Debt

When considering a division of property following the breakdown of a relationship or marriage we look at the assets and liabilities of the parties before deciding on a just and equitable division between them.

And an Order by a family law Court can stipulate how debts of the parties are to be treated.

But there is a vital question that has to be asked when dealing with liabilities – whose name is the debt in?

The answer to that question can have a significant impact on how Orders are drafted and their effectiveness in the long run.

For example:

Problem Orders

• the Wife is ordered to pay the credit card debt of the parties
• that credit card is actually in the name of the husband
• the wife fails to pay the debt
• the bank pursues the husband for monies owed in accordance with the terms of the credit card application.
• the husband has to pay the credit card debt despite what the family law Court orders say.

Well drafted Orders

• the parties are ordered to refinance the credit card debt currently in the name of the husband into the wife’s sole name
• the wife is then solely liable for repayment of that credit card debt now in her name
• should the wife be unable to finance the credit card debt currently in the name of the husband into her sole name within 28 days then “ABC asset” (e.g motor vehicle) is to be sold within 28 days and the proceeds divided so as to pay out the credit card debt (including extra interest) in the name of the husband and the balance to then be paid to the wife
• pending compliance neither party is allowed to increase the credit card liability.

It is important that parties consider the long term effect of Orders - and think of problems that can arise in the future - just because you are getting along now, or something seems simpler now, does not mean that  there won't be problems later on. If the Orders are properly drafted there will be sufficient protection for both parties.

Disclosure of property owned: a “big money” case example

A couple of months ago I wrote a post about disclosure in family law matters. In that post I pointed out that Chapter 13 of the Family Law Rules and Part 14 of the Federal Circuit Court Rules set out obligations that both parties are under to be open and honest about their assets, liabilities and their financial circumstances.

 

A recent case from the Family Court, Elgin & Elgin, highlights just how far the Courts can look into the financial circumstances of a party – both in terms of forensic accounting analysis of disclosed assets and making inferences due to lack of disclosure.

 

Mr and Mrs Elgin were married in 1960. They started their married life with very little. Shortly after their wedding Mr Elgin started to manufacture and install a product known in this litigation as EF Products, which was innovative at the time and the business flourished. Towards the end of the 1970s, the family moved to the Gold Coast. The EF Products business had grown into a national business and in the early 1990’s it was sold off. Around that time, and using the capital acquired from the sale of the EF Products business, the Elgin’s undertook their first property development on the Gold Coast. It was successful and various development projects took place thereafter with a great deal of apparent financial success. The Elgin’s also raised three, now adult, children.

In 2009 Mr and Mrs Elgin separated. Mr Elgin, then 70, had started a relationship with a 26 year-old married mother of two in 2008 and in 2011 Mr Elgin married his new partner and they had a child.

Around the time of separation Mr Elgin told Mrs Elgin that they would divide their assets evenly between the two of them. However, Mr Elgin later changed his mind – telling the Court that the property should be divided as to 70 per cent to him and 30 per cent to Mrs Elgin. Mr Elgin submitted that this was a just and equitable division reflecting the disparity in each party’s contributions over the years. Mrs Elgin sought that the property be divided as to 52.5 per cent to her and as to 48.5 per cent to Mr Elgin. Mrs Elgin submitted that this would reflect an equality of contribution throughout the years with a slight weighting in her favour to take account of an inheritance of $1.3 million which she contributed in 2003.

The Court decided to divide the property evenly between the parties.

The principle issue before the Court was exactly what property was there to divide.

 

The parties agreed as to the identity and value of much of their assets, including:

• Apartment D, E Street, Gold Coast, Qld with a value of $2,000,000;
• Apartment CD, C Street, Melbourne, Vic with a value of $1,450,000;
• Apartment A, C Street, Melbourne, Vic with a value of $1,950,000;
• DE Street, Suburb FG, Qld with a net value of $346,282; and
• Mrs Elgin’s interest in her self-managed superannuation fund with a value of $1,091,831.

However, they disagreed about a number of matters, including:

•  The value to be attributed to the personal savings of Mrs Elgin – the Court concluded $170,994;
• The value to be attributed to the Wife’s interest in the company, H Pty Limited – the Court concluded $609,679;
• The value to be attributed to the Husband’s superannuation interest – the Court concluded $454,958;
• Whether or not a motor car owned by the Husband and two motor cars owned by the Wife should be considered – the Court concluded $40,500;
• Whether or not the value of the J Elgin Family Trust should be included – the Court concluded the assets of $153,000 should not be included as Mr Elgin did not have control of the Trust;
• Whether or not the value of various trusts and companies was to be included – the Court concluded the net value was $36,472,146.

The final two steps involved Mr Elgin, in particular, disclosing extensive material – including information in relation to current land developments – to a joint expert in order for valuations to be prepared. 

But that was not the only impact of the disclosure rule in this matter. The Court also had to decide whether property not disclosed by Mr Elgin, and in the name of Mr Elgin’s new wife, should be considered, in particular:

• Whether or not two Gold Coast unit properties registered in the name of the Husband’s new wife (“the GH Street units”), purchased in October 2009 and May 2010 respectively, should be considered and if so their value; and
• The value to be attributed to another Gold Coast unit property purchased in the name of the Husband’s new wife (“the B Apartment”).

The Court noted that Mr Elgin had not responded to a request for disclosure about the first two Gold Coast properties. At the commencement of the Court hearing Mr Elgin deposed that his new wife had not paid any money for either of the properties. During cross-examination Mr Elgin agreed that he effectively gave his new wife those properties. Mr Elgin later changed his mind about that point and stated that his new wife had received money from relatives in Europe. Mr Elgin also failed to disclose the sale of another property in his new wife’s name and what happened to those sale proceeds. Mr Elgin also failed to disclose the income that he knew his new wife was receiving from two apartments in her name.

The Court decided that failure to disclose was not an innocent oversight and that the information was deliberately left out of Mr Elgin’s Financial Statement. The Court also noted that the Husband had not sought to produce evidence from his new wife and drew an inference in the circumstances that the evidence of the new wife would not have helped Mr Elgin’s case.  The Court concluded, based on Mr Elgin’s conduct and attitude to disclosure demonstrated throughout the proceedings, that his denials of providing the money for the purchase of the properties was false and that he did in fact provide the money and therefore the properties were property in these proceedings. The Court concluded the values were $425,000 and $365,000 respectively.

In relation to the third property the Court concluded that due to the failure of Mr Elgin to fully and frankly disclose the details of this purchase in a timely manner, the Court did not have any expert opinion evidence as to the property’s value. Mr Elgin said it was worth $895,632.76 but did not provide justification for this figure. The Court agreed with Mrs Elgin and concluded the value was the purchase price of $1.1 million.

Mr Elgin’s lack of disclosure also impacted on his case in relation to furniture. Mr Elgin had claimed that Mrs Elgin had retained $100,000 worth of furniture. He had not disclosed that he had any furniture himself. The Court decided not to include $100,000 worth of furniture as property of Mrs Elgin as Mr Elgin had not made it clear that he intended to contend that Mrs Elgin had $100,000 worth of furniture and he had none himself.

 
Despite Mr Elgin’s lack of disclosure $1,890,000 was added to the asset pool and when it came time to divide the asset pool between the parties Mrs Elgin was allowed to keep all of the furniture in her possession without it being noted as part of her share of the net asset pool.

Australian Institute of Family Studies report on same-sex parented families in Australia

A report commissioned by the Australian Institute of Family Studies, Same-sex parented families in Australia, has found that children raised in same-sex parented families do as well emotionally, socially and educationally as their peers from heterosexual couple families.

The report looked into research that has been undertaken in Australia, the US and Europe relating to: children's family relationships; their psychological adjustment; their experiences with peers, particularly with regard to teasing or bullying; and how well they fare educationally.

According to the report:

-        About 11% of Australian gay men and 33% of lesbians have children. Children may have been conceived in the context of previous heterosexual relationships, or raised from birth by a co-parenting gay or lesbian couple or single parent.

-        Overall, research to date considerably challenges the point of view that same-sex parented families are harmful to children.

o       Children in same-sex parented families generally report harmonious relationships with their parents, whether or not they were born to heterosexual couple parents who subsequently divorced, or in the context of a planned same-sex family*;

o       On measures of general health and family cohesion children aged 5 to 17 years with same-sex parents had significantly better scores when compared to Australian children from all other backgrounds and family contexts. For all other health measures there were no statistically significant differences**;

o       The National Longitudinal Lesbian Families Study in the US followed the psychological adjustment of young people approaching adulthood who were raised in lesbian-parented families and found psychological adjustment throughout early childhood was found to be similar to normative samples of American children raised in all kinds of heterosexual families.***;

o       Despite fears about being teased, harassed or bullied, and some negative experiences of bullying, teasing or harassment, it appears children raised in lesbian-parented families do not seem unduly vulnerable to experiencing bullying, although the US evidence is mixed. Comparable measures are higher in European countries than the US, indicating that the prevailing socio-cultural climate of support for same-sex relationships may have some bearing on child wellbeing****;

o       With regard to academic performance, the evidence is that same-sex parented children perform as well as or better than their peers raised in heterosexual couple families*****.

The report concluded that other factors – such as a lack of institutional support for same-sex relationships and the prevailing socio-cultural climate of support for same-sex relationships – have a greater impact on the emotional, social and educational life of children of same-sex relationships than their parents relationship itself does.

Interestingly, from a family law perspective, the report noted that what was important for all family types were family processes such as parenting stress, conflict, and relationship dissatisfaction. And that this can have an impact on children of all relationship types.

The report can be found at http://www.aifs.gov.au/cfca/pubs/papers/a145197/index.html

* Brewaeys et al. 1997; Bozett, 1987; Golombok, Spencer, & Rutter, 1983; Harris & Turner, 1986; Kirkpatrick, Smith, & Roy, 1981; Wainright et al. 2004

** Crouch, Waters, McNair, Power, & Davis, 2012, Crouch, 2013 - Australian Study of Child Health in Same-Sex Families (ACHESS) based at the University of Melbourne

*** Gartrell et al., 1999, 2000, 2005, 2006

**** Crouch et al. (2012)

***** Wainwright et al. (2004); Gartrell and Bos (2010)

Changing a child's school - bullying

Under the Family Law Act 1975 the Family Law Courts are empowered to make Orders in relation to "any aspect of the care, welfare and development of the child or any aspect of parental responsibility for the child" - decisions about the so-called 'specific issues' that come up in day-to-day parenting, but that after separation can be difficult to agree upon.

 

One example of 'specific issues' is which school a child is to attend.

 

The Court is asked to consider which of the schools selected by the parents is best for the child - usually based on the child's educational or extracurricular needs and the practicalities such as distance between parents homes and public transport options.

 

Most often the decision that the Court has to make is at the time a child is to commence school (primary or secondary) but sometimes it is the circumstances in which a child can change schools.

 

In the recent decision of Bardot & Benjamin [2013] the Court was asked to determine whether a child in Year 6 could change schools - due to bullying.

 

In this case the mother sought Orders to change the child's school from "W" to "A". The mother argued that the child was experiencing bullying at "W" school (particularly in the form of exclusion) and such bullying was systematic and impacting on the child’s physical and/or psychological welfare. The mother submitted that "W" School had failed to address these issues and that "A" School's philosophy, culture, amenities, opportunities and comprehensive bullying strategies made it the better choice.

 

The father opposed a change in schools and argued that the child had inherent vulnerabilities to bullying and that the "W" school had adequately dealt with the bullying and that "W" School was working with the child in relation to her vulnerabilities and was in the best position to mitigate them in the future. The father also argued that "A" School presented some practical difficulties for the child in terms of travel time.  

 

In considering the matter the Court of course went through the criteria contained in section 60CC of the Family Law Act and gave weight to the following:

• Child's wishes: the child expressed a wish "over a prolonged period" to change schools - while due to the child's age she would be unlikely to be able to properly evaluate the respective merits of different school programs and although the mother's influence could be detected the child was a "comparatively intelligent and articulate child" capable of considering her own views in an objective manner.
• Likely effect of any change: there was no evidence that a change in school would have a negative impact on the child's studies, indeed if the change of schools was to help alleviate some of the child’s environmental distress then academic performance should not suffer. 
• Practical difficulties: distance was not a serious issue or impracticality - children often travel distances of more than an hour each day to attend school in the area. Additionally, and as conceded by the father the best interests of the child's overall emotional well being takes priority over considerations of distance.
• Other factors: both schools included comprehensive definitions of bullying and incorporated anti-bullying material in their respective student planners, however, the "W" School's approach appeared to be more aspirational and stated in broad policy terms while the "A" School had a more specific policy which designates specific roles to those charged with investigating and resolving bullying complaints. Perhaps the most persuasive difference was that the "A" School's stated aim of promoting a "culture characterised by caring relationships and enhanced self-esteem" was better tailored to the child's needs.
 

The Court concluded that the child had experienced bullying at "W" School and that while the child was developing some skills and techniques for coping with bullying the potential risk to the child's future mental health of not changing schools was too great. As "A" School had a more organised and sensitive response to bullying, it would be in the child's best interest to change schools. 

 



Child support for adult children

In today's competitive jobs climate - where higher education and vocational training are nigh on compulsory - it is not uncommon for many 'children'* to continue living in their parents homes long after their 18th birthday.

 

But when the parents are separated there are added considerations - such as who's responsibility is it to contribute for the child's costs of living and how?

 

Child support, under an administrative assessment by Child Support Australia (CSA), generally ceases to be payable when the child turns 18. Which could mean that the parent in whose house the child is living is left with the principle burden of funding the child - unless the other parent voluntarily contributed to those costs. And it can be difficult to rely on volunteer contributions - either because they are not regular contributions, or they have to be negotiated each time, or they just are not enough.

 

However, there are a number of options available.

 

The first is an extension of a child support assessment past 18 years of age - a parent entitled to child support may apply for an extension of the child support assessment until the last day of the school year if this day falls within 365 days of the child's 18th birthday.* The Child Support Registrar must be satisfied that the child is likely to be in full time secondary school (including school, TAFE or other secondary education) on their 18th birthday. The effect of an extension is that child support continues to be payable past the child's 18th birthday until the end of the school year or when the child leaves school - whichever is the earlier.

 

The second option is for the extension of a child support agreement - where both parents agree that a child support agreement should continue, or where the agreement states that it extends beyond the child's 18th birthday, the parent receiving child support can apply for an extension of the underlying assessment for a child support beyond the child's 18th birthday.

 

The third is for an application to be made to the Family Law Courts for an Order for the maintenance of an adult child. For such an application it is necessary to satisfy the Court that maintenance is necessary to enable the child to complete their education. Unlike the first option this option allows for payments to be made for a child to complete tertiary (such as university) education.

 

*It is important to note that there are significant Family Tax Benefit implications if a parent fails to apply for an extension to a child support assessment where they are so entitled.

 

Special contributions

Every now and then a family law case makes it to the news headlines. Most often these cases involve parenting matters – such as the ‘Italian case’ which was sensationally splashed across the front pages of the papers last year. But, as indicated in my post last week on the ‘Pole Dancer case’ sometimes the complexities of property division matters will garner some attention as well.

Late last week an appeal decision from the Family Court did just that – the case of Kane & Kane [2013] FamCAFC 205.

This case was an appeal from a decision of a Judge who found that the husband’s contributions to the parties’ superannuation fund were substantially greater than that of the wife due to his acumen and successful investment and therefore the husband was entitled to a greater division of the superannuation fund upon separation.

The parties began living together in 1980 and separated in June 2009 – a relationship of almost 30 years. There were four children of the relationship – the youngest was 18 at the time of the hearing.

In 1993 the parties established a company (known as “K Company in the proceedings) which was involved in a number of successful businesses. The parties sold the assets of the K Company in 2008 and received net proceeds of $1,650,000. They then established a family superannuation fund (known as “R Investments”) – and from the $1,650,000 proceeds of sale of K Company the parties paid $979,400 into R Investments.

After the establishment of R Investments, the husband decided, after researching, to invest a large proportion of the superannuation funds in purchasing shares in a company (known as Company 1). The wife did not agree but despite this the husband used $539,500 from R Investments to purchase the shares in Company 1. At the hearing the shares were worth $1,850,000. 

At the hearing the parties agreed that the contributions they each made during the marriage were equal save for the contributions to R Investments.

The Judge found that the parties had contributed equally to the funds that were used to purchase the shares in Company 1; the increase in value of the parties shares in Company 1 was beyond ordinary market forces; the husband’s investment and subsequent increase in the value of the parties superannuation fund was a “special contribution” on behalf of the husband; and the husband was therefore entitled to a higher percentage of the parties assets. The Judge ordered that the superannuation fund, R Investments, be divided two-thirds to the husband and one-third to the wife – meaning that the husband received around $1,000,000 more than the wife. All of the other assets, worth about $800,000, were divided equally.

The wife appealed that decision – and on 18 December 2013 won the appeal.

In the judgement of the Full Court of the Family Court, Justice May and Justice Johnston said:

“We accept that his Honour was entitled, as part of the overall process, to conclude that the husband’s contributions to the superannuation fund were greater than those of the wife by reason of his diligence, effort and judgment in the purchase of the shares.

We would pause here to observe the obvious, that had this investment decision caused the loss of a substantial part of the parties’ superannuation funds it is unlikely that the husband would have been claiming such a contribution. It is also notable that the husband did not have any professional qualifications nor did he have any special knowledge of the business in which he had invested although it must be acknowledged, the husband had been a successful business man. The husband took a calculated risk with the parties’ money, which fortunately proved correct.”

But of wider interest is that the Full Court of the Family Court concluded, as stated by Deputy Chief Justice Faulks that:

“To the extent that the trial judge believed himself to be obliged by authority to determine the division of the property of the parties by reference to some doctrine acknowledging 'special skills' in my opinion ... he was mistaken. The act does not require and in my opinion the authorities do not mandate, any such doctrine and if judgments of the Full Court of this court might be thought to have espoused such a principle in my opinion, they should no longer be regarded as binding.”

The Kane & Kane case is thus said to have significantly challenged the “special contribution” doctrine which has previously seen one party claim a significant portion of the assets if they could show their special skill contributed to the acquisition or maintenance of the asset/s.

This “special contribution” doctrine has been in and around Family Law cases for the past 10-20 years and in some cases recognition of a contribution of a special or exceptional nature has resulted in the husband (the one who made the special contribution) receiving significantly more of the asset pool – sometimes +75%.

 

The Kane & Kane decision is said to mean that more cases are going to be more equal – if the assets were all acquired, maintained or built up during the relationship than the contributions are more likely to be equal. But it is important to note that the  Kane & Kane decision does not mean that at some time there wont be a case where the one party has, through a unique skill, contributed more than the other – just that Judges are no longer obliged to follow any “special contribution doctrine” and each case has to be examined on its own facts.

New Year - history repeating

The New Year seems as good a time as any to reflect on that which makes the law at the same time marvellous and wearisome: the appeal process, aka history repeating.

 

 

Back in March 2013 my first post on this blog was about the complicated history of 'pre-nups' in Australia - and featured a reference to the 'pole dancer case'. I said:

"In this case the husband met the wife at a Sydney club around the time he separated from his first wife in the late 90s and they married some time later in 2005. They entered into an Agreement before marrying which provided for the wife to receive $3.25 million if their marriage broke down in four years. It ended within two. The husband, who apparently has a net worth of around $16 million, claims that the wife acted fraudulently when she said she wanted to spend the rest of her life with him and have children with him. However, he’s also relying on an allegation that his solicitor did not give him the necessary independent legal advice. In 2011 the Family Court determined that the Agreement stood. The husband is currently appealing that decision."

That we live in a country with a clear, well-practiced appeal process is something to celebrate. That it is not just the Parliament that can make the laws of this land, but that we have a judiciary that creates case law which reviews, modifies or even overturns Parliaments legislation, is a cornerstone of our democracy. That it can take 1-2 years for an appeal to be heard has been acknowledged as trying. That, Parliament and the Courts can drastically redirect the laws of this land in widely different directions in turn can test all concerned in the legal community.

 

In late 2013 the Husband's appeal was determined by the Full Court of the Family Court, and he was not successfull.
 

You might have noticed, in amongst the celebration of the Ashes white-wash, a news article headed 'Husband in bid to stop $3.2 million pre-nup'. The SHM journalist, Louise Hall, reported that the Husband is now applying to the High Court, the final Court of Appeal, for special leave to appeal the decision of the Family Court.

 

The Husband's application for leave is based on the argument that the 2009 amendments to the Family Law Act ( - in 2009 the Federal government responded to a 2008 Court decision about so called 'pre-nup agreements' by relaxing the requirements in the Family Law Act slightly in an apparent attempt to ensure that people could still enter into such Agreements even if there were inadvertent or minor technical errors - ) are inconsistance and uncertain.

 

In the SMH article, Louise Hall quotes the Husband's junior counsel, Bill Washington who says: ''Sadly, in trying to solve the problem in the prenup section of the Family Law Act, the federal government has made an appalling mess of it".

 

The Husband's application for special leave is likely to be heard in the first half of 2014. We in the legal community, including the Federal Attorny General, will have to wait a little longer to see if there will be another about-turn in this area of family law.