McIlraith v McIlraith
[2015] NZHC 2758
•6 November 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-000701 [2015] NZHC 2758
BETWEEN IAN DAVID McILRAITH
Appellant
AND
JENNIFER McILRAITH Respondent
Hearing: 6 October 2015 Appearances:
S J Shamy and V M Heward for Appellant
RJB Fowler QC and J J Daley for RespondentJudgment:
6 November 2015
JUDGMENT OF DUNNINGHAM J
[1] The appellant, Mr McIlraith, comes from a family which has been farming in the Waitaki River area for generations. With the assistance of a family trust established by his grandmother in 1960, Mr McIlraith has progressively acquired shares in a company which owns a farm in the Waitaki Valley known as Grassy Hills. He and Mrs McIlraith were married on 14 May 1971, and the couple lived on Grassy Hills for most of their married life. They separated in 2007, after some
36 years of marriage.
[2] As is often the case with family farms, the legal structure for farming Grassy Hills had some layers of complication. While the farm was owned by Grassy Hills Farm Company Ltd (GFCL), and the shares in GFCL were in Mr McIlraith’s name, the farm was farmed by Mr and Mrs McIlraith in partnership (“the partnership”) at the time of separation. The partnership owned the stock and
plant on the farm.
McILRAITH v McILRAITH [2015] NZHC 2758 [6 November 2015]
[3] Mr McIlraith acquired the shares in GFCL in a number of stages. This has led to the disputes over whether various parcels of the shares are relationship or separate property and, even if they are separate property, whether Mrs McIlraith has contributed to their increase in value, or sustained them in a way which entitles her to a share in their value.
[4] The farm has now been sold, but less than half of the proceeds of $3,280,000 have been distributed to the parties while Mrs McIlraith’s relationship property entitlement is in dispute. That dispute was the subject of a judgment in the Family Court on 29 August 2014, and some of the Family Court Judge’s findings are
now appealed to this Court.1
[5] Helpfully, counsel have been able to confine the points on appeal to four key areas. They are:
(a) whether certain tranches of shares in GFCL acquired by Mr McIlraith during the marriage are separate property under s 10 of the Property (Relationships) Act 1976 (“the Act”), or are relationship property under s 8(1)(e) and 8(1)(ee) of the Act;
(b)even if the shares are separate property, whether there has been an increase in value in those GFCL shares which is attributable to the application of relationship property, and which should be treated as relationship property under s 9A of the Act;
(c) even if the shares are separate property, whether Mrs McIlraith’s actions have sustained that separate property to justify Mrs McIlraith receiving an increased share of the relationship property or a sum in compensation to reflect that increase, under s 17 of the Act; and
(d)whether the Family Court correctly made the post-separation adjustments in respect of the salary and a dividend Mr McIlraith
received from GFCL, and in awarding interest to Mrs McIlraith for
1 McIlraith v McIlraith [2014] NZFC 5119.
the value of the partnership assets which were transferred to
Mr McIlraith on 1 June 2010.
Relevant background
[6] Mr McIlraith’s ability to continue his family’s legacy of farming in the Waitaki Valley had its genesis in the Mt Parker Trust. This Trust was established by his grandmother in 1960, and under the terms of the trust deed, she and Mr McIlraith’s parents held certain property on trust for the benefit of Mr McIlraith and his siblings. The Mt Parker Trust was scheduled to be distributed when Mr McIlraith’s youngest sibling reached 21 years of age, with the capital of the trust being divided equally between Mr McIlraith and his siblings at that time.
[7] In April 1971, GFCL was formed by Mr McIlraith’s father to own Grassy Hills farm. It had a share capital of $16,000 divided into 4,000 A shares, which were owned in equal shares by Mr McIlraith’s parents, and 12,000 B shares. All five of the McIlraith children were allocated shares, but Mr McIlraith and his brother Robert were allocated the largest parcels of shares as they were the only ones who showed real interest in continuing farming. They were each allocated 3000 B shares while the other three siblings each received only 1,000 B shares. A further
3,000 B shares were allocated to another relative. The children’s shares were paid
for by the Mt Parker Trust, presumably by way of distribution.
[8] By the time the capital of the Mt Parker Trust came to be distributed on the
21st birthday of the youngest McIlraith sibling, Mr and Mrs McIlraith were married. By this stage it had been decided that Mr McIlraith’s brother, Robert, would be established on the original farm, Mt Parker, and Mr McIlraith on Grassy Hills. A deed of family arrangement was entered into between Mr McIlraith’s parents (both in their personal capacity and in their capacity as trustees), and the five children and GFCL, to:
(a) wind up and fully distribute the Mt Parker Trust;
(b) establish Robert as an owner, in partnership with his father, on the
Mt Parker farm; and
(c) establish Mr McIlraith as a farmer in his own right on the farm known as Grassy Hills.
[9] In order for the object of the deed of family arrangement to be achieved, it was necessary that Mr McIlraith acquire the balance of 13,000 shares in GFCL, noting he already owned 3,000 shares. This was achieved as follows:
(a) The 4,000 A shares owned by Mr McIlraith’s parents were transferred to Mr McIlraith for $39,200. This was achieved by a loan made by GFCL to Mr McIlraith to fund the purchase price. GFCL would then owe Mr McIlraith’s parents the equivalent amount, payable on demand. This was to be completed by way of journal entry in the company’s records. However, no such journal entry was made, nor was a loan made by the company to Mr McIlraith. Instead, the debt was forgiven by consent as set out in a consent order dated
28 March 2006.
(b)The deed of family arrangement provided that 600 B shares which were held by the Trust were appropriated to Mr McIlraith for no payment.
(c) Of the remaining 8,400 B shares, Mr McIlraith paid for these using his share of the distribution from the Mt Parker Trust of $54,121. At
$9.80 per share, this equates to a purchase of 5,523 of these shares. The balance of 2,877 shares, with a value of $28,199, were paid for by way of a debt to the new partnership established between Mr McIlraith’s parents and his brother Robert. This debt was paid by a loan Mr McIlraith obtained from GFCL.
[10] The 16,000 GFCL shares remained in Mr McIlraith’s name throughout the marriage. GFCL owned and operated the farm until 1989, when Mr and Mrs McIlraith established a partnership to operate the farm. After the parties separated, the sole asset of GFCL, being the farm, was sold. The parties each received an interim distribution of $750,000 on 29 July 2010. There remains a
balance of undistributed sale proceeds held in the respondent’s solicitors’ trust account, of $1,780,000.
[11] The partnership owed a large debt to the company and had no net worth as at hearing date. Mr McIlraith acquired the stock and plant of the partnership, which was valued at $346,635, in June 2010.
Classification of shares
[12] The parties are agreed that the 4,000 A shares are relationship property and the first tranche of 3,000 B shares is separate property. They also accept the Family Court determination that the 600 shares appropriated to Mr McIlraith by the trustees under the deed of family arrangement are separate property because they were received as part of Mr McIlraith’s entitlement as a beneficiary of the Mt Parker Trust.
[13] Where the appellant takes issue with the Family Court decision is as to its classification of the remaining 8,400 shares acquired by Mr McIlraith as relationship property. The Court held that the 6,000 shares purchased from siblings was relationship property because:
[37] … The husband acquired them seven years later, paying the vendors the full market value for them. He could afford this purchase because he was able to use his vested interest in the Trust to pay part of the purchase price, but he did not acquire the shares because of that interest, instead, he acquired them because:
(i) He wanted to own all of the shares in the company so that he would be the only person receiving the benefit from his efforts on the farm; and
(ii) His siblings were willing to sell him the shares at the agreed price.
[14] In respect of the 2,400 shares acquired from the trustees, the Family Court determined they were relationship property saying:
[45] These shares are no different from the 8,400 [sic – 6,000] shares referred to above … This was simply a transfer by way of direction, and amounted to nothing more than an efficient conveyancing device.
[15] The appellant submits that the District Court was in error in classifying the
8,400 shares in this way because these shares are separate property as determined by s 10 of the Act.
[16] Section 10 reads:
10Property acquired by succession or by survivorship or as a beneficiary under a trust or by gift
(1) Subsection (2) applies to the following property:
(a) property that a spouse or partner acquires from a third person—
(i) by succession; or (ii) by survivorship; or (iii) by gift; or
(iv) because the spouse or partner is a beneficiary under a trust settled by a third person:
(b) the proceeds of a disposition of property to which paragraph (a) applies:
(c) property acquired out of property to which paragraph (a) applies.
(2) Property to which this subsection applies is not relationship property unless, with the express or implied consent of the spouse or partner who received it, the property or the proceeds of any disposition of it have been so intermingled with other relationship property that it is unreasonable or impracticable to regard that property or those proceeds as separate property.
[17] Section 10 identifies a special category of separate property which was explained in S v W as follows:2
The underlining statutory intention would seem to be that s 10 should govern the classification of property acquired by succession, survivorship, as a beneficiary under a Trust, or by gift, because property acquired in any of those ways has not been produced by the efforts of the parties to the marriage or de facto relationship.
[18] The respondent, however, supports the Family Court’s reasoning, which places particular emphasis on the use of the word “because” in s 10(1)(a)(iv) of the Act. The respondent considers it is significant that the word “because” was introduced in the 2001 amendments to the Act. Previously this section had read:
Property acquired by succession or by survivorship or as a beneficiary under a Trust or by gift from a third person.
[19] The respondent says, therefore, that in respect of property received as a
beneficiary under a Trust, a “distinct linkage element has been introduced” by the
2001 amendment, unlike acquisition by a succession, survivorship or gift.
[20] The respondent then focuses on the reason for the acquisition of the 6,000 B shares from the husband’s siblings and the 2,400 B shares from the trustees of the Trust. She supports the factual finding of the Family Court that they were acquired because:3
(a) he wanted to own all of the shares in GFCL so he would be the only person receiving the benefits of his efforts on the farm; and
(b) his siblings were prepared to sell them at the agreed price.
Thus the reason for acquisition of the shares was not that prescribed by s 10(1)(a). [21] Furthermore, in each case, the shares were acquired for full value. The
distribution of $54,121 which was used to acquire 5,523 of these B shares was simply used because those funds “were happily available to be used for partial funding of the acquisition”, and so the shares were not acquired “because” Mr McIlraith was a beneficiary of the Trust.
[22] In arguing that the word “because” introduced a new requirement into s 10(1)(a)(iv), the respondent referred me to the judgment of Judge O’Dwyer in
ARM v BM, which also discusses the impact of the amendment to s 10(1)(a)(iv).4
However, the conclusion in that judgment was:5
… the change of wording in the subsection under the Property (Relationships) Act 1976 does not change the overall intent and purpose of the subsection. The Court must still analyse the legal nature of the transaction through which the property is acquired. The reason and purpose for the acquisition will be relevant. It is also necessary to examine whether the property was acquired gratuitously from the trustees through benefits arising under the Trust, hence the capacity in which the property is acquired is still relevant.
[23] I agree with the Judge’s conclusions and do not consider they support an argument that the Family Court’s reasoning was correct.
[24] Importantly, at least in respect of the 5,523 shares acquired from the Trust distribution, I consider the Family Court judgment focused on the wrong stage of the transaction. It focused on the acquisition of the shares. However, the property which was acquired because Mr McIlraith was a beneficiary of the Mt Parker Trust, was the sum of $54,121. That distribution was property which Mr McIlraith acquired gratuitously from the trustees, because he was a beneficiary of the Trust, which was settled by a third person.
[25] I therefore accept the appellant’s argument that the 5,523 B shares were acquired using the funds so distributed and they did not lose their character as separate property at that point. It was, therefore, a transaction which was governed by s 10(1)(c) as the shares were acquired out of property acquired because Mr McIlraith was a beneficiary under a trust settled by a third person. The fact that the conversion of the distribution into shares was achieved by journal entries does not affect the application of s 10 to the shares.
[26] Thus the parcel of 5,523 shares acquired using the funds distributed from the
Trust is separate property, and the appeal succeeds on this point.
[27] The position of the other 2,877 B shares, which formed the balance of the shares acquired at this time, is different. The respondent argues that purchase of the
balance of the 2,877 B shares had nothing to do with the Trust because the source of funding was an external loan which was sought and obtained after marriage. The shares were distributed for full value from the Trust as opposed to, say, being distributed in specie. There was, therefore, no element of gift and s 10 cannot apply.
[28] While this transaction occurred at the same time as the purchase of the
5,523 B shares, using the funds distributed from the Mt Parker Trust, I do not consider it can be said they were acquired “because” Mr McIlraith was a beneficiary under the Trust as the appellant submits. The critical distinction is that they were not acquired gratuitously from either the Trust or from his siblings. Furthermore, the fact the loan used to purchase the shares was from a company where the majority of shares were separate property makes no difference to the character of the acquisition. The loan proceeds were also property Mr McIlraith acquired during the marriage and are therefore relationship property. The proceeds were used to buy the shares so
they, too, become relationship property.6
[29] Thus the 2,877 B shares were correctly classified as relationship property and the appeal fails in relation to the categorisation of these shares.
Increase in value of separate property – s 9A(1)
[30] During the marriage, the sum of $10,835, being the proceeds of insurance policies, was applied to reduce debt owed by GFCL.
[31] The Family Court held that this payment fell within s 9A(1) which provides:
(1) If any increase in the value of separate property, or any income or gains derived from separate property, were attributable (wholly or in part) to the application of relationship property, then the increase in value or (as the case requires) the income or gains are relationship property.
[32] The Court concluded the use of relationship property to reduce GFCL’s debt was encompassed by s 9A(1) as “any payment that improves the net position of the company affects the value of the shares”.7
[33] Mr McIlraith argues that payment in reduction of debt does not increase the value of a farm, which is the sole asset of GFCL, citing M v G where it was held that “an increase in the equity of the farm does not constitute an increase in its value for s 9A purposes”.8
[34] However, the Family Court rejected the approach adopted to s 9A in M v G, saying the shares could increase in value not only by the application of relationship property that improves the value of the farm, but also by payments that reduce the company’s liabilities. The Family Court then held, that all 16,000 shares “benefited proportionately” so the value of the 3,600 shares that the Court had determined were the husband’s separate property were held to have increased in value by $2,438. By adding simple interest at 11 per cent per annum over the period since the $2,438 was applied, the Court determined that the figure had become $8,900 and thus that
$8,900 of the value of the husband’s separate property should be treated as
relationship property.9
[35] In my view there is nothing to distinguish the present case from the circumstances in M v G. I accept that contributions which allow debt to be repaid, and thus increase the equity in the land, do not increase the value of the land itself, which was the sole asset held by GFCL. It follows that the District Court Judge was in error to treat the application of relationship property in the form of proceeds from insurance policies as having contributed to an increase in the value of the separate property shares for the purposes of s 9A.
[36] The appellant also notes that the proceeds of the insurance policies were credited to the appellant’s overdrawn current account in the books of GFCL, being the debt he owed for the loan he had taken out to pay for the balance of the B shares. The appellant says therefore that, although the money was used to repay the debt, the asset of the company (being the amount owed to it by Mr McIlraith) reduced correspondingly, and so the contribution had a neutral affect on the value of the company, even if debt reduction was a relevant consideration.
[37] However, this submission simply reinforces the respondent’s argument that the purchase of the balance of the B shares (being the 2,877 shares which were not acquired using a distribution from the Trust) was not an acquisition that is protected by s 10. It was a purchase for value that was made during the course of the relationship, and relationship property was contributed to payment for those shares. That, however, does not alter the fact that the use of relationship property to reduce debt cannot be considered to have led to an increase in value of the GFCL shares.
[38] The appellant therefore succeeds in arguing that there should be no award to the respondent to reflect an increase in value of the shares under s 9A, and this ground of appeal is allowed.
Section 17 – Sustenance from wife’s contribution
[39] Mr McIlraith appeals the finding of the Family Court that the wife’s efforts “sustained” the value of the husband’s separate property shares, and that this justified a payment in compensation.
[40] Section 17 provides:
(1) This section applies if the separate property of 1 spouse has been sustained by—
(a) the application of relationship property; or
(b) the actions of the other spouse. (2) If this section applies, the Court may—
(a) increase the share to which party B would otherwise be entitled in the relationship property; or
(b) order party A to pay party B a sum of money as compensation.
[41] The Family Court found:10
(a) the parties through their combined actions during the farming recession and droughts in the late 1980s were able to retain the farm
10 At [74]-[81].
and benefit from the significant increase in the value of farmland between 1990 and 2010;
(b)the dramatic decrease in drawings from the farm in 1986 and 1987 supported the wife’s claim that she earned income off the farm and this subsidised household expenditure, allowing stock numbers to be rebuilt during this period, thus sustaining the activities of the company; and
(c) this sustenance warranted a compensation payment of $85,000, which reflected 20 per cent of the increase in value of the husband’s separate property shares over the relevant period.
[42] In Hebberd v Hebberd, the concept of sustenance was explained as meaning “something more than to merely render assistance and to play a role in the running of the farm. It imports the concept of preservation”.11
[43] In applying that test in Hebberd, the Court of Appeal found the wife’s
contribution did not meet the requirements of s 17 saying:12
The wife’s contribution to the marriage partnership by the work she did from time to time on the farm no doubt contributed to the farm profits over the period. It should be noted, however, that personal expenses, including income tax and car expenses, exceeded the net farm profit. This was so even if one ignored depreciation and ignored the losses incurred from the mussel farms. In our view, the wife’s contribution must be regarded as having been reflected in the living expenses of the parties and in the standard of living which they were able to enjoy. The evidence does not establish that her contribution “sustained” the farm and its associated assets within any meaning which can properly be attributed to that word.
[44] Even if it is established that the actions of non-owning spouse “sustained” the other’s separate property, the Court then has a discretion as to what to award. The appellant pointed to French v French, where the Court stated that “there may be cases where [the extent of the share of relationship property] adequately
compensates a wife, for instance, for her total contribution to the marriage partnership”.13
[45] The appellant argues that there was no evidence to support the finding that Mrs McIlraith earned off-farm income in the mid to late 1980s when the droughts and recession struck, and which is one of the factors relied on by the Judge to support his findings on sustenance. The appellant points to Mrs McIlraith’s affidavit evidence where she acknowledged she did not have a job until the late 1990s saying:
For most of the marriage Ian worked on the farm whilst I looked after our children, performed household duties … that was the case until 1997 when I got a job.
[46] The appellant also argues that the Family Court Judge was clearly mistaken in his assumption that the farm accounts suggest there must have been income earned by the respondent in the late 1980s which sustained the farm and without which the farm would have been sold. He points out that the Family Court has not taken into account the Rural Bank loan of $54,500 which was obtained and used to buy stock during this period. It has also not taken into account that, although drawings were reduced in 1986 and 1987, wages increased dramatically. Furthermore, the company paid for the mortgage, rates, electricity and most of the car expenses in relation to the farming operation until the establishment of the partnership in 1989.
[47] In short, the conclusion that the respondent earned income in the late 1980s which sustained the farm, was contrary to her own evidence, and was not a conclusion that could properly be drawn from the farm accounts referred to.
[48] The appellant also argues that, if there has been sustenance to any degree, an award of $85,000, is “multiple times above other awards for farmers’ wives carrying out similar activities”. Instead, he argues that, as almost all the farm work was undertaken by him, and as his wife has already received “a reward of $500,000”14 (being a share of the increase in value of the shares which have been classified as relationship property), there is no justification for exercising the Court’s discretion to
award 20 per cent of the increase in value of the husband’s separate property shares
as well.
[49] The respondent however says that the Court was entitled to conclude that the wife earned “off the farm” income, because she set up and operated a farm homestay from 1986. She also endured a reduced standard of living during the severe farming recession in the late 1980s and the consecutive droughts. The case therefore can be distinguished from Hebberd, where the marriage lasted only five and a half years, not 36 years as in this case, and the farm had been owned in Hebberd by the husband for a considerable period of time prior to the marriage.
[50] Finally, she argues that there are numerous authorities which support the application of a s 17 award,15 and the award of $80,000 was not excessive when compared with similar cases.16
Discussion
[51] The onus is on Mrs McIlraith, as the party claiming to have sustained separate property under s 17, to show not just that she earned separate income or rendered other assistance in respect of the farm, but that her efforts preserved that asset in the sense of ensuring its continuing existence or value.17
[52] There is no dispute that farming was difficult in the mid to late 1980s. Farmers had to cope with the removal of supplementary minimum price subsidies and noxious weed control subsidies, high interest rates, two droughts and a severe farming recession.
[53] However, I accept that there was minimal evidence before the Court from which it could have concluded that the wife earned off-farm income that helped
sustain the farm through that period.
15 Clark v Clark [2012] NZHC 3159, [2013] NZFLR 534; B v Adams (2005) 25 FRNZ 778; French v French [1988] 1 NZLR 62; Nation v Nation [2005] 3 NZLR 46 (CA); V v V (2006) 26 FRNZ
808; O v O FC Hamilton FAM-2001-019-1355, 4 May 2006.
16 O v O, above n 15, awarded 25% of increase in value, W v W FC Wellington FAM-2008-032-
461, 6 July 2009 awarded 25% of increase in value; V v V, above n 15, awarded 20% of increase in value; B v Adams, above n 15, awarded $60,000.
17 Hebberd v Hebberd, above n 11, at 521.
[54] It is clear from Mrs McIlraith’s own evidence that she took no paid off-farm work during this period. There is evidence that she briefly operated a homestay at the property in the mid 1980s, but she acknowledged it didn’t generate a lot of income. When questioned about the income earned she could not confirm whether it was less than a $1,000 a year, and when it was put to her that the accounts “seems to show a few hundred dollars a year as other income during that period of the ‘80’s” she says, “I don’t know. They didn’t pay much to stay, if I remember rightly”.
[55] I am therefore satisfied that the Judge’s conclusion that “the household expenditure must have been subsidised by the wife’s earnings [which] in turn, allowed stock numbers to be rebuilt” was not supported by the evidence.18 It does not show that the income earned from the farmstay operation was sufficient to make a material contribution to their financial position at the time. The evidence the farm was restocked is explained by the Rural Bank loan the McIlraiths were able to
obtain.
[56] However, that is not the end of the inquiry. It is clear from the affidavit evidence that this period was an extremely stressful time on the farm, and the couple were at real risk of losing the farm if they did not rein in their personal expenses, and seek financial assistance. I consider there is broader evidence to show Mrs McIlraith made a significant contribution during this period and her actions contributed to the couple’s ability to retain the farm during this difficult period. Mrs McIlraith says “it was a terrible time and we both just tried to survive each day in hope. We stopped spending and had a very frugal lifestyle”. Selling up was an option they considered seriously. To avoid that, Mrs McIlraith, in addition to the usual work she did running the household and assisting on the farm, worked with her husband to formulate proposals to get them through this difficult period. These included “writing to our bank, our solicitors and occasionally MPs to assist with the grant of a Rural Bank advance”. The family also faced the additional trauma at this period of having their son diagnosed with leukaemia.
[57] I am satisfied that without the sacrifices Mrs McIlraith was prepared to make during that period of time, and her assistance to get bridging funding, the family
18 McIlraith v McIlraith, above n 1, at [78].
would not have been able to make it through this difficult period and retain the farm. These actions helped preserve the asset of GFCL and thus sustained it.
[58] Furthermore, the application of the proceeds of the couple’s life insurance policies to reduce debt in the period 1988-1990 was a further instance of how the couple sought to reduce outgoings to keep the farm going. Thus while this contribution did not qualify as warranting recognition under s 9A it forms part of Mrs McIlraith’s contribution to sustaining the farm asset of GFCL under s 17.
[59] The next issue is to determine what award of compensation is fair to reflect that contribution. In the Family Court, the Judge took into account that the increase in value related to shares which he had classified as relationship property was about
$1,075,000, so the wife would, in any event, receive approximately $500,000 for the sacrifices she made in the late 1980s to sustain the farm. The increase in value that related to the shares that were categorised as separate property in the Family Court was approximately $400,000 and she was awarded $85,000 of that increase.
[60] However, because of my findings in relation to the first appeal point, where I found that 5,523 shares which the Family Court had classified as relationship property were in fact separate property, the proportion of increase in value which relates to the separate property shares is larger. I have found that 9,123 shares, or approximately 57 per cent of the shares are separate property. If the net increase of
$1,500,000 in value of the property is accepted (and no party challenged this), then Mrs McIlraith will receive half of the $645,000 increase in the relationship property shares, or a little less than $325,000. Mr McIlraith’s share of the increase is
$855,000. The level of compensation which the Family Court awarded was $85,000 or 20 per cent of the increase in value of the separate property shares. This award was made in the knowledge that the wife had already received $500,000 from the increase in value of the relationship property shares.
[61] I do not consider that the figure of 20 per cent of the increase in the value of the husband’s separate property shares was an unfair or inappropriate share, particularly in light of the decisions the respondent’s lawyer referred me to, where awards of 20 to 25 per cent of the increase in value were made to reflect similar
levels of contribution. A 20 per cent share in this case is an award of $171,000 but, overall she receives less in total of the increase in farm value, if the relationship property share of the increase in value is taken into account as well.
[62] I therefore hold that the Judge was correct to recognise Mrs McIlraith’s contribution under s 17, and the decision to award her a 20 per cent share in that increase in value is not manifestly excessive in comparison to the level of sustenance afforded by her particularly during the 1980s where the risk of losing the farm was real. While this is an increased sum when compared with the District Court Judge’s award of $85,000, that needs to be seen in the light of Mrs McIlraith’s reduced interest in the GFCL shares as a result of this appeal, and, therefore, her reduced entitlement overall to the increase in value of those shares.
Post-separation adjustments
[63] The final set of issues raised on appeal is whether the Family Court appropriately determined how dividends and income Mr McIlraith received from GFCL after separation should be divided and whether the Court appropriately determined the interest payable to Mrs McIlraith in relation to her share of the partnership assets, being livestock and plant, which Mr McIlraith retained after
1 June 2010.
[64] In respect of those matters, the Family Court held that the husband was “entitled to claim a reasonable salary for the work he undertook on behalf of the partnership”. Had he not done so, then a farm manager would have had to have been employed and been paid the sort of salary being claimed by the husband. That is not contested. However, the Family Court held “there is no justification for the salary claimed by the husband from the company” and Mr McIlraith was required to
account to his wife for one half of it.19 Similarly, the Court determined that
Mr McIlraith should account to his wife for one half of the dividend he received as owner of the 12,400 (as it was then) relationship property shares.
[65] The respondent accepts that, in terms of post-separation dividends, the amount that Mr McIlraith should account for to his wife will be the dividend earned on half of the relationship property component of the company shares which, as a consequence of my findings on the first ground of appeal, is reduced to the dividend payable on the 6,877 shares which are relationship property.
[66] However, the respondent argues that “regardless of the size of the shareholding, it was open to the Court to order an adjustment for half of the salary received”.
[67] However, I am satisfied that, to the extent the income was earned from the relationship property component of the shares, then that was relationship property under s 8(1)(l) of the Act and, to the extent it was income earned off the separate property parcel of shares, then it was separate property under s 9(3) and 9(4)(a). In the absence of any evidence to contradict the statutory classification of these earnings as separate property, such as intermingling under s 9A(2), Mr McIlraith is only required to account to his wife for one half of the income received from the company that relates to the relationship property proportion of the shareholding.
[68] Finally, the Family Court held that interest should be paid to Mrs McIlraith on the value of the partnership assets as Mr McIlraith “has been able to use the livestock and plant to generate an income; the wife has received no commensurate benefit and should be compensated. Interest at five per cent will be payable on
$346,635 from 1 June 2010”.20
[69] The appellant acknowledges that he transferred the livestock and plant which belonged to the partnership to himself on 1 June 2010. His account for the partnership was debited with the valuation of the livestock and plant. He argues that half of the livestock and plant belongs to him and, logically, he should only have to pay interest on half the net value of the livestock and plant which is a sum of
$173,317.50 (being half of $346,635). Furthermore, this interest should only be payable until 29 July 2010 when Mrs McIlraith received the interim distribution of
$750,000.
[70] Mrs McIlraith accepts that her husband’s liability to account for interest would be on half of the net value of the livestock and plant, but she does not agree that the liability ends at the point of interim distribution, as that assumes that the
$750,000 that she has been paid represents payment of her half share of livestock and plant. In fact, that payment was attributable to a share of the sale proceeds of the company shares, not the livestock and plant, which Mr McIlraith kept.
[71] I accept the respondent’s argument that the interim distribution of $1,500,000 made in 29 July 2010, whereby each of the parties received $750,000, was a distribution of the proceeds of sale of the company shares and was clearly designed to achieve equality in terms of the interim distribution. There is nothing illogical therefore in the Court awarding five per cent interest to Mrs McIlraith on half of the net value of the livestock and plant which Mr McIlraith received in addition to his interim distribution of $750,000.
[72] Accordingly, the appellant is to pay interest to the respondent on a sum which represents half of the net value of the livestock and plant, from 1 June 2010, until the date of payment.
Conclusion
[73] The appeal is allowed in part. Specifically I have determined:
(a) The appeal against the Family Court decision, which classified the
5,523 GFCL shares acquired with a distribution from the Mt Parker Trust as relationship property, is allowed. Those shares are to be categorised as separate property.
(b) The appeal against the Family Court decision, which classified the
2,877 GFCL shares as relationship property, is dismissed.
(c) The appeal against the Family Court’s determination that the application of the proceeds of the insurance policy to the debt of GFCL led to an increase in value of the appellant’s separate property
shares under s 9A and that an award of compensation was appropriate is allowed. The award under s 9A is set aside.
(d)The finding that Mrs McIlraith earned off-farm income which amounted to sustenance of the appellant’s separate property shares is not upheld. However, the overall finding that her actions and contributions amounted to sustenance of the appellant’s separate property shares, justifying compensation pursuant to s 17 of the Property (Relationships) Act 1976, is upheld, as is the award of a
20 per cent share in the increase of value of the separate property shares. That, however, now results in a larger monetary award of
$171,000, given my findings on the first ground of appeal that 5,523 additional GFCL shares should be categorised as separate property.
(e) The appeal against the direction to account to the respondent for one half of the salary paid to the appellant by the company, post-separation, is allowed and, in its place, I direct the appellant to pay the respondent half the income which relates to the relationship property proportion of the GFCL shares.
(f) The appeal against the award of interest on $346,635 relating to the value of the livestock and plant acquired by the appellant in 2010 is allowed, and instead the amount of interest at five per cent is payable
on half that sum, being $173,317.
Costs
[74] The appellant has succeeded in part on his appeal, but not on other issues. It is a case where there is some attraction in the view that costs should lie where they fall. However, I will reserve the question of costs. If agreement cannot be reached then costs memoranda can be exchanged as follows:
(a) the appellant is to file and serve any memorandum as to costs within
20 working days from the date of this judgment;
(b) the respondent is to file and serve any memorandum as to costs within
30 working days from the date of this judgment;
(c) the appellant is to file and serve any memorandum in reply within
35 working days from the date of this judgment. [75] Memoranda are not to exceed five pages.
Solicitors:
Anderson Lloyd, Christchurch
Harmans, Christchurch
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