Transcript Slide 1

Michael Keogh, Partner
Julie Hodge, Senior Associate
24 July 2014
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The property division process
The traditional four step process for determining property settlements
(Hickey & Hickey [2003] FamCA 395)
Step 1:
Determine the identity and value of the property, liabilities and
financial resources of the parties at the date of hearing.
Step 2:
Identify and assess the contributions of the parties and
determine their contribution-based entitlements.
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The property division process
Step 3:
Identify and assess the relevant "future factors“ (e.g. age,
health and earning capacity) and determine the adjustment
(if any), that should be made to the contribution-based
entitlements of the parties (established at Step 2).
Step 4:
Consider the effect of those findings and determinations, and
resolve what order is just and equitable in the circumstances
of the case.
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Preliminary considerations
Consider the principles in Stanford & Stanford (2012) 293 ALR 70; [2012] HCA 52):
1.
Identify the parties’ existing legal and equitable interests in property.
2.
Is it just and equitable to make a section 79(1) (property adjustment) order,
altering the existing legal and equitable interests of the parties’ in property?
Answer:
If "yes"- the court will consider the other steps to determine what property
adjustment order to make.
If "no" - no property adjustment order should be made by the Court.
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STEP 1
Establish the current property pool at the time of trial or filing consent
orders (or entering into a financial agreement)
Includes all:

assets (property);

liabilities;

superannuation interests; and

financial resources.
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STEP 1
Establish the current property pool at the time of trial or filing consent
orders (or entering into a financial agreement) (cont.)
Examples of financial resources include:

likely future gifts;

benefits likely to be received under the terms of a trust;

funds expected to be received through pending litigation; and

in certain circumstances, likely future inheritances.
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STEP 2
Assess the parties’ respective contributions
during the relationship
Financial contributions made directly or indirectly by or on behalf of a
party to the acquisition, conservation or improvement of any of the
property of the parties. For example:



initial financial contributions;
contributions through earnings, windfalls of money, lotto, inheritances
or gifts; and
through purchases and sales of property.
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STEP 2
Assess the parties’ respective contributions during the
relationship (cont.)
Non-financial contributions made directly or indirectly by or on behalf of
a party to the acquisition, conservation or improvement of any of the
property of the parties. For example:

renovating and improving property;

share-trading;

sourcing investment or business opportunities; and

managing personal or business finances.
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STEP 2
Assess the parties’ respective contributions during the
relationship (cont.)
The contribution made by a party to the marriage or de facto
relationship to the welfare of the family, including:


homemaker contributions such as running the household, cooking
and cleaning; and
parenting contributions (to children, including biological children,
stepchildren and children treated as children of the relationship).
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STEP 3
Identify and assess the relevant “future factors”
The court considers relevant “future” matters, including:

the ages of the parties;

the health of the parties;

their capacity for employment;

their care or control of children;

their responsibility to support another person; and

the financial circumstances of their cohabitation with another person.
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STEP 3
Identify and assess the relevant “future factors” (cont.)
The court has power to make an adjustment to the proposed
percentage division of the property pool to one or other party, on the
basis of these future factors.
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STEP 4
The court considers what order is just and equitable in the
circumstances
The court has the power to alter the proposed percentage division to
make it just and equitable, or fairer.
For example:
•
to enable a party to retain an asset; or
•
obviate the need for an asset to be sold.
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STEP 1
Determining the current property pool
This is determined at the date of trial, or the filing of consent orders, or
the date the parties enter into a financial agreement.
If relevant, the court will look at the difference in the current property
pool compared to the property pool at separation.
The court will not only look at the parties’ legal interests in property, but
their equitable interests in property.
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The Family Law Courts will look behind corporate structures to
determine the real value of the property pool

Trusts such as discretionary family trusts, are often established by
business operators to:
o
protect their assets from potential court claims including claims of
negligence;
o
for wealth distribution for tax purposes; and
o
as a means of attempting to protect a parties' assets from a
family law property settlement claim, in the event of separation
from their de facto partner or husband or wife.
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The Family Law Courts will look behind corporate structures to
determine the real value of the matrimonial or de facto property
pool (cont.)
Question:
Your former partner cannot claim an asset you
don’t legally own, right?
Answer:
Wrong!
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The Family Law Courts will look behind corporate structures to
determine the real value of the matrimonial or de facto property
pool (cont.)
The Family Law Courts are increasingly looking behind corporate
structures such as trusts and companies, to determine:
Question:
Does a party to a property settlement claim, have “de
facto” or “effective” control of the assets of a particular
trust or company?
Answer:
If the answer is “yes”, then the assets of that trust or
company may be included in the “pool” of relationship
assets for division between the parties to the
relationship.
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Separation and conduct
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Reduction of assets by conduct of parties
The obligation to be accountable commences from the commencement of the
relationship.
Financial losses incurred by the parties during the course of the marriage or de
facto relationship, whether such loss is a result from a joint or several liability, are
usually shared by the parties (although not necessarily equally).
Losses might not be shared equally at all in the following circumstances:

where one of the parties has embarked upon a course of conduct designed
to reduce or minimise the effective value or worth of the 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
values.
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Reduction of assets by conduct of parties (cont.)
The court does not apply a test of strict liability to the commercial success, or
otherwise, of a person in business. It has to be affirmatively demonstrated the
conduct was so commercially inept that it is appropriate for the liability to be
accounted against the party responsible.
In the matter of Kowaliw v Kowaliw (1981), the husband had lost money by
permitting a prospective purchaser (who did not purchase) to reside in the home
free of rent and outgoings for about a year.
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Reduction of assets by conduct of parties (cont.)
Time is of the essence
•
The asset pool is determined at the date of the hearing or
settlement.
•
The timeline from filing court proceedings to hearing, and
judgement, is about two years.
•
The lotto ticket you purchase, and the contract you win, are all
relevant to the assessment of the property division.
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Reduction of assets by conduct of parties (cont.)
In the matter of Farmer v Bramley (2000), the husband won $5 million in a
lottery six years after separation. There was no property of any value at
the time of separation. The court gave the wife $750,000.00.
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Reduction of assets by conduct of parties (cont.)
General duty of disclosure
Each party to a case has a duty to the court and to each other party to give full
and frank disclosure of all information relevant to the case, in a timely manner.
Once it is established that there has been a deliberate non-disclosure, the court
should not be unduly cautious about making findings in favour of the innocent
party.
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Case study: Romano & June [2013]

The Family Court looked behind a discretionary trust and company
structure, and determined a party, (the husband), had “real”
control of the assets of these entities.

The husband was:

not a shareholder of the corporate trustee of the trust;
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only one of two directors of the corporate trustee; and
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named as a beneficiary of the trust, but not an appointor
(“controller”) of the trust with power to remove the corporate
trustee.
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Case study: Romano & June [2013] (cont.)

Justice Forrest held “...it is, I am satisfied, absolutely clear that the
husband actually controls the ... trust, as a matter of fact, as
opposed to a matter of law.”

Justice Forrest went on to find that the husband’s mother and sister,
who were the appointors (“controllers”) of the trust, would act
according to the husband’s direction and they would not have
been made appointors if the husband was not satisfied of that
himself.

The court held that the husband had “effective” control of the trust
(and the companies which the court also considered), despite not
having legal control.
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Case Study: Kennon v Spry [2008]
The High Court held that the assets of the family trust were property of the parties
to the marriage, notwithstanding that neither the wife nor the husband were
beneficiaries of the trust.
 In 1968, Dr Spry was the trustee, appointor and controller of a family
discretionary trust.

In 1998, when Dr Spry and his wife were having marriage difficulties, Dr Spry
executed a deed of variation of the trust:
•
confirming his exclusion as beneficiary as “irrevocable”;
•
“irrevocably” excluding his wife as a capital beneficiary; and
•
appointing his two eldest daughters as joint trustees in the event of his
death or resignation.
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Case Study: Kennon v Spry [2008] (cont.)
 In October 2001, Dr Spry and his wife separated.
 In January 2002, Dr Spry created four trusts, each in favour of a child
of the marriage. Dr Spry divided the capital and income from the
original trust, evenly into the four children’s trusts.
 Dr Spry’s wife sought for the trust assets in Dr Spry’s trust and the
children’s trusts, to be included in the matrimonial property pool
available for division.
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Case Study: Kennon v Spry [2008] (cont.)
The High Court held that Dr Spry was not capable of reinstating himself
as a beneficiary but the High Court found that Dr Spry had ultimate and
sole discretion to alter the trust deed, appoint trustees and to distribute
trust assets, and that up until 1998, Dr Spry’s wife was a beneficiary of the
trust. As such, Dr Spry could have exercised his discretion, during the
course of the marriage, to distribute the whole of the trust fund to the
wife.
Effect of the decision: The assets of the trusts, totalling nearly $5.5 million,
were added into the property pool, increasing the matrimonial property
pool from $4.3 million to $9.8 million.
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Case Study: Kennon v Spry [2008] (cont.)
The High Court also held:
“Where property is held under such a trust by a party to a marriage
and the property has been acquired by or through the efforts of that
party or his or her spouse, whether before or during the marriage, it
does not, in my opinion, necessarily lose its character as “property of
the parties to the marriage” because the party has declared a trust,
of which he or she is trustee and can, under the terms of that trust,
give the property away to other family or extended family members
at his or her discretion.”
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Relevant factors in the court’s determination whether assets of
corporate structures are property or financial resources
to be included in the property pool
The court will consider numerous factors, including:

the source of the trust or company funds and assets, and the date of their
acquisition;

the purpose of the trust or company (& the range of beneficiaries);

distributions made by the trust; and

the control exerted by a party over the assets of the trust or company,
whether legal control or “de facto” control.
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The court’s various powers when dealing with assets
of corporate structures
The Family Law Courts have a range of powers, including to:
•
set aside commercial transactions which would have the effect of diminishing
claims under the Act & make necessary orders binding third parties, including
sales of assets and establishments of trusts;
•
“add-back” assets disposed of, or funds expended;
•
consider assets of trusts or companies as a financial resource of the relevant
party to be considered when determining the property division in their favour;
and
•
set aside “sham” transactions.
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