Zabarac and Zabarac & Anor
[2014] FamCA 296
•7 May 2014
FAMILY COURT OF AUSTRALIA
| ZABARAC & ZABARAC AND ANOR | [2014] FamCA 296 |
| FAMILY LAW – PROPERTY – Application by the wife for property settlement orders pursuant to s 79 of the Family Law Act 1975 (Cth) – Whether just and equitable to alter property interests and rights – Stanford v Stanford [2012] HCA 52 considered – Consideration of factors under s 79 and s 75(2) of the Family Law Act 1975 (Cth) – Where the parties’ contributions, as at the date of trial, are assessed as being equal – Where an adjustment, pursuant to s 75(2), of 15 per cent in the wife’s favour is appropriate. FAMILY LAW – SPOUSE MAINTENANCE – Where the wife sought an order for spouse maintenance – Where the onus is on the wife to establish that she is unable to support herself adequately pursuant to s 72 – Where the court determined that the wife is temporarily unable to support herself adequately for the purposes of s 72 of the Act – Where order made for spouse maintenance pending full implementation of the orders for alteration of property interests. |
| Family Law Act 1975 (Cth) sections 79, 75(2), 72 Family Law Rules 2004 15.52, 15.54 |
| Stanford v Stanford [2012] HCA 52 |
| APPLICANT: | Ms Zabarac |
| 1st RESPONDENT: | Mr Zabarac |
| INTERVENOR: | Commissioner of Taxation |
| FILE NUMBER: | SYC | 3820 | of | 2012 |
| DATE DELIVERED: | 7 May 2014 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Stevenson J |
| HEARING DATE: | 13, 14, 15, 16 January 2014 11 February 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Gould |
| SOLICITOR FOR THE APPLICANT: | McLachlin Thorpe Partners |
| COUNSEL FOR THE 1ST RESPONDENT: | Mr Dura |
| SOLICITOR FOR THE 1ST RESPONDENT: | Brown & Brown Lawyers |
| COUNSEL FOR THE INTERVENOR: | Ms Fishburn |
| SOLICITOR FOR THE INTERVENOR: | ATO Legal Services Branch |
Orders
That all existing orders herein are discharged.
That both parties do all things and execute all documents required to effect the sale of the property situate at and known as H Street, Suburb V in the State of New South Wales for the best price reasonably obtainable and to distribute the proceeds of such sale as follows:
2.1 in payment of agent’s commission and expenses
2.2 in payment of legal costs and disbursements incidental to the sale
2.3in payment of all monies necessary to discharge the liabilities to the ANZ Bank secured on the title to the property
2.4in payment to the Commissioner for Taxation of a sum of $518,612
2.5in payment of the balance to the wife.
That both parties do all things and execute all documents required to effect the sale of the property situate at and known as T Street, Suburb V in the State of New South Wales and to distribute the proceeds of such sale as follows:
3.1 in payment of agent’s commission and expenses
3.2 in payment of legal costs and disbursements incidental to the sale
3.3in payment of all monies required to discharge the mortgage secured on the title to the property
3.4 in payment of the special levy referable to the property
3.5 in payment of the balance to the wife.
That the husband pay to the wife, within 2 (two) calendar months of the date of these orders a sum of $342,000.
That, in the event of default by the husband in compliance with order 4 hereof, he will do all things and execute all documents required to effect the sale for the best price reasonably obtainable of the property situate at and known as O Street, Suburb R in the State of New South Wales and to distribute the proceeds of sale as follows:
5.1 in payment of agent’s commission and expenses
5.2 in payment of legal costs and expenses incidental to the sale
5.3in payment of all monies required to discharge the mortgage secured on the title to the property
5.4 in payment of the balance to the wife.
That, within 2 (two) calendar months of the date of these orders the wife will do all things and execute all documents necessary to:
6.1resign all offices held by her in the companies known as U Pty Limited, D Pty Limited and Q Pty Limited (“the companies”)
6.2transfer the whole of her right title and interest in the companies to the husband or his nominee.
That the husband indemnify the wife and keep her indemnified against all liabilities of any kind arising from her directorship of or shareholding in the companies.
That the husband pay the income tax, interest and penalties of the companies U Pty Limited and D Pty Limited as agreed between himself and the Intervener.
That both parties do all things and execute all documents necessary to create a splitting order so as to constitute the wife solely entitled to the funds held jointly by them in the Z Superannuation Fund.
That the husband pay to the wife spouse maintenance of $800 per week from the date of these orders until the wife’s receipt of all of her entitlements pursuant to these orders, with the first such payment to be made within 7 days of the date of these orders and thereafter at weekly intervals to a bank account nominated by the wife.
That all outstanding applications and responses herein are dismissed.
That all material produced on subpoena be returned.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Zabarac & Zabarac has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 3820 of 2012
| Ms Zabarac |
Applicant
And
| Mr Zabarac |
1st Respondent
And
| Commissioner of Taxation |
Intervener
REASONS FOR JUDGMENT
The proceedings
Ms Zabarac (“the wife”) and Mr Zabarac (“the husband”) are in dispute as to distribution of their matrimonial property. The Commissioner of Taxation intervened in the proceedings and sought the following orders, by way of an Amended Application in a Case filed on 21 June 2013:
As part of any final property settlement or orders between the husband and the wife, this Honourable Court:
(a) Take into account the taxation liabilities of:
(i) The husband;
(ii) The wife;
(iii) [D] Pty Ltd;
(iv) [U] Pty Ltd;
(b) Make provision for the payment of the taxation liabilities of the persons and entities identified above to the Commissioner of Taxation.
The Commissioner asserted that the husband, the wife and these two corporate entities owe the following amounts on account of unpaid tax, late payment penalties and general interest charges:
Applicant Wife
Tax
30.06.2010
30.06.2011
30.06.2012
Total
Income tax (IT)
$39,572
$45,062.90
$34,374.60
$119,009.50
Late Penalty (LP)
$1,110.00
General Interest Charge (GIC)
$21,381.11
Payments/Credits
$9,500.00
Total for IT, LP, GIC
$132,000.61
Running balance account deficit debt
$26,332.10
Total Tax
$158,332.71
Respondent Husband
Tax
30.06.2010
30.06.2011
30.06.2012
Total
Income tax (IT)
$194,689.75
$239,287.05
$17,924.25
$451,901.05
Late Penalty (LP)
$1,220.00
General Interest Charge (GIC)
$89,098.54
Payments/Credits
$131,511.81
Total for IT, LP, GIC
$410,707.78
Running balance account deficit debt
$208,363.47
Total Tax
$619,071.25
Second Respondent
Tax
30.06.2009
30.06.2010
30.06.2011
30.06.2012
Total
Income tax (IT)
$80,851
$7,412.70
$7,347.00
$6,847.80
$102,458.50
Late Penalty (LP)
$1,220.00
General Interest Charge (GIC)
$20,932.62
Payments/Credits
$65,200.00
Total for IT, LP, GIC
$159,411.12
Running balance account deficit debt
$3,979.99
Total Tax
$63,391.11
Third Respondent
Tax
30.06.2008
2009/2010
30.06.2011
30.06.2012
Total
Income tax (IT)
$57,114.30
MA
$8,463.30
$10,957.80
$76,535.40
Late Penalty (LP)
$1,220.00
General Interest Charge (GIC)
$32,568.67
Payments/Credits
$24,788.65
Total for IT, LP, GIC
$85,535.42
Running balance account deficit debt
NA
Total Tax
$85,535.42
I understood that neither the husband nor the wife took issue with the accuracy of these amounts nor contended that there is any reason why these debts should not be paid to the Taxation Commissioner.
In her Minute the wife sought orders that the husband indemnify her in relation to any liability for tax arising from income derived by her as director, office holder, employee or shareholder of U Pty Ltd and/or Q Pty Ltd and/or as beneficiary of the Q Trust. In her oral evidence, however, the wife said “It is not correct that I say the husband should be solely responsible for all tax. I will be responsible for my own tax and the husband the balance.” The husband sought orders that the parties cause payment of all tax debts from the proceeds of sale of the former matrimonial home at H Street, Suburb V.
The husband is a salesman who trades within a partnership known as LBP Partnership. The Q Trust (“the Trust”) currently holds a 28.5 per cent interest in this partnership. The trustee of the Q Trust is a company known as Q Pty Limited, of which the husband and wife are directors and shareholders. The parties and their children are the eligible beneficiaries of this trust.
On 21 November 2012 Mr K was appointed as single expert to value the interest of the Trust in LBP Partnership. Mr K prepared a report dated 15 November 2013, in which he valued the Trust’s 28.5 per cent interest in LBP at $1,260,000.00. The valuation figure ultimately advanced on behalf of the wife was $1,258,000.
On 13 January 2014 the husband sought leave to file in court an Application in a Case whereby he sought to rely on a report from an adversarial expert, Mr H, as to the value of the interest of the Trust in LBP Partnership. Mr H valued that interest at $322,000.00. It should be noted that this application was made only on the first day of the final hearing in these proceedings.
On 14 January 2014 I granted the husband’s application for leave to rely on Mr H’s report. By consent, I ordered that Mr K and Mr H confer at 2.30pm that day and directed that they produce a joint statement setting out their areas of agreement and dispute. Mr K and Mr H did not resolve their differences in that conference, but produced a joint memorandum dated 15 January 2014. (exhibit 22)
On a strict application of Family Law Rules 15.52 and 15.54, I probably had grounds at the outset to reject the husband’s application to adduce adversarial expert evidence from Mr H. In support of this application, the husband relied on his affidavit sworn on 13 January 2014 and the report of Mr H. Even before cross-examination of the husband and/or Mr H it was clear that there was significant non-compliance with these Rules, for these reasons:
·there was no written request for a report
·Mr H conferred with the husband’s counsel on 29 November 2013 but there was no written disclosure of his instructions.
As appears below, the issue of instructions and information given to Mr H became more problematic after his cross-examination.
Nonetheless, I elected to allow the husband to adduce adversarial evidence from Mr H. In addition to non-compliance with the Rules, I had concerns as to the limited time frame allowed to the wife and those who advise her to consider the proposed evidence from Mr H. The wife’s solicitor received Mr H’s report on 19 December 2013 and his “critique of Mr [K’s] valuation” on 13 January 2014. Essentially, I acceded to the husband’s application because I was concerned at the very large discrepancy in the valuation figures and the consequent prospect of a significant injustice to one of the parties. Accordingly, I determined that the preferable course was to receive the evidence of both Mr K and Mr H and then determine which valuation appeared to be more reliable in all of the circumstances. For reasons which appear below, I prefer the evidence of Mr K to that of Mr H in any event.
On behalf of the husband, objection was taken to the affidavit and report of Dr L (also known as “…”). The husband’s counsel contended that Dr L was not qualified to give an opinion in relation to the wife’s capacity to engage in gainful employment. Counsel for the wife maintained that Dr L is a treating medical practitioner and is thus able to give evidence pursuant to Division 15.5.1.
I elected to allow Dr L to give expert evidence in the wife’s case. She is a “medical psychotherapist” who has been treating the wife since August 2009. Dr L annexed to her affidavit a letter of instruction dated 24 December 2013 from the wife’s solicitors, together with evidence that she was aware of the Rules in relation to expert witnesses.
Dr L obtained the degrees of Bachelor of Medicine/Bachelor of Surgery in 1975. She also holds the degree of Master of Medicine, majoring in psychotherapy. Between 1975 and 1988 Dr L worked as a general practitioner and thereafter she has practised as a medical psychotherapist.
With her qualifications and experience, it seemed obvious to me that Dr L was well qualified to offer a diagnosis that the wife suffers from “severe anxiety” and to report on her observations of the symptoms of that condition. I could see no reason why she lacked the ability to indicate which medications she has prescribed for the wife and her reasons for doing so. I was far less convinced Dr L was qualified to give evidence that the wife’s income earning capacity “is currently affected by her condition as diagnosed”. Nevertheless I took the view that this opinion could be tested in cross-examination and I would then be in a position to assess what weight, if any, should properly be attached to that part of the evidence of Dr L.
Background
The husband was born in 1969 and is currently 44 years of age. The wife was born in 1972 and is presently aged 42 years. The parties married in 1996 and separated on 6 May 2011, when the husband vacated the former matrimonial home at Suburb V.
There are two children of the marriage:
C, born in 2002 (12) and
E, born in 2004 (10).
The children have lived with the wife continuously since the separation and usually spent time with the husband on Sundays.
The husband has a child, X, who is approximately two years of age. He pays child support of $250.00 per week but, apparently, has no contact with this little boy.
In 1993 the wife obtained a Bachelor of Business degree. At the date of the marriage she was employed as a financial services professional by the Westpac Bank. The husband worked as a property salesman during the parties’ relationship, apart from a period between 1997 and 2004/2005 when he and a partner conducted a retail business. The wife worked in this business as a financial controller until its collapse in 2004/2005. The wife qualified as a financial professional in 1999.
In 1993 the husband purchased H Street, Suburb K for $153,000 or $103,000, according to himself and the wife respectively. The husband paid a deposit and borrowed the balance of the purchase money from the National Australia Bank.
In 1994 the husband purchased V Street, Suburb K for $108,000.00. He paid a deposit and borrowed the balance of the purchase money from the National Australia Bank. The husband gave uncontradicted evidence that he spent about $30,000.00 on renovations to this property.
Prior to the marriage the parties jointly purchased F Street, Suburb G for $225,000.00. Each of the parties claimed to have paid the deposit and it was common ground that the balance of the purchase money came from bank borrowings.
Also in 1995 the parties purchased jointly a property at B Street, Suburb B for $93,500. According to the husband, the parties paid a deposit from joint funds and borrowed the balance of the purchase money from the Westpac Bank.
In 1997 the husband established a business known as ERE Pty Ltd. He claimed that he used a sum of $108,000, being the net proceeds of sale of the property V Street, Suburb K, as start-up capital for this business. The wife contended that the husband established this business with bank borrowings of $330,000. In October 1998 the wife left her employment with Westpac Bank and went to work with the husband in the business ERE Pty Ltd.
In January 1999 the parties purchased jointly I Street, Suburb RR for $1,000,000. According to the husband, he paid a deposit of $50,000.00 and the parties borrowed $950,000 from the National Australia Bank. According to the wife, the parties borrowed the whole of the purchase money from the National Australia Bank. The parties occupied this property as their family home until its sale in 2006. They were obliged to spend some $200,000 on building rectification work, which was not covered by insurance.
In March 2000 the husband sold H Street, Suburb K for $312,000. He used the net proceeds of sale, being approximately $200,000, to reduce the mortgage on the property I Street, Suburb RR.
In December 2000 the husband sold the business ERE Pty Ltd for $330,000. He used all of these funds to pay down various debts. Both parties then worked in the retail business.
In July 2002 the parties sold F Street, Suburb G for $525,000. The net proceeds of this sale were used to pay taxation liabilities, reduce the mortgage on the property I Street, Suburb RR and to support the retail business.
In 2003 the parties purchased the former matrimonial home at H Street, Suburb V in the sole name of the wife for $2,915,000. They borrowed $2,600,000.00 from the National Australia Bank and the balance was advanced by a silent partner. Apparently, the parties and the silent partner intended to develop this property but those plans failed to come to fruition. A sum of $315,000 was repaid to this person when the property was sold for $2,291,000.
In 2004 the husband commenced employment on commission as a salesman with LBP. On 16 March 2005 the husband established the Z Family Trust, which later became known as the Q Trust. The Trust purchased a twenty per cent interest in LBP for $600,000 in 2005. According to the husband this purchase money came from borrowings of $760,000 from the National Australia Bank. This loan was secured by a mortgage on the title to the V property.
In 2004 the parties purchased a property at J Street, Suburb B in the name of the wife for $630,000. The purchase money came from $450,000 from the National Australia Bank and a loan of $230,000 from the wife’s parents.
In 2007 the parties purchased jointly commercial premises at T Street, Suburb B for approximately $935,000.00. This purchase was funded by bank borrowings of $1,000,000, secured by a mortgage on the title to the V property.
In 2010 the Trust purchased an additional four per cent interest in LBP for $150,000. According to the husband, the purchase money came from the advance of $760,000 by the National Australia Bank in 2005.
Following the parties’ separation on 6 May 2011, the husband paid sums between $10,000 and $13,000 per month to the wife until January 2012. He provided $10,000 per month to the wife between February 2012 and June 2012.
In January 2012 the Trust purchased a further interest in LBP for a price of $192,449. According to the husband, the purchase money came from his income. This acquisition took to 28.5 per cent the interest of the Trust in LBP.
In August 2012 the husband purchased a property at O Street, Suburb R for $1,015,000. He borrowed $960,000 from ING, with the balance of the purchase money coming from his post separation income and profit distributions from LBP.
On 26 May 2011 the husband caused the incorporation of a company known as SY Pty Ltd, of which he is the sole director and shareholder. This company has since received all distributions due to the husband from LBP.
The husband maintained that he caused the incorporation of this company when he discovered that the wife had unilaterally transferred a sum of $63,000 from an ANZ Bank account in her name. This account contained rental income from the properties in J Street and T Street, Suburb B. The wife also withdrew $75,000 from this account on 16 May 2011. The money in this account historically had been applied to service mortgages on the title to the former matrimonial home at Suburb V and the two investment properties.
On 21 November 2012 Ryan J made various interim orders, which may be summarised as follows:
1.that the husband pay interim spouse maintenance to the wife in an amount of $1,063 per week.
2.that the husband is restrained from receiving or causing to be distributed from LBP any bonus payments, profit share or dividends due for the financial years ended 30 June 2011 and 30 June 2012 to any entity other than SY Pty Ltd.
3.that the husband is restrained from changeing, encumbering, assigning or dealing with his share of the partnership LBP without first providing to both the wife and the partnership twenty-eight days’ notice in writing.
4.that the husband is restrained from distributing, disposing of or encumbering any assets howsoever described of the company SY Pty Ltd.
5.that the husband is restrained from drawing any amount in excess of $2,600 per week from SY Pty Ltd for his reasonable personal expenses, compliance with these orders or payment to the Australian Taxation Office.
The orders of 21 November 2011 also provided, by consent, that the husband is restrained in whatever capacity from:
1.dealing with any asset which comprises a component of the husband’s or the wife’s interest in the Z Superannuation Fund
2.dealing with, disposing of or further encumbering shares in his Etrade account
3.selling, assigning, dealing with or further encumbering his interest in O Street, Suburb R.
The parties consented to orders that the husband service the mortgages and outgoings in respect of the former matrimonial home and the investment properties in Suburb B, together with the lease of a Volvo motor vehicle used by the wife.
The orders of 21 November 2011 also provided, by consent, that the parties would effect a sale of the property J Street, Suburb B at a minimum sale price of $640,000. In the event of a shortfall between the sale proceeds and the sum owed to the wife’s parents, that amount was to be secured against the title to the property H Street, Suburb V. The orders provided further that the wife give all necessary consents to cause the rental income from the premises at T Street, Suburb B to be paid to the husband, whereupon he would meet all mortgage repayments and outgoings in respect of that property. These orders similarly provided that the wife cause all income generated by the property J Street, Suburb B to be paid to the husband. The orders provided further for the husband to furnish various documents to the wife’s solicitors by way of discovery.
In December 2012 the wife sold the property J Street, Suburb B for $640,000. The ANZ Bank received approximately $551,110 and a sum of $76,717 was paid to the wife’s parents in reduction of their loan.
The evidence and witnesses
The applicant wife relied on the following affidavits:
1.Ms Zabarac (the wife) sworn on 28 June 2012, 5 October 2012, 22 April 2013, 6 May 2013, 25 June 2013 and 24 December 2013
2.Mr SG (the wife’s father) sworn on 24 December 2013
3.Dr L (the wife’s medical psychotherapist) sworn 10 January 2014.
4.Financial Statement of the wife sworn on 10 January 2014
All of these witnesses gave oral evidence by way of cross-examination.
The respondent husband relied on the following affidavits:
1.Mr Zabarac (the husband) sworn on 28 June 2013.
2.Mr H (the husband’s adversarial business valuer) sworn on 10 January 2014
3.Financial Statement of the husband sworn on 8 January 2014.
Both of these witnesses gave oral evidence by way of cross examination.
The Commissioner for Taxation relied on the following affidavits:
1.Ms TM (Australian Taxation Officer employee) sworn on 8 January 2014 and 10 January 2014.
This witness was not required for cross examination.
As noted, Mr K was appointed a single expert for the purpose of valuation of the interest of the Q Trust in the LBP Partnership. Mr K swore an affidavit on 10 January 2014. He and the husband’s adversarial expert, Mr H, gave oral evidence in an agreed arrangement whereby they were present in the witness box simultaneously.
I was invited by both counsel to read the reasons for judgment of Ryan J dated 21 November 2012. I have summarised above the interim orders of that date.
Approach to these proceedings
In Stanford v Stanford [2012] HCA 52 the majority of the High Court of Australia held as follows:
35. It will be recalled that s 79(2) provides that “[t]he 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”. Section 79(4) prescribes matters that must be taken into account in considering what order (if any) should be made under this section. The requirements of the two sub-sections are not to be conflated. In every case in which a property settlement order under s 79 is sought, it is necessary to satisfy the court that, in all the circumstances, it is just and equitable to make the order.
Their Honours further observed as follows:
42. In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship. And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by apply s 79(4).
I am satisfied that it is just and equitable to make an order for alteration of property interests in these proceedings for two main reasons. Firstly, each of the parties seeks orders which would alter their existing interests in property. Secondly, the parties’ relationship has broken down completely and there will be no future common use of property. It is thus just and equitable to facilitate a distribution between the parties and to allow them to move ahead with their separate lives.
The Assets, Superannuation, Liabilities and Financial Resources
On 11 February 2014 counsel for the parties submitted a Joint Balance Sheet in the following terms:
Ownership
Description
Wife
Husband
ASSETS
Real Estate & Cars
1
Wife
H Street, Suburb V
$3,300,000
$3,300,000
2
Wife
T Street, Suburb B
$1,075,000
$1,075,000
3
Husband
O Street, Suburb R
$1,300,000
$1,150,000
4
Wife
Volvo motor vehicle
E$16,500
E$16,500
5
Husband
Porsche motor vehicle
E$57,000
E$57,000
6
Husband
Volvo motor vehicle
E$10,150
E$10,150
Bank Accounts
7
Husband
Bank accounts
$58,650
(to be updated by husband)
$58,650
(to be updated by husband)
8
Wife
NAB account No …061
$4,357
$4,357
9
Wife
ANZ account No …74
$1,089
$1,089
10
Wife
McLachlan Thorpe Trust Account
$0
$0
Investments
11
Trust
28.5% interest in LBP
$1,258,000
$185,820
12
Husband
Share Portfolio
E$71,147
E$71,147
13
Joint
U Pty Ltd
NK
NK
14
Husband
Loan to Mr W
$8,950
$8,950
Furniture Chattels Etc
15
Husband
Furnishings & Contents
$5,000
$5,000
16
Wife
Furnishings & Contents
$5,000
$5,000
17
Husband
American Express Points
E450,000 points
E450,000 points
18
Wife
Credit Card Points
156,602 points
156,602 points
Add Backs
19
Husband
Legal fees paid
$23,059
$23,059
20
Wife
Legal fees paid
$217,456
$217,456
Superannuation
21
Joint
Z Super Fund
$420,437
$420,437
Life Insurance
22
Husband
Life Insurance American Express
$100,000
NIL
Total Assets
$7,931,796
$6,609,616
LIABILITIES
23
Wife
Suburb V Home Loan
$898,480
$898,480
24
Wife
Suburb V – Business loan
$807,000
$807,000
25
Wife
T Street, Suburb V – Mortgage
$1,021,633
$1,021,633
26
Wife
T Street, Suburb V – Special Levy
$17,250
$17,250
27
Husband
O Street, Suburb R – Mortgage
$958,748
$958,748
28
Joint
Porsche … Lease
$87,941
$87,941
29
Wife
Outstanding ATO debt
$158,332
$158,332
30
Husband
Outstanding ATO debt
$619,071
$619,071
31
Husband
D Pty Ltd
$63,391
$63,391
32
Husband
U Pty Ltd
$85,535
$85,535
33
Joint
Loan from Parents
$137,146
$137,146
34
Wife
Loan from Parents
$221,572
$221,572
35
Wife
ANZ Visa Card
$17,534
$17,534
36
Wife
Westpac Visa
$7,164
$7,164
37
Wife
ANZ MasterCard
$25,885
$25,885
38
Joint
Outstanding school fees
$49,000
$49,000
39
Husband
HSBC
$4,000
$4,000
40
Husband
American Express
$16,009
$16,009
41
Husband
Westpac MasterCard
$1,983
$1,983
42
Wife
Outstanding legal fees
$41,557
$41,557
Total Liability
$5,239,233
$5,239,233
NET PROPERTY OF PARTIES
$2,692,563
$1,370,383
(all items rounded down)
In final submissions counsel for the wife indicated that there was dispute in relation to the following items in the list of assets:
3
Husband
O Street, Suburb R
$1,300,000
$1,150,000
11
Trust
28.5% interest in LBP
$1,258,000
$185,820
22
Husband
Life Insurance American Express
E$100,000
nil
No issue was taken on behalf of the wife as to any item in the list of liabilities.
In his final submissions, counsel for the husband agreed that there was dispute as to items 3,11 and 22 in the list of assets. He submitted that the following items should be excluded from the balance sheet:
22
Husband
Life Insurance American Express
E$100,000
nil
17
Husband
American Express Points
E450,000 points
E450,000 points
18
Wife
Credit Card Points
156,602 points
156,602 points
Counsel for the husband maintained that the wife’s outstanding legal fees, in the sum of $41,557, should be excluded from the list of liabilities.
In his Financial Statement sworn on 8 January 2014 the husband included as an asset an American Express Life Insurance Policy with an estimated value of $100,000. Nonetheless, his counsel submitted that this policy has a value only on the death of the husband and should not be included as an asset. There was no evidence to support that proposition. The husband saw fit to categorise this insurance policy as an asset with a value of $100,000, less than four weeks before that submission was made to the court. On the basis of his own admission against interest, I will include the husband’s American Express insurance policy in the list of assets with a value of $100,000.
Counsel for the husband submitted that items 17 and 18, being American Express and credit card points, should be excluded from the list of assets because they have “no dollar value”. In my view, these points are at best a financial resource and will be excluded from the list of assets.
The Value of O Street, Suburb R
There was no expert evidence as to the value of the property O Street, Suburb R. The husband deposed that he exchanged contracts for the purchase of this property at a price of $1,200,000 on approximately 31 August 2012. He maintained that the contract provided for a purchase price of $1,015,000, if he was able to effect settlement by 30 November 2012. In cross-examination the husband agreed with the suggestion that “there was something slightly odd about a $185,000 discount if I settle within three months”.
In his Financial Statement of 8 January 2014 the husband deposed to a value of $1,150,000 for the R property. In his oral evidence he said that this figure was a 10 per cent increase on the purchase price. That proposition is obviously incorrect, whether the purchase price is regarded as $1,015,000 or $1,200,000. In any event, I can do no better than to adopt the husband’s admission against interest, he being the sole registered proprietor of this property, and find that its value is $1,150,000.
The Value of the Interest of The Q Trust in LBP
As noted, there was stark disagreement between Mr K and Mr H in relation to the value of the Trust’s 28.5 per cent interest in the LBP partnership. Mr K and Mr H valued this interest at $1,258,000 and $322,000 respectively. I was not informed why a figure of $185,820 appeared as the husband’s value for this asset in the Joint Balance Sheet dated 11 February 2014.
As outlined above, it was apparent from the outset that there was a significant failure to comply with the Rules in terms of instructions given to Mr H. As his cross-examination progressed, these difficulties were compounded to an extent which suggested as to the safety of his evidence. Mr H indicated as follows:
· he received no written instructions from either the husband or his solicitor, Mr Brown
· predominantly his conversations were with Mr Brown but he “had about half a dozen chats” with the husband
· he had “about half a dozen” conversations with Mr Brown
· he recounted none of his conversations with the husband or Mr Brown in his report
· he “played a part” in the formulation of questions which were put to Mr K on behalf of the husband
· he accepted that both the court and the wife have no knowledge of the contents of his conversations with the husband and Mr Brown
· the husband may have informed him of Mr K’s valuation figure but he had no recollection that he did so.
It is thus the case that the wife, her legal advisors and the court are in ignorance of the instructions and information given to Mr H. His evidence made clear that he held several discussions with the husband, his solicitor and his counsel but none of their contents were disclosed to the wife, her lawyers or the court. I reject the submission on behalf of the husband that “the terms of his retainer are clearly set out in his report”. That proposition simply cannot stand with the lack of disclosure of his instructions and information provided by or on behalf of the husband.
In his affidavit Mr H deposed:
2. I received instructions from [the husband] on 2 December 2013 to undertake a valuation of interest in [LBP] and to write a critique of a valuation report prepared by Mr [K] of [KB] Chartered Accountants in relation to [LBP]. Annexed hereto and marked “A” is a copy of the letter of instruction from [the husband].
That evidence was clearly incorrect, as his report was annexure A to Mr H’s affidavit. No letter of instruction from the husband and/or his lawyers was placed in evidence at any stage. Mr H’s oral evidence effectively confirmed that he never received a written letter of instruction.
In his oral evidence Mr H said that both he and Mr K applied a future maintainable earnings methodology. The difference was that he and Mr K adopted multiples of 1 and 5.9 respectively. Mr H agreed that, if his multiple of 1 is correct, the invested capital (ie the purchase price) would be returned within one year. He conceded that he saw no material which indicated that the parties received a return of $1,031,000 in any one year.
Mr H seemed to select his multiplier of 1 on the basis of his “experience” in the valuation of sales goodwill within the industry. In his report (at page 17) Mr H stated:
In our experience, the most common methodology employed when assigning a value to sales goodwill in the … industry is to ascertain the average annual trading surplus of the Sales Department for the most recent years of trading and apply a multiplier of one (1) to that surplus.
In the Joint Statement Mr H said:
Over the last ten years, [JH Firm] has specialised in providing legal and accounting services to the … industry. Over the last 4 years, [J H Firm] has been involved in approximately 100 transactions involving the sale of [industry businesses] or in the sale of various components of [industry businesses]. Our involvement has been in either an accounting capacity or a legal capacity when acting for either the Vendor or the Purchaser in a sale transaction.
In both the Joint Statement and his oral evidence, however, Mr H said that only five of these one hundred businesses contained a goodwill component. He said that he has had personal involvement with three of these five businesses, none of which were in the Eastern Suburbs of Sydney. With respect to Mr H, his “experience” in realty seemed to be of very limited scope.
Mr K explained his reasons for selection of a multiple of 5.9 as follows in his report:
5.3.7. We have selected a multiple of 5.9 based on the first principals (sic) multiple calculation, otherwise known as the required rate of return method. We have assumed a pre-tax required rate of return at approximately 18% would be expected by an owner with this profile and we have assumed growth of approximately 2% based on current CPI and our understanding of the industry. Refer to Appendix VII.
In his oral evidence Mr K said that his Appendix VII was “a ready reckoner” and that “the relevant one is Appendix VI”. He said that LBP was a business which would fit into category 2 of the table set out in appendix VI, which was as follows:
Capitalisation Multiples
Closely Held Business Risk Premium
Description
Category
Business Status
Industry Competition
Financing Requirements
Management Depth
Past Earnings
Future Earnings
Risk Premium
Pre-Tax
Implied EBIT Multiple
1
Established business
Strong trade position
Well financed
Depth in management
Stable
Highly predictable
6-10%
2
Established business
More competitive
Well financed
Depth in management
Stable
Fairly predictable
11-15%
3
N/A
Highly competitive
Little capital required
No depth in management
N/A
As risk is high not very predictable
16-20%
4A
Small, depends on special skills
N/A
Little capital required
N/A
N/A
Very unpredictable
21-25%
4B
Large, established, highly cyclical
N/A
N/A
May be depth in management
Past earnings may not be stable
Very unpredictable
23-25%
5
Small ‘one person’ business
N/A
N/A
Managed by main operator
N/A
Extremely unpredictable
26-30%
Regrettably the final column, headed Implied EBIT Multiple, was largely illegible in the copy of Mr K’s report which was provided to the court.
It is my view that Mr K offered a persuasive explanation of his use of a multiple of 5.9. He provided a thorough analysis of his reasons and supported his opinion by reference to writing within the relevant field. With respect to Mr H, he appeared to rely largely on “experience” which was demonstrated to be limited in scope.
Another difference in the methodologies adopted by Mr K and Mr H was that the former used a three year weighted average basis to calculate the future maintainable earnings at $847,617. Mr H applied a multiple of one to the average profits for the last two years.
Mr K commented as follows on Mr H’s use of the average of the last two years’ profits in the Joint Statement:
4. The application of this “rule of thumb” methodology is inherently flawed in that it is overly simplistic in its approach and subject to wild variations when comparing it values of other business or investment opportunities. eg in this case had the shareholders chosen to incur less cost for say, personal motor vehicles and taken less wages. Profits would be higher and therefore partner returns higher. The returns after including cars and wages would be the same but in applying the methodology provided above with a higher profit and a multiple of 1, the exact same business would be worth more.
In the Joint Statement Mr K commented further on Mr H’s adoption of the average of the last two years’ profits as follows:
Future maintainable earnings – Mr [H] has applied his selected multiple to the average of the last two years’ profits, for the reasons outlined above regarding rule of thumb method, I view this to be overly simplistic and subject to causing wild variation between comparative valuations. To overcome this issue I have “normalised” the profit and loss for the last five years and applied a weighted average to the last 3 years to determine Future Maintainable Earning. In choosing only the last 3 years on a weighted average basis has resulted in a lower maintainable earning value and therefore a more conservative valuation.
In his oral evidence Mr H said:
I used two years for my calculation of future maintainable earnings. I used two years because the income level was highly consistent. I don’t think that is an unusually short period.
Mr H, however, said also:
Mr [K] used three years. I agree that three years is more likely to be reliable than two years. I agree that Mr [K] is more likely to be correct.
I agree that Mr K’s calculation is more likely to be accurate than is that of Mr H. Another area of difference between the valuers was their respective discount rate for lack of control and limited marketability. They seemed to agree that the appropriate range is 15 per cent to 30 per cent, with Mr K selecting 15 per cent and Mr H 30 per cent. In his oral evidence, Mr K said that he discounted only for lack of control and not for lack of marketability. The partnership agreement (exhibit 10) makes provision for a retiring member to dispose of its interest (see particularly clauses 14 and 23). I infer that marketability may well be limited but exists in reality.
In his oral evidence Mr H said that he discounted for a third reason, that being the impending exit from the partnership of one Mr FF. Mr K apparently had regard to the departure of Mr FF but took this factor into account in his calculations referable to normalisation of future maintainable earnings. In the joint memo Mr K stated:
Mr [H] has also applied a 14% discount due to the perceived reduction in future profitability due to the exit of [Mr FF]. Rather than being applied as a discount, the impact of this perceived reduction should be dealt with in the normalisation of future maintainable earnings. This is how I have dealt with this in my report. In any case upon analysis of the records provided, I believe the reduction of sales turnover would have been impacted more by economic conditions rather than reduced earnings by the outgoing partner. I further note [the husband] is now the leading salesman. Mr [FF] is apparently locked in for 2014. In a business such as this it appears the baton has been handed by Mr [FF] to [the husband] and with an improvement in economic conditions we are now experiencing I would expect future maintainable earning to improve.
Mr K was mistaken in his assumption that the husband is the highest earning salesperson in the LBP partnership. According to the husband, one Miss DL generates the highest revenue from sales. In his oral evidence, however, the husband said words to the following effect:
2014 could be a better year than 2013. I agree that interest rates are low, the Australian dollar is declining against the US dollar and the economy generally indicates that 2014 is likely to be a good year.
Again, I am persuaded that Mr K’s methodology is to be preferred to that of Mr H. A combination of these considerations and non-compliance with the Rules persuade me that the evidence of Mr K is more reliable than that of Mr H. I thus find that the value of the interest of the Q Trust in the LBP partnership is $1,258,000.
The Liabilities
The only disputed liability was the wife’s outstanding legal fees in the sum of $41,557, which she and the husband respectively sought to include and exclude from the balance sheet. I will not include the wife’s unpaid legal fees, as I see no basis upon which the husband should accept any part of that liability.
Financial Resources
There was no suggestion that either party has a financial resource. As noted above, perhaps the American Express and credit card points could be classified as financial resources but neither party made a submission to that effect.
I thus find the assets, superannuation and liabilities to be as set out below, noting that the letters “H”, “W” and “J” indicate legal ownership by the husband, the wife and the parties jointly. The Q Trust is the legal owner of the 28.5 per cent interest in LBP.
Non-Superannuation Assets
1.
H Street, Suburb V
W
$3,300,000
2.
T Street, Suburb V
W
$1,075,000
3.
O Street, Suburb R
H
$1,150,000
4.
Volvo Motor Vehicle
W
$16,500
5.
Porsche Motor Vehicle
H
$57,000
6.
Volvo Motor Vehicle
H
$10,150
7.
Bank Accounts
H
$58,650
8.
NAB Account
W
$4,357
9.
ANZ Bank Account
W
$1,090
10.
28.5% interest in LBP (Q Trust)
$1,258,000
11.
Share Portfolio
H
$71,147
12.
Loan to Mr W
H
$8,950
13.
Furniture and Contents
H
$5,000
14.
Furniture and Contents
W
$5,000
15.
Paid Legal Fees
H
$23,059
16.
Paid Legal Fees
W
$217,456
17.
Life Insurance Policy
H
$100,000
Total:
$7,361,359
Superannuation
18.
Z Super Fund
J
$420,437
Total:
$7,781,796
Liabilities
19.
V Property Home Loan
W
$898,480
20.
V Business Loan secured on V Property
W
$807,000
21.
Mortgage on B Property
W
$1,021,633
22.
Special Levy on B Property
W
$17,250
23
Mortgage on R Property
H
$958,748
24.
Lease on Porsche Motor Vehicle
J
$87,941
25.
ATO debt
W
$158,332
26.
ATO debt
H
$619,071
27.
D Pty Ltd Tax Debt
H
$63,391
28.
U Pty Ltd Tax Debt
H
$85,535
29.
Loan from Wife’s Parents
J
$137,146
30.
Loan from Wife’s Parents
W
$221,572
31.
ANZ Visa Card
W
$17,534
32.
Westpac Visa
W
$7,164
33.
ANZ MasterCard
W
$25,885
34.
Fees Due To M College
J
$49,000
35.
HSBC Loan
H
$4,000
36.
American Express Credit Card
H
$16,009
37.
Westpac MasterCard
H
$1,983
Total:
$5,197,674
Net Assets and Superannuation
$2,584,122
The Contributions of the Parties
In his affidavit the husband suggested that he introduced the following assets into the marriage:
· H Street, Suburb K
· V Street, Suburb K
· Share portfolio
· Savings
· Mitsubishi motor vehicle.
The husband deposed:
8. To the best of my recollection at the time the Wife and I married the Wife had very little by way of assets and/or liabilities other than an interest in two properties jointly owned with me with a total equity of approximately $100,000 being the properties known as [F Street, Suburb G] and [B Street, Suburb B].
There was no evidence as to the value of assets held by the husband as at the date of the marriage, nor the extent of his equity in the two parcels of real estate. When the husband sold the H Street, Suburb K property in 2000 he received net proceeds of approximately $200,000. His uncontradicted evidence was that he used these funds to reduce the mortgage debt on the property I Street, Suburb RR. The parties had cohabited and mingled their funds for four years prior to the sale of this property and they continued to do so, with each making various contributions, for eleven years thereafter.
The husband’s uncontradicted evidence was that he received net proceeds of approximately $108,000 when he sold the V Street, Suburb K property in 1997. These funds were used as start-up capital for the business known as ERE Pty Ltd. After the sale of the V Street property, the parties cohabited and made various contributions for approximately fourteen years.
According to the wife, she introduced into the marriage savings of approximately $25,000. There was no evidence to contradict this assertion, which seems feasible in light of the wife’s evidence that she was employed as a financial services professional on a salary of $51,000 per annum prior to the marriage.
The parties purchased jointly F street, Suburb G for $225,000 prior to the marriage. In his affidavit the husband deposed that he paid a ten per cent deposit but in his oral evidence he said “I think [the wife] paid a five per cent deposit on the purchase of [F Street, Suburb G]”.
The wife deposed that she paid a deposit of $22,500 in relation to the purchase of this property. I am inclined to accept her evidence and thus conclude that she brought into the marriage cash and real estate equity of approximately $47,000. For these reasons, I am not persuaded that the husband’s initial contributions exceeded those of the wife.
It was common ground that the husband was the principal income earner and the wife the primary homemaker and parent during the marriage. The wife’s uncontradicted evidence was that she continued her employment with Westpac Bank until October 1998, when she took on an administrative role in the husband’s property business. After the sale of ERE Pty Ltd in 2000, both parties worked in the retail business, the husband until 2004 and the wife until its collapse in 2006.
The husband left the retail business in 2004 and commenced employment at LBP as a salesman on commission. As detailed earlier in these reasons, the parties gradually acquired a 28.5 per cent interest in LBP partnership through the Trust.
The husband’s admitted gambling was a significant issue in the proceedings. Obviously, it is impossible to quantify the net loss or gain which resulted from the husband’s gambling over the course of the marriage.
Surprisingly, counsel for the husband contended that “there can be no contribution finding or section 75(2) adjustment on account of the husband’s gambling”. In relation to section 75(2), I have difficulty in reconciling this submission with the husband’s own evidence that:
It is correct that I would have lost overall on gambling ... I don’t know how much. I was probably involved in gambling and losing for most of the marriage. I can’t give a figure.
The husband was on clear notice that the impact of his gambling on the financial fortunes of the parties was a significant issue in the outcome of the proceedings, following the judgment of Ryan J on 19 November 2012. At paragraph 80 thereof her Honour said:
Nor does the husband’s evidence address expenditure gambling. Documents produced by [internet gambling providers] (Exhibit H) demonstrate heavy betting on horses between 13 December 2009 and 10 April 2012 at which time he imposed a self-exclusion regime which expired on 10 October 2012. The [internet gambling] documents alone record some 57,000 betting transactions … with bets of between $200 and $2,000 most days. While it is accepted that these funds were not necessarily lost they demonstrate that at the same time as the husband reduced financial support for the wife and children he had sufficient discretionary funds to gamble heavily.
In his affidavit the husband deposed:
67. I have continued to derive an income via the [Z] Family Trust and through [LBP] since 2005. I always applied my income up to the date of separation to the benefit of the Wife and our family, other than on those occasions when I used some of the funds earned by me to gamble. I propose to provide a schedule that represents the funds won and lost by me during the period of my gambling at the final hearing of this matter. I estimate that my total losses amounted to approximately $28,000 during the period May 2011 to April 2012.
The husband produced no such schedule and gave no explanation for his failure to do so.
Statements in relation to the husband’s Westpac Ignite Account and a schedule prepared by her counsel were tendered in the wife’s case (exhibit 19). These documents demonstrated that the husband’s expenditure on gambling in the seven months between June and December 2010 amounted to $119,250. These documents showed that bets amounting to $1,000 per day were common during that period. The husband acknowledged that this total figure and the contents of the schedule were correct, after being afforded an opportunity to examine these documents and carry out his own calculations.
In my view, the fact that it is impossible to quantify the husband’s gambling losses or gains means that this issue is best taken into account in the context of section 75(2) factors. It is true that the husband conceded that his gambling “probably” resulted in an overall loss during the course of the marriage. It is also true that the husband failed to produce the proposed schedule and, perhaps, there may be an inference available that its contents would not assist his case. Nonetheless, I consider the safest course is to have regard to the husband’s gambling within the context of section 75(2) of the Act.
It was common ground that the wife withdrew $63,000 and $75,000 from an ANZ Bank account in her name on 6 May 2011 and 16 May 2011. This money consisted of rental income from the properties in J Street and T Street at Suburb B. As noted, the parties’ practice prior to the separation was that the wife used these funds to service the mortgages secured on the former matrimonial home and the two B properties.
In her oral evidence the wife gave an imprecise account of her use of these funds, which amounted to a total of $138,000. She said that she applied this money to pay “mortgages, tax”. She agreed that the husband was providing $13,000 per month at this time but claimed that “the mortgages were all in arrears”.
In the judgment of 19 November 2012 Ryan J referred to post-separation sale of shares by the husband. Her Honour said:
78. …nor did he disclose or proffer sufficient evidence in relation to share sales. Tendered in the wife’s case (Exhibit “B”) are documents produced under subpoena by ETrade. These disclose that as at 30 June 2012 the husband had shares worth $258,444.55. According to his Financial Statement he has shares worth $60,120.00. Although question 59 of a Financial Statement requires a party to specify property disposed of since separation, the husband answered “nil”. Exhibit “B” and the husband’s Financial Statement make it plain that his answer is wrong. Exhibit “B” also shows the husband sold one tranche of shares on 28 June 2012 and a further three tranches on 29 June 2012. The ETrade balance as at 30 June 2012 is the shareholding that remained after completion of the sales just mentioned. Again, no reference is made to these transactions in question 59.
The husband thus was clearly on notice that the fate of the proceeds of sale of these shares was a live issue in the proceedings. Nonetheless, he gave no evidence in his affidavit as to how he applied these funds. In his oral evidence he said only:
My disclosure has been through my accountant where [the wife] has full authority.
Counsel for the husband properly conceded that “there is nothing in the husband’s affidavit about the proceeds of sale of the shares but there is information in exhibit 26”. Exhibit 26 merely demonstrated, inter alia, that the husband provided an authority to the wife to obtain electronic access to his bank accounts. In my view, the husband cannot avoid his obligation to make full and frank disclosure by casting an onus on the wife to access his bank accounts electronically and trawl through the statements to extract this information.
Since the separation, the children have spent relatively little time with the husband. He claimed that he asked repeatedly that they spend more time with him and that all such requests were refused by the wife. She maintained that the husband was unavailable to care for the children on Saturdays, due to his work commitments. I am inclined to the view that the husband’s employment did make him unavailable on Saturdays.
Counsel for the husband contended that contribution should be found to be equal as at the date of separation. It was suggested that there should be “a slight adjustment” in the husband’s favour due to his contributions between separation and the date of trial.
I am not persuaded that payments made by the husband for the benefit of the wife and the children after separation warrant a contribution finding in his favour. During this period, the wife carried out most of the parenting of the children. The husband cared for them, at best, on an average of one day per week. Logically, he could have had little input into the day-to-day duties and responsibilities incidental to their parenting on Sundays only. I am satisfied, and I find, that the contributions of the parties were equal as at the date of trial.
Section 75(2) Factors
It is abundantly clear that the husband’s capacity to generate income is vastly superior to that of the wife. His evidence was that he earned $600,735 in 2010 and $636,956 in 2011. In his oral evidence, he estimated that his 2013 taxable income amounted to approximately $400,000 and agreed with a suggestion that he “has earned hundreds of thousands for many years”. In my view, the husband is highly likely to re-establish himself financially within a short time-frame, following a distribution between the parties of their assets and superannuation.
The wife contended that she has a limited capacity to engage in gainful employment and relied on evidence from Dr L in support of that proposition. In her report Dr L proffered a diagnosis that the wife suffers from “severe anxiety precipitated by the very distressing circumstances surrounding the breakdown of her marriage”. Dr L reported:
Symptoms including: -
- Panic attacks
- Insomnia
- Nightmares
- Agitation
- Exhaustion
- Tearfulness and mood lability
- Claustrophobia
- Physical Shaking
In her oral evidence Dr L said of the wife that “her major source of stress was marital problems”. While in no way wishing to underestimate the wife’s distress at the breakdown of the marriage, I am prepared to speculate that she will come to terms with the parties’ separation and its consequences in the fullness of time. She impressed as an intelligent, capable person who has a history of engaging in paid employment or business ventures with the husband. I assess that she is likely to take on gainful employment in the relatively near future.
In my view, the wife effectively endorsed that assessment on my part in her oral evidence. She said that the children’s school fees and incidentals amount to approximately $45,000 per annum, the whole of which she sought that the husband pay at this stage. She added, however, “I am happy to contribute when I get back on my feet”.
The wife said also that she could re-enter the workforce as a property salesperson but that she has no intention of doing so. She worked in a property business for a period after the separation. She said that she expected to attend an interview on 17 January 2014 for a one year contractual position, on a salary of $70,000 to $80,000 per annum. It was my impression that the wife is actively contemplating a return to the paid workforce.
I am mindful of the fact that the wife will continue to be responsible for most of the children’s care for the next several years. It may be that they will begin to spend more time with the husband in the future but I have no reason at all to speculate that he may assume their primary care. In particular, I assume that he will continue to devote his Saturdays to work commitments.
The husband has a responsibility to contribute to the financial support of his infant son X. Currently he pays child support in the sum of approximately $1,000 per month. Both parties have a responsibility to contribute to the financial support of their children.
I consider that the wife has a responsibility to repay to her parents the money which they have advanced to her since the separation. The wife’s father gave convincing evidence that he and his wife have a need for these funds, which amount to a total of $358,718. He said, inter alia: “I want to get all my money back. We need it to live on. I will require to get this money back. I need to live on this money.”
In light of the husband’s admissions to the effect that he gambled and lost money during the marriage, I reject the submission that I cannot take these activities into account pursuant to section 75(2)(o). The effect of the husband’s own evidence was that his gambling reduced the funds available to the parties during the marriage. I reject the suggestion on behalf of the husband that I should ignore his gambling because the wife was complicit in these activities. I do not accept that she was aware or approved of the extent of the husband’s expenditure on gambling. At most, it appeared that she attended casinos with the husband on a cruise and during other holidays.
I take into account also that the husband disposed of shares following the separation and failed to account for the proceeds. I have referred above to the observations of Ryan J in relation to the husband’s post-separation disposal of shares and failure to account for the sale proceeds. The husband had every opportunity to account for the sale proceeds of these shares in the evidence which he adduced in these proceedings. For unexplained reasons, he elected to remain silent on this issue.
Pursuant to section 75(2)(o), I take into account also that there was no evidence as to the sale costs of the V, B and R suburbs properties. For reasons which become apparent when consideration is given to the structure of my orders, that hiatus in the evidence is more likely to impact adversely on the wife than the husband.
All of these considerations indicate clearly to me that an adjustment in favour of the wife is warranted pursuant to section 75(2) of the Family Law Act. I find that the wife should receive an additional sum equivalent to 15 per cent of the net pool of assets and superannuation.
Conclusion As To Alteration of Property Interests
I thus find that the husband and the wife should receive assets and superannuation equivalent to 35 per cent and 65 per cent of the net pool respectively. Before the ultimate division between the parties is formulated, however, it is necessary to consider the position of the intervener and what orders should be made in his favour.
The Application of the Intervener
The orders sought by the Commissioner for Taxation were never set out with precision. I infer that the proposal was to secure payment of all outstanding taxation debts, interest and late payment fees from the proceeds of sale of matrimonial assets but I was provided with no Minute which would achieve that result.
In my view, justice between the parties dictates that separate consideration is given to the pre- and post-separation taxation debts. In her oral evidence the wife conceded that she “liaised with our accountants and lawyers” and that she “had [her] finger on the pulse in relation to our money” prior to the separation. By contrast, the husband thereafter caused the incorporation of the company SY Pty Limited and channelled his income into that entity without any input at all from the wife.
I accept the submission on behalf of the Commissioner that there is a public interest issue in securing payment of taxation debts. In the particular circumstances of this case, I consider that the 2010 and 2011 personal tax debts to the Commissioner should be paid from the proceeds of sale of the Suburb V property. The parties enjoyed together the fruits of the husband’s employment during those two financial years. In my view, there is simply no excuse for their failure to meet their obligations to the Commonwealth as has been the case. I consider that the husband should bear liability for the 2012 tax debts of the two corporate entities, which is consistent with the position adopted on his behalf in the joint balance sheet dated 11 February 2014.
I will make orders in relation only to the 2008, 2009, 2010 and 2011 taxation debts. The Commissioner is at liberty to take such action as he chooses in relation to the 2012 liabilities. Obviously, the Intervener will be informed of my orders and receive a copy of the reasons for judgment.
The effect of such orders which I propose to make will be that a total sum of $518,612 is paid to the Commission before the net assets and superannuation are distributed between the parties. The figure is calculated as follows:
Wife
2010 Tax Debt
$39,572
2011 Tax Debt
$45,063
$84,635
Husband
2010 Tax Debt
$194,690
2011 Tax Debt
$239,287
$433,977
Combined Total:
$518,612
I will not accede to the husband’s proposal that the parties effect a sale of the interest of the Q Trust in the LBP partnership. Effectively, the terms of the partnership agreement impose a restrictive covenant on the husband’s trading as a property salesman in the local area. Such a sale would be nothing less than a sacrifice of an historically lucrative career. As noted, I am satisfied that the husband’s position and experience in the industry in the local area will enable him to re-establish himself financially within a short time-frame.
The husband wishes to retain the property O Street, Suburb R, in which he holds a net equity of approximately $190,000. I will allow the husband an opportunity to retain that property, on the basis that he make a cash payment to the wife and that there is a sale in default of his compliance with such an order. Otherwise, I will accede to the wife’s proposal that the parties effect the sale of their real estate assets.
The V and B properties will be dealt with in terms of net proceeds of sale, which means that the mortgages, business loan and special levy will be deducted and come out of the list of liabilities.
Having determined that the Intervener will receive a sum of $518,612 from the proceeds of sale of the V property, I find it useful now to recast the Balance Sheet as follows:
Non-Superannuation Assets
1.
H Street, Suburb V after $518,612 tax payment
W
$2,781,388
2.
T Street, Suburb B
W
$1,075,000
3.
O Street, Suburb R
H
$1,150,000
4.
Volvo Motor Vehicle
W
$16,500
5.
Porsche Motor Vehicle
H
$57,000
6.
Volvo Motor Vehicle
H
$10,150
7.
Bank Accounts
H
$58,650
8.
NAB Account
W
$4,357
9.
ANZ Account
W
$1,090
10.
28.5% Interest in LBP
Trust
$1,258,000
11.
Share Portfolio
H
$71,147
12.
Loan to Mr W
H
$8,950
13.
Furniture and Contents
W
$5,000
14.
Furniture and Contents
H
$5,000
15.
Paid Legal Fees
H
$23,059
16.
Paid Legal Fees
W
$217,456
17.
Life Insurance Policy
H
$100,000
Superannuation
18.
Z Super Fund
J
$420,437
$7,263,184
Liabilities
1.
Mortgage on R Property
(H)
$958,748
2.
Lease on Porsche Motor Vehicle
H
$87,941
3.
Taxation Debt
W
$73,698
4.
Mortgage and Business Loan Secured on V Property
W
$1,705,480
5.
Mortgage and Special Levy on B Property
W
$1,038,883
6.
Taxation Debt
H
$185,094
7.
D Pty Limited Taxation Debt
H
$63,391
8.
U Pty Limited Taxation Debt
H
$85,535
9.
Loan from Wife’s Parents
W
$221,572
10.
Loan from Wife’s Parents
J
$137,146
11.
ANZ Visa card
W
$17,534
12.
Westpac Visa card
W
$7,164
13.
ANZ MasterCard
W
25,885
14.
HSBC Loan
H
$4,000
15.
American Express Credit Card
H
$16,009
16.
Fees Due to M College
J
$49,000
17.
Westpac MasterCard
H
$1,983
$4,679,063
The adjusted net value of the parties’ assets and superannuation is thus $2,584,122. 65 per cent and 35 per cent of that figure equal respectively $1,679,679 and $904,443. For the purposes of distribution of the assets and superannuation, I assume the following:
· the parties will each bear half of the liability of $137,146 to the wife’s parents
· the wife will bear sole responsibility for the debt of $221,572 to her parents
· the parties will each assume responsibility for half of the outstanding school fees to M College
· the wife will take the entire benefit of the parties’ jointly-owned superannuation fund, in the absence of sufficient realisable assets to satisfy her entitlement without resort to a sale of the Trust’s holding in LBP.
The husband will thus retain or receive the following assets:
1.
O Street, Suburb R
$1,150,000
2.
Porsche Motor Vehicle
$57,000
3.
Volvo Motor Vehicle
$10,150
4.
Bank Accounts
$58,650
5.
28.5% Interest in LBP Partnership
$1,258,000
6.
Share Portfolio
$71,147
7.
Loan to Mr W
$8,950
8.
Furniture and Contents
$5,000
9.
Paid Legal Fees
$23,059
10.
Life Insurance Policy
$100,000
Total:
$2,741,956
The husband will assume or retain the following liabilities:
1.
Mortgage on R property
$958,748
2.
Lease on Porsche Motor Vehicle
$87,941
3.
Taxation Debt
$185,094
4.
Taxation Debt of D Pty Limited
$63,391
5.
Taxation Debt of U Pty Limited
$85,535
6.
50% of Debt to Wife’s Parents
$68,573
7.
50% of Debt to M College
$24,500
8.
HSBC Loan
$4,000
9.
American Express Credit Card
$16,009
10.
Westpac MasterCard
$1,983
Total:
$1,495,774
The husband will thus hold net assets to the value of $1,246,182. That amount exceeds his entitlement of 35 per cent by $341,739.
I am conscious that there was no evidence of the sale costs in respect of the Suburb V and Suburb B properties but the parties chose to place no such material before the court. For the purposes of these calculations, I will treat the net equity in these two properties as assets in the hands of the wife although there will be orders for their sale. The wife will thus receive or retain the following assets:
1.
Net Equity in Property H Street, Suburb V
$1,075,908
2.
Net Equity in Property T Street, Suburb B
$36,117
3.
Volvo Motor Vehicle
$16,500
4.
NAB Account
$4,357
5.
ANZ Account
$1,090
6.
Furniture and Contents
$5,000
7.
Paid Legal Fees
$217,456
8.
Z Super Fund
$420,437
$1,776,865
The wife will assume or retain responsibility for the following liabilities:
1.
Taxation Debt
$73,698
2.
Loan From Wife’s Parents
$221,572
3.
50% of Loan From Wife’s Parents
$68,573
4.
ANZ Visa card
$17,534
5.
Westpac Visa card
$7,164
6.
ANZ MasterCard
$25,885
7.
50% of Fees Due to M College
$24,500
$438,926
The wife thus will hold net assets and superannuation to the value of $1,337,939. That figure falls short of her entitlement of 65% by $341,740.
On this basis the wife requires an additional $341,740 from the husband to constitute her entitlement of 65 per cent of the net pool. As noted above, I will accede to the husband’s application that he retain the Suburb R property but he will be required to pay a sum of $342,000 to the wife. The approximate net equity in the R property is approximately $191,000, which means that he husband must find some $152,000 in addition to that sum if there is a sale in default of payment by him to the wife. The husband conducted his case on the basis that he holds realisable assets to an approximate value of $149,000 (Volvo vehicle; bank accounts; share portfolio; loan to Mr W) independently of the R property and the interest of the Trust in LBP. I will allow the husband a period of six weeks to pay that sum to the wife. If he fails to do so, he will sell the Suburb R property and make that payment from the net proceeds.
The Wife’s Application Spouse Maintenance Order
The wife bears an onus to establish that she is unable to support herself adequately, for the purposes of section 72 of the Family Law Act, if she is to succeed in an application for spouse maintenance. As noted above, the wife assumes most of the care of the children with little assistance from the husband. I have found that she has a capacity to engage in gainful employment and that currently, she actively is seeking to re-enter the paid workforce. For these reasons, I find that she is temporarily unable to support herself adequately for the purposes of section 72 of the Act.
When the orders for alteration of property interests are executed fully, the wife will have access to liquid funds in a sum of approximately $1,300,000. At that point, she could not establish that she is unable to support herself adequately for the purposes of section 72 of the Act. Accordingly, it seems to me to be appropriate that there be a spouse maintenance order which operates for the limited period between the date of these orders and their full execution.
The wife’s Financial Statement of 10 January 2014 shows that her only sources of income are rental from the property T Street, Suburb B and child support. The B property will be sold pursuant to these orders, hence the wife will no longer receive rental income but she will be relieved of the obligation to service the mortgage. Part N of the wife’s Financial Statement set out her weekly expenses in a total sum of $792. In my view these expenses are reasonable, having regard to the lifestyle adopted by the parties prior to their separation. I thus find that the wife has a need for spouse maintenance in the sum of $800 per week, pending full implementation of the orders for alteration of property interests.
In his Financial Statement of 8 January 2014 the husband deposed to an average gross weekly income of $8,605. He swore that his average weekly expenses amount to $9,421 but provided no breakdown whatsoever of this figure. In these circumstances, I am prepared to infer that the husband has the capacity to pay spouse maintenance in the sum of $800 per week from his income. In any event, the husband’s case was that he has approximately $58,000 in savings. If necessary, he could apply those funds to meet the proposed order for spouse maintenance.
I certify that the preceding one hundred and thirty two (132) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Stevenson delivered on 7 May 2014.
Associate:
Date: 7 May 2014
Key Legal Topics
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Family Law
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Tax Law
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