Z and Z
[2002] FMCAfam 5
•2 May 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| Z & Z | [2002] FMCA fam 5 |
| FAMILY LAW – Property settlement – loans/gifts from parents – film investment scheme – taxation liabilities – contingent debt – possible adjournment to crystalisation of debt. |
| Applicant: | T L Z |
| Respondent: | P A Z |
| File No: | ZB 3279 of 2000 |
| Delivered on: | 2 May 2002 |
| Delivered at: | Brisbane |
| Hearing Date: | 2 August 2001 and further written submissions on 5 April 2002 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Jarrett |
| Solicitors for the Applicant: | Baker O’Brien & Toll |
| Counsel for the Respondent: | Mr Hodgson |
| Solicitors for the Respondent: | Sorensen & Brown |
ORDERS
The Husband shall assign to the Wife, within 30 days, all his estate and interest in the property at 45A G Street, B on the basis that contemporaneously:-
(a)The Wife shall pay to the Husband the sum of $53,216.00;
(b)The Wife shall cause the current Home Mortgage (secured over the home and the M Street Unit) to be re-financed so as to relieve the Husband from any liability thereunder;
(c)The Husband shall cause the loans for the film investments to be re-financed so as to relieve the Wife of any liability thereunder.
The Husband shall abandon and relinquish any interest or claim in the Wife’s superannuation entitlement, motor vehicle, interest in the Unit at 10/5 M Street, B, furniture, chattels and other personalty in her possession and not otherwise dealt with by these orders.
The Wife shall abandon and relinquish any interest or claim in the Husband’s superannuation entitlement, motor bike, interest in the film investments (comprising the Bank guarantee), furniture, chattels and other personalty in his possession and not otherwise dealt with by these orders.
The Husband shall indemnify the Wife against any claims or demands made in respect of loans provided to him by the EC Z FAMILY TRUST or members of his family.
The parties shall share responsibility for the “taxation debt” in the proportions of 55% by the Husband and 45% by the Wife.
The term “taxation debt” shall, for the purposes of this order, mean the nett amount, if any, payable by the Husband to the Australian Taxation Office as a result of disallowed deductions, penalties and interest, for claims made by the Husband for his investment in the films “Critical Care”, “Tarzan and Jane” and “The Matrix”.
The interest of the Wife in the former matrimonial home shall be charged, as a second ranking encumbrance (after any indebtedness arising from the current loans and any necessary funds raised to meet the payment under clause 1(a) of this order), with her obligation to contribute to the nett taxation debt. If required by the Husband, the Wife shall sign all such documents as may be reasonably necessary to secure this obligation, such documents to be prepared and registered at the cost of the Husband.
The parties shall have liberty to apply to FM Baumann as to the form, enforcement or interpretation of this order.
All exhibits and subpoenaed documents shall be returned to the appropriate party, at the expiration of 60 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
ZB 3279 of 2000
| T L Z |
Applicant
And
| P A Z |
Respondent
REASONS FOR JUDGMENT
Introduction
The matter is an application for property settlement arising from a thirteen (13) year marriage between T L Z (“the wife”) and P A Z (“the husband”).
Short history
Both parties were born in 1965 and are now 36 years of age. They became engaged in late 1984 and at the time of birth of their first child K (born on 20th February 1986), both parties were students – the Husband studying commerce at University of Queensland and the Wife studying teaching at Mt Gravatt Teachers College.
Upon completion of their studies they were married on 10th December 1986, and commenced living in B where the Husband had commenced employment as an Accountant and the Wife as a Schoolteacher in mid-1988, after the birth of the couple’s son, M, on 10th October 1987.
The parties had few assets at the time of cohabitation, however, with financial assistance from the Husband’s family (of which more detail will be given in these reasons), the parties undertook a range of property and business transactions including:-
a)purchase of flats situated at 9 A Street, B in November 1990 for $94,000 and its sale in October 1992 for $112,000;
b)Purchase of the matrimonial home at 45A G Street, B in March 1992 substantially with borrowings from Suncorp Building Society (of $115,000), which loan was significantly reduced in April 1993 by funds received from the EC Z Family Trust of $50,000;
c)In April 1994, the Husband purchased a 1/3 interest in a Bundaberg accountancy practice, which became known as “D G Z” (“DGZ”), for $150,000 payable as to $50,000 on entry and $50,000 in each of the next two (2) years. The purchase monies were borrowed from the Commonwealth Bank, secured by the jointly owned home;
d)The Husband became a director of a company called K N PTY LTD in June 1995 and a director of B B PTY LTD in February 1997, whilst maintaining his core responsibilities as a member of the accounting firm DGZ. He was also receiving income as a tutor for Central Queensland University;
e)The Husband in early 1996, as a result, it would seem, of the promotion of a mass marketed taxation minimisation/film investment opportunity undertook a series of investments, totally with borrowed funds, in a number of film investments being:-
i)“CRITICAL CARE” (formerly “FORTRESS II”)
ii)“TARZAN AND JANE”
iii)“THE MATRIX”
The effect of these investments, the tax treatment, residual borrowings and commercial value is a matter dealt with more fully later in these reasons;
f)In 1997, the Wife purchased the apartment at 10/5 M Street, B for a sum of approximately $77,500, substantially with mortgage funds from Commonwealth Bank of $67,200;
g)In May 1997 the Husband’s Grandfather L T died and subsequently the Husband received an inheritance of $35,000 from his estate, of which amount approximately $10,000 was used to repay his grandmother for her advance to pay the deposit and legal expenses on the M Street apartment;
h)In 1999, the Husband agreed to sell his interest in DGZ for an amount of $179,000. The net amount receivable by the Husband was $120,000 after allowance for the assumption of liability by the continuing and new members of the firm to the firms creditor;
i)The Husband entered into a video business with his brother M Z in 1998, which proved a financial loss, and despite its relocation, the business interest of the Husband ceased effective 30th June 2001.
After separation in November 1999, the Husband moved to Sydney and now works for an accounting firm, generating an income, as an associate partner, of a fixed profit share of $104,000 (gross). The Husband has repartnered and his partner was at the time of trial, pregnant.
The Wife continues to reside in the B area where she works as a Primary School Teacher on a gross wage of approximately $50,000 per annum and is the primary carer of the party’s two (2) infant children.
Principles to be applied
The approach to the determination of an application pursuant to s.79 of the Act is well established by authority, and I refer to a long line of authority (Lee Steere (1985) FLC 91-926; Ferraro (1993) FLC 92-335 and Clauson (1995) FLC 92-595) which requires the adoption of a three-step process: firstly, to determine the extent and value of the property, liabilities and financial resources of the parties at the time of the trial; secondly, to consider what contributions have been made by the parties within s.79(4)(a), (b) and (c); thirdly, to consider what is identified as the other factors, being matters in s.79(4)(d), (e), (f) and (g), including by reference to s.79(4)(e) the matters in s.75(2). Finally, s.79(2) of the Act requires the Court to be satisfied that in all circumstances it is just and equitable to make an order.
Issues
Apart from the assessment of the contributions under s.79(4) and the relevant s.75(2) factors, the evidence turned on conflicts arising from the establishment of the pool of assets, particularly:-
(a)FILM INVESTMENTS and consequential tax effect;
(b)VIDEO SHOP;
(c)K N PTY LTD;
(d)PAYMENTS FROM FAMILY.
Before dealing with these issues sequentially, I note that at the commencement of the proceedings, the Husband sought to file and be heard on an application for departure under s.117 of the Child Support (Assessment) Act. I ruled that, due to the late notification of such application, if the matter was to be consolidated with the property application, the Wife may be entitled to seek an adjournment, which, in the totality of the matter persuaded me to refuse leave to file and be heard on the Application. Nothing of course prevents the Application being brought at a later time.
The Applicant Wife relied on her Affidavit and her Financial Statement both filed 16th July 2001. She was subject to cross-examination.
I regard her as a frank and honest witness and accept her assertion that the Husband essentially controlled, organised and managed the financial affairs of the family. He did not, I accept, always explain to her the full details of the web of transactions, which considering his professional background and the roles undertaken by the parties, is understandable. I accept that particularly towards the end of the relationship, he became at times secretive.
The Wife called as a witness, to assist the Court, Mr. James C, a senior officer in the employ of the Australian Taxation Office, who did his best to clarify and simplify the nature and current status of the “film investments”.
The Husband relied upon his Affidavit and Financial Statement both filed 13th July 2001. He was subject to cross-examination. He presented as a frank and honest witness although the level of some of his financial disclosure was deficient. He expressed clearly his understanding of the effect and motivation for some of the business/investment decisions. They were tested by the effective cross-examination. At times there was a conflict in the versions of the Wife and the Husband, some of which are from a lack of complete understanding by the Wife. Where I have preferred the evidence of once of the parties over the other, my findings on the evidence reflect that preference.
The Husband also relied on Affidavits filed by his father E Z, his mother L Z and his grandmother E T, all filed 23rd July 2001. They were all the subject of cross-examination. Whilst all were supportive of the Husband, issues, particularly relating to whether the monies advanced by the family were loans or not, required an assessment of the parties’ competing versions. I also deal with these disputes on the evidence further below.
I make the observation that it is not unusual for the parties to a marriage, post-separation, to have varying recollections of events during the course of their relationship. To some extent parties often “rewrite history” in their own minds. I did not regard any of the witnesses as lacking credit, just that their recollections differed.
The film investments
It is common between the parties that in an endeavour to secure a tax deduction in certain years of income, the Husband elected to invest in three (3) film production partnerships for the films:-
“CRITICAL CARE” in the 1996 tax year
“TARZAN & JANE” in the 1997 tax year“THE MATRIX” in the 1998 tax year
At paragraph 13 of his Affidavit, the Husband deposes as to the process of his investment. It seems that the accountancy firm of which the Husband was a member may have been assisting the promoters of these film investment/mass marketed scheme as a commission payment of some $1,400 was referred to in the evidence.
Prospectuses issued by Majestic Film Management Ltd for “FORTRESS II” (the forerunner for “CRITICAL CARE”) and “THE MATRIX” are exhibit 6 in these proceedings.
For the purposes of these reasons, and on the evidence I accept the Husband entered into the film investment schemes for the purpose of creating a tax deduction in the particular year of income when a payment for units under a Movie Services Deed was made. The initial investment was guaranteed and there was a potential of future profits. On the evidence before me all parties accept no profits are likely. All parties agree that the “value” of the film investments should be taken to be $95,000, in accordance with guarantees offered by the Bank of Bendigo.
The payment of “MOVIE SERVICES CONTRIBUTION MONEYS” was financed as follows:-
(a)“CRITICAL CARE” – $25,000 loan from Commonwealth Bank;
(b)“TARZAN & JANE” – $35,000 loan from Commonwealth Bank;
(c)“THE MATRIX” – $35,000 loan from the National Bank;
All these loans were secured over the G Street property. At the time of trial, the parties agreed that the total outstanding balance of “film loans” was $60,000.
The issue for determination is how certain taxation liabilities raised against the Husband, as a result of disallowance of the deductions claimed for these film schemes, should be treated.
The Husband, at paragraph 14 of his Affidavit estimated the “debt to the Taxation Department” is $70,319. He also says that he is the defendant in proceedings commenced in the District Court of New South Wales, for part of this debt amounting to $23,151.68.
Evidence from Mr James C, a Senior Tax Department Officer with some experience in these mass marketed schemes confirmed:-
a)He was not specifically aware of the Husband’s particular position and could only speak generally;
b)No active recovery is being pursued by the Department awaiting the result of certain test cases evidently before the Courts. He has no reliable information as to when the Court cases may finalise. This withholding of action is in accordance with the policy of the Commissioner published some months ago.
The Wife says that the Husband’s decision to invest was a risk which he should now bear. It was put to him that his failure to seek a private ruling before investing (as referred to in the prospectus) evidences a wanton disregard for sound commercial investment practice.
In response, the Husband says the decision to invest:-
a)was based on the prospectus which contained appropriate advice from Senior Counsel and/or established Legal Firms;
b)The claiming of the deduction did achieve the initial benefit of increasing disposal income from other sources, used for debt reduction and the overall benefit of the family prior to separation;
c)The likelihood is that, if the test cases are unsuccessful, the full debt and penalties will be recoverable from him primarily.
There seemed to be a conflict in evidence between the application of the Commissioner’s policy withholding recovery (as indicated by Mr C) and the Commencement of proceedings on 10th October 2000 against the Husband. The fact that no defence has been lodged by the Husband and no judgement apparently entered suggests the policy is being applied against the Husband, even though he alleges, as a deemed promoter, he was excluded from the benefits of the policy. I infer so.
The quantum of the Debt to the Australian Taxation Office is shown to be $70,732 (in Annexure “A” to the Husband’s Affidavit) and $70,675.86 (in Annexure “C” to the said Affidavit). Annexure “C” is a copy of a Referral by the Taxation Office to the Taxation Relief Board (again dated 31st March 2001) recommending against relief. To some degree these actions also seem to contradict the Commissioner’s policy on withholding action as explained by Mr C.
On the evidence available:-
d)I do not find the investments in the films by the Husband to have been reckless or wanton within the principles of cases such as Kowaliw (1981) FLC 91-092. In any event, the guaranteed return of capital suggests the real losses are the loss of potential or anticipated tax deductions and interest on the loans (which were also, I assume, claimed as a tax deduction). Notwithstanding, the letter to the Husband of 3rd March 1998 seeking information about earlier film investments, it is not proper to treat the “MATRIX” investment differently;
e)That benefits were gained by the parties initially through the reduction of income tax payable as a result of the claimed deduction and the use of greater disposable income;
f)There is a debt due by the Husband to the Australian Taxation Office assessed at $70,675 which is:-
i)not currently being pursued as a result of the policy of the Commissioner,
ii)may not be payable, subject to the result of pending “test cases”;
g)On the evidence, I am unable to be satisfied as to the likelihood of recovery or the date of recovery (if at all). Also the “debt”, if payable ultimately, is likely to attract penalty interest and the extent of those penalties can not be assessed at present.
I propose to treat the potential liability as a contingent liability, for which each party must share some responsibility.
Video shop
The Husband, in his evidence at paragraphs 18 to 22 of his Affidavit, deposes to his decision to open a Video shop. The Wife in her Affidavit at paragraphs 39 to 44 of her Affidavit gives her version. The Husband was the subject of cross-examination as to aspects of the business. In respect of this enterprise I find that:-
a)The business was a decision of the Husband made in early 1999 against the wishes of the Wife;
b)The decision to commence this business was motivated by a desire to attract some significant “start-up” tax benefits and to have a prospect of creating a “cash flow” business to supplement income from his practice. I am satisfied that I should accept the evidence of the Husband that he did undertake some feasibility study for the business commencing in B;
c)The business was commenced with the benefit of funds advanced to him by the EC Z FAMILY TRUST of $50,000. The Husband says that his brother M “swapped two vehicles he owned valued at about $40,000 for the video library”. No records or collaborating evidence from his brother was produced;
d)The business was operated in the sole name of the Husband, because he needed the tax benefits and further his brother had some outstanding civil proceedings pending against him. No evidence of partnerships or other documents in writing were produced to support the assertion of the Husband that his brother was a partner or that he was entitled to some return of profits from the business;
e)I accept the business was not profitable, and deductions were claimed by the Husband as follows, in his taxation returns (being exhibit 9):-
1999 $54,873
2000 $50,127
f)The Husband’s brother M operated the business from November 1999 and some financial support for the enterprise came from the EC Z FAMILY TRUST “in order to keep it going”. It seems the business provided some support for the Husband’s brother who was otherwise not employed at the time. A distribution of income from the EC Z TRUST of $23,000 was disclosed as income by the Husband in his 2000 Taxation Return;
g)M Z relocated the business to Brisbane and the Husband’s involvement ceased effectively 30th June 2001. I am unable to estimate the effect of any tax losses to 30th June 2001 because of the non production of any estimates by the Husband;
h)The Husband claims to have permitted his brother to sell the business to Peter F Developments Pty Ltd for $35,000 as at 3rd July 2001 (or a mere 3 days after the Husband ceased his involvement) and to keep the proceeds “provided he releases me from any further liability to him in respect of the business…” since the time he has run it. That appears to have been since about November 1999 (see paragraph 20).
I find that the business was set up essentially to provide some tax relief for the Husband and employment for his brother. I accept that the EC Z TRUST (controlled by the Husband’s parents) provided financial support to this family enterprise as claimed.
The time of commencement of the business (shortly before separation) against the wishes of the Wife, coupled with the unusual manner of its operation and disposal, lead me to the conclusion that:-
a)I should not bring into account the proceeds of sale apparently received by the Husband’s brother;
b)I should not bring into account any borrowings from the EC Z FAMILY TRUST which may have been contributed to the establishment of the business;
c)On the same basis, I do not believe it is appropriate to bring into account, in the pool of assets the compromised debt for the arrears of rental. The statement of Claim (Annexure “G” to the Husband’s Affidavit) does not detail when arrears of rental began to accrue. As already observed, the nature of the business relationship between the Husband and his brother is far from clear. Although the Husband had primary liability on the lease to the lessor, no convincing evidence was provided as to why the brother did not contribute to these debts. The Wife was not in any manner associated in the transaction, or the compromise of the debt (which, on its face, may represent a fair compromise). Whilst the Husband may have some residual debt, I do not believe it is proper to bring it into account in the marital pool of assets.
In making this finding, I have considered the sworn testimony of L Z (at paragraph’s 4 and 5) and E Z (at paragraph 7) in their Affidavits. In this regard I make some observations about the creation of the Bill of Sale over the video business assets and the loans generally below. In short I accept that the Husband, who acts as adviser to his parents, had the full support of his parents, to decide, as they both acknowledged under cross examination;-
(a)to prepare or arrange for all documents to be prepared;
(b)adopt the best tax position;
(c)whether payments are distributions or loans ;
(d)and prepare all financial statements.
The husband’s failure to make full and frank disclosure of many aspects of this business has contributed to his failure to persuade me that the business should not be brought into account, but that the debts should.
K N Pty Ltd
The Husband says the company was set up by him at the time of commencement of his Accountancy practice to B, as a vehicle for receipt of some income from the practice. He acknowledged the Wife was not aware of its existence. Full statements for the Entity were not provided. He also conceded the account was used at times to deposit winnings from the Brisbane Casino. Little disclosure about these activities are set out in the Husband’s Affidavit, and in particular no mention is made of the deposit of a distribution from the partnership to the Husband into thus account of $20,500 on 13th August 1999, approximately three (3) months before separation.
In respect of transactions since that deposit, the Husband said his explanations for the withdrawals from those funds were:-
14.9.1999$2,500 – Credit cards or shop
29.9.1999$3,000 – Possible used personally
6.10.1999$7,000 - $5,900 on credit card, balance unknown
22.10.1999 $1,000 – Spent personally
28.10.1999 $3,000 – Spent personally
13.11.1999 $4,890 – Paid to the joint account
Because of the lack of frankness and disclosure in respect of this account, and the inability to provide reliable evidence of all the withdrawals, I propose to add to the pool of assets the sum of $8,100, not otherwise accounted for by the Husband or spent personally as above.
Payments from family
The parties have benefited from the financial support and assistance provided by members of the Husband’s family. I shall, when dealing with various contributions more clearly identify these benefits. When seeking however to establish the pool of assets, it is necessary to determine whether any benefits should properly be construed as loans. In this regard consideration of the principles enunciated in authorities such as Biltoft (1995) FLC 92-614 and Honda (2001) FAMCA 300 need to be considered.
The Husband claims a debt due and owing to his grandmother E T of $15,000. This loan was used by the Husband to discharge an encumbrance on the Holden Calibra Motor Vehicle of approximately $8,400. The Husband was unable to confidently say how he used the balance but thought it may have been used for Video shop expenses. I am satisfied, on the evidence, that it has been the practice of the Husband to repay his grandmother. Even though I suspect his grandmother is unlikely to sue for the funds, if they are not paid, I believe it is proper to bring into account such of those monies as were used for the payment of the car loans. For reasons already given, I do not propose to bring into account any loans used for the video business.
The loans from the Husband’s parents and or the EC Z FAMILY TRUST (controlled by the Husband’s parents) were the subject of much evidence and cross examination before me.
In respect of the funds received in April 1993 of $50,000, I am satisfied the funds were received and used by the parties to assist in the refinance of the matrimonial home, still retained. The Wife does not dispute the funds were received, but says they were a gift to the parties by the Husband’s parents. In support of her assertion she says:-
a)The Husband told her prior to February 1992 that his parents would “give” them $50,000 to help pay off the house;
b)She had discussions with E and L Z in early 1993 in the presence of the Husband when the parents made no suggestion that the funds were to be repaid;
c)No demand was ever made for repayment, or otherwise discussed with her by the parents, during the relationship;
d)After separation, and shortly after returning to Queensland after a trip to Sydney when the Husband had confirmed he was not returning to B, the Wife says she called a meeting with the Husband’s parents and his grandmother. She says she telephoned L Z to urgently arrange the meeting when she found an unsigned Bill of Sale at the home. The copy of the Bill of Sale was between the Husband and EC Z FAMILY COMPANY PTY LTD (as trustee for the Family Trust) for borrowings of $100,000. She claims not to have seen this document previously and I accept that evidence.
e)She took the copy of the Bill of Sale to the meeting which she says took place at Mrs T’s home on a Sunday. She claims that when she produced a copy of the Bill of Sale she said, words to the effect:
“Why was the first $50,000 you gave us on the Bill of Sale. So you expect us to pay it back.”
She says the husband’s parents acted surprised but said words to the effect:
“Don’t be ridiculous, that money was a gift.”
Under cross-examination she denied the conversation was “heated”, although she was at that time she was also informing P’s parents of the separation;
f)That the conversations referred to at paragraph 10 of E Z’s Affidavit and paragraph 11 of L Z’s Affidavit were part of a conversation on the first occasion, but not in the front yard as alleged by them;
g)That there was another meeting some weeks later (after the Husband’s parents had been to Sydney to see the Husband) and that conversation did take place in the front yard, but did not relate to the Bill of Sale.
The Husband of course was not present during the conversations in B after separation. His evidence is that it was always understood that the funds were a loan, and says at paragraph 12 of his Affidavit that:
“Interest has never been paid to my parents under the loan from the trust although I have always acknowledged their right to require the payment of interest at their election.”
The Husband says, is support of his assertion that the funds provided in 1993 were a loan that:-
a)He cannot recall any discussions between his parents and the Wife relating to the loan of $50,000, although he could recall a statement that they wanted to “help us out”;
b)Prior to the Video shop transaction, he had never thought about securing the debt;
c)Securing debts between parents and children in a formal or written manner is the standard advice he gives to clients of his practice;
d)It was his suggestion to protect his parents’ advances with a Bill of Sale and he gave the instructions to the company lawyers by letter dated 26th April 1999. He did not discuss the document with the Wife, and he is shown as the sole borrower in the Bill of Sale executed by him on 8th June 1999;
e)The balance sheet (prepared by him) for the Trust to 30th June 1993 fails to disclose the loan (see Exhibit 2) but says the working papers do refer to the transaction. On the evidence I could not be so satisfied.
The evidence of Mr and Mrs Z Senior essentially was that all discussions on advances took place with P and the Wife was not present. They expected the funds to be repaid in time, because they wish to treat all their children fairly and equally. They deny saying to the Wife that the funds were a gift. It certainly appears from their own evidence, that they were surprised the Bill of Sale referred to this advance (in addition to the advance to the Husband for the establishment of the Video Shop).
Where the evidence of the Wife differs from that of the Husband and/or parents of the Husband, I generally prefer the evidence of the Wife on this issue. I am satisfied that it was not intended the advance would be a loan repaid in the future. It may be something taken into account by Mr and Mrs Z when they come to adjust their affairs between their own children.
The Wife has not satisfied me, in accordance with the onus that rests upon her under the principles identified in Kessey (1994) FLC 92-495 that the advance was for a joint benefit, save as identified by Mr and Mrs Z Senior, for the indirect benefit to her and the family. I do regard the advance as a contribution made by the Husband to the pool of assets.
Pool of assets
Many items of property were properly conceded by the parties during the trial, both as to valuation and identify. Some items were not the subject of any evidence and as a result I have adopted values set out in their respective financial statements and not otherwise challenged. I have disregarded furniture.
I have disregarded, in establishing the pool of assets, the legal expenses liability each party has disclosed; any taxation refunds received by the Wife post separation; the accrued outstanding school fees, essentially because the Husband’s obligation for child support does not include (under the administrative formula) that obligation and the tax refunds were used or available for those purposes. I am satisfied the B Broadcasting shares are vested in the P Z Superannuation Fund. On this basis I detail the Pool of Assets as follows:-
Assets
Property at 45A G Street, B $126,000
Apartment at 10/5 M Street, B $ 55,000
Film investments $ 95,000
Husband’s Motor Bike $ 4,500
Wife’s Motor Vehicle $ 12,000
Sub total $292,500
Add back Husband’s net K N A/C $ 8,100
Total: $300,600
Liabilities
Part Grandmothers Loan $ 8,400
Home Mortgage $ 62,366
Film Loans $ 60,000
Wife’s Car Loan $ 5,618
Husband’s Assumed Credit Card Debt $ 4,660
Total $141,044
Net total $159,556
Contingent Liability
Taxation Debt of Husband on disallowed
deductions $ 70,675
Financial Resources
Husband’s Superannuation $ 16,561
Wife’s Superannuation $ 137,994
Contributions under section79(4)
In this matter, the parties did not seriously differ about the nature of the contributions made by them during the course of this busy relationship, but rather the effect of those contributions.
On the evidence I find the following contributions were made:
The Husband:
a)Benefit from paying less than market rent to occupy from approximately 1987 to 1990, the home of Mrs T;
b)Interest free advances from Mrs T to meet the deposit and purchase costs of 9 A Street, B and further interest free advances to discharge the car loan and the pay the deposit on 45A G Street, B and the M Street Unit;
c)A significant contribution from the EC Z FAMILY TRUST of $50,000 in April 1993, to partly discharge the home mortgage;
d)Direct and significant earnings from the interest of the Husband in the B accountancy practice DGZ, and his employment prior to commencing practice. Earnings as a Tutor for Central Queensland University and distributions and other financial assistance from time to time from his parents. The Husband also creatively organised his affairs to minimise the tax incidence on his income, including the film investments and, near the end of the relationship, the video shop enterprise. This increased disposal income available to the parties with at least a deferral of taxation liabilities. The contributions of a direct financial nature from these sources was more significant than those from the Wife;
e)Receipt of an inheritance from the Estate of his late grandfather of $35,000;
f)Non-financial contribution in the role as parent, homemaker and to property preservation and maintenance. In totality, I would assess the Husband’s contributions from this source as less significant than the Wife, as a result of the long hours worked by the Husband.
The Wife:
a)Direct financial contribution from her employment as a primary school teacher. The taxable income of the Wife is set out in Annexure “E” to the Husband’s Affidavit. She also slightly reduced her tax incidence by the negative gearing of the rental property at B;
b)A substantial contribution as homemaker and parent to the parties children. In this regard, the Wife’s contribution is assessed as more significant than that of the Husband.
But for the assistance of the Husband’s family as set out above, I would find contributions to separation as equal. I find however, in the context of the value of the pool of assets in this matter that the contributions of some $85,000 (from the advance and inheritance) require an adjustment in the Husband’s favour of 15%.
Post-separation, I am satisfied that the Husband had continued to maintain payments on the film investment loans with the effect of reducing the balance outstanding. His contributions to the family otherwise amount to child support as assessed. The Wife, with the benefit of rent from the B Unit, paid the loans on the properties; continued to care for the children and, although having the benefit of residing in the home, she has preserved and maintained it. I would make no further adjustment between the parties for post separation contributions.
Section 75(2) factors
The Husband has both a superior income than the Wife (estimated by him to be at least $100,000 per annum) and a superior earning capacity. His skills, through his endeavours during the relationship, have been enhanced. There is no suggestion he will not be able to continue his career development, unimpeded by the responsibilities of parenthood for the children of this marriage. Although the Husband has re-partnered and his partner was pregnant at trial, the history of his marriage suggests he will continue to successfully develop his financial opportunities. Although he says he has the moral obligation to repay what he regards as loans to his grandmother (of $15,000) and his parents (of $100,000), these loans do not attract interest to date and no periodic repayments are demanded. I regard it as unlikely that any recovery action will be taken against him by either creditor. The Husband’s current superannuation entitlement is significantly less than the Wife’s. The income he currently receives as a “fixed salary distribution” may not attract an entitlement to occupational superannuation, however the Husband’s income potential means that over a normal working life, his financial position is likely to significantly improve, especially as some of the credit card and other debts he is servicing are extinguished.
The Wife is employed as a Primary Schoolteacher and such employment enables her to juggle her responsibilities for K (now aged 16) and M (now aged 14) with her duties as a teacher. It is unlikely her income, or the results of these proceedings will enable her to enjoy the lifestyle the family enjoyed during the marriage, punctuated with overseas trips and material benefits. The Wife’s income will improve in what I find is her stable employment, although it is unlikely to reach the level of the Husband’s. There is no evidence to suggest that the Wife’s health would prevent her from working to her selected retirement age.
I find the assessment of s.75(2) factors compels an adjustment in the Wife’s favour. Such adjustment would have been greater if there was not a current disparity of some magnitude between the Wife’s Superannuation entitlement of $137,994 and the Husband’s self managed Superannuation fund of $16,561. I calculate that an adjustment in the Wife’s favour of 10% is appropriate.
Just and equitable
Based on the analysis above, I would distribute the matrimonial pool of assets in the proportions of 55% to the Husband and 45% to the Wife. This is before consideration is given, as it must, to the contingent taxation liability.
For the Wife to retain the Former matrimonial home, her rental unit and her car (as she seeks), she would be required to raise funds to pay the Husband the sum of $53,216 calculated as follows:-
45% of $159,556 $ 71,800
Equity in Real Property $118,634
Equity in Car $ 6,382
$125,016
Wife’s payment to Husband $ 53,216
$ 71,800
And the Husband’s entitlement of $87,756 (55% of $159,556) would be made up as follows:
Film Investments $ 95,000
Bike $ 4,500
Use of funds from K N $ 8,100
$107,600
Less
Part Grandmothers loan $ 8,400
Film Debts $60,000
Matrimonial Credit Card Liability Assumed $ 4,660 $ 73,060
$ 34,540
Plus Payment from Wife $ 53,216
$ 87,756
The contingent taxation liability, if it crystallised at the current estimated level of $70,675, should be paid as to:-
55% or $38,871 by the Husband
45% or $31,804 by the Wife
The debt, if payable may be the subject of adjustment for penalties for late payment or negotiated reduction for prompt payment after the result of the test cases are known.
Because of the number of issues which were litigated before me, and the spectrum of options that may have been available depending on my findings, it was not practical or reasonable to have expected the Counsel who appeared before me, and who were of great assistance to me, to make submissions as to how this potential liability should be dealt with.
The options which may be available to me, to ensure justice and equity to the parties is achieved, include:
b)Adjournment of the matter under s.79(5) until the debt crystallises, such adjournment to be accompanied by an interim property distribution or not;
c)Dividing the property as set out above, but charging the Wife’s interest in property retained by her with the potential obligation to pay the Husband, her share of any crystallised debt to the Australian Taxation Office;
d)Having a mechanism for the proper and timely reporting by the Husband to the Wife of developments in respect of this contingent liability.
On 28th March 2002, I relisted the matter for the purpose of hearing submissions on whether the matter should be adjourned pending the crystalisation of the taxation liability. At the same time, the Wife sought a re-opening of the case. On the 28th March 2002, I dismissed the Wife’s application for re-opening for the reasons delivered ex tempore at that time.
I received written submissions from the Wife on 5th April 2002 and from the Husband on 10th April 2002. Whilst both written submissions urged that no adjournment of the matter should occur, the basis for each submission was slightly different:-
a)The Wife submitting that although the taxation debt should be treated as a contingent liability, the extent of which is “uncertain”, I am able to do justice and equity to the parties on the evidence. In this this regard the Wife says the Husband’s opposition to the re-opening of the case is relevant;
b)The Husband submits that, in accordance with the principles identified in Grace v Grace (1997) 22 FAM LR 442, that:-
i)there is no evidence that would persuade me that the debt will not be payable to the Taxation Department and as such there is no likely “change in the financial circumstances” of the Husband;
ii)an adjournment would be prejudicial to the Husband and that justice and equity to the parties is achieved by an immediate order;
iii)it would always be open to a party, pursuant to s.79A of the Act, to seek to vary or set aside the final order which would be more appropriate than adjourning the proceedings for what might be an “indeterminate period of time”.
I have come to the conclusion that the proceedings should not be adjourned. I propose to distribute the property as previously identified in the proportions found by me to be proper and to make allowance for the contingent taxation liability by the Wife charging her interest in the former matrimonial home with her share of the contingent liability.
I am prepared to give the parties an opportunity to be heard on the form of the order I propose and I also propose that the parties have liberty to apply to me in the future to make any consequential applications on the enforcement of the debt, when it crystalises, without being required to bring an application under s.79A of the Act, for that purpose alone.
The orders I propose are set out at the beginning of these reasons.
I certify that the preceding sixty-one (61) paragraphs are a true copy of the reasons for judgment of Baumann FM
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