Hewson v Deans
[2020] NZHC 1465
•26 June 2020
NOTE: ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B, 11C AND 11D OF THE FAMILY COURT ACT 1980. IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2019-441-000079
[2020] NZHC 1465
IN THE MATTER of the Property (Relationships) Act 1976 BETWEEN
HEWSON
Appellant
AND
DEANS
Respondent
Hearing: 8 June 2020 Appearances:
A J Davies and E Stannard for the Appellant B A J Taylor and I Squire for the Respondent
Judgment:
26 June 2020
JUDGMENT OF COOKE J
Table of Contents
Approach on appeal[4]
Relevance of misconduct[7]
First issue: Tax liability[17]
Mr Hewson’s misconduct[21]
Was the debt incurred for the benefit of the relationship?[24]
The burden of proof[33]
Conclusion on tax liability[41]
Second issue: Student loan[42]
Third issue: Child support[50]
Fourth issue: Unequal division[56]
Post-separation contributions[64]
Fifth issue: Value of Mitsubishi Challenger[73]
Conclusions[77]
HEWSON v DEANS [2020] NZHC 1465 [26 June 2020]
[1] Mr Hewson appeals against the decision of the Family Court determining the division of property under the Property (Relationships) Act 1976 (the Act) following the dissolution of the relationship he had with Ms Deans.1
[2] The parties were in a qualifying relationship from November 2012 until their separation in May 2017. They were married on 8 February 2013, and had two children during the marriage. Mr Hewson is a commercial driver who had previously worked in the building industry, and who would often work overseas for a variety of foreign companies. Ms Deans is a police officer. They commenced living together in Auckland but moved to the Hawkes Bay prior to the birth of their first child. Judge Callinicos recorded that the marriage ended on bitter terms and that the acrimony had continued into the hearing before him. There have been disputes about a number of matters.
[3] On appeal Mr Hewson challenges particular conclusions of the Family Court, and the consequential orders on the division of the property. These are:
(a)That Mr Hewson’s liability for unpaid income tax in the amount of
$141,518 was a personal debt, and not a relationship debt under s 20 of the Act.
(b)That under s 23E of the Act Ms Deans was entitled to a credit adjustment of $7,473.27 for payments made from relationship property in the amount of $14,946.55 to reduce Mr Hewson’s student loan.
(c)That Mr Hewson pay the respondent a lump sum child support payment of $9,596.40 in relation to an uplift of child support under s 32 of the Act.
(d)That there be an unequal division of the family home with 60 per cent to be awarded to Ms Deans and 40 per cent to Mr Hewson under s 13 of the Act.
1 Hewson v Deans [2019] NZFC 7809. The names of the parties have been changed to protect their identity under s 35A of the Property (Relationships) Act 1976 and ss 11B to 11D of the Family Court Act 1980.
(e)That post-separation compensation in the amount of $27,500 be awarded to Ms Deans under s 18B of the Act in relation to outgoings she had met for the family home, and without an adjustment in the nature of a deemed rental for her occupation of the home.
(f)That a vehicle taken by Mr Hewson at the end of the relationship be valued at $4,990 rather than at $3,850 as had been agreed between the parties.
Approach on appeal
[4] There is no material difference between the parties on the appropriate approach on appeal. It is as set out in Austin, Nichols & Co Inc v Stichting Lodestar.2 Its application to a decision of the Family Court was described by the Supreme Court in Kacem v Bashir in the following terms:3
[31] The Court of Appeal discussed the application of the decision of this Court in Austin, Nichols & Co Inc v Stichting Lodestar to the present kind of appeal. The Court correctly observed that on a general appeal of the present kind the appellate court has the responsibility of considering the merits of the case afresh. The weight it gives to the reasoning of the court or courts below is a matter for the appellate court’s assessment. We should add here that if the appellate court admits further evidence, that evidence will necessarily require de novo assessment and consideration of how it affects the correctness of the decision under appeal. The Court of Appeal was right to say that Courtney J had rather overstated the effect of Austin, Nichols when she indicated she should approach the appeal to the High Court “uninfluenced” by the reasoning of the Family Court. The High Court was required to reach its own conclusion, but this did not imply that it should disregard the Family Court’s decision. What, if any, influence the Family Court’s reasoning should have was for the High Court’s assessment.
[32] But, for present purposes, the important point arising from Austin, Nichols is that those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion involves an assessment of fact and degree and entails a value judgment. In this context a general appeal is to be distinguished from an appeal against a decision made in the exercise of a discretion. In that kind of case the criteria for a successful appeal are stricter: (1) error of law or principle; (2) taking account of irrelevant considerations; (3) failing to take account of a relevant consideration; or (4) the decision is plainly wrong. The distinction between a general appeal and an appeal from a discretion is not altogether easy to describe in the abstract. But the fact that the case involves factual evaluation
2 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
3 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 per Blanchard, Tipping and McGrath JJ (Elias CJ and William Young J dissenting in part, but not on these matters) (footnotes omitted).
and a value judgment does not of itself mean the decision is discretionary. In any event, as the Court of Appeal correctly said, the assessment of what was in the best interests of the children in the present case did not involve an appeal from a discretionary decision. The decision of the High Court was a matter of assessment and judgment not discretion, and so was that of the Family Court.
[5] In the present case some of the grounds of appeal involve a challenge to the exercise of a discretion, and accordingly the more limited role on appeal. I will address the significance of that more limited role in the context of those particular grounds of appeal.
[6] I will not fully address all the background circumstances, or the other issues that were considered in relation to relationship property. They are fully set out in the Family Court judgment.4
Relevance of misconduct
[7] It is appropriate to first address the way in which misconduct by one party can affect the division of relationship property as a preliminary point before dealing with the more specific questions on appeal.
[8] It is apparent from the judgment under appeal that the Judge formed an adverse view of Mr Hewson, both in terms of his conduct during and immediately after the relationship, and also in relation to his evidence at the hearing. A number of adverse findings are made against Mr Hewson in the course of the reasonably extensive judgment, and the judgment also contains an appendix running for 17 pages entitled “Findings as to evidence and conduct of applicant” which contains additional adverse findings as to his credibility.
[9] That adverse view manifested itself in the conclusions reached by the Judge on issues which are challenged on appeal. The Judge concluded that Mr Hewson had engaged in misconduct within the meaning of s 18A of the Act. He then took that misconduct into account in reaching the decisions required on particular aspects of the property division namely the liability for the unpaid tax,5 the unequal division of the
4 Hewson v Deans, above n 1.
5 At [64]–[66].
family home,6 and the adjustments for post-separation contributions.7 His misconduct is a central theme of the judgment under appeal.
[10] The relevant of misconduct is specifically addressed in the Act. Section 18A provides:
18A Effect of misconduct of spouses or partners
(1)Except as permitted by subsections (2) and (3), a court may not take any misconduct of a spouse or partner into account in proceedings under this Act, whether to diminish or detract from the positive contribution of that spouse or partner or otherwise.
(2)Subject to subsection (3), the court may take into account any misconduct of a spouse or partner—
(a)in determining the contribution of a spouse to the marriage, or of a civil union partner to the civil union, or of a de facto partner to the de facto relationship; or
(b)in determining what order it should make under any of sections 26, 26A, 27, 28, 28B, 28C, and 33.
(3)For conduct to be taken into account under subsection (2), the conduct must have been gross and palpable and must have significantly affected the extent or value of the relationship property.
[11] This section sets high thresholds that must be reached before misconduct is relevant to the division of relationship property. Under s 18A(3) not only must the misconduct be “gross and palpable”, but it must also significantly affect the “extent or value” of the relationship property.8 And even then, qualifying misconduct is only permissibly taken into account when determining the relative contributions of the parties when assessing whether one of the exceptions to equal division applies,9 or where the Court is exercising the specified powers (s 18A(2)(b)). It is important that those limitations are observed to avoid relationship property issues being unduly dominated by questions of misconduct. The limited role of misconduct is part of the overall policy of the legislation. The position is conveniently summarised by the Law Commission in its Issues Paper on relationship property in the following way:10
6 At [134]–[135].
7 At [88]–[91].
8 J v J (2005) 25 FRNZ (CA).
9 Contributions will only form the basis for division of property when the exceptions to equal division provided for under ss 13–14A, and ss 85(4), 9A(2) and 18B apply.
10 Law Commission Dividing relationship property – time for change? (NZLC IP41, 2017) at 51.
(d) Misconduct during the relationship is generally irrelevant to the division of property. This principle is long-standing. Speaking in Parliament on an amendment to the predecessor to the PRA, the Matrimonial Property Act 1963, the then Minister of Justice confirmed that:11
The purpose of the Act is not to reward a wife for good behaviour or to punish her for bad behaviour ... To introduce an element of fault in a substantial way would be to warp altogether the concept behind the Act – the concept of marriage as a partnership.
This principle was carried into the PRA12 and is consistent [with] New Zealand’s no-fault approach to marriage dissolution.13 The PRA is generally not concerned with moral judgements about the partners’ conduct.14 Misconduct can only be considered in PRA proceedings in truly extraordinary cases, where the conduct was “gross and palpable” and it significantly affected the extent or value of the property to be divided.15 Even then, misconduct is treated merely as a negative fact diminishing or detracting from other positive contributions to the relationship, rather than warranting a penalty in the division of property.16
[12] But neither is the Act blind to the effects of misconduct. The authors of Fisher on Matrimonial and Relationship Property say that “misconduct falling short of these requirements will often provide a vital background against which the other spouse’s or de facto partner’s own contributions may be increased”.17 The conduct of one partner during the relationship, where it might be described as misconduct, can have the consequence that the other partner has been required to contribute more to the relationship.
[13] There is an important difference between a proper assessment of the contributions of one partner, and taking into account the misconduct of the other. An
11 (26 November 1968) 358 NZPD 3392.
12 Matrimonial Property Act 1976, s 18(3). See discussion in AM Finlay “Matrimonial Property- Comparable Sharing: An Explanation of the Matrimonial Property Bill 1975” [1975] II AJHR E6 at 10.
13 Family Proceedings Act 1980, ss 37–43. The sole ground for dissolution of a marriage or civil union is that the relationship has broken down irreconcilably. This is established only if the parties have been living apart for the past two years, and no proof of any other matter shall be required: s 39.
14 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.40].
15 Property (Relationships) Act 1976, s 18A(3).
16 Fisher on Matrimonial and Relationship Property, above n 14, at [12.40]. This principle is also apparent in other provisions of the Property (Relationships) Act 1976, for example, in the way it treats simultaneous relationships. The partner that maintains two qualifying relationships is not penalised, for example, for any deception involved in maintaining the two relationships. See Property (Relationships) Act 1976, ss 52A–52B.
17 At [12.40].
absent partner may mean the one remaining must significantly increase his or her contribution to the relationship. Such a situation may lead to unequal sharing under the Act provided the requirements of the statutory exceptions are reached. In such a case the Court is not penalising for misconduct, but accurately identifying the relative contributions of both partners. Indeed that situation arises whether or not the absence, and reduced contribution, is the product of misconduct or not. One party to the relationship may not be able to make contributions for entirely understandable reasons, but it may result in the other party being required to significantly increase his or her contributions. Misconduct is not the touchstone for any unequal distribution in that situation.
[14] To take a further example, if one party to the relationship engages in conduct that is reprehensible (for example family violence) that may not be relevant as misconduct under s 18A as it may not significantly adversely affect the extent or value of the relationship property under s 18A(3). But the contributions of the other party to the relationship may become relatively more significant because the contributions are provided in very difficult circumstances.
[15] Misconduct that does not meet the thresholds under s 18A(3) should not be introduced in an indirect way notwithstanding that the effects of misconduct may be relevant. That is made clear by s 18A(1). It seems to me, therefore, that the concept of “negative contributions”,18 or even a “positive contribution to the partnership falling short of what it could have been”19 may not be helpful as they might imply that a watered down concept of misconduct is relevant. There is a clear distinction between taking into account misconduct on the one hand, and recognising that contributions may be more significant because of the circumstances in which they have been made on the other. It may seem to be a subtle distinction, but it is nevertheless important.
[16] For the reasons I outline below the judgment under appeal has involved the Court applying misconduct in a way that is inappropriate. Indeed misconduct has
18 Fisher on Matrimonial and Relationship Property, above n 14, at [12.32]; and see Johnson v Johnson (1979) 2 MPC 100 (HC); and Beven v Beven (1977) 1 MPC 23 (HC). Also see J v J [2003] NZFLR 1088 at [68]–[71].
19 Reid v Reid [1979] 1 NZLR 572 (CA), at 604.
rather dominated the Judge’s findings in relation to the issues under appeal. I expand on these issues when addressing the particular issues on appeal.
First issue: Tax liability
[17] During the relationship Mr Hewson conducted work for a number of overseas companies as a commercial driver. He opened an account in USD with Lloyds in the Isle of Man into which payments by various overseas companies were made. He paid no New Zealand tax on this income, however. In late 2018, after separation, the Inland Revenue Department (IRD) commenced a review of Mr Hewson’s tax affairs. It determined that Mr Hewson was a New Zealand tax resident and that he had failed to pay income tax on the income he had received into the Lloyds account. Ms Deans had no knowledge that Mr Hewson was failing to meet his tax obligations.
[18] By letter dated 7 February 2019 the IRD advised Mr Hewson’s advisers that it had re-assessed the income tax owed. It summarised the position as follows:
Deposits into the bank account were summed per income year initially in USD and then converted to NZD using a historical currency converter as at the date of entry into the bank account. The amounts of income and projected core tax amounts are shown below.
Year Income Tax 31.03.11 $45,519.07 $10,843.80 31.03.12 $94,051.46 $22,412.41 31.03.13 $114,897.52 $28,836.01 31.03.14 $155,112.87 $46,311.88 31.03.15 $95,357.50 $26,268.79 31.03.16 $77,030.58 $16,339.90 31.03.17 $121,341.36 $30,971.03
The Department intends to amend the above returns to include the income earned overseas. The figures above are based on information provided by Mr Hewson by way of his bank statements.
[19] Part of this re-assessed income relates to the period of the relationship between November 2012 and May 2017. The IRD also assessed Mr Hewson for penalties in relation to this unpaid tax. Mr Hewson accepts that the penalties are his personal obligation, and not a relationship obligation. But he contends that the full amount of the unpaid income tax in the amount of $141,518 was a relationship debt rather than a personal debt as found by the Family Court.
[20] Relationship and personal debts are defined in s 20 of the Act in the following terms:
20 Interpretation
(1)In sections 20A to 20E, unless the context otherwise requires,—
personal debt means—
(a)a debt that is not a relationship debt:
(b)a debt to the extent that it is not a relationship debt
relationship debt means a debt that has been incurred, or to the extent that it has been incurred,—
(a)by the spouses or partners jointly; or
(b)in the course of a common enterprise carried on by the spouses or partners, whether alone or together with another person; or
(c)for the purpose of acquiring, improving, or maintaining relationship property; or
(d)for the benefit of both spouses or partners in the course of managing the affairs of the household; or
(e)for the purpose of bringing up any child of the marriage, civil union, or de facto relationship.
(2)To avoid any doubt, for a debt to fall within paragraph (c) of the definition of relationship debt in subsection (1), it is not necessary that, at the time at which the debt was incurred, the property for which it was incurred was relationship property, as long as the property later becomes relationship property.
Mr Hewson’s misconduct
[21] In deciding that none of this debt was relationship debt the Judge made findings critical of Mr Hewson’s evidence and his conduct. He held that s 18A allowed misconduct of a party to be taken into account and that there would be a considerable injustice if the tax liability were declared relationship in nature.20 He found Mr Hewson’s conduct “gross and palpable”.21 He then held that even if s 18A was not available there could be circumstances that would invoke the discretion in s 13 in relation to unequal division.22
20 At [64]–[66].
21 At [65].
22 At [67].
[22] I accept the appellant’s arguments on this issue. Section 20 is not one of the provisions referred to in s 18A(2)(b) where qualifying misconduct may be taken into account. Furthermore the Judge’s reference to s 13 in this context was irrelevant. The division question to be addressed under s 13, which can involve an assessment of misconduct under s 18A(2)(a), only arises after the relationship property pool has been determined as a first step. The categorisation of this debt as a personal debt, or a relationship debt, arose as an initial question to be considered under s 20. Sections 13 and 18A were not relevant to that question. It follows that the Judge erred.
[23] That does not dispose of this issue on appeal because the Judge went on to consider the application of s 20 generally, and concluded that there was not a sufficient nexus between the incurring of the tax debt and qualifying relationship purposes for the debt to be a relationship debt.23 It is to that issue that I now turn.
Was the debt incurred for the benefit of the relationship?
[24] The argument advanced by Mr Hewson it is that the Judge was wrong in this finding as under s 20(1)(d) the overseas income was used for household expenses and accordingly the debt on that income was relationship debt.
[25] There are a number of decisions, including decisions of the Court of Appeal and the High Court, dealing with the application of s 20 in relation to tax liabilities arising from what can be described as tax avoidance or tax evasion activities. In these cases it is not unusual for one partner not to know of, or fully appreciate the tax avoidance or evasion being undertaken by the other. In Bell-Booth v Bell-Booth the Court of Appeal dealt with a situation where the husband had entered into a tax avoidance arrangement which was ultimately intended to benefit the relationship.24 The Court held that the fact that he intended to benefit the relationship was not sufficient by itself to show that the tax liability was a relationship debt under s 20. In terms of what is now s 20(1)(b) it held that the tax avoidance arrangement was not a joint enterprise of the husband and wife.25 In relation to what is now s 20(1)(d) it held
23 At [55]–[59].
24 Bell-Booth v Bell-Booth (1998) 17 FRNZ 658 (CA).
25 At 663.
that there must be a clear connection between the incurring of the debt and the managing of the household or bringing up of a child. The Court held:26
… to qualify under para (d), the debt must be incurred in the very course of managing the household or bringing up a child. It is not enough that the business which the debt has been incurred to support produces money which is then used in the course of managing the household or bringing up a child.
[26] The Court held that the debt incurred in the scheme was “clearly not close enough” and on that basis it overturned the lower Courts. By contrast in Walker v Walker the Court of Appeal later said s 20(1)(c) applied in relation to unpaid tax on excess salaries earned as part of a tax avoidance scheme.27 That was because the proceeds of that scheme were then used to construct the matrimonial home such that it would be “artificial to view the tax liability as anything other than a debt incurred for the purpose of constructing the matrimonial home”.28 The Court indicated that a purposive interpretation should be adopted to the section, and that the Court’s previous decision in Bell-Booth should not be interpreted too narrowly.29
[27] When applying these authorities income tax may be seen to be in a particular category. That is because income and tax on that income are usually inherently interlinked. So income that is brought into the relationship necessarily involves any tax on that income being a relationship debt, at least in the normal course, and irrespective of whether the other partner is aware of any tax avoidance or evasion.30 The relevant nexus under s 20 is established. It also does not matter when the other partner becomes aware of the liability, or when the IRD makes demand.31 The focus is on the incurring of the debt when the income is earned and brought into the relationship in the way contemplated by s 20.
[28] It is highly desirable not to overcomplicate the application of the Act. It should be able to be applied by parties dealing with the difficult issues at the end of a relationship as easily as possible, and without the need for complexities causing
26 At 664.
27 Walker v Walker [2002] 1 NZLR 155 (CA).
28 At [51].
29 At [51].
30 See Fisher on Matrimonial and Relationship Property, above n 14, at [15.10]; and Wilkinson v Wilkinson (No 3) (1992) 8 FRNZ 482 at 485.
31 See NJS v SS [2013] NZHC 914 at [53].
dispute. That was a point made by Woodhouse J soon after the Act was first enacted in 1976.32 The application of the Act some 34 years later should similarly be straightforward. Income tax on one partner’s income will normally be relationship debt when the income is earned and used for the relationship as it establishes the nexus contemplated by s 20.
[29] But there are factual difficulties in the present case that necessitate a degree of complexity. The evidence suggests that not all of the income Mr Hewson earned from his overseas activities was used for the relationship purposes. Moreover full details of the overseas account operations, particularly in the form of the bank statements, were not provided or available to the Family Court. In his affidavit Mr Hewson said that he would usually deposit only somewhere between 75 per cent and 85 per cent of his income into the joint account. In her affidavit, however, Ms Deans said that she only found out how much Mr Hewson had been earning in the course of the proceedings and that she was shocked. She assessed the bank statements that were revealed to her and gave evidence that only a lower percentage of the earnings reached the family bank account. She also said she had no idea that he was not paying tax on that income.
[30] The Family Court Judge accepted Ms Deans’ evidence. He held that the evidence did not support a conclusion that the majority of the overseas income was paid towards family use. For the year ended 31 March 2017 he accepted Ms Deans’ evidence that 48 per cent of the earnings were then transferred into the relationship accounts, and that 64 per cent of the earnings were transferred for the year ended 31 March 2016.33 There has been no challenge to these findings on appeal. The Judge ultimately concluded that the nexus between the tax debt and the relationship purpose did not exist at all. He held it was not incurred for the purposes of maintaining household affairs or upbringing of the children applying the requirement for the nexus identified by the Court of Appeal in Bell-Booth.
[31] For the reasons I have already addressed, and I will elaborate on below, I do not agree with that finding. Income, and tax on income are still inherently inter-
32 Reid v Reid, above n 19, at 581.
33 Hewson v Deans, above n 1, at [32]–[63]
related. If a couple intend that the income they each earn is to be used in the relationship, then the tax obligation on that income will likely be incurred “for the benefit of both spouses” establishing the nexus required for relationship debt.
[32] But given Mr Hewson’s evidence that only part of the income was used for relationship purposes, and Ms Deans’ analysis on seeing the bank accounts that were available that only 48 and 64 per cent of the income received found their way into partnership property in the two years where detail is available, there is an evidential issue. A question arises as to how the Court should address such evidential questions, and who bears any burden of proof.
The burden of proof
[33] It is ultimately Mr Hewson that has the relevant information in relation to his income, the operations of the account, and what his intentions were. There does not seem to be any dispute that he controlled these matters, and that Ms Deans did not know about the details, or that he was not paying tax. In those circumstances Mr Hewson has an evidential burden of establishing that any tax obligation associated with the income was incurred for the benefit of the household. A similar issue arose in Pearson v Pearson where Goddard J held:34
[15] In the present case I take the view that the onus was on Mrs Pearson to have raised a challenge in relation to the taxation liability in the first instance, in which case the question of onus of proof would have needed to be considered by both parties. I do not go so far as to state that the onus would have fallen squarely on her to prove that the debt was not a matrimonial debt, given her counsel’s submission that she does not have the same first-hand knowledge of the couple’s financial affairs or of the operation of the company. Therefore, in that situation the onus of proving the debt was not a personal debt may well have shifted to Mr Pearson, once the challenge had been squarely raised.
[34] I respectfully agree with that approach. Here it is apparent that Ms Deans has squarely raised the issue concerning the tax liability, and whether it was incurred for the benefit of the relationship in the manner specified. The evidential burden then shifted to Mr Hewson given that he had the necessary information.
34 Pearson v Pearson (2002) 22 FRNZ 545.
[35] This is not an all or nothing question. Section 20 provides that debt can be a relationship debt “to the extent that” it is incurred for the purposes listed. That statutory wording was first introduced in 2001.35 This may mean that the approach adopted in earlier cases, such as Wilkinson v Wilkinson, which spoke of the need for the income being used exclusively, or almost exclusively in the relationship may now require refinement.36 I accept Ms Deans’ argument that the whole debt cannot be relationship debt. That is because Mr Hewson would need to establish that the debt that he incurred when he earned the income was all incurred for the benefit of both partners in managing household affairs or upbringing the children under s 20(1)(d). Even on his own evidence only a portion of the money was to be used in that way. The further evidence from Ms Deans indicates that a much lower proportion that he said was actually used. As a consequence he failed to satisfy the burden.
[36] The question is then whether Mr Hewson can say that the portion that was deployed for the relationship purposes should be used to calculate the proportionate income tax liability as relationship debt. There are arguments for saying that even that is not sufficiently established. Mr Hewson retained control of the account to the exclusion of Ms Deans, and he appears to have decided the amount that he would transfer across to the relationship account, and accordingly it might be said that he remained personally responsible for the debt associated with the earning of the income. There is no evidence that the percentage he elected to pay across was influenced by any prospective tax liability — or put another way, that he would have paid a smaller amount across if he had paid the tax due. That is probably another way of making the point made by the Judge that there is arguably a lack of nexus between the incurring of the debt and the relationship purposes specified in s 20.
[37] Ultimately, however, there does not appear to be doubt that a percentage of Mr Hewson’s overseas income was introduced into the relationship, and that this had been intended when the income was earned and the tax liability incurred. That was the arrangement between the parties. The fact that he was earning more than he revealed to Ms Deans, and that he evaded paying the tax on that money without Ms Deans knowing of it, does not alter the fact that both parties intended his income to be
35 By s 20 of the Property (Relationships) Amendment Act 2001 (2001 No 5).
36 Wilkinson v Wilkinson (No 3), above n 30.
relationship income. The inherent relationship between the income and the tax on the income exists. It still follows that the tax liability on that income was relationship debt, at least to the extent that the intention manifested itself. The fact that only a portion was in fact so used for the relationship reduces the relationship debt to the equivalent portion of the tax liability.37 It is only the remainder that must be treated as personal. I see the position in Bell-Booth as different because that case involved a more removed business tax arrangement. Here we are dealing with income tax on one party’s income when there was a joint intention that the income that they each earned would be used for the relationship in the manner contemplated by s 20(1)(d).
[38] For these reasons I conclude that the income tax on the 48 and 64 per cent of the income paid across to the relationship for the two years in question is relationship debt.
[39] A remaining issue arises in relation to the other tax years for which information has not been provided. Mr Hewson had the evidential burden to show what proportion of the tax liability on the income was incurred for the qualifying relationship purposes. He only disclosed bank accounts for two of the relevant years showing much lower proportions than Ms Deans expected. He appears to have provided details for additional tax years to the IRD. Disclosure was required in order for the Court to be satisfied that the tax liability incurred on income met the requirements of s 20. It was also important that full disclosure and full accounting occur. That is because a further question naturally arises — what happened to the balance of the money paid into that account that was not used for relationship purposes? The Judge had made findings that Mr Hewson had engaged in dishonest conduct. Only a small amount ($1,323.52) was accounted for as relationship property on separation, being the then closing credit balance of the overseas account.
[40] I accordingly conclude that the only tax debt that can be regarded as relationship debt arises in relation to the tax on the income that the Court accepted on analysis had come into the relationship account in accordance with the parties’
37 I note the reference to the lack of relevance of tracing a debt through to the relationship in JES v JBC [2007] NZFLR 472 (HC), upheld in JES v JBC [2007] NZFLR 905 (CA) at [5]. But the context of income tax strikes me as providing distinguishable circumstances.
arrangement — that is the tax on the 64 per cent of income to 31 March 2016, and 48 per cent of the income to 31 March 2017. That involves a tax liability of $10,457.54 for the 2016 year, and $14,866.10 for the 2017 year. Even though a portion of the income in other years might have been intended for the specified relationship purposes, the Court did not have the evidence of that to enable any assessment and calculation to be made, or to engage into any enquiry on what happened to the balance of the money.
Conclusion on tax liability
[41] Accordingly for these reasons I accept that the Judge erred in his assessment, and that the amount of $25,323.64 was relationship debt. The balance was properly treated as Mr Hewson’s personal debt. I reject the appellant’s contention that the amount of $141,500 was all relationship debt.
Second issue: Student loan
[42] The second issue relates to the treatment of payments associated with Mr Hewson’s student loan. This was not one of the issues affected by the Judge’s findings in relation to misconduct, although it did turn on the Judge’s factual findings. I have accordingly considered those findings with some care.
[43] The Family Court Judge held that the weight of evidence indicated that an amount of $14,946.55 paid off from the student loan was derived from relationship property.38 He rejected Mr Hewson’s evidence that additional costs of a course engaged in during the relationship was a relationship debt.39 These findings resulted in a credit adjustment of $7,473.27 in Ms Deans’ favour representing half of the student loan paid off, which was treated as a credit under s 20E of the Act.
[44] On appeal it is submitted for Mr Hewson that there was no proper evidential foundation for these findings, and that the student loan should have been treated as a personal debt of Mr Hewson with no credit adjustment in Ms Deans’ favour under s 20E.
38 Hewson v Deans, above n 1, at [100].
39 At [99].
[45] I do not accept these submissions. There was a proper evidential foundation for the Family Court Judge’s findings. A student loan borrower statement from the IRD was in evidence. That statement showed that the loan principal transferred to the IRD on or about 28 February 2012 was $42,453. As at 19 July 2018 the statement then records the account as standing at $43,397.23. For the approximate period of the relationship there was accordingly no substantial change to the balance owed on the student loan. That statement records that there were interest charges over that period together with some late interest and penalties, and interest write-offs. Most significantly the statement records that there were repayments made to the IRD of
$14,946.55. On the face of that statement, therefore, during the relationship Mr Hewson’s loan was repaid in the amount of $14,946.55.
[46] In those circumstances it was over to Mr Hewson to establish that the repayment either was not made for some reason notwithstanding the statement, or to provide evidence that the repayment was not made from relationship property, but from personal property of some kind. He did not do so. Indeed under cross- examination he was asked:
Q. And the statement records that you made $14,946.55 in payments towards that debt, didn’t you?
A. Correct.
Q. So you must have been making student loan repayments during the relationship, would that be correct?
A. Yeah, I don’t know where those payments have come from but yes, obviously.
…
Q. I also put it to you that you had the debt before beginning the relationship with Ms Deans and you paid it off over the course of the relationship. So, Ms Deans is entitled to be reimbursed for any relationship money you spent on the student loan, do you agree with that?
A. Going by the figures.
Q. So that’s a yes, isn’t it, Mr Hewson?
A. I guess so, yeah.
[47] If the repayments had been made from Mr Hewson’s personal property he needed to explain this in his answers and supply some evidence for any such contention. Again if there were a source of personal money used, a question would arise on what that was, and from where it was derived. There was a proper basis for the Judge to make the finding on that issue on the balance of probabilities.
[48] The IRD statement also recorded that there was no increase in the student loan due to the course that Mr Hewson said that he had attended. For that reason the Judge was entitled to conclude that there was no evidence to say that such a credit should be allowed.
[49] I see no basis to conclude that the Judge was wrong to reach these conclusions. I accordingly dismiss this aspect of Mr Hewson’s challenge on appeal.
Third issue: Child support
[50] The Family Court Judge ordered that Mr Hewson be required to pay a lump sum child support payment of $9,596.40. This was on the basis that Mr Hewson was paying a very low amount of child support following separation amounting to monthly child support in the realm of $75 per month from May 2017 until it was increased in November 2018 to $502.60.40 The Judge held that Ms Deans was living in a precarious financial situation that amounted to hardship during this period.41 At the same time Mr Hewson was earning a good income from his overseas activities.42 The lump sum awarded involved using the figure of $502.60 per month less the amount of child support that he had actually paid in the 27 months since separation. That lump sum payment was made under s 32 of the Act.
[51] On appeal Mr Hewson contends that this payment was made without jurisdiction. In particular it is argued that the High Court held in Hammond v Hardy that the Court is limited in its ability to make awards for discretionary reasons.43
40 Hewson v Deans, above n 1, at [104].
41 At [105].
42 At [107].
43 Hammond v Hardy [2007] NZFLR 910 (HC).
[52] I do not accept this submission which proceeds on a misunderstanding of the decision of the High Court in Hammond v Hardy. In that case Priestley J held:
[100] The s 32(2)(c) power to make an order can only be made under the stipulated provisions of the Child Support Act. Such an exercise would require evidence relating to the appropriate formula and the circumstances in which a departure from the statutory assessment to which the respondent is currently subject, might be justified.
…
[103] Where the formulae and assessments of the Child Support Act apply, a court is not able, for jurisdictional reasons, to step outside the provisions of that statute and pluck a discretionary figure. (See generally F v F [2003] NZFLR 903; Stapleton v Stapleton (2004) 23 FRNZ 314; Chong v Speller (2004) 24 FRNZ 273). Section 109 of the Child Support Act and in particular s109(3) set out matters which a court must consider in respect of an application for lump sum child support.
[104] The effect of these provisions, which I do not intend to set out, is almost certainly to limit a lump sum award, in all but the most unusual circumstances, to a capitalisation of the formula assessment in any given financial year.
[53] The point being made there is that the Court had no jurisdiction to depart from the formula set out in the Child Support Act 1991 by plucking a discretionary figure. But that is not what the Judge did in the present case. He assessed what should have been paid under that Act, deducted what had been paid, and awarded the difference as a lump sum payment.
[54] Mr Davies further argued that, when doing so, the Judge had not applied the criteria spelled out in the Child Support Act for making these assessments. I do not accept that. The Judge expressly addressed the considerations under the Act, and then reached the ultimate conclusion based on what should have been paid under the formula prescribed by the Act.
[55] Should there be any reassessment of child support Mr Hewson cannot be obliged to pay twice for the period already covered by this Court’s judgment under appeal. But I do not accept the criticism advanced by the appellant that the orders were outside what was permissible or wrong. This ground of appeal also fails.
Fourth issue: Unequal division
[56] Mr Hewson challenges the Family Court Judge’s decision that there should be unequal division of the family home. He ordered under s 13 of the Act that Ms Deans would receive 60 per cent of that value, and Mr Hewson only 40 per cent. This was again a situation where the misconduct of Mr Hewson was influential, indeed decisive, for the Judge’s decision.
[57]Section 13 of the Act provides:
13 Exception to equal sharing
(1)If the court considers that there are extraordinary circumstances that make equal sharing of property or money under section 11 or section 11A or section 11B or section 12 repugnant to justice, the share of each spouse or partner in that property or money is to be determined in accordance with the contribution of each spouse to the marriage or of each civil union partner to the civil union or of each de facto partner to the de facto relationship.
(2)This section is subject to sections 14 to 17A.
[58] The Judge accepted that any misconduct relevant to the s 13 assessment was required to meet the s 18A tests before it could be considered.44 That approach is consistent with of the decision of the Court of Appeal in J v J.45 The Judge ultimately found as follows:
[133] The particular circumstances in the present case which are relevant to the s 13 assessment comprise a range of longitudinal deceptions by the applicant commencing before the relationship (the tax evasion), continuing during it (the continued unremitting tax evasion and the false insurance claim) and actions after separation (the hiding of the jewellery, the false complaint that the respondent was involved in the insurance fraud and the refusal to agree to lower the mortgage interest rate) are very unusual, remarkable and surprising. In terms of whether these ongoing actions are extraordinary, it is helpful to approach the determination by asking; are these circumstances which are normal or ordinary when measured by the standards of contemporary marriages and relationships? Plainly they are not ordinary. Instead, they are extreme circumstances which run counter to the very concept of what a relationship of spouses or partners envisages or entails.
[134] Accordingly, applying the views of the leading authorities, I determine the circumstances of this case to be quite extraordinary. I determine these circumstances are relevant in terms of s 13. All of the concerning
44 Hewson v Deans, above n 1, at [138].
45 J v J, above n 8, at [11].
behaviours of the applicant placed relationship property, the value of it and the respondent’s ability to earn an income to provide for the children at significant jeopardy. His unremitting tax evasion created a false level of income during the marriage and a significant debt after it. His insurance fraud placed both he and the respondent at high risk of criminal prosecution which, if it had led to charge and conviction, would most likely have led to the respondent losing her employment and oncome, with consequent loss of the home. His refusal to permit the mortgage interest to be fixed at a lower rate, while not on its own extraordinary, becomes so when viewed against his collective actions. In terms of Joseph, these circumstances are truly extreme in nature, degree and duration.46
[59] Mr Hewson does not challenge the factual findings in relation to his misconduct on appeal. But he does challenge the conclusion reached by the Judge that they justified unequal division. For the reasons set out below, I accept that the Judge erred in this respect.
[60] As indicated s 18A(3) has two discrete requirements — the need to establish gross and palpable misconduct, and the need to show that that misconduct significantly affected the extent or value of the relationship property. In my view the Judge did not properly apply the second of those requirements. At [134] he made the findings on the significant adverse effect on the extent or value of the relationship property. But he erred when doing so. In particular:
(a)The “unremitting tax evasion” had earlier been held by the Judge to result in the tax liability being a personal debt, and not a relationship debt. It accordingly had no adverse effect on the relationship property. To the extent that I have found the Judge should have included the amount of $25,323.63 as relationship debt it does not adversely affect the extent or value of the relationship property. The tax obligation was always payable on the income earned for the relationship. The failure to pay that tax did not affect the extent or value of the relationship property. The interest and penalties on the unpaid tax did do so, but these are all the personal debt of Mr Hewson. The finding that Mr Hewson’s conduct adversely affected the extent or value of the relationship property is not justified.
46 Joseph v Johansen (1990) 7 FRNZ 177 (FC).
(b)Details about the false insurance claim are set out in [203]–[216] of the Appendix to the Family Court judgment. During the relationship Mr Hewson took some of Ms Deans’ rings, and then promoted a false insurance claim to their insurance company. The insurance company supplied replacement rings in settlement of the claim. After the relationship ended Mr Hewson sought to say she was involved in making the fraudulent claim. Given that she is a police officer this false allegation could have put her employment in jeopardy. But he was unsuccessful, and her employment was unaffected. I accept that his conduct was plainly gross and palpable under s 18A(3) — it could hardly be described as otherwise. But it is unrealistic to say that it had any adverse effect on the value or extent of the relationship property given that his efforts to smear her reputation were unsuccessful.
(c)Mr Hewson’s refusal to permit the mortgage interest rate to be fixed at a lower rate is dealt with in paragraphs [93]–[95] of the judgment. The point is that Mr Hewson refused to allow the interest rate to be fixed at a lower rate after separation. As this conduct occurred after separation it can only potentially be relevant to the question of post-separation contributions. As the Judge held, to compensate her for this could have amounted to “double compensation” as he had adjusted the compensation under s 18B for a range of post-separation contributions.47 I will address those below. I accept that this is a matter that might be relevant to the issue of post-separation contributions, but it did not affect the extent or value of the relationship property allowing it to be relevant under s 13.
[61] As I have mentioned Mr Hewson does not challenge the factual findings on appeal. I note, however, that Mr Hewson does challenge the approach the Judge adopted at the hearing. He contends that the Judge’s questioning of him at the hearing was excessive, and inconsistent with s 100 of the Evidence Act 2006.48 I make no
47 At [94].
48 Relying on Tahere v R [2013] NZCA 86 at [29]; and M (CA508/2014) v R [2015] NZCA 183 at [34].
findings on those matters given that the conclusions I have reached are sufficient to dispose of the relevant issues on appeal.
[62] It is very difficult to avoid the conclusion that the Judge’s ultimate finding under s 13 was heavily influenced by his conclusion that Mr Hewson had engaged in improper conduct in relation to Ms Deans, and that the Judge sought to remedy the position by making an adjustment to what each would receive. Whatever temptation there may have been to punish Mr Hewson for this misconduct it was not in accordance with s 18A.
[63] For the above reasons Mr Hewson’s appeal on this point must be allowed. There should have been equal sharing of the relationship home, or the value of the relationship home, under s 11(a).
Post-separation contributions
[64] Under s 18B of the Act the Court has a discretion to require one partner to make a financial contribution to the other for post-separation contributions. This section provides:
18B Compensation for contributions made after separation
…
(2)If, during the relevant period, a spouse or partner (party A) has done anything that would have been a contribution to the marriage, civil union, or de facto relationship if the marriage, civil union, or de facto relationship had not ended, the court, if it considers it just, may for the purposes of compensating party A—
(a)order the other spouse or partner (party B) to pay party A a sum of money:
(b)order party B to transfer to party A any property, whether the property is relationship property or separate property.
[65] It is accepted that what is involved under s 18B is a discretion, and that it has been described as “very broad”.49 Given that this is an appeal against a discretion, the more limited grounds of appeal to this Court arise.50 Having said that, the Judge
49 Shandil v Shandil [2011] NZFLR 554 (HC) at [46] per Duffy J.
50 See [4]–[5] above.
appears to have placed too much emphasis on the concept of misconduct for the reasons that I have outlined. So I address the discretionary exercise he engaged in with some care, and without allowing considerable latitude.
[66]In the present case the Family Court Judge awarded Ms Deans the amount of
$27,500 being half the total outgoings she had paid on the property following separation. He declined Mr Hewson’s claim that there should be a deduction from these amounts for what can be described as “occupational rental” — being a deemed rent that Ms Deans should pay for being in sole occupation of the family home. On appeal Mr Hewson relies on an estimated rental figure for the family home of between
$400 and $440 per week. On that basis half the total rental figure would be approximately $25,000. He also puts forward an alternative calculation by calculating the interest payable on the half share of the equity in the family home. The interest calculation would have been in the vicinity of $9,345.
[67] The Judge noted that such notional rental had been recognised in earlier decisions of the High Court.51 He then returned to the findings of misconduct he had made under s 18A.52 I accept that there was jurisdiction for the Judge to do so in the sense that the discretion in s 18B(2) is informed by the contributions to the relationship, which is accordingly within s 18A(2)(a). But for the reasons that I have explained in connection with the Judge’s decision on unequal sharing under s 13, such misconduct must have significantly affected the extent or value of the relationship property. That is not so in the present case in relation to post-separation contributions.
[68] Again this does not dispose of this issue on appeal because the Judge relied on other factors when exercising the discretion. The relevant findings made by the Judge were as follows:
[90] Turning to the assessments of contributions to the marriage, using the definition in s 18, and whether either party ought to be awarded with compensation pursuant to s 18B for contributions after the marriage, I make the following determinations;
51 Hewson v Deans, above n 1, at [82], citing E v G HC Wellington CIV-2005-485-1895, 18 May 2006; C v C HC Hamilton CIV-2006-419-1313, 26 June 2008; Griffiths v Griffiths [2012] NZFLR 327.
52 At [88]–[89].
(a)the respondent paid outgoings in respect of the family home after separation amounting to approximately $55,000.00 (being mortgage payments, rates and insurances),
(b)the applicant made a post separation contribution of $1400.00 towards mortgage outgoings,
(c)the respondent has provided the sole care to the two children of the marriage for some two and a half years since separation,
(d)she was solely responsible for management of the household and performance of household duties, both in terms of maintenance of the home and care of the children. Those contributions are significant,
(e)aside from limited child support payments made by the applicant, he did not provide any form of support, tangible or intangible, towards the care of his children,
(f)in terms of the approach in E v G, the applicant forwent a higher standard of living than he would otherwise have had by virtue of the respondent having occupation of the applicant’s half share in the home,
(g)the misconduct of the applicant in terms of the non-declaration of his income, the insurance fraud and the false complaint to the Police while having their genesis during the marriage, all carried consequences after separation and had a significant impact upon the respondent in intangible terms,
(h)the nature and extent of such misconduct was such that any tangible contribution by the applicant post separation ought to be significantly discounted. His actions placed immense stress upon the respondent, placed her under an internal employment investigation and increased the already significant pressures upon her, given she was the sole carer for the children,
(i)Viewed cumulatively, the applicant's positive contributions of the $1,400.00 mortgage payment and forgoing his use of the home are not of great level and are significantly outweighed when reference is had to the scale of his negative contributions.
[91] The consequence of these findings is that it would be manifestly unjust having regard to the principles and purposes of the Act, to provide compensation to the applicant pursuant to s 18B. Likewise, in these unique circumstances, it would be unjust not to provide fair compensation to the respondent for the significant contributions made by her post separation.
[69] The factors set out in paragraphs (c)–(e) continue to be relevant considerations. For the reasons I have addressed I accept that the misconduct described in (g) and (h) is not relevant as it does not meet the requirements of s 18A(3). But I accept that the assessment of Ms Deans’ contributions identified in those paragraphs may be relevant.
As I have already explained the effect of misconduct by one party may mean that the contributions of the other become relatively more significant. As the Judge emphasised monetary contributions are just as significant as non-monetary ones under the scheme of the Act.53 Ms Deans was placed in a position that the Judge had earlier described as one of hardship because of the low level of financial and other contributions being provided by Mr Hewson. Ms Deans was carrying a significant burden. The period would have been one of emotional anxiety for her. That means that the contribution disparity was more significant.
[70] I take into account that the Judge’s determination that there be a lump sum payment for child support addresses the financial disparity involved in Ms Deans’ contributions for support of the children. But that only partly addresses the financial considerations, and not the non-monetary contributions made by Ms Deans in this period.
[71] In the normal course it seems to me that some allowance should be made if one partner remains in occupation of the family home. On the other hand the children need to be cared for somewhere, and the position may be complex. I have concluded, however, that there should be no adjustment for notional rental for the reasons I have already addressed. In part that is because that was the Family Court Judge’s obviously firm views, but it is also because of the circumstances of hardship and significant distress faced by Ms Deans. Her contributions over this period were clearly greater. Making a deduction for deemed rental would be equivalent to taking away the adjustment for the child support lump sum, which does not seem just.
[72]For that reason I dismiss this ground of appeal.
Fifth issue: Value of Mitsubishi Challenger
[73] The final issue concerns the value given for a former family vehicle, a Mitsubishi Challenger. Mr Hewson had taken the vehicle at separation, and then sold it approximately a year later for $3,850. When the parties proceeded before the Family Court Judge they had agreed that the sale price should be used for the division of
53 At [86]; and Property (Relationships) Act 1976, s 18(2).
relationship property. However it appeared that Mr Hewson had obtained a valuation of the vehicle on separation, with that value being $4,990. It had been valued at the advice of Mr Hewson’s lawyer. In those circumstances the Family Court Judge concluded that the value at separation should be used.54
[74] The short point on appeal is that the Family Court Judge should not have departed from a value that the parties had agreed upon. As a general proposition that is clearly correct. But it is also true that the Family Court Judge was asked to address post-separation contributions. The substance of what he found on this issue was that the difference in the two values for the vehicle was attributed to the depreciation that occurs over time.55 He held that Mr Hewson took the vehicle and retained it for his sole use for almost a year.56 So whilst the Judge appeared to depart from a value that had been agreed between the parties, it would have been open to him to take into account the value of the post-settlement use of this vehicle for the purposes of his s 18B assessments, just as much as it would have been open to take into account Ms Deans’ post-separation use of the family home.
[75] In other words the Family Court Judge could have legitimately reached the same conclusion by a different route. Given that Mr Hewson had obtained the valuation on separation for the purposes of the relationship property issues, and had unilaterally disposed of the vehicle one year later, he could not complain if the reduction in value from the post-separation use by him over that time was held to be at his expense.
[76] For those reasons I do not interfere with the decision of the Family Court Judge. This ground of appeal is dismissed.
Conclusions
[77] For these reasons the appeal in relation to the treatment of the tax liability is allowed in part, the appeal in relation to the s 13 division of the matrimonial home is
54 At [21]–[28].
55 At [24].
56 At [26].
allowed, and the appeal in relation to post-separation contributions, the student loan, child support and the value attributed to the vehicle are dismissed.
[78] The financial consequences of these decisions for the calculations undertaken by the Family Court are as follows:
(a)The amounts set out in [152] of the judgment are altered so that the parties’ share of the value of the home is $136,523.32 each.
(b)The relationship debts set out in [154] are increased by the amount of
$25,323.63 to take into account the unpaid income tax liability.
(c)The consequential orders, such as those set out in paragraph [158] and
[159] are altered accordingly.
(d)Leave is reserved to address any questions of calculation arising from these findings.
[79] As to costs it seems to me that there has been a measure of success on both sides, and that the financial amounts in issue on appeal involve broadly similar amounts for each side. Accordingly my current view is that costs should lie where they fall. If either party takes a different view they may file a memorandum seeking costs (maximum 10 pages) with the other party responding within five working days (maximum 10 pages).
Cooke J
Solicitors:
Willis Legal, Napier for the Appellant Gifford Devine, Hastings for the Respondent
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