The Fallacy of Post-Separation Income

Sometimes we just need to review the basic concepts.

In this article we offer an analysis of case law that hopefully will refresh your thinking about post separation income.

I always like the concepts of inertia and momentum and in a sense, the simple argument is that if the period that overlapped with the marriage generated the momentum, imposing the date of separation into the mix may not add much.

One environment for thinking about this is the adding back of legal costs. If one has paid from post separation income there may be an argument that that is an artificial concept.

I have observed that often the non-financial party goes on considering all of the other parties’ post separation is joint income, which is not a real concept.  I try to introduce the idea that once the legal obligations imposed on the party with post separation income are met, any balance can be applied as discretionary.

We have all had to deal with the distress and pain that is caused to a client by finding out the other party has spent money on a holiday.  The fact that the other party has continued with the stresses and demands of employment is not factored in.  Maybe, it is a really good investment for many reasons.

Family Lawyers have hard conversations all the time.  The goal of the case notes provided is to assist you with those conversations.

Prince & Prince (1984) FLC 91-501, 79,076 ([22] – [24]):

What are the practicalities of the matter? Unless and until a stay is ordered, the outcome of the wife’s application will depend upon findings made by the Court as to the parties’ assets and liabilities, their contributions and their respective financial resources, means and needs. It would be necessary for the Court to determine so far as is possible the value of the property held by each party. In accordance with the usual practice this would be done by deducting the value of outstanding mortgages, debts, and other liabilities (e.g. Albany and Albany (1980) FLC 90-905, p. 75,717). The Court may have to determine, as between the parties, the existence of a particular liability (Af Petersens and Af Petersens (1981) FLC 91-095).

The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases. While some liabilities are charges upon the property which can be accurately assessed at a certain date, others are at large, or have not been precisely determined, e.g. tax liabilities (Kelly and Kelly (No. 2) (1981) FLC 91-108 p. 76,801).  In some cases the amount of the liability can only be estimated generally (Albany (supra), p. 75,717). The Court can make an allowance for a particular liability if appropriate to do so.  In some cases there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or partly (e.g. a loan from a parent of the party not likely to be enforced; Af Petersens (supra); Quirk (1983) unreported). In other cases, the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under sec. 79 as between the parties to the marriage. Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party’s potential entitlement under sec. 79 (Kimber and Kimber (1981) FLC 91-085; Kowaliw and Kowaliw (1981) FLC 91-092; Antmann and Antmann (1980) FLC 90-908; Af Petersens (supra)). Complex issues can arise in regard to liabilities to third parties (see, e.g. Pockran and Crewes; Pockran (1983) FLC 91-311).

Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect “contribute” to the liability by having that spouse’s fair share in the parties’ property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under sec. 79 (Af Petersens (supra)).

Lee Steere v Lee Steere (1985) FLC 91-626, 80,076 – 80,077

In a realistic assessment of the financial resources of the parties, it is proper to include any legal costs each of the parties may have to pay, subject of course to any reimbursements by way of an order for costs. This should not be seen as a back-door method of awarding costs to a party who has been refused the whole or part of his/her costs. It is one thing to take account of costs in calculating the net assets which are available to each party for the purpose of determining their financial resources. It is quite another thing to award a party a specific amount for the purpose of meeting certain expenditure such as costs. The latter can only be done on an application under sec 117, the former is part of the normal enquiry under sec 75(2).

Townsend & Townsend (1995) FLC 92-569, [46]:

Whilst not seeking to place a fetter upon the exercise of discretion of a trial judge in individual cases, it seems to us that the concept of adding monies reasonably disposed of back into the pool ought to be the exception rather than the rule.  The parties are entitled to reasonably conduct their affairs post-separation in a manner that is consistent with properly getting on with their lives. (Cerini [1998] FamCA 143, 8 October 1998, per Nicholson CJ, Ellis, Kay JJ.)

Biltoft & Biltoft [1995] FamCA 45; (1995) FLC 92-614, [52]:

A general practice has developed over the years that, in relation to applications pursuant to the provisions of s.79, the Court ascertains the value of the property of the parties to a marriage by deducting from the value of their assets the value of their total liabilities. In the case of encumbered assets, the value thereof is ascertained by deducting the amount of the secured liability from the gross value of the asset. See, Ascot Investments Pty Limited v. Harper [1981] HCA 1; (1981) 148 CLR 337 where Gibbs J (as he then was) pointed out at page 355 that the Court “must take the property of a party to a marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it.” Where the assets are not encumbered and moneys are owed by the parties or one of them to unsecured creditors, the court ascertains the value of their property by deducting from the value of their assets the value of their total liabilities, including the unsecured liabilities.

M & M [1998] FamCA 42, [2.10] – [2.11]:

It is well settled that save in exceptional circumstances a trial Judge should deal with the property as at the date of the hearing and make adjustments taking into account the various matters set out under s.79. (Wells v Wells (1977) FLC 90-285; Wardman v Hudson (1978) FLC 90-466; In the Marriage of Geyl 7 Fam LR 219). However, the particular justice of the case may make it appropriate to notionally add back assets which have been demonstrated to have been dissipated either during the marriage or post-separation. Normally it is necessary to demonstrate an appropriate basis for doing so, for example by wastage such as gambling or extravagant living. (Kowaliw v Kowaliw (1981) FLC 91-092; Fane-Thompson v Fane-Thompson (1981) FLC 91-053; Winnel v Winnel (1984) FLC 91-580; Townsend v Townsend (1995) FLC 92-569; Doherty v Doherty (1996) FLC 92-652.

There seems to be no appropriate basis for notionally adding back moneys that existed at separation but which have been subsequently spent on meeting reasonably incurred necessary living expenses. Neither the Family Law Act nor the case law require that parties go into a state of suspended economic animation once their marriage breaks down pending the resolution of their financial arrangements. Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the trial Judge.

C & C [1998] FamCA 143, [45] – [46]:

Although it is not one of the Grounds of Appeal, we would also like to make the observation that we were troubled by her Honour adding back into the pool of assets the sum of $15,000 provided by the wife to [A] to enable her to place a deposit on a unit.  The provision of modest amounts of capital by parents to their adult children to enable the children to get a start in life is a normal experience in our society.  In a case involving the magnitude of the assets of this case, in our view it is unreasonable to conduct a microscopic examination of each of the parties’ items of post-separation expenditure with a view to determining whether or not it is appropriate that they be brought into account in dividing up the asset pool between them.  The cases which deal with notional add-backs are generally examples of circumstances in which it would be clearly unjust and inequitable not to take those matters into account. (See Kowaliw (1981) 7 Fam LR 13; [1981] FLC 91-092, esp at FLC 76,645; Townsend (1994) 18 Fam LR 505; [1995] FLC 92-569; Farnell, (1995) 20 Fam LR 513 (expenditure on legal costs notionally added back because of s117).

Whilst not seeking to place a fetter upon the exercise of discretion of a trial judge in individual cases, it seems to us that the concept of adding monies reasonably disposed of back into the pool ought to be the exception rather than the rule.  The parties are entitled to reasonably conduct their affairs post-separation in a manner that is consistent with properly getting on with their lives.  Providing modest support for their adult children or taking not inappropriate holidays for themselves seems to fit comfortably within that description.

Chorn & Hopkins [2004] FamCA 633 (2004) FLC 93-204, [54] – [64]:

In Finlayson [2002] FamCA 898, Lindenmayer, Finn and Boland JJ said:

345. If this were a payment of his legal costs of the proceedings from the husband’s own capital resources, it would be in accord with decisions of this Court, including Farnell and Farnell (1996) FLC 92-681 and Townsend and Townsend (1995) FLC 92-569 for the trial Judge to have included this as a “notional asset” in the hands of the husband for the purposes of the s.79 proceedings. If, on the other hand, this were a payment by the husband of his costs of the proceedings from funds borrowed by him from and still owing to a third party, the appropriate course would have been to disregard both the payment and the debt to the third party in calculating the total net property of the parties for the purpose of the s.79 proceedings. Alternatively, if the payment were brought to account as a “notional asset”, then the liability of the husband to repay the debt would also have to be taken into account in arriving at the net property of the spouses.
346. It was thus relevant for the trial Judge to consider and determine whether this payment of the husband’s costs from funds provided by Integrand was a payment by a third party creating a debt owing by the husband to it (as the husband asserted) or, in actuality, a payment by the husband from his own resources to be added back to the property pool as “notional property” prematurely distributed to him.

This decision appears to confirm the principle that where the payment of legal costs can be regarded as a premature distribution of funds (in which both parties have an interest), it is appropriate to add back those costs as a notional asset. It also confirms the principle that where funds have been borrowed to pay legal fees, and such liability is still outstanding, neither the payment of the fees nor the liability should be taken into account. The decision also supports the proposition that where it is determined that a payment of legal fees should be taken into account as a notional asset, any outstanding liability in respect of those fees should also be taken into account.

In summary, we consider that the above mentioned decisions of the Full Court establish that, while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.

If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.

If funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post-separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.

Outstanding legal fees themselves are generally not taken into account as a liability.

If in the exercise of the discretion, it is determined that legal fees already paid should be taken into account as a notional asset, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account.

In light of our review of the authorities, we consider that his Honour, with respect, over-simplified the matter when he said in paragraph 16 of his judgment that there was an “increasingly accepted practice of adding” paid legal fees as an asset.  Out of fairness to his Honour, it is true that he did refer to the source of the money used to pay the fees, saying that it “clearly came from business earnings.”  However, we think that he needed to go further and satisfy himself that those earnings existed at separation or that the wife had some interest in them.

Furthermore, in light of our review of the authorities, there would seem to be substance in the husband’s complaint that if his Honour determined that the fees paid should be added back, he should also have deducted the liability incurred by the husband in borrowing to pay at least part of the fees – although the evidence as to how much of the payment for legal fees was borrowed is not entirely clear (see paragraph 44 of the husband’s affidavit sworn 14 May 2002).

In considering his Honour’s approach to the husband’s paid legal fees, it needs to be borne in mind that his Honour also added back as a notional asset the wife’s paid legal fees of some $36,000.  It would seem, from what his Honour said at paragraph 12 (b) and (c) of his judgment, that the bulk of the wife’s paid legal fees could be sourced to “joint” property and thus properly added back.  However, the position would seem to be otherwise in relation to the dividend from her father’s company referred to in paragraph 12(a) of his Honour’s judgment.  But there is no cross appeal by the wife.

On balance, we consider that given the treatment of the wife’s paid legal costs (particularly to the extent that they could be sourced to the dividend from her father’s company), it was open to his Honour to include the paid legal expenses of the husband.  He was, however, in error in not having some regard to the liability incurred for the purposes of paying those fees, although as we have indicated the evidence in relation to that matter was not entirely satisfactory.  Thus, we are prepared to conclude that grounds 7 and 8 have some substance.  However, we would only be prepared to interfere to the extent that the liability incurred by the husband to pay the fees should be taken into account; but we would require submissions as to the exact amount of that liability.

Gollings & Scott [2007] FamCA 397, [68]:

As a general rule once the parties have separated, subject to obligations of maintenance and support, and subject to the type of considerations described in Kowaliw (1981) FLC 91-092 relating to waste, each party is entitled to get on with his or her life independent of the other. The husband would be free to go about spending the money he earned post-separation in the furtherance of his relationship with Ms Y if he chose to do so providing that at the same time he properly met his obligations towards his wife and children for their due support. It would not normally be appropriate some years after separation to require each of the parties to account for any monies they had spent post-separation so as to determine whether or not that expenditure was reasonably necessary for their own self-support, and to the extent that it was not, to determine whether it would be proper to add it back into the pool of assets available for division between the parties. As we have said, the matter is clouded in this case because of the nature of the concession made as to the equality of contribution both prior to and post-separation. The pool of assets to which the husband was prepared to make that concession did not include in it any monies spent by him on the F property. It is doubtful that one can properly bind the husband to a concession that would have the effect of entitling the wife to claim an equal share of all monies earned by the husband post-separation.

Beklar & Beklar [2013] FamCA 327, [131] – [148]:

In Kowaliw & Kowaliw (1981) FLC 91-092, Baker J determined that financial loss incurred by the parties in the course of a marriage, whether or not a joint liability, should be shared between them except in the following circumstances:

• where one of the parties embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
• where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.

If the losses occurred in the course of the pursuit of the objectives of the marriage, for example, gaining income and/or assets, then such losses should be shared by the parties, although not necessarily equally.  Kowaliw has received widespread appellate support.

In Browne v Green (1999) FLC 92-873, the trial judge determined that the husband should bear full responsibility for losses incurred by a failed business because he alone initiated the venture and had control over it. There was no suggestion of recklessness on his part, nor a course of conduct designed to reduce the asset pool. Essentially this case involved a promising business venture that went sour. In placing the full burden of the loss on the husband, the Full Court determined that the trial judge erred.

The issue of whether the loss should be notionally added back into the asset pool, whether it constitutes a s 75(2) factor or whether it should be dealt with another way is complex and discretionary.  In Townsend & Townsend (1995) FLC 92-569, the Full Court determined that wasted property should be notionally added back. Simply put, after separation the husband in Townsend sold the parties’ most valuable asset.  He had the benefit of the money and none of the sale proceeds remained.  The Court found that this was a premature distribution of marital property and that it would be unjust to merely consider such conduct pursuant to s 75(2).

In B and B [2000] FamCA 1301, the Full Court made it clear that notional adjustments are not limited to wasted assets but may also include identified items of property that have been bona fide disposed of. Also, at [75] it was said that “[i]t may also be appropriate, depending on the circumstances, to notionally include in the pool of assets items of property in respect of which no or no reasonable explanation has been given for the assertion that they no longer exist or never existed”. As a general approach, the Court has been reluctant to notionally add back assets where monies that existed at separation have been spent on reasonably incurred living expenses; the point being that parties are entitled to continue to provide for their own support: M and M [1998] FamCA 42.

In M and M, Baker, Kay and Chisholm JJ said at [2.10]:

It is well settled that save in exceptional circumstances a trial Judge should deal with the property as at the date of the hearing and make adjustments taking into account the various matters set out under s.79. (Wells v Wells (1977) FLC 90-285; Wardman v Hudson (1978) FLC 90-466; In the Marriage of Geyl 7 Fam LR 219). However, the particular justice of the case may make it appropriate to notionally add back assets which have been demonstrated to have been dissipated either during the marriage or post-separation. Normally it is necessary to demonstrate an appropriate basis for doing so, for example by wastage such as gambling or extravagant living. (Kowaliw v Kowaliw (1981) FLC 91-092; Fane-Thompson v Fane-Thompson (1981) FLC 91-053; Winnel v Winnel (1984) FLC 91-580; Townsend v Townsend (1995) FLC 92-569; Doherty v Doherty (1996) FLC 92-652.   

In C and C [1998] FamCA 143, the Full Court said that where the monies have been shown to have been reasonably disposed of, the notional add back approach should be the exception and not the rule.

Before consideration is given to the submissions in relation to paid legal fees, it is appropriate to deal with the husband’s argument that $78,000.00 should be notionally included as the wife’s asset.  According to him these funds were deliberately or recklessly dissipated.

It will be recalled that in the weeks prior to separation the wife secretly withdrew $200,000.00 from the AMP line of credit.  From the draw down $121,714.58 was used for legal expenses in these proceedings.  At issue is the remaining $78,000.00.  At paragraph 109 of her affidavit filed 19 November 2012 the wife explained her application of the remaining amount as follows:

• Honda motor vehicle – $43,528.00;
• children’s school fees and extra curricular activities – $17,304.12; and
• replacement appliances and household goods – $23,030.00.

The wife clearly accounts for expenditure greater than the $78,000.00 under consideration.  At the same time, as she incurred these expenses, the wife had the full-time care for two children who at separation were six and three.  She did not have paid employment and notwithstanding the husband’s evidence which he says would result in the Court finding this expenditure was extravagant, even in the context of the total sum he provided after separation, it was nothing like that.  The amount will not be notionally added back.

In relation to the treatment of paid legal fees, the most current and complete expose of principle is found in Chorn & Hopkins (2004) FLC 93-204. Writing ex judicially, Boland J correctly summarised the principles that emerge from that case as follows:

• The treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial judge.
• In determining how to exercise that discretion, regard should be had to the source of funds.
• If the funds used existed at separation and are such that both parties can be seen as having an interest in them (on account, of contributions) then such funds should be added back as a notional asset of the party, who has had the benefit of them.
• If the funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be notionally added back as a notional asset; nor would any borrowing undertaken by a party post-separation for payment of fees be taken into account as a liability in the calculation of the net property of the parties.
• Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
• Outstanding legal fees themselves are generally not taken into account as a liability.
• If in the exercise of discretion it is determined that legal fees already paid should be taken into account as notional assets, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account. (Trends in the Full Court: Recent cases” 9th Australian Family Lawyers’ Conference, Sabah 11-13 June 2005)

The key factors that appear to have general application are the emphasis on the source of the funds and an approach which delivers a just outcome.  In particular, whether the funds received were through one party’s efforts alone or in his or her own right came from assets in which both parties had an interest, and whether the funds were acquired pre or post separation.

To Boland J’s summary, reference should be made to their Honour’s remarks, at [45], in relation to DJM v JLM (1998) FLC 92-816. DJM v JLM relevantly concerned whether or not to add back legal fees which the husband had been ordered to release to the wife to enable her to prosecute the proceedings.  Their Honours in Chorn and Hopkins said “[i]n those circumstances it could be expected that the fees would be added back”.

Nine months after Chorn and Hopkins in AJO & GRO (2005) FLC 93-218 a differently constituted Full Court discussed notional add backs and paid legal fees. Their Honours in AJO & GRO referred to two of the numerous authorities discussed in Chorn and Hopkins but did not address Chorn and Hopkins.   Thus, although one sees in AJO & GRO support for the proposition, at [30], that the “normal approach ought to be to add costs already paid into the pool”, as the review of authorities in Chorn and Hopkins makes clear, to elevate prior decisions made in one context to a “normal approach” in all contexts, ignores the variety of scenarios that result in the payment of legal expenses.   Thus, to the extent counsel for the wife suggested that I would prefer the approach in AJO & GRO to Chorn and Hopkins, the argument fails.

Counsel for the wife argued that unless the Court adopted an “add back” approach to both parties’ paid legal expenses, injustice would be visited on the wife.  The point being, that if her paid legal expenses were added back (they being paid from the line of credit, funds provided by the husband and borrowed from her family) but the husband’s were not (they being paid from post separation income), he would have the benefit of significant post separation income and take his property settlement in kind, whereas a significant component of her property settlement would be legal fees.  In response to my suggestion that par 58 of Chorn and Hopkins suggested the husband’s paid legal expenses should not be added back and that the potential for injustice could, if necessary, be avoided by the application of s 75(2)(o), counsel for the wife said such an approach tended to be amorphous and lacked the transparency achieved if the amount was simply added back and redistributed.

It is unnecessary to recite the plethora of cases where pursuant to s 75(2)(o) an adjustment in relation to a particular transaction has been made. The transparent and concrete example sought by counsel for the wife was achieved, for example, in De Angelis v De Angelis (2003) FLC 93-133. In that case the trial judge found that the wife had gambled away $90,000.00 of the parties’ joint funds and rather than adopt the Townsend approach, dealt with the loss under s 75(2). In re-exercising the Court’s discretion the Full Court reaffirmed the use of s 75(2)(o) and ordered the wife to pay the husband an amount equivalent to half of the joint money she lost gambling.

Counsel for the wife relied on the recent Full Court decision Kasiopoulos & Garapiperis [2012] FamCAFC 85. In this case, the trial judge added back the husband’s paid legal costs notwithstanding they were paid from income and bonuses earned after separation. Here, the trial judge mistakenly recorded that the husband agreed to have his paid legal fees added back. In seeking to resist the husband’s appeal on this point, the wife was unsuccessful in her attempt to show that the source of funds used to pay the husband’s legal fees was contentious. In short, the Full Court accepted that the evidence demonstrated that the husband’s legal fees were paid from post separation bonuses and income. In the course of doing so, at [91], their Honours said:

…Although the trial Judge could have added back the husband’s paid legal fees, notwithstanding that they were paid out of income, having not done so on that basis, we feel obliged to uphold this complaint.

It is upon these remarks that counsel for the wife relies to support the contention that the husband’s legal fees in this case should be included in the list of the parties’ property.  However, there is no discussion in Kasiopoulos & Garapiperis of the authorities in relation to the treatment of legal expenses.  If the remarks are intended to convey that there is no explicit statutory prohibition against the course adopted by the trial judge, one could not disagree.  However, if those remarks are intended to convey well settled principle or indicate how this type of payment could be categorised as property, I am unable to agree.  In my view, the weight of authority is against the approach referred to in Kasiopoulos & Garapiperis.

Adair & Milford [2015] FamCAFC 29, [36] and [47]:

36. Because the husband did not give evidence about the amount of taxation due at separation and notwithstanding various estimates calculated by his accountant and attempts at the same exercise by his counsel, the primary judge was satisfied that the best evidence was to be found in his financial statement filed in October 2012 in response to the wife’s application for interim spousal maintenance and some two months after separation. The husband’s evidence given in answer to question 48, which enquired about assessed and unpaid income tax, that he owed $220,000 was accepted [169]. There can be no doubt that when his Honour went on to find that after separation the husband’s taxation liability “increased significantly” he was satisfied that between separation and the date of the hearing, the tax debt had increased from $220,000 to $419,000.

…

47. There is no principle of general application that merely because a taxation debt accrued prior to separation it must be brought to account as a joint matrimonial liability (Trustee of the Property of G Lemnos, a Bankrupt & Lemnos and Anor (2009) FLC 93-394). In our view, the facts as found amount to what the Full Court in Johnson and Johnson (2000) FLC 93-039 described as “compelling circumstances” which would enable the court to leave one party solely responsible for his or her taxation debt.

Vass & Vass [2015] FamCAFC 51, [138] – [139]:

There is no error committed per se in adjusting the parties’ actual property interests by a calculation involving notionally adding back into the pool sums which have been dissipated by the parties.  We reject any suggestion that the decision of Bevan & Bevan (2013) FLC 93-545 – or, more particularly, the decision of the High Court in Stanford & Stanford (2012) 247 CLR 108 – is authority for any necessary contrary solution. Some statements made by the High Court may lead to the conclusion that references to “notional property” as have been referred to in decisions of this court and at first instance may need to be reconsidered.

The decisions referred to seek to remind the Court that, however the exercise of discretion might seek to deal with property that is said to be the subject of “add back”, proper consideration must be given to existing interests in property, and the question posed by s 79(2) as a separate inquiry from any adjustment to property interests by reference to s 79(4) if a consideration of s 79(2) reveals that it is just and equitable to alter existing interests in property.

Zabarac & Zabarac and Anor [2016] FamCAFC 186, [176] – [184]:

Ground 14 contends that her Honour ought to have found that the wife continued to enjoy the benefits of the husband’s post separation income and thus should have been required to share jointly in the 2012 tax debts.

Her Honour said:

115. In my view, justice between the parties dictates that separate consideration is given to the pre- and post-separation taxation debts. In her oral evidence the wife conceded that she “liaised with our accountants and lawyers” and that she “had [her] finger on the pulse in relation to our money” prior to the separation. By contrast, the husband thereafter caused the incorporation of the company [SY Pty Limited] and channelled his income into that entity without any input at all from the wife.

(Emphasis in original)

Before moving to the thrust of this ground, her Honour’s reasons clearly indicate why she chose to treat the pre and post separation tax debts differently.

In support of this ground it was argued that her Honour failed to take into account the husband’s evidence that his post separation income had been applied to benefit the wife, children and in maintaining the parties’ properties (husband’s written summary of argument at [14.2]).

Further it was argued that her Honour failed to give proper weight to the wife’s agreement that after separation the husband paid her periodic sums of $13,303 per month, reduced later to $10,000 per month, and that the husband’s income received from LBP was applied to the purchase of the Suburb R property, the value of which was included in the balance sheet of the parties’ assets.

For the wife it was submitted that before the husband incorporated SY Pty Ltd his income was paid into the Trust from which both the husband and wife jointly benefitted.

Clearly her Honour’s distinction between the wife’s capacity to control or exercise control over the parties’ finances before separation and the husband’s election to refocus the channel for his income to a separate corporation justified both her treatment of the tax debts and her conclusion that post separation tax debts should rest with the husband.

That the husband attended to his obligations to provide financial support to his children and the wife does not, in our view, support this ground.

There is no substance in this challenge and it is not made out.

Tobey & Rezek [2017] FamCAFC 84, [35] – [40]:

The primary judge concluded:

59. In any event, if the amount of $115,547.50 represented in the integrated client account is provisional tax for the current year, it is clear that that is an amount which has been provisionally assessed on income to be earned in the relevant taxation year, which is well after separation.
60. I have included in the abovementioned asset table the income tax debt of $9366.23. Although the evidence does not clearly disclose when that debt came into existence, or how it came into existence (that is to say whether it was incurred as a result of the earning of pre-separation income), I am satisfied of the existence of the debt.  However, the balance of the alleged tax debt, given that it seems to be a provisional assessment for future income to be earned by [Mr Rezek], I have excluded from the asset pool.

The evidence of the appellant’s Financial Statement supports his Honour’s finding that the provisional taxation liability arises from income earned and retained by the appellant well after separation.  Despite the appellant’s assertion that the court should take the assets and liabilities of the parties as they find them, we perceive no error in his Honour’s approach that the respondent not bear any responsibility for the appellant’s post-separation income tax.

To the extent that the precise nature of the tax liability is not known, it was up to the appellant to adduce adequate evidence properly to explain his liabilities (Adair & Milford [2015] FamCAFC 29).

The fresh evidence, namely the judgment in favour of the Deputy Commissioner of Taxation and service of the bankruptcy notice, does indicate that the sum referred to in the “Integrated client account” did, at some stage, become a firm liability.  However, neither document explains the nature of the liability or when it was incurred.  Thus, the position remains, as best as can be determined from the evidence, that the liability arose from post”‘separation income.

Thus, even in the light of the further evidence, the decision of the primary judge correctly states the position, as far as the evidence permits.

We do not find any merit in this ground.

Rankin [2017] FamCAFC 29, [54] – [55]:

In view of these passages, the primary judge concluded:

136. There is no dispute that the funds used by the husband to pay his legal fees have been generated by him after separation from his employment as a [professional]. It is submitted on behalf of the wife that she has made contributions to the development of the husband’s career; she has supported him in the early years of his practice when he was establishing himself as a [professional]. Otherwise, it is submitted on her behalf that she has been the primary care-giver to the parties’ children and principally responsible for maintaining the home; in this way she provided invaluable support to the husband in the progression of his career and development of his capacity to earn income. I accept those submissions.
137. At the time the husband earned the income applied to the payment of his legal fees, he had an obligation to support the wife and the children of the marriage. That this is so is evident from the orders dated 4 November 2013 which required him to meet mortgage payments and outgoings with respect to the properties in Western Australia and [Suburb C].
138. As noted earlier, the husband did not service the mortgage liabilities on the parties’ properties, thereby increasing the debt payable upon settlement of the sales of those properties. Further he substantially reduced his child support liability by providing an estimate of his income to the Child Support Registrar which substantially reduced his obligation to pay child support. Income which otherwise would have been available to support the wife and the children was applied to the payment of his legal fees.  The husband has effectively executed self-help with respect to his legal costs and in doing so has disregarded his obligations to meet liabilities pursuant to orders of this Court and in accordance with the Child Support (Assessment) Act 1989 (Cth).
139. Such matters may be taken into account pursuant to the provisions of s. 75(2)(o) of the Family Law Act. However, in my view a percentage adjustment will not achieve justice and equity in the overall context of this case in circumstances where:-

• the asset pool excluding superannuation is only $803,000;
• the husband has paid $230,000 to his lawyers in preference to his obligations to the wife and the children; and
• such payment has been made from income which he has been able to earn, in part, through the contributions of the wife.

140. Having regard to those circumstances, I am satisfied that justice and equity require that there be a cash adjustment in favour of the wife with respect to her outstanding legal costs prior to the disbursement of the sale proceeds rather than a percentage adjustment in her favour.

…

167. Further I am satisfied for the reasons set out herein that prior to disbursement of the sale proceeds the sum of $170,000 should be paid to the wife’s solicitor on account of her legal costs.

As appears from [129] of her Honour’s reasons, the sum of $230,000 is the approximate total of the $167,702 paid to Belleli King and the $59,800 paid to barristers by the husband.  The husband did not challenge the primary judge’s finding at [138] that “income which otherwise would have been available to support the wife and the children was applied to the payment of his legal fees”, contrary to orders of the court and the provisions of the Assessment Act. Thus the matter was not simply about the husband dealing with his post”‘separation income as he saw fit.

By Kay Feeney and David Marcolin