Hilton & Hilton [2008] FamCAFC 42 (2 April 2008)

FAMILY LAW - APPEAL – From decision of Federal Magistrate – PROPERTY SETTLEMENT – Long marriage – Equal assessment by Federal Magistrate of contributions of parties leaving aside inheritances – Failure by Federal Magistrate to discuss husband’s evidence relating to an inheritance – Money from husband’s inheritance used as part payment of an investment property – Federal Magistrate failed to mention the tax debt of the husband at trial – On appeal the husband also attacked the Federal Magistrate’s inclusion in the asset pool of the equity of the husband in property purchased with his new partner after separation (but not an alleged debt in relation to it) – On appeal the husband also attacked the Federal Magistrate’s deduction of a credit card debt of the wife at the time of separation – The respondent conceded that at least one of the grounds of appeal had merit

Hilton & Hilton [2008] FamCAFC 42 (2 April 2008)

Last Updated: 1 May 2008

FAMILY COURT OF AUSTRALIA

REPRESENTATION

ORDERS

(1) That the appeal be allowed.
(2) That order 5 of the Orders of Coates FM made 21 September 2007 be varied by deletion of the words “of this order” and the insertion of the words “of 2 April 2008”.
(3) That, by consent, Order 7 of the order of Coates FM made 21 September 2007 be discharged.
(4) That the Husband and the Wife shall, within 30 days of this order, do all things necessary to cause [“X”] Pty Ltd as trustee for the [Hilton] Family Trust to transfer to the Wife all of its right, title and interest in the business known as [the business “Z”] including all of its assets and liabilities.
(5) That contemporaneously with the transfer of [“the business Z”] to the Wife pursuant to paragraph 4 of the order, the Wife shall pay the Husband the sum of $72,881.50 and transfer to the husband or at his direction all of her right, title and interest in the following:-

• (a) The share/s held by her in [“X” Pty Ltd]
• (b) All and any interest or entitlement of the Wife (if any) in [“X” Pty Ltd], [the “R” business], the Hilton Family Trust and any other entity in which the Husband has an interest including but not limited to transferring to the Husband or at his direction all shares, loans owing to her or to her jointly with another or others and in respect of her interest as a beneficiary of the Hilton Family Trust the Wife shall within 7 days of any request by the Husband so to do take such steps as shall be required to relinquish all or any of her interest therein and/or consent to being removed as a beneficiary or potential beneficiary as the case may be and/or resign any office held therein
• (c) Any monies standing to the credit of the Husband in any bank accounts in his sole name

(6) That the Wife shall do all such acts and things and sign such documents as shall be required to resign as director and/or any other officeholder of [“X” Pty Ltd] after having appointed such person or person as the Husband shall nominate (if any) to replace her.
(7) That orders 9 and 10 of the orders of Coates FM made 21 September 2007 be discharged.

IT IS NOTED that publication of this judgment under the pseudonym Hilton and Hilton is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Appeal Number: NA 68 of 2007
File Number: BRC 1955 of 2007

Appellant

And

Respondent

REASONS FOR JUDGMENT

1. The respondent concedes that at least one of the grounds in this appeal has merit. Both parties request that I re-exercise the discretion that was vested in Federal Magistrate Coates when he made orders by way of property settlement between Mr and Ms Hilton.
2. Only four issues need determination in the re-exercise and I will turn to them after a brief overview of the history that leads to the re-exercise.

Overview
(i) Brief facts

1. The parties cohabited for approximately 35 years. Neither party had assets of substance at the outset. The only suggestion of contributions during cohabitation that might lead to other than an assessment of equality of contributions to time of separation was in respect of inheritances received by each party. During the cohabitation, the parties acquired two franchised carpet businesses which they retained at trial.
2. The parties had separated in about May 2004. The two children of the marriage, Leslie and Sarah, at trial were 34 and 31 years of age respectively. From about the beginning of 2005 the husband had run one of the businesses, at the town “Z”, and the wife the other at the town “C”. The parties agreed at trial that each retain the store he or she operated.
3. By trial, the husband had repartnered, the wife had not.

(ii) The Federal Magistrate’s judgment and the appeal

1. The opening paragraph of Coates FM’s judgment is:
   1. After 35 years of marriage special circumstances would have to be shown to order anything other than an equal division of assets when both parties worked to build the family wealth and raise their children.
2. Taken literally, this is an incorrect (or at least an insufficient) statement of principle, of the type disapproved by the High Court as early as Mallett v Mallett [1984] HCA 21; (1984) 156 CLR 605. Arguably, however, it might be in the nature of a shorthand statement, that relies upon implications to correctly express the law.
3. Indeed, the learned Magistrate went on to make findings which would support an assessment of contributions of each party during cohabitation, leaving aside inheritances, as of equal value. He found:
   1. The evidence shows the property of the parties was built up over their 35 year marriage and there is no evidence to consider that one party contributed more, initially, than the other.
   2. They both worked in their carpet business and they both assisted in raising two children and preserving or contributing to the family’s material wealth.
   3. There were two separate contributions by each party from inheritances.
   4. The wife contributed about $15,000.00 in 1976 from an inheritance to the mortgage on land the parties owned at [town “Z”]. The husband contributed about $125,000.00 of an inheritance to the mortgage and debt on their [“C”] store in 2002.
   5. Time has gone on and it is difficult to determine with mathematical precision the value of such contributions, but the evidence is that these inheritance monies went to benefit the parties by paying off mortgages and debts of the relationship. Without any method suggested as to how these contributions should be measured, I find these contributions to be equal, given their values and the time of each contribution.
   6. There was no other facts from which it could be determined that one party made a greater financial contribution than the other. They married and worked together.
4. As to the finding of the amount contributed by the husband from inheritances, it is common ground that in 2002 the husband contributed $104,000.00, not $125,000.00. However, this may not be a material error.
5. Of greater significance is that it is also common ground that the husband gave evidence that:

8. ...

1. A sum of $30,000.00 which the Husband received from his parents at a 1983/1984. which [sic] was used as a part payment for the investment property [...] in [town “Z”] which is still owned by [“X” Pty Ltd].

49 (a) The investment property at [town “Z”] was purchased for approximately $115,000.00 in 1983 using $30,000 from my parents. (emphasis added)

...

1. On about 1983, my parents gave me the sum of Thirty Thousand Dollars. These monies were used as deposit for purchase of the investment property. I never had to pay the money back although it was described as a loan. My brother received similar sums and as a result there was no adjustment to the estate in respect of debts we owed our parents, and the estate was just divided equally.
2. The Federal Magistrate did not mention this evidence. While Mr Forrest, counsel for the wife, argued that, because at least with respect to one aspect, the learned Magistrate rejected the husband’s credibility that he could be taken to have also rejected the husband’s evidence about the $30,000 inheritance, in my view, the absence of discussion of an important piece of evidence constitutes appellable error.
3. It is also common ground that, though the husband’s case was that he had a tax debt at trial of approximately $65,000 and that the liability should be included in the calculation of the net assets for division, the learned Magistrate made no mention of it.
4. The husband’s grounds of appeal also attacked the learned Federal Magistrate’s inclusion in the asset pool of the equity of the husband ($21,000) in property (the “Burrows”) purchased with his new partner after separation (but not an alleged debt in relation to it) and the deduction of a Visa card debt of the wife at the time of separation.
5. In view of the concessions, it is unnecessary to say more of the merit or otherwise of these grounds.

Re-exercise of discretion

1. The parties are agreed on an asset pool, save as to the inclusion or exclusion of three items and are agreed upon including the superannuation interests of each party in the single asset pool.
2. The parties are also agreed that no adjustment to assessment of contributions is required because of any factors included in s 75(2) of the Family Law Act 1975 (Cth).
3. The issues that counsel seek I address are:
   • (i) assessment of contributions
   • (ii) whether the tax debt should be deducted from gross assets
   • (iii) whether the husband’s equity in the “Burrows” should be included in the asset pool
   • (iv) whether the amount of the Visa card debt at separation should be deducted from the asset pool.
4. I will deal with the pool issues first.

(ii) The tax debt

1. In my view, I should consider the inclusion or exclusion of post-separation debt in the context of arrangements between the parties after separation.
2. In his affidavit, the husband deposed that, from about December 2004, he had been responsible for management and operation of the “town R” franchise and the wife responsible for the management and operation of the “town C” franchise. He deposed to considerable effort in bringing the “town R” business to profitability and stated that those efforts and the sole occupancy of the former matrimonial home by the wife were factors that required some adjustment on account of contributions in his favour.
3. In his affidavit, the husband said that he used $35,000 from a bank deposit at separation, mostly for living expenses over a 15 month period after separation. The husband also deposed that, up until the end of November 2004, he made all payments on both business and credit cards for the wife and they used those credit accounts for their living expenses, as they had done for years.
4. In the course of considering an argument by the wife at trial, that some of the post-separation expenditure by the husband should be added back to the asset pool, Coates FM made findings in relation to post-separation arrangements and conduct. He said:
   1. On the evidence, the question becomes whether the husband required that money to live on, an exception to the concept of add-back, while running the [“town R”] store.
   2. It was not in dispute that the [“town R”] store was experiencing difficulty and the husband’s evidence was that he utilised monies to assist it in the three years from separation.
   3. If he had not utilised the money, the parties would be in a different position today because the [“town R”] store may not exist and there would be less for them to divide, especially in them each taking a business which is producing an income.
   4. Under cross-examination the wife admitted that she obtained income from the business run out of the [town “Z”] property, which she declared in her Financial Statement, as well as from the [town “C”] store, which she did not declare.
   5. She agreed she was paying rates and her mortgage using business funds.
   6. Exhibit 6 and 7 shows sums drawn down by the wife for expenditure including payment of legal fees.
   7. Further, the wife admitted that her credit card was used for personal as well as business expenditure.
   8. Both parties have spent money which is part of the joint property. They both needed to live and pay bills. Whether it was the same amount or not, they needed to live and the money which went to pay for assets preserved the assets so they existed at time of trial and were available for division. It a balancing act which cannot be measured with preciseness. I will not add back the money.
5. Mr Burridge, counsel for the husband, accepts that if the husband’s tax debt is “written back” the wife’s outstanding tax of $28,540 ought also be included as a liability. The end result would be that the difference between the two tax debts will be divided according to the contributions assessment and thus the difference to the husband, if for example the division is equal, will be half the difference between the tax debts, ie. $18,200.00 approximately.
6. The evidence of the amount of the debt and the period to which it relates lacks clarity. In the schedule of assets and liabilities in paragraph 6 of his affidavit, the husband said:

“Taxation Liability received 12th April 2-7 $70,193”

1. On the other hand, in his financial statement filed 26 June 2007, the following typed entries appeared:
   1. Total income tax assessed for the current financial year Date due /04/07 $E60,000
   2. Total income tax assessed and unpaid in previous financial years $ E15,000
2. Interlined between the typed entries, in hand printing, was the following:

(Business Tax – Jointly with the ex-wife)

1. In a schedule to his affidavit, the company’s accountant ... calculated the husband’s tax for the year ending 30 June 2006 at $53,117.40.
2. Another aspect of post separation activity to which regard might be had in addressing the overall financial conduct of the parties since separation is the husband’s purchase of the interest in the “Burrows” with his de facto partner. His evidence was that $52,000 deposit was paid by his partner and the balance was borrowed. It was accepted at trial that the equity of the husband in the property was as he asserted, namely $21,000.00. There was issue about what should be brought into account, if anything, of the husband’s ownership and of the alleged debt in respect of his interest in the “Burrows” property. The learned Magistrate said:
   1. The next issue is the husband’s $21,000.00 in a property purchased by the husband and his de facto partner after separation.
   2. What is apparent is that I have to be satisfied that the amount did not come from marital funds.
   3. The husband truthfulness was questioned.
   4. The evidence was that he filed sworn material which did not truthfully reflect his living arrangements. In February 2006 he said he was destitute. He did not disclose he was living with his de facto and sharing expenses and that within a fortnight he was to receive loan funds to buy a property with his de facto.
   5. I do not accept as an explanation that because he had not received the loan, it did not need to be disclosed because his statement was that he was destitute.
   6. He was not forthright. The evidence is that he was not destitute.
   7. I hold that this part of his evidence is not believable. He was in a relationship and getting financial support. The $21,000.00 he says he loaned to his de facto, producing no corroborative evidence, is to be added-back.
3. Paragraph 37 is not consistent with what precedes it, which was not a question of a loan by the husband to his de facto, but was a discussion about the inclusion in or exclusion from the asset pool of the husband’s equity in the “Burrows”, at $21,000.00.
4. The evidence of the accountant who valued the businesses ... discloses that, in the 2006 year the husband had profitability from the “town R” business of $155,000.00. Though in his cross-examination the husband mentioned repaying an overdraft he does not offer any satisfactory or clear explanation why tax could not be met from income. The earlier lack of profitability of the business does not explain this. In the context of all these matters, the unsatisfactory nature of the husband’s explanation with regard to his arrangements with his de facto partner, in my discretion I would not include the tax debts.

(iii) Whether the husband’s equity in the “Burrows” should be included in the asset pool

1. I have been taken to the cross examination of the husband about the interest in the “Burrows” property and the alleged debt to his de facto partner. The husband did not call his partner to give evidence. In the exercise of my discretion, having regard to the referred position of the Federal Magistrate in assessment of credibility and the conclusions that he drew in respect of the husband’s truthfulness about this matter, the husband’s failure to produce his partner and the circumstances of disclosure by the husband of the debt, in the exercise of my discretion I would not include the debt, but I would include the equity.

(iv) Whether the amount of the Visa card debt at separation should be deducted from the asset pool

1. While it may be that this debt is distinguishable from others, in that it was in existence at separation and might be presumed to therefore be in the nature of a “marital” debt, again, the wife had the use of funds from various sources post separation and earnings from a business which originated during the co-habitation of the parties. I see no reason to single out this particular item.

(i) Assessment of Contributions

1. Having regard to the way the cases on contribution were run below and on appeal, and the learned Magistrate’s findings about contributions other than the inheritance, I consider that it is only the inheritances which might lead to a result other than equality of contributions to trial.
2. I see no reason not to accept the husband’s allegations as to the $30,000 received from his parents in 1983/1984. While there was some suggestion that this contribution was not raised in negotiations, the sorts of arguments put forward to support a negotiating position are very different from the depositions of fact required in an affidavit of evidence-in-chief for trial. In my view the husband squarely raised it in evidence and there was no reason to disbelieve his evidence in that regard, notwithstanding the findings about his credibility in respect of the “Burrows” property and his living arrangements with his de facto partner.
3. In those circumstances, notwithstanding that the $30,000 was provided to the Trust, it was provided by his parents and in my view the husband is entitled to credit for it coming into the marriage. It is proximate in time to the contribution by the wife and is likely to be of at least equal value to that contribution.
4. Therefore, the later contribution of the substantial sum of $104,000.00 stands, not counterbalanced by similar contributions by the wife. Mr Burridge did not argue for a greater than five per cent differential (which equates to $69,542 from the net assets below), which, in my view, is a proper assessment of the worth of this contribution and is a just and equitable division, meaning that the net assets should be divided 52.5 per cent to the husband and 47.5 per cent to the wife.

The result

1. The asset table for division will be:

Of course each party retains a business, agreed to be of approximately equal value.

1. 52.5 percent of the net assets is $730,189.00 (rounded off). 47.5 percent is $660,648.00 (rounded off).
2. Pursuant to orders 1 and 5 of the Federal Magistrate’s orders, the wife retains:

1. The Husband will retain or receive:

1. Each party has an income earning asset and substantial capital. Having regard to the length of marriage and substantial equality of contributions, save for the husband’s inheritance received late in the marriage, this, in my view, is a just and equitable result.

Orders

1. Orders of this Court will amend the learned Magistrates orders to give effect to the above. In addition, the parties are agreed that an order, (7), that the learned Magistrate made for the winding up of a trust (barring agreement otherwise), was not sought by either party and should be deleted.

I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Warnick.

Associate:

Date: 2 April 2008