Fam­i­ly Law Update

This was a case of a long mar­riage, the par­ties hav­ing met in 1978 and mar­ried in 1986. They sep­a­rat­ed in 2003, after a mar­riage of 17 years, and divorced 2 years lat­er. There were 4 chil­dren of the mar­riage, aged 19, 17, 16 and 13 at the time of tri­al. The younger 3 were still at school and all were liv­ing with the wife.

Both par­ties had legal qual­i­fi­ca­tions, although only the hus­band had pur­sued a career in law. By the time of hear­ing, the hus­band was the man­ag­ing part­ner of a major Perth law firm. The wife had worked part-time in dif­fer­ent legal capac­i­ties, while also per­form­ing the role of pri­ma­ry home­mak­er and par­ent. At the time of hear­ing, there was a sig­nif­i­cant dis­par­i­ty in the par­ties’ earn­ings, with the wife earn­ing approx­i­mate­ly $22,000 per annum and the husband’s part­ner­ship income exceed­ing $550,000 per annum, and as much as $870,000 per annum a few years previously.

Notwith­stand­ing the husband’s high income, the par­ties’ ages (the hus­band was 50 and the wife 46 at the time of hear­ing) and the length of the par­ties’ rela­tion­ship, the mat­ri­mo­ni­al assets were mod­est. They comprised:

• Equi­ty in the for­mer mat­ri­mo­ni­al home of $485,000;
• The wife’s Hon­da motor vehi­cle, which she sold post­sep­a­ra­tion for $17,000. Even though the wife used those sale pro­ceeds to pay her legal costs, the tri­al judge did not add them back to the pool of assets;
• The par­ties’ hol­i­day home worth approx­i­mate­ly $146,000;
• The husband’s inter­est in his legal part­ner­ship. The tri­al judge did not accept the expert evi­dence of the wife’s val­uer, but accept­ed the husband’s sub­mis­sion that his part­ner­ship inter­est had a val­ue of $348,000, with a cor­re­spond­ing lia­bil­i­ty of $195,000. The wife’s expert had val­ued the husband’s part­ner­ship inter­est at $942,000 on the basis of a ​“cap­i­talised super prof­its” val­u­a­tion. The tri­al judge reject­ed that val­u­a­tion on the basis that it was based on a notion­al salary for the hus­band, which the tri­al judge did not accept as accu­rate. Ulti­mate­ly, the tri­al judge accept­ed the husband’s evi­dence that the val­ue of his part­ner­ship inter­est was rep­re­sent­ed by the bal­ance of the husband’s cur­rent account and equi­ty fund, less a loan;
• Income tax and CGT lia­bil­i­ties exceed­ing $196,000;
• The husband’s car and boat, sub­ject to a loan;
• The husband’s share port­fo­lio worth approx­i­mate­ly $15,000;
• Small amounts of super­an­nu­a­tion held by each par­ty (name­ly $19,000 for the wife and $54,000 for the husband).

In addi­tion, the tri­al judge added back to the pool of assets $72,000 spent by the hus­band on his new partner’s prop­er­ty from the husband’s post-sep­a­ra­tion income.

Before the tri­al judge, the par­ties had agreed that their respec­tive finan­cial and non-finan­cial con­tri­bu­tions dur­ing the mar­riage and after sep­a­ra­tion were equal. It did not fall to the tri­al judge, there­fore, to assess con­tri­bu­tions, but only to con­sid­er sec­tion 75(2) or future needs fac­tors. Not sur­pris­ing­ly, the tri­al judge found that those fac­tors weighed heav­i­ly in the wife’s favour, espe­cial­ly giv­en the sig­nif­i­cant dis­par­i­ty in the par­ties’ earn­ing capac­i­ties and that the wife would have the ongo­ing care of the chil­dren. The tri­al judge ordered that the wife retain:

• The for­mer mat­ri­mo­ni­al home, with the hus­band to pay out the mort­gage of $274,000 over ​“sev­er­al years”;
• Her car, sub­ject to its loan;
• The fur­ni­ture & con­tents at the for­mer mat­ri­mo­ni­al home and her jewellery;
• Her super­an­nu­a­tion; and
• Com­bined spouse main­te­nance, child sup­port and adult child main­te­nance totalling $100,000 per annum, in addi­tion to which the hus­band was ordered to pay the children’s pri­vate school fees and relat­ed expenses.

The hus­band was left with:

• His part­ner­ship inter­est, with a net val­ue of $153,000, but which he could not sell;
• His car;
• A boat, sub­ject to its loan;
• A share port­fo­lio worth approx­i­mate­ly $15,000;
• A small amount of superannuation;
• Net tax debts of $49,000;
• A lia­bil­i­ty to pay the wife’s mort­gage of $274,000; and
• Ongo­ing oblig­a­tions for spouse main­te­nance, child sup­port and adult child main­te­nance exceed­ing $100,000 per annum, once school fees and relat­ed expens­es were tak­en into account.

The effect of the tri­al judge’s orders was that the wife was to receive 93% of the net asset pool, as cal­cu­lat­ed by the tri­al judge, includ­ing the $72,000 spent by the hus­band on his new partner’s prop­er­ty and added back into the pool. The tri­al judge found that it was just and equi­table to award a 43% adjust­ment to the wife for future needs fac­tors on the basis of the small size of the asset pool. Had the asset pool been larg­er, it is like­ly that the wife would have received a small­er over­all per­cent­age of the net assets.

The hus­band appealed, rais­ing the fol­low­ing main grounds:

1. That the $17,000 pro­ceeds of sale of the wife’s car, which she spent on her legal costs, ought to have been added back and treat­ed as an asset already dis­trib­uted to the wife. The Full Court found that, although there is author­i­ty for the propo­si­tion that mon­ey that exist­ed at sep­a­ra­tion which was sub­se­quent­ly spent on legal costs ought to be added back into the pool of assets, the deci­sion not to do so in rela­tion to the whole of either party’s legal costs was with­in the tri­al judge’s wide dis­cre­tion and should not, there­fore, be overturned.
2. That the $72,000 spent by the hus­band on his new partner’s prop­er­ty from his post-sep­a­ra­tion income should not have been added back. The Full Court agreed, find­ing that the hus­band was ​“free to do with his income as he pleased”, includ­ing in fur­ther­ing his new rela­tion­ship, so long as he was at the same time prop­er­ly meet­ing his oblig­a­tions towards his wife and chil­dren, which he was. The Full Court found that there was no oblig­a­tion on the hus­band to accu­mu­late assets after sep­a­ra­tion. Fur­ther the hus­band was enti­tled to spend his post-sep­a­ra­tion income on appro­pri­ate accom­mo­da­tion for him­self, espe­cial­ly giv­en that he was also pay­ing the wife’s mort­gage. The Full Court deduct­ed the $72,000 from the asset pool.
3. That the tri­al judge ought to have treat­ed as a rel­e­vant lia­bil­i­ty a quar­ter­ly income tax instal­ment of the husband’s of $88,000, which relat­ed to tax payable at the time the tri­al was being con­duct­ed. The tri­al judge was not pre­pared to regard that post-sep­a­ra­tion tax as a joint lia­bil­i­ty. The Full Court dis­agreed and found that there was no rea­son for that lia­bil­i­ty to be exclud­ed from the asset pool, par­tic­u­lar­ly as it was tax on income that had been used, at least in part, to pro­vide sup­port for the wife and chil­dren post-separation.
4. By remov­ing the added back $72,000 and deduct­ing the $88,000 tax lia­bil­i­ty, the Full Court reduced the asset pool by $160,000, from $870,000 to $710,000. The effect of the tri­al judge’s orders would, there­fore, have been to leave the wife with approx­i­mate­ly 115% of the reduced net asset pool, or about $100,000 more in assets than there were assets avail­able for dis­tri­b­u­tion. One of the husband’s grounds of appeal was that it was not open to the court to make an order which would leave one par­ty with in excess of 100% of the net assets. The Full Court agreed.

The Full Court ulti­mate­ly award­ed the wife approx­i­mate­ly 98% of the asset pool. Like the tri­al judge, the Full Court found that it was appro­pri­ate to award a sig­nif­i­cant future needs adjust­ment giv­en the small size of the asset pool and the oth­er rel­e­vant future needs fac­tors. The Full Court var­ied the tri­al judge’s orders by requir­ing the hus­band to dis­charge only $150,000 of the wife’s mort­gage, leav­ing her respon­si­ble for the bal­ance of that mort­gage of $124,000. The Full Court did not dis­turb the tri­al judge’s orders for com­bined spouse main­te­nance, child sup­port and adult child main­te­nance of $100,000 per annum.

The tri­al judge had ordered the hus­band to pay one half of the wife’s costs, on the basis that the tri­al judge’s orders very close­ly resem­bled an offer that the wife had been pre­pared to accept. The tri­al judge thought that the hus­band should have set­tled on that basis and so ordered him to pay some of the wife’s costs.

The Full Court’s orders were more favourable to the hus­band than the offer. In addi­tion, the Full Court did not find that the par­ties’ finan­cial cir­cum­stances war­rant­ed a costs order in either party’s favour. That is, when con­sid­er­ing the par­ties’ respec­tive finan­cial cir­cum­stances, the Full Court weighed up the vast dis­par­i­ty in the par­ties’ earn­ings against the court ordered oblig­a­tions on the hus­band to con­tin­ue to sup­port the wife and chil­dren and to reduce the wife’s mort­gage by $150,000. Ulti­mate­ly, the Full Court set aside the tri­al judge’s costs order and left each par­ty to pay their own legal costs.

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