Stanley v Owens

[2021] NZHC 954

NOTE: PURSUANT TO S 169 OF THE FAMILY PROCEEDINGS ACT 1980, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B, 11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-1817

[2021] NZHC 954

BETWEEN

LISA MAREE STANLEY

Appellant

AND

MITCHELL SIMON OWENS

Respondent

Hearing:	9 December 2020
Appearances:	R Crotty and F Girgis for appellant Respondent in person
Judgment:	30 April 2021

JUDGMENT OF KATZ J

This judgment was delivered by me on 30 April 2021 at 12:00 noon Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:           Russell McVeagh, Auckland Copy to: M Owens (respondent)

STANLEY v OWENS [2021] NZHC 954 [30 April 2021]

Introduction

[1]    Lisa Stanley and Mitchell Owens were married in August 2002 and separated in August 2016. Their marriage was dissolved in August 2019. Following the dissolution of the marriage Ms Stanley sought spousal maintenance in the Family Court. Judge A M Manuel declined that application.1 Ms Stanley now appeals that decision.

Background

[2]    The parties are in their mid-40s and are both qualified professionals. They have two children, who were born in March 2009 and January 2014.

[3]    Ms Stanley worked as a lawyer before leaving the paid workforce in 2009 to care for the couple’s first child. The following year she established and ran a business which sold designer children’s clothing. Mr Owens worked as an accountant until 2011. He briefly assisted in operating the clothing business before commencing work as a real estate agent.

[4]    The couple encountered significant financial difficulties in the years prior to their separation. The clothing business had cashflow problems and ceased trading in March 2015. It was subsequently placed in liquidation by the Inland Revenue Department (“IRD”). The IRD served proceedings on Mr Owens in February 2016 claiming $98,556.

[5]    In January 2019, Ms Stanley issued spousal maintenance proceedings under the Family Proceedings Act 1980 (“FPA”). Ms Stanley claimed maintenance for both the period prior to the dissolution of the marriage in August 2019 (under s 63 of the FPA) and  for  the  period  subsequent  to  dissolution  (under  s  64  of  the FPA).  Ms Stanley’s total maintenance claim amounted to $334,768.

[6]    The usual approach of the courts when assessing a spousal maintenance application is to address the following questions, in sequence:2

1      Stanley v Owens [2020] NZFC 5102.

2 At [30].

(a)Is there a liability at law to pay maintenance?

(b)If there is, what are the applicant’s reasonable needs and means to meet them?

(c)What are the respondent’s needs and means, and is the respondent able to pay any maintenance?

[7]    Judge Manuel took a “reverse” approach and began by assessing Mr Owen’s needs and means.3 No issue was taken with this approach on appeal as, logically, it should make no difference to the outcome.

[8]    The Judge found that there was liability at law to pay maintenance, and that Ms Stanley’s claimed reasonable needs were reasonable. Those findings are not challenged. Rather, the key issues on appeal are:

(a)whether the Judge erred in finding that Mr Owens did not have the means to pay maintenance (and should not have to borrow in order to make maintenance payments); and

(b)whether the Judge erred in finding that, after the dissolution of the marriage in August 2019, Ms Stanley could have bridged any shortfall between her reasonable needs and her means, had she been fully committed to re-entering the workforce.

Does Mr Owens have the means to pay maintenance?

Relevant law

[9]    When determining the amount of maintenance payable to a spouse (if any), the court must have regard to not only the needs of each spouse, but also their means4 and financial responsibilities.5

3 At [31].

4      Family Proceedings Act 1980, s 65(1) and 65(2)(a).

5      Section 65(2)(d).

[10]   If one spouse does not have the means to pay maintenance when considering their reasonable needs, the court may not order the spouse to do so. For example, in P v K, Judge L J Ryan did not order that the respondent pay maintenance to the applicant as the respondent’s reasonable needs were modest and exceeded his disposable income, noting that he solely paid for¸ amongst other things, the mortgage over the family home, rates, and insurance which the applicant benefitted from.6

Family Court decision

[11]   Judge Manuel analysed Mr Owens’ income and expenses for the period 2017– 2021. She noted, however, that the figures used in her analysis were approximations only. For example, if depreciation (a business expense) was disallowed, this would increase Mr Owens’ means slightly. On the other hand, if Mr Owens’ legal expenses in the parenting proceedings (arguably a reasonable expense as Mr Owens was unlikely to qualify for legal aid) were included, his means would decrease. Her Honour concluded that:

[60] On a broad brush analysis I find Mr Owens’ available means for the years 2017-2021 were negligible, given his income, tax, business and reasonable personal expenses. The same is likely to be true in the future, more so in fact.

[12]   Ms Stanley challenges two key aspects of the Judge’s analysis of Mr Owens’ means:

(a)the acceptance of Mr Owens’ projected income figure for 2021; and

(b)the estimate that Mr Owens had paid an average of $30,000 per year towards settling relationship debt.

Mr Owens’ projected income figure for 2021

[13]   The income figures provided by Mr Owens included his actual income for the years 2017 to 2020 and his projected income for 2021 (estimated at $35,500, in contrast to his 2020 income of $59,286).

6      P v K FC North Shore FAM-2007-044-1783, 21 August 2009.

[14]   At the time of the Family Court hearing it was widely predicted that the COVID-19 pandemic would  negatively  impact the housing  market.  As a result,  Mr Owens estimated that his income would drop significantly (although he acknowledged that this was his “opinion” and not based on any “paper work”). He noted, however, that a real estate downturn had been predicted, many small businesses were shutting down, a global recession had been forecast, and there had been widespread uptake of the employee assistance that the government had provided.

[15]   Mr Crotty submitted that Judge Manuel did not base her findings regarding Mr Owens’ projected income figure for 2021 on evidence and, in effect, took judicial notice that the effects of the COVID-19 pandemic would be detrimental to Mr Owens’ future earnings. Mr Crotty further submitted that her Honour had wrongly accepted Mr Owens’ evidence as “expert” evidence. He argued that with the benefit of hindsight the risk of this approach is apparent – what was expected has not transpired, the opposite has.

[16]   A key difficulty with this submission is that the appellant is now asking this Court to do exactly what Judge Manuel is criticised for having done. In particular, the Court is being asked to take judicial notice of the fact that the pandemic has not negatively impacted the housing market. However, there is no fresh evidence before the Court (expert or otherwise) as to what the impact of the pandemic has been on the housing market, and how this has impacted on income levels for real estate agents. The only evidence before the Court on the issue remains that of Mr Owens. While Mr Owens lacks independence, he does have significant experience in the real estate market. In my view it was not unreasonable for the Judge to have regard to his evidence regarding his expected income for 2021. It may well be that (with the benefit of hindsight) his projection was unduly pessimistic. There is no evidential basis, however, for overturning Judge Manuel’s findings on this issue.

[17]In any event, even if Mr Owens’ projected income for 2021 was reassessed at

$59,286 (the same level as his 2020 income) this would not, in my view, materially undermine the Judge’s conclusion that Mr Owens does not have the means to pay spousal maintenance. Further, if the Judge’s conclusion that Ms Stanley was not

entitled to maintenance after dissolution (August 2019) is correct, Mr Owens’ 2021 income is irrelevant.7

Repayment of relationship debts

[18]   Judge Manuel found (and it is not in dispute) that post separation Mr Owens assumed sole responsibility for repaying the couple’s relationship debts. The Judge acknowledged that it was not possible to quantify the relationship debts with precision on the available evidence. She found, however, that the debts were likely to be between $80,000 and $100,000 plus interest. The sum of $90,000 was chosen as a midpoint.

[19]   For the purposes of her analysis the Judge allocated expenses of $30,000 per year towards repayment of relationship debt noting, however, that:

[53] $30,000 a year has been included for Mr Owens’ payment of relationship debts (or $90,000 repaid over three calendar years from the date of separation). Although Mr Owens did not in fact repay the debts in full over three years this would have been a reasonable timeframe. He is still repaying the remnants as well as fresh personal debts incurred since the separation.

(Footnotes omitted)

[20]   Counsel for Ms Stanley submitted that Judge Manuel’s estimate of the quantum of relationship debt was unreliable, for various reasons. This submission was somewhat undermined, however, by a table produced at the hearing (prepared by   Ms Stanley’s solicitors) that calculated the relationship debt as at the date of separation as being within the range of $107,933.68 – $127,285.68 (depending upon whether the family vehicle debt remained relationship debt after the car was traded in). Obviously, this is greater than the $90,000 figure arrived at by the Family Court Judge.

[21]   It appears that Mr Owens has been able to compromise at least some of the relationship debt in the ensuing years. In February 2016 the IRD served proceedings on Mr Owens claiming $98,556 ($60,000 of which was a GST debt relating to the parties’ failed clothing business) plus penalties, interests and costs.8 Negotiations to

7 I address this issue at [37] – [42] below, concluding that there is no error in Judge Manuel’s analysis.

8      Stanley v Owens [2020] NZFC 5102 at [8].

settle this debt with IRD were initially unsuccessful. However, on or about 9 August 2019, IRD agreed to compromise the remaining debt for $25,000. Mr Owens borrowed $25,000 to make that payment. It is not clear how much of the debt and outstanding interest and penalties he had paid prior to that time. As at 31 March 2020, Mr Owens’ IRD account displayed a balance of $0.00. He also appears to have paid interest on other debts as well as principal. As at 8 January 2020 Mr Owens had borrowed almost $50,000 from a third party, some of which was used to settle the IRD debt. It is not clear what proportion of the balance (if any) was used to reduce other relationship debts.

[22]   What is clear is that significant relationship debts existed, and that Mr Owens assumed sole responsibility for paying these. The Judge’s broad brush estimate of

$90,000 appears to be reasonable, and is probably on the low side. Over time Mr Owens has been able to compromise some of the debts and, as a result, the amount he has repaid (and any amount still outstanding) is likely somewhat less than $90,000. Mr Owens has not, however, been able to repay the relationship debts entirely from his income. Rather, he has borrowed significant sums from a third party to enable those debts to be repaid. In effect, he has replaced one creditor with another, for a significant portion of the debt. The new creditor, however, is a personal creditor. It appears that the relationship debt has now largely been repaid.

[23]   It is possible that the Judge’s broad brush allocation of expenses of $30,000 per year towards the repayment of relationship debt was on the high side. There is nothing to suggest, however, that the estimate is in error to such a degree that it would materially impact the Judge’s assessment of Mr Owens’ overall financial means.

Conclusion

[24]   In conclusion, the appellant has failed to establish any errors in the Judge’s analysis of Mr Owens’ means that would materially impact her Honour’s conclusion that Mr Owens does not have the means to pay spousal maintenance to Ms Stanley out of his existing resources. Mr Stanley has significant debts relative to his fairly modest income and assets, in part due to his having assumed responsibility for repayment of all of the relationship debt.

Should Mr Owens be required to borrow in order to make maintenance payments to Ms Stanley?

[25]   The Judge found that requiring Mr Owens to borrow to pay maintenance when he has been repaying relationship debt, and also likely funded his own post separation expenses, at least partly, through borrowing, would be “inequitable”. Her Honour noted that Mr Owens’ credit rating was “only fair” and an order for maintenance, particularly for the lump sum payment sought, would place him at risk of bankruptcy.

[26]   Mr Crotty submitted that the Judge erred in her analysis of this issue, and that she should have required Mr Owens to borrow in order to pay maintenance to Ms Stanley. He referred to Lavas v Taliano,9 Nation v Nation10 and Copley v Wing,11 in support of this submission.

[27]   In Lavas v Taliano, Wylie J considered that not infrequently a party subject to a maintenance liability will be required to borrow or arrange the sale of assets to meet that liability.12 Were it otherwise, a party could eschew maintenance obligations simply by the arrangement of their financial affairs.13 In Nation v Nation, France J commented that “the wife’s needs should not be subject to the convenience of the husband's priorities and the organisation of his financial affairs.”14

[28]   Lavas and Nation were both cases in which the respondents had sufficient means to be able to afford maintenance, but the manner in which they had arranged their financial affairs made it inconvenient for them to liquidate the required funds. Such circumstances are far removed from Mr Owens’.

[29]   Copley v Wing is somewhat closer to Mr Owens’ circumstances. It concerned an interim spousal maintenance application. The respondent owed debts to various debtors including the IRD (which were relationship debts). Judge D A Burns observed that:15

9      Lavas v Taliano [2008] NZFLR 975 (HC).

10     Nation v Nation [2003] NZFLR 740, (2003) 22 FRNZ 845 (HC).

11     Copley v Wing [2013] NZFC 4632, [2014] NZFLR 388.

12     Lavas v Taliano [2008] NZFLR 975 (HC) at [18].

13 At [18].

14     Nation v Nation [2003] NZFLR 740, (2003) 22 FRNZ 845 (HC) at [115].

15     Copley v Wing [2013] NZFC 4632, [2014] NZFLR 388 at [20].

…if the respondent was to be made bankrupt then any liability for spousal maintenance would not be extinguished. This is as a result of s 304(2)(d) of the Insolvency Act 2006. That provision clearly indicates to me that spousal maintenance is regarded by law as the number one priority of the respondent ahead of the other categories of debts that he faces.

[30]   Judge Burns accepted that affording such priority to spousal maintenance would inevitably mean that other debts would take longer to pay off.16 The respondent contended that he should not have to pay maintenance because he had been paying down the relationship debts, which at the time of the hearing were approximately

$130,000. Judge Burns held that:

[22] Whilst I understand the argument of the respondent and have some sympathy for it, as a matter of law I do not consider that I can make adjustments in relation to relationship debts and effectively exercise a discretion that would be available to me under the Property (Relationships) Act where there is no application filed in Court or before me. The proper forum and jurisdiction to make adjustments as sought by the respondent is in the context of Property (Relationships) Act proceedings.

[31]   Judge Burns considered that s 32 of the Property (Relationships) Act 1976 (the “PRA”) was a bar to considering relationship debts as a factor relevant to a maintenance claim.

[32]   The PRA is primarily concerned with the division of relationship property. The financial support of one spouse by the other, on the other hand, is generally covered by the FPA. Obviously, however, these two things are often interrelated. As the learned authors of Fisher on Matrimonial and Relationship Property observe, the need for maintenance is inversely proportional to the benefits of a relationship property division.17 Owning a house removes the need for financial assistance to pay rent. Similarly, ownership of income producing assets will reduce the need for maintenance to meet other day-to-day living expenses.

[33]   Section 32 of the PRA empowers the Court to review existing maintenance arrangements in the context of any relationship property proceedings. Similarly, in determining  the  quantum  of  maintenance  (if  any)  the  Court  is  required  under  s 65(2)(a)(ii) of the FPA to take into account “means derived from any division of

16 At [19].

17     Fisher on Matrimonial and Relationship Property (online ed, LexisNexis) at [18.86].

property between the spouses, civil union partners or de facto partners under the [PRA]”.

[34]   Here, however, there have been no relationship property proceedings, because the parties’ debts exceeded their assets. Does s 32 of the PRA preclude the Court from considering Mr Owens’ assumption of responsibility for the relationship debt in such circumstances? In my view it does not. On the contrary, s 65(2)(d) of the FPA requires the Court to consider “the financial and other responsibilities of each spouse” when considering an application for spousal maintenance. Mr Owens’ relevant financial responsibilities include that he has assumed sole responsibility for repaying the relationship debts.

[35]   Section 32 of the PRA would enable Judge Manuel’s decision to be revisited in any subsequent relationship property proceedings. It did not, however, prevent her from considering the issue of relationship debts in the context of Ms Stanley’s application for spousal maintenance.

[36]   In conclusion, Judge Manuel did not err in holding that it would be inequitable to require Mr Owens to borrow money to pay maintenance, given his assumption of responsibility for the repayment of substantial relationship debts in all the circumstances of this case. Those circumstances include that Mr Owens has no significant assets and his credit rating is only “fair” as a result of previous business difficulties. Further, the analysis of his income shows, in most years, a deficit of income over expenditure. As a result of these factors it would likely prove difficult for Mr Owens to borrow significant sums, or service any such borrowing (particularly if they were at an unsecured interest rate).

Does Ms Stanley have the means to meet her reasonable needs?

[37]   The Judge found that there was merit in Ms Stanley’s claim under s 63  of  the FPA for maintenance spanning the period from separation to dissolution in August 2019. During this period the parties’ youngest child had not yet turned five and Ms Stanley needed to care for that child. Consequently, she could not practicably meet all her reasonable needs.

[38]   However, the Judge considered that there was no successful argument under  s 64 of the FPA for maintenance spanning the period from dissolution in August 2019 to the present. As the children grew older it was likely that Ms Stanley could have re-entered the workforce if she wished. She was a qualified lawyer with connections in the legal industry, business experience, and personal characteristics conducive to employment.

[39]   My finding that the Judge did not err in concluding that Mr Owens does not have the means to pay maintenance is sufficient to dispose of Ms Stanley’s appeal. I note for completeness, however, that I have not been persuaded that the Judge erred in concluding that Ms Stanley does not have a valid claim for post-dissolution maintenance.

[40]   If a claim is for maintenance after dissolution of a marriage, the applicant spouse must assume responsibility for their own needs within a reasonable time.18 On the expiry of that reasonable period of time, neither spouse is liable to maintain the other under s 64.19

[41]   Of note, during the parties’ 14 year marriage there were only two periods of 18 months, both associated with the birth of their children, when Ms Stanley was not working either in paid employment or in her own business.  Since separating from Mr Owens in 2016, however, Ms Stanley has not undertaken paid work for over four years. Significant contributing factors to this appear to be Ms Stanley’s commitment to home-schooling the children and her reluctance to accept work at a less senior level than the role she had when she was last in the paid workforce.

[42]   An inability by Ms Stanley to re-join the workforce at a level of seniority comparable to that which she previously enjoyed does not justify requiring Mr Owens to pay spousal maintenance. It may well be that Ms Stanley will need to re-enter the workforce at an intermediate level and then progress (possibly fairly quickly) back into a more senior legal role. Completing an LLM (as Ms Stanley is currently doing) is unlikely to significantly alter that career trajectory.

18     Family Proceedings Act 1980, s 64A(1)(a).

19     Section 64A(1)(b).

Result

[43]The appeal is dismissed.

[44]   Mr Owens was self-represented and it may therefore be that there are no issues as to costs. If there are, however, leave is reserved to Mr Owens to file memoranda by 14 May 2021. Any memorandum in response on behalf of Ms Stanley is to be filed by 21 May 2021.

Katz J