment for injuries as a result of the accident in 1989. The wife gave evidence of the effect on her health of the accident.
It is at this stage that the Act, and specifically s.75(2)(ha), requires the Court to consider in the interests of the creditors. The authors of the CCH Australian Master Family Guide said of this section:
“Section 75(2)(ha) is important as s.79(1) does not provide that the court must, in altering the parties’ interests, give all of the bankrupt’s assets which have vested in the trustee to the trustee to distribute among the creditors.
On the contrary, in relation to vested bankruptcy property, the court under s.79(1)(b) has the discretion to alter the interests of the “bankruptcy trustee in the vested bankruptcy property”.
In doing so, no doubt the court will be concerned with the non-bankrupt’s contributions and the s.75(2) factors. It is when the court examines s.75(2)(ha) that the court will look at the interests of creditors and balance them against the family. The subsection does not give the trustee or the non-bankrupt spouse any priority. In assessing the many s.75(2) factors, one of the factors the court will look at will be s.75(2)(ha).”[26]
[26] CCH Australian Master Family Guide at 14-150
In this case the Trustee’s have, presumably consistent with their duty, acted to protect the interests of the creditors.[27] However in my view, those interests (i.e. the interests of the creditors) must be balanced against the interests of the other parties to these proceedings and in particular, the wife.
[27] In Official Bankruptcy in Bankruptcy v Bryan and Gatenby(deceased) (2006) FLC 93-258 Young J noted the primary obligation of the trustee was to recover a sum sufficient to pay out creditors
In this case the wife seeks to maintain the former matrimonial home for the care of the children, whilst the husband has clearly moved on and left the wife to pick up the pieces. The husband chose not to participate in these proceedings and his conduct in so doing is consistent with the evidence, such as it is, of his behaviour during the course of the marriage.
In support of their position the Trustees had pointed out if orders were made as sought by the wife the creditors would miss out.
I note the proposal of the wife to repay the RACV Finance debt. I also note the wife’s submissions on this issue as set out above.
I agree with the submissions on behalf of the wife that given the provision in ss.108-109 of the Bankruptcy Act 1966, it would be perverse if the wife and children were “forced from their home” and the operation of those relevant provisions of that legislation in relation to “the Trustees costs” meant RACV Finance would remain out of pocket.
In any event whilst the Trustees submitted that the former matrimonial home was the only means available for the creditors debt to be met, there was no other evidence of attempts to reach on agreements with the husband to meet the debt in other ways or to consider the proposal (though it was put made as such) by the wife to cover the RACV Finance debt by accessing a payment from superannuation on the grounds of hardship.
Whilst the interests of the creditors must be considered and notwithstanding the costs of the Trustees, I am not satisfied this factor alone in the particular circumstances of this matter and having regard to the other relevant section 75(2) factors is such that the position contended for by the Trustees should be the outcome.
It appears common ground that the husband is cohabiting with another person but there is no evidence regarding this situation.
There are no other orders (save for parenting orders made in April) under the Act which affect a party or the children which need to be taken into account. Those orders made in April provide for the remaining children under the age of 18 to live with the wife and for her to have sole responsibility for them.
The provisions in relation to child support have been referred to in the wife’s submissions. I note the husband is in arrears and the youngest children are living with her.
In relation to the relevant s.75(2) factors the wife submitted having regard to:
·her ongoing role as primary carer for the children;[28]
·her various medical conditions;
·her minimal earning capacity;
·her ongoing parenting responsibilities for the children;
·the lack of support from the husband;[29]
there ought be an adjustment at this stage of a 10% in the her favour in relation to non superannuation assets.
[28] see paragraph 6 of wife’s affidavit filed 19 March 2007
[29] see paragraph 7 of wife’s affidavit filed 19 March 2007
The Trustees submitted no adjustment in the wife’s favour for these factors was warranted given the evidence. However the Trustee’s submissions regarding the wife’s evidence on this, as on other matters, ignores the absence of evidence to the contrary on behalf of the husband.
The purpose of section 75(2) factors is to assist the Court to ascertain whether an adjustment to the parties’ assets on the basis of contributions alone is just and equitable. The Court is not obliged to make an adjustment as a result of the consideration of the section 75(2) factors unless it is just and equitable to do so.
In considering the section 75(2) factors I have had particular regard to the interests of the creditors of the husband’s bankrupt estate. I have not ignored the interests of the creditors and have already expressed the view that it would not be just and equitable to include the Trustee’s costs for the reasons set out at paragraphs 76 to 77 above. On balance,
I find the section 75(2) factors (taken together) favour the wife and
I accept her submission that an adjustment in relation to non-superannuation assets is appropriate at this stage of 10%.
My findings in relation to the s.75(2) factors set out above for non superannuation assets are also relevant to the issue of superannuation.
I also take into account that there has been a substantial adjustment of non superannuation assets at this stage to reflect the wife’s future needs.
It was agreed the trustees of the husband’s superannuation fund have been afforded procedural fairness. There is nothing to suggest that fund is the subject of a payment split or flag and it is open to the Court to order a split on a percentage basis as outlined above.
In relation to superannuation the wife submitted that a division of the parties superannuation assets effected by a split of the husband’s superannuation the same as for the non superannuation assets (i.e. 95% in her favour) would be just and equitable. For the reasons set out above I accept this is also appropriate notwithstanding the different nature of those assets.
Just and Equitable
Section 79(2) of the Act provides that:
“The Court shall not make an Order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the Order.”
At this stage I am required to stand back, consider and evaluate whether the proposed orders are just and equitable.
The wife submitted that:
“1.This is a very small pool.
2.Simply considering the percentage split to be applied over the net assets and failing to consider the consequences, poses a real prospect of inequity to the wife and injustice between the parties.
3.The Court ought make orders that do justice to the case by constructing those orders so as to allow the wife and children to remain in the matrimonial home.
4.The wife cannot afford to increase the mortgage to pay out the Trustees for both the RACV by more than $10,000.
She can, on the grounds of hardship, seek the release of a maximum of $10,000 from CBUS Superannuation, and make same available to the Trustees.
5.The wife cannot afford to buy another property if the house is sold. The little equity in the house would be eroded by selling costs. The wife will find it difficult to re-house herself and three children in the local area. This will uproot the children from a home and a community in which they have lived most of their lives. It will be destabilizing for them and disruptive for their studies. Regard must be had to the impact on the children if such orders were made.
6.The Court is required pursuant to s.43 of the Family Law Act to exercise its jurisdiction “having regard to the need to give the widest possible protection and assistance to the family as a natural and fundamental group of society, particularly while it is also responsible for the care and education of dependent children” and to “the need to protect the rights of children and to promote their welfare.”
Ultimately, the Trustees submitted in so far as the vested bankruptcy property was concerned it was not appropriate to make any order in favour of the wife.
In doing so the Trustee submitted:
“…the net property of the marriage ought not include the vested property at least in so far as it is required in discharging the liabilities in the husband’s bankrupt estate. Those include the rights of RACV Finance Ltd as creditors and the, equally legitimate, rights of the trustee. The Trustee is appointed pursuant to the BBA and required, by the provisions of the Act to get in and protect the bankrupt’s property for the benefit of creditors (BA section 1116; see generally BA Sections ss.34 and 129).
The Trustee, being bound to so act, is entitled to be paid, as the Act also provides (BA section 162).”
As set out above I have concluded that the section 75(2) factors, when taken together with the relevant section 79(4) contributions overwhelmingly weigh in favour of the wife.
However at this stage it is the justice and equity of the actual orders that the Court must consider. In submissions reference was made to the following extract from the decision in Mallett v Mallett (1984) 156 CLR 605:
“It is necessary for the Court, in each case, after having regard to the matters which the Act requires it to consider, to do what is just and equitable in all the circumstances of the particular case…”
The property pool in this case is minimal, due to large amounts of debt, every dollar is important.
The husband is bankrupt but it appears has an income stream. He has decided to move on with his life, leaving the wife and children to deal with the results of his bankruptcy as best they can and paying by way of child support only what he is required.[30] It appears he will have some financial security by virtue of his employment and in any event more than the wife enjoys, given her dependence on social security payments and what she is able to earn as a trolley collector, whilst providing a home for the children.
[30] As at 7 April 2007 the husband was $1,732.00 in child support arrears
The wife wishes to do what she can to discharge the debt due to the RACV Finance. In submissions before the Court, Counsel for the wife indicated she had made inquiries to refinance the mortgage and believed she could obtain a payment on the grounds of hardship from superannuation to meet the RACV Finance debt. The orders that she proposes will allow her to do that thereby meeting at least the original debt. However she will not be able to meet the Trustees legal and other costs.
In the event that I am wrong not to take those costs into account when regard is had to the s.79(4) contributions and s.75(2) factors in my view it would not be just and equitable for there to be an order requiring the sale of the former matrimonial home when the original debt could be met and the wife and children continue to remain in that home.
It was not disputed that it was open to the Court to make a splitting order in respect of the husband’s superannuation pursuant to the provisions of Part VIIIB of the Act. I appreciate that the husband’s exertions in the workforce resulted in the accumulation of this asset.
I also appreciate that it is only because of the nature of the superannuation that the parties have not been able to access it earlier and it is protected from the husband’s various creditors by virtue of the relevant provisions of the Bankruptcy Act 1966.
Given my assessment of the parties’ overall contributions during the marriage and their future needs having regard to the relevant section 75(2) factors, it is my view, that the husband’s superannuation should be split on the same basis as the non superannuation assets.
I believe it is appropriate that the superannuation assets be divided between the parties as set out above with the wife keeping her superannuation.
In this case, the Trustees have chosen to pursue the former matrimonial home. In doing so they made an economic decision which has seen the costs, for a debt of around $10,000.00, amount to more than $60,000.00 and counting.[31] The Trustees will no doubt have weighed the interests of the creditors in doing so.
[31] see paragraph 4 of the Trustees submissions filed 29 May 2007
On the particular facts of this case, I conclude that it would not be just and equitable to make orders that would see the wife and the children removed from the former matrimonial home in order to meet what is in large part the Trustee’s costs. Looking at the actual orders ought by the wife in the circumstances of this case it is just and equitable that she be able to retain he former matrimonial home.
Conclusion
Accordingly, for all these reasons the orders of the Court will be as set out at the commencement of these reasons for judgment as I am satisfied in the particular circumstances of this case they are just and equitable.
I certify that the preceding one hundred and forty (140) paragraphs are a true copy of the reasons for judgment of O'Sullivan FM
Deputy Associate: Rachelle Lombardo
Date: 20 September 2007
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