Autumn 2024 Family Law Case Watch

Our Autumn 2024 Case Watch looks at the case of Defries & Kemeny (No 4) [2023] FedCFamC1F 1106 which touches on a number of key issues that often arise in Family Law proceedings.

Background

The parties commenced cohabitation in 1997 and married in 1998. They had two (2) children, born in 2001 and 2006 respectively. The parties separated in September 2013 and divorced in 2015. The hearing as to property proceedings was conducted on 12 December 2023, some ten (10) years following separation.

In late 2013, the Respondent Husband seriously assaulted the Applicant Wife in the former matrimonial home. The Respondent was acquitted of the criminal charges related to that incident but in late 2022 the Supreme Court of Queensland ordered the Respondent to pay the Applicant the sum of $967,113.40 by way of damages relating to the assault and additionally was required to pay the Applicant’s costs. On 25 September 2023, shortly prior to the trial, the Respondent was made bankrupt on lodgment of a debtor’s petition and a trustee of his bankrupt estate was appointed. The Respondent failed to comply with trial directions in relation to the filing of evidence and as such, amongst other reasons, the Court Ordered that the proceedings be determined on an undefended basis. The Trustee of the Respondent’s estate was then joined to the proceedings.

Determination of Entitlements

The Applicant and the Trustee agreed as to their existing interests in property and superannuation. The net matrimonial pool of assets totaled approximately $7,000,000 and largely comprised real property (held by the Applicant), net sale proceeds of another jointly held property, two (2) corporate interests of the Applicant, shareholdings of the Applicant and superannuation of the Applicant. In addition to this Justice Hogan made various addbacks including:-

1. The sum of $95,000 and the sum of $163,306 previously received by the Respondent (which was agreed between the Applicant and the Trustee).

2. The sum of $832,000 in circumstances where the Respondent disposed of his 50% interest in a company in 2016 (some 3 years after separation) after the property proceedings were commenced, without notice to the Applicant and by the Respondent’s desire to divest himself of an asset which would otherwise have formed part of the matrimonial pool of assets. The Respondent had transferred his shareholding to his sister for $1 despite it having a value of $488,000 at that time. The Respondent asserted he received more than $1 and whilst the judge did not agree with this assertion, the judge also held that even if more than $1 was received, whatever funds were received by him were then applied solely to meet his own financial needs and were not contributed to the needs of the Applicant or the parents’ children and did not find it way back into the property of the parties to the marriage. The judge was satisfied by the Applicant’s evidence that the value of that interest would now have been $832,000. That is, the matrimonial pool of assets would have been $832,000 greater.

3. The sum of $862,000 in circumstances where the Respondent disposed of his interest in a partnership in mid-2016. The judge made similar finding to those above. The Respondent asserted that he received the sum of $388,000 for the transfer of his interest which was applied to extinguish debts. The judge determined that the Respondent had not provided sufficient disclosure as to what gave rise to those debts and accepted the submissions made on behalf of the Applicant that the Court should “not be unduly cautious in making findings which favour her given…the Respondent’s absence of frankness and deliberate failure to comply fully with the ongoing obligation of disclosure”.

4. The notional liability of $408,000 being a related party loan of the Respondent in the partnership.

5. The parties’ legal fees which both exceeded $500,000. The Trustee opposed this submission but the judge found in favour of the Applicant on this issue and referenced the non-disclosure of the Respondent as to the source of his legal fees as a reason supporting the adding-back of the parties’ legal fees.

6. The sum of approximately $110,000 of a partial property settlement payment in the sum of $150,000 received by the Respondent. The equivalent payment received by the Applicant was not added back in circumstances where they were applied to (i) legal fees of these proceedings (which would constitute a double-counting given legal fees were already being added-back; (ii) legal fees of the Supreme Court proceedings arising from the Respondent’s assault; and (iii) reasonable living expenses. The Court was only satisfied that the Respondent had applied approximately $40,000 of his partial property settlement payment to legal fees. His evidence was deficient in showing the balance had also been applied in this way.

Accounting for the net total addbacks of $2,826,979.96 (apportioned as to $2,323,341 to the Respondent and $556,638.96 to the Applicant) the total net matrimonial pool of assets was determined to be approximately $9,950,000. The judge had found that the Respondent has or had the benefit of property representing approximately 23.35% of the total value of the property of the parties.

In determining the contributions-based entitlements of the parties the Court assessed the Applicant’s contributions at 75% and the Respondent’s at 25%. Even over the course of a 16 year period of cohabitation, the Court held the Applicant made significantly greater contributions by way of:-

1. Her greater initial contributions.

2. Her significantly greater financial contributions throughout cohabitation and since separation including in (solely) acquiring the former matrimonial home, the investment property and her corporate interests/shareholdings and superannuation and largely met the overhwleming majority of the family’s household and living costs.

3. The Respondent’s contribution in managing the investment property for three (3) years was something he was remunerated for; the rental income was applied to two (2) entities he owned (and was almost exclusively the only income received by those entities) and that whilst the Respondent worked it is unclear how much he earned and any earnings were then applied largely for his sole benefit.

4. Her overwhelmingly superior contributions as homemaker and parent during cohabitation.

5. That her contributions as homemaker and parent were made more arduous by the Respondent’s violent course of conduct since 2004 which included repeated incidents of physical violence, threats and verbal abuse, threats to commit suicide and placing flyers on cars in the car park of a conference attended by the Applicant accusing her of having an affair and breaking up marriages.

6. That the Applicant has made all of the parenting contributions and exclusively financially supported the children since separation in 2013.

In assessing matters pursuant to Section 75(2) the Court accepted (i) that the Applicant suffers significant psychological trauma arising from the Respondent’s assault which impacts her capacity to function and to maximise her earnings from her business; (ii) that the Applicant will continue to financially and emotionally support the two (2) children who were aged 22 and 17 at the trial for at least the next couple of years. There was no evidence from the Respondent in relation to his circumstances other than that he had recently voluntarily entered into bankruptcy which he would leave in late-September 2026 when he is 55 years of age and that as a result of his bankruptcy, he will be absolved of paying all current liabilities, including that owed to the Applicant arising from the Supreme Court proceedings. Given that the Respondent did not provide evidence of his financial circumstances as required and that he had failed to make full and frank financial disclosure, the Court inferred that the Respondent had made sufficient arrangements for his financial support and that no further adjustment was required.

The Court then considered the matters arising from the Supreme Court proceedings and the Applicant being a creditor of the Respondent’s bankruptcy estate. Arising from those proceedings, the Respondent owed the Applicant:-

1. The sum of $967,113.40 plus interest which at the time of hearing was calculated to be $95,000;
2. The Applicant’s costs of $1,703,459.18; and
3. The Applicant’s costs of the appeal (although there had been no quantification of that amount).

None of those monies had been paid by the Respondent prior to entering into bankruptcy.

The Court awarded a further 2% adjustment in favour of the Applicant in circumstances where it is highly unlikely that she would recover any funds (and if so they would be very very little) from the estate of the Respondent in relation to the amounts set out above and therefore she will need to bear her own legal costs whilst the Applicant will emerge from his bankruptcy in three (3) years’ time without needing to pay any of the amounts arising from the Supreme Court proceedings.

Ultimately, the Court determined that a division of the net matrimonial pool of assets, including notional add-backs, as to 77% in favour of the Applicant was just and equitable.

Reflections

This case touches upon an array of issues that arise in Family Law proceedings, including the intersection with bankruptcy and dealing with add-back, and there are a number of “key takeaways”:-

1. The importance of complying with the Court’s direction and Rules. In this matter the Respondent was effectively precluded from presenting evidence at trial in circumstances where he had not complied with trial directions including the timing of the filing of evidence. Whilst it cannot be said with certainty, it is likely inevitable that this impacted the outcome.

2. The importance of providing full and frank financial disclosure. The judge was not “unduly cautious” in making findings which favoured the Applicant given the Respondent’s absence of frankness and deliberate failure to provide full and frank disclosure on an ongoing basis. Findings can be made adverse to your claim if you do not comply with your disclosure obligations.

3. Delays in resolving your matter can give an opportunity for “mischief” to arise or events to transpire that further complicate matters. In this instance, which was not listed for trial for some 10 years after separation, it involved the Respondent’s disposition of his corporate entities. In other matters it may be an inheritance that is received. These events can have differing, and possibly adverse, impacts on your entitlements. At the least, they likely exacerbate the legal costs incurred by parties, which in this matter exceeded $500,000 each.

4. The Court has power to notionally add-back property that has been disposed of. The Applicant was successful in her claim for add-backs although it should be noted that the Respondent was not heard at trial. The Court did note that to notionally add-back the value of property is “exceptional”. Ordinarily, the Court is reluctant to do so. This may mean you need to take pre-emptive steps to secure assets.

5. The Court can consider, in its broad discretion and pursuant to Section 75(2)(o) support that is provided to children aged over 18 years. It is unclear in this case the impact the finding that the Applicant would continue to provide emotional and financial support to the children (one of which was an adult and the other of which would shortly be an adult) had on the Court’s assessment of any adjustment, however it was accepted by the Court and referenced as a consideration.

6. The Court in assessing the contributions of the parties considered the family violence perpetrated by the Respondent to the Applicant. The guiding case on this issue is Kennon v Kennon [1997] FamCA 27. The Court, in this case, was satisfied that the Respondent’s family violence made the Applicant’s contributions more arduous. Whilst family violence is not ordinarily a feature of property proceedings, because the threshold is somewhat “high”, the amendments to the Family Law Act, being considered by parliament at the moment, may see it become a greater feature in determining party’s entitlements.

If you have recently separated or have a Family Law enquiry or questions, please telephone us on (02) 9437 0010 or send us an email at enquiries@familylawyersdw.com.au to discuss your matter in complete confidence.  We are conveniently situated in St Leonards on  Sydney’s Lower North Shore and have a team of experienced and caring professional family lawyers available to help you.

These posts are only intended as an overview or comment on current issues that may interest you and are not legal advice. If there are any matters that you would like us to advise you on, then please contact us.