Burke v Burke (2021) FamCA 1

This matter is a first instance decision.

In Burke v Burke [2021] FamCA 1, the court was considering a marriage of more than 20 years.

The case considers the concept of transactions to defeat claims of wanton waste, negligent or reckless reduction in the value of assets.

This case arose after what the court described as “highly contested litigation” considering who should keep the former matrimonial home and what should happen with respect to the business the husband has operated from the former matrimonial home both during the relationship and following separation.

Again, this is the type of daily issue practitioners come across. Guidance as to how to discuss the concepts with clients is appreciated.

The parties cohabited from 1995 to 2017.  The husband is 57 years of age and a self-employed tradesman who became self-employed prior to the commencement of cohabitation.

After the parties married, the business was incorporated and both parties were directors and shareholders.  In the later years of the relationship, the husband conducted the business out of a separate custom-built workshop located on the property at the matrimonial home, and the wife was involved in the administration of the business.

Nine years before the parties commenced cohabitation, the husband had bought a property and by the time they commenced cohabitation, the mortgage had been discharged. There is a dispute as to the value at the commencement of their relationship.

The husband contended further initial contribution in a block of land his father gave him in 1993, although the property was not formally transferred to his name until May 1999.

The parties purchased, in 1998, workshop 1, which was registered in the husband’s name, and the husband ran his business from workshop 1.

The husband sold the house he owned unencumbered in 1999 and put the net proceeds of sale towards the building of a new house to be the matrimonial home – he said at the same time they bought the adjoining land, and the wife said they didn’t do that until four years later.

They purchased workshop 2 in 2001.

In January 2002, the husband’s father executed a declaration of trust in relation to another property and the husband became one of three registered proprietors of that property. The other two registered proprietors were his brothers holding their interests as tenants in common subject to a life interest to the husband’s father who lives in the property.

The husband says he sold the property that was transferred into his name in 1999 in 2005, and the wife says it was sold in 2003.  Nothing turned on this as the proceeds of sale were used to buy a property in joint names for the parties.

The parties acquired workshop 3 in 2011 and this one was registered in joint names.

By 1 September 2017, the wife had commenced proceedings in the Federal Circuit Court of Australia.

In April 2019, the proceedings were transferred to the Family Court. It was set down for final hearing in December 2019.

Eventually, a trial began on 29 June 2020 by video-link over Microsoft Teams.

There was one issue of credit in the trial and that related to the vehicles sold by the husband following separation and whether the value of the vehicles at $318,000 was appropriate or was it the $120,000 the husband received.  As well as the issue of value, there was the consideration whether the sale proceeds should be an addback and/or complexity as to whether there was negligent or reckless conduct on the part of the husband.

The trial judge considered that the wife seemed to contend for $318,000 rather than the difference between $318,000 and $120,000.

The husband said he sold the vehicles to meet ongoing living and business expenses, that the income of the business had been affected by his health issues and ability to work, the business had lost a key employee, and he had to familiarise himself with the management of the business finances which had previously been managed by the wife.

He also said that he used the same method to determine value as he had during the marriage which was a collector’s magazine.

On the issue of the cars, the trial judge said:

“In all of the circumstances and weighing up all the evidence I am not satisfied on the balance of probabilities that the transactions were a sham or as the wife suggests the husband provided funds that would otherwise be included in the asset pool to the purchasers or that once the proceedings are over that the vehicles will be returned to him.”

The court then set out clearly at paragraphs 34, 35 and 36 the legal principles to be applied, and then analysed the issues in dispute.

The husband argued that the property occupied by his father in which he had a one-third interest, subject to his father’s life interest, was a financial resource and not property. The wife considered it property.

Issues to determine were:

  1. What was the appropriate figure to include for the sale of the vehicles;
  2. Whether there should be an adjustment for the rental income retained by the husband;
  3. Whether there should be an adjustment for the funds withdrawn and expended by the wife following separation; and
  4. Whether the husband’s bank accounts should be included in the asset pool.

The court decided to put the property in which the husband’s father had a life interest into a separate pool of property.

In relation to the motor vehicles sold by the husband, the court was satisfied the husband sold the vehicles for $198,000 less than their value.

The relevant question for the judge was whether the husband had embarked on a course of conduct designed to reduce or minimise the effective value of the pool or whether he’d acted recklessly or negligently.

Then, should the proceeds of the sale of the vehicles be added back to the asset pool or be recognised pursuant to s.75(2)(o) of the Act.

While the court found that the husband’s conduct with the way he used the proceeds was inconsistent with his case, that he needed the proceeds to meet ongoing living and business expenses, “In my view the evidence falls short of establishing that the husband either embarked on a course of conduct designed the reduce the value of the asset pool or acted negligently or recklessly which has resulted in the value of the assets being reduced or minimised”.

The court determined that they were not satisfied that the difference between the two values should be added back to the pool, but that the $120,000 that the husband had received should be taken into account pursuant to s.75(2)(o).

The husband had $120,000 from the sale of the vehicles, and the wife had $127,000 that she had withdrawn from the business account.

The wife suggested these should both be used as advances on their entitlements and added back to the asset pool.

The court found it was impossible in all of the circumstances to determine exactly how much of the $120,000 the husband received on the sale of the vehicles he used to pay legal fees that might be added back to the asset pool or how much of the $127,000 the wife applied to her legal fees.  The court decided, “it would not be just and equitable in these circumstances to add back the parties’ legal fees”. The court decided to take into account they each withdrew or retained for their own benefit.

The wife wanted the husband’s current bank accounts of $16,793 to be included in the asset pool. The wife had also some money in a bank account.  The court said, “I am satisfied that it is not appropriate to include either of their accounts which are most likely referable to the income they have each earned and reflects their expenditure since separation. In my view the parties should not generally be accountable to each other for their income and expenditure post separation”.

The next issue was the husband’s business.

The court decided to treat the valuation of the business by using the liquidation value of the business.  The court decided that that would be used as an indicative value and ultimately the amount available upon winding up will depend on the prices realised upon the sale of the plant and equipment and any additional interest earned on the term deposit since 30 June 2019 and the winding up.

The court then considered tax implications and superannuation and decided not to include superannuation in the pool of assets to be divided.

The court set out a table of assets and liabilities.

The court then analyses contributions.

The court then considered the parties’ contributions.  The wife had no significant assets at the commencement of the relationship. The husband had a house and there wasn’t evidence of value at the commencement of the relationship, but it sold in 1999 for $120,000.  He had land which wasn’t yet in his name, and he alleged savings. He didn’t produce evidence.

The court’s assessment of the Pierce & Pierce argument was this:

“In my view it is also reasonable to infer that the fact that the parties did not have to borrow extensively for the purposes of acquiring the B Street property or meet ongoing mortgage payments would have enhanced their capacity to accumulate further assets and improve their financial position.”

In addition, the husband had a business that he’d owned and operated for 10 years prior to commencing a relationship with the wife.

That business was the foundation for the business which is in the asset pool.

The court considered that the passage of time had not diminished the husband’s initial contributions so that they be given no weight.  In fact, the court determined there should be a 5% adjustment based on contributions by the husband.

The court then looked at the s.75(2) factors.

The husband had a pacemaker installed in 2018 as a result of severe dilated cardiomyopathy.

He tends to only restore and sell vehicles, although he is only nearly 57.

The court accepted that he would be unlikely to earn the income he did during the relationship and that he has “a more limited work life than the wife”.

Neither party has much superannuation and the court said, “the wife is younger and will have the opportunity to work for longer and make further provision for her retirement”.

The wife is 45 with a new partner aged 28.

The husband sought a further adjustment of 2.5% on the basis of s.75(2) factors. The court determined to make a 3% adjustment in the wife’s favour.

The court then looked at the effect of the Orders.

It was determined to be a division of 52/48 in the husband’s favour.

The court provided very useful, very detailed Orders that could be the basis of a comprehensive checklist for practitioners.