Adjustment of Property Interests in De Facto Relationships

The court adjusted the property interests of the parties in a de facto relationship based on their financial and non-financial contributions during the relationship, including income, property ownership, and contributions to shared expenses.

New South Wales [NAME] v [NAME] v [NAME] [2005] NSWSC 1002 CITATION : This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S) : 04/10/2005

JUDGMENT DATE : 7 November 2005

JURISDICTION : Equity Division

JUDGMENT OF : Associate Justice Macready at 1

DECISION : Paragraph 44

CATCHWORDS : Family Law. Application under Property (Relationships) Act 1984 for adjustment of parties' property. No matter of principle.

[NAME] v [COMPANY] PARTIES : [NAME] v [NAME](S) : SC 2802/2004; 3143/2004

COUNSEL : [redacted] SOLICITORS : [redacted]

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

ASSOCIATE JUSTICE MACREADY

Monday 7 November 2005

2802/2004 [NAME] v [COMPANY] 3143/2004 [NAME] v [NAME] 1 HIS HONOUR: This is the hearing of two matters which have been heard together with the evidence in one matter being evidence in the other. In proceedings 3143/2004 the plaintiff, [NAME], brings proceedings against his former de facto partner, [NAME], for orders for adjustment of the parties' property interests under s20 of the Property (Relationships) Act 1984. 2 At one stage during their relationship the parties used a company [COMPANY] ("[NAME]") for the purpose of carrying out share trading and other activities. In proceedings 2802/2004 [NAME] seeks that the company be wound up on the just and equitable ground. History of the relationship

3 The parties met in early 1997 and commenced living together in a domestic relationship in August 1998. They continued to live together until August 2003 when they separated. 4 When the parties commenced their defacto relationship they were living in Queensland and in March 1999 they moved to Sydney. 5 At the commencement of the relationship the plaintiff, [NAME] was the Managing Director of a company [COMPANY] which was involved in software development and other IT related businesses. 6 At the commencement of the relationship the defendant [NAME] was working in a health food store in Brisbane. 7 On relocating to Sydney the parties lived with the [NAME]'s brother in an apartment in [ADDRESS] and they paid rent of $300 per week for their share of the apartment to the plaintiff's brother who rented the apartment. [NAME] continued the same employment and [NAME] was employed by [NAME]'s company, [NAME], which was also involved in the software industry. 8 In November 1999 [NAME] sold vacant land at Mudgeeraba for $110,000 and she received from the sale the sum of $10,000. She also sold AMP shares for $8,000. These funds, together with an initial investment of by the [NAME] of $10,000, were used for share trading. 9 [NAME] had a company at a previous time and its name was changed to [COMPANY] with each party holding one share and being a director thereof. The parties carried out share trading using this company. Unfortunately the share trading was not successful. 10 In April 2000 [NAME] sold the intellectual property in his business of [COMPANY] to a listed company [NAME] for a price said to be $750,000. About $150,000 of this was paid to him in cash and the balance was provided in various ways such as share scrip in the company. [NAME] then commenced employment with [NAME] at an annual salary which with bonuses was a gross figure of $170,000 per annum. 11 In August 2000 [NAME] purchased a property at [ADDRESS] at [NAME] for $365,000. He used $100,000 from the proceeds of the sale of his company and borrowed $292,000 to cover the balance and purchase expenses. 12 The property was a three bedroom apartment overlooking the water which needed renovation and this was carried out some time later. There was some debate about the exact cost of the renovation but it is clear that it was financed by further borrowing on the property probably in the order of $100,000. 13 The apartment was initially let to students for a period of about 18 months and it was then renovated as I have mentioned. After the renovation the parties lived in the property from February 2003 to August 2003 when they separated and [NAME] left the property. 14 In October 2001 [NAME] purchased an apartment at [ADDRESS], Southport, Queensland for $134,000. [NAME] contributed $12,500 to the purchase price and [NAME] obtained a First Homeowners Grant of $7,000 and supplied $8,000 of her own funds towards the purchase price. The balance of the funds were borrowed and [NAME] was the only borrower on the mortgage documents. The parties agree that that property now has a value of $230,000 and the debt on the property is $100,000. 15 As I have mentioned [NAME] was employed by the company [NAME] and this employment continued until December 2001. Thereafter he contracted his services through the company, [NAME], to a listed company [COMPANY]. Those services were provided at a contract price of $11,000 a month. Property of the parties at the commencement of the relationship 16 At the commencement of the relationship [NAME] had the following property.

1. Furniture and household effects having a value of approximately $30,000. 2. Two motor vehicles being and MGF with an estimated value of $60,000 and a Toyota Camry with an estimated value of $15,000. 3. Shares in his two companies [COMPANY] and [COMPANY] (later changed to [NAME]). 4. Cash at bank $20,000. 17 At the commencement of the relationship [NAME] had the following property.

1. Furniture and household appliances. 2. A motor vehicle valued between $2,000 and $5,000. 3. Vacant block of land at Mudgeeraba, Queensland. 4. Shares in AMP with a value of $10,000. Property of the parties at the conclusion of the relationship 18 At the conclusion of the relationship [NAME] had the following property.

1. His interest in the [ADDRESS] apartment at [NAME]. The value of the property at the date of separation could conveniently be judged by its sale price as it was sold almost immediately after the parties ceased to reside together. The sale price was $682,000. The mortgage which was increased after separation is a matter to which I will refer later. 2. 333 shares in [NAME]. There is evidence that these shares now have a value of $1 each. This is because what few assets which it has, namely, some investments worth $17,724 and a bank balance of $223.28 are offset by directors' loans of $131,574.

3. His shares in [COMPANY]. The evidence does not suggest that these shares have any value.

4. Furniture, household appliances and personal effects.

5. Superannuation of approximately $14,000. 19 At the conclusion of the relationship [NAME] had the following property.

1. Her interest in the Southport property. Its value at separation is not determined but its current value is $230,000 and it is subject to a mortgage of $100,000. 2. 333 shares in [NAME].

3. Furniture, household appliances and personal effects. Financial contributions 20 There were no children of the relationship or from prior relationships. They both worked during the period of the relationship. [NAME] was in continuous employment and [NAME] also worked except for a period of about 17 months between 2000 and 2001. 21 The extent of the income generated by each party was addressed in the evidence. In paragraph 24 of [NAME]'s affidavit of 28 September 2005 he set out the income that he produced which does not seem to be in dispute as follows:

(i) Taxable income for year ended 30 June 2000 $18,033.00 (ii) Bonus payment received from [NAME] on 6 July 2000 and deposited into [NAME]'s cheque account $35,167.57 (iii) Taxable income for year ended 30 June 2001 $135,380.00 (iv) Consultancy payments made by [NAME] to [NAME] in year ended 30 June 2001 $26,000.00 (v) Proceeds of sale of my [NAME] shares in October 2001 $25,510.87 (vi) Taxable income for year ended 30 June 2002 $42,669.00 (vii) Consultancy payments paid by [NAME] to [NAME] between February 2002 and June2002 $51,150.25 (viii) Profit on sale of computers by [NAME] to [NAME] $7,000.00 (ix) Consultancy payments paid by [NAME] to [NAME] for year ended 30 June 2003 $137,500.00 (x) Consultancy payments paid by [NAME] to [NAME] in July 2003 and August 2003 $22,000.00, Total $500,410.69

22 [NAME]'s taxable income for the relevant years was set out by [NAME] as follows: 30 June 1998 $28,492.00 30 June 1999 $38,430.00 30 June 2000 $43,862.00 30 June 2001 Not known 30 June 2002 $26,620.00 30 June 2003 $46,802.00 30 June 2004 Nil".

23 [NAME] agreed with these figures which total $184,206. They are, of course, her taxable income and she conceded they were subject to a deduction of income tax and the precise amount did not appear in the evidence. The same comments, of course, apply in respect of tax liabilities apply to [NAME]'s earnings set out above. 24 The parties used credit cards to meet most of the household expenses. These credit cards were in [NAME]'s name and an extra card was provided to [NAME] for her use. The main credit card she used for household expenses was the ANZ credit card and the statements indicate that between 17 December 1998 and 28 August 2003 the total payments made on those credit cards by [NAME] was $381,309.24. 25 There is no doubt that [NAME] contributed part of her income to the accounts of [NAME] which were generally used to meet credit cards and the mortgage on the [NAME] apartment. Between 29 July 2002 and 16 July 2003 she transferred $34,050 to the [COMPANY] account from which [NAME] would transfer funds to the home loan account. Between 22 October 2001 and 18 June 2002 there was a further $25,200 paid by [NAME] to [NAME]'s [NAME] account. These sums total $59,250. The total of her provision of funds to [NAME] was $46,629.01. She also paid the rent of $12,953 for a leased apartment at St Leonards. 26 It seems clear that the parties' share trading which was conducted through [NAME] was not profitable. The total cost of purchases during the period the company was trading was $326,000 with sales totalling $202,000. There is still one shareholding left held by the company to which I have referred. 27 I have earlier referred to the period when the [NAME] property was rented to students for about 18 months. Although income was generated from these rentals it was insufficient to meet the mortgage repayments, body corporate fees and associated expenses. 28 When considering this matter the details of who paid moneys into which account is not a productive exercise. A better appreciation of the parties' financial contributions comes from a consideration of their separate earnings over the period of the relationship. Although comments were made about the defendant purchasing fashionable clothes the parties seemed to have contributed their respective incomes to their joint purposes during the relationship. These included holidays and the like. Non-financial contributions 29 During the early stages of [NAME]'s share trading [NAME] managed the share portfolio although there was also input by [NAME]. She carried out secretarial duties for the company and at the time she was not working. There was also work done by [NAME] in respect of these secretarial matters and it would seem that the contribution of the parties to the company in this regard were probably equal. 30 It was the [NAME] who managed all the rentals of the [NAME] property. This involved advertising the property for rent, liaising with students and with dealing enquires. She also engaged in a number of activities in promoting the student accommodation and seeking sources of students for that accommodation. She also collected the rent. 31 So far as homemaking contributions are concerned, [NAME] suggested that these were equally shared while [NAME] suggested she carried out most of the domestic duties. There was no cross-examination which would assist in resolving this matter. As the evidence does not disclose what was done I will assume that the homemaker contribution was shared equally between the parties. Discussion 32 It is to be observed that in respect of the two properties acquired by the parties that each property was in one person's name with that person taking the responsibility for the mortgage. 33 The company [NAME] had tax losses of $122,000. It is plain that [NAME] has no use for the company and she seeks that it be wound up on the just and equitable ground. Given the parties' falling out and the lack of the further use of the company no doubt it could be wound up. [NAME] suggests that the company should not be wound because he may wish to utilise it at some stage in the future. 34 It seems plain that if [NAME] were to utilise the company in the future it would only be if there was some trading or investment income that could be used through the company which would allow the tax losses to be utilised and therefore a benefit to him. At the present time he is working for a publicly listed company as a paid employee and does not have anything in mind for which he could use the company and its tax losses. If it is not to be wound up then plainly [NAME] ought to have an appropriate proportion of its small assets the proportion being based on a ratio of the loan accounts. It is, of course, necessary that the parties' financial arrangements be completely resolved at the present time and, accordingly, any arrangement to allow the company to remain in existence would have to provide for the transfer of [NAME]'s shares to [NAME] and a release of any further claims on the company in respect of her loan accounts. 35 The alternative of winding up of the company with the attendant costs would seem in the circumstances to be somewhat pointless. 36 At this stage it is probably useful to repeat what is the present property of the parties leaving aside the company and to refer to contributions to that property. In respect of the Queensland apartment the initial contributions were as to [NAME] $12,500 and as to [NAME] $15,000. The balance of funds were borrowed and [NAME] had the responsibility for repayments and she did meet the shortfall. Although rented it did not produce a surplus of income over expenditure. The current equity in the property is $130,000. 37 There are probably two things to note about the property at [NAME]. The first is the question of what profit might have resulted from the sale. The original purchase price was $365,000 and at least $100,000 was spent on the renovation giving a total cost of $465,000. There were costs on sale and assuming that these brought the acquisition costs up to $500,000 and the property was sold for $682,000 the parties realised a profit on sale before expenses of $182,000. 38 If one looks at the matter in terms of the funds available to the parties the loan account at the date of separation in August immediately prior to sale was some $391,000. Noting that the sale price was $682,000 the net equity available to the parties at separation was $291,000 less costs of sale. The agent's fees would be $18,626 and solicitor's costs would also be payable. The net proceeds were therefore in the order of $270,000. [NAME] conceded that he made a series of withdrawals after separation for payments to his credit cards totalling $20,000 and a further withdrawal the day before settlement of $53,000. He also received the deposit from the agent after the sale of $49,574.06. There remains $120,000 held by the solicitors being the balance of the proceeds. [NAME] did not receive any part of the proceeds. 39 It seems appropriate to regard the remaining pool of assets which have to be considered for adjustment as the equity in the Queensland apartment of $130,000 and the proceeds of [NAME] based on the mortgage at the date of separation of $270,000 a total of $400,000. [NAME] holds in her name $130,000 and [NAME] has already received $150,00 from [NAME]. 40 [NAME]'s claim in the proceedings is that the matter should be resolved with him being allowed to retain the company, [NAME], and the balance of the proceeds of the sale of [NAME]. He suggests that [NAME] should be allowed to retain the Queensland apartment without further adjustment. 41 [NAME]'s case in respect of [NAME] was that she would not wind up the company if some adjustment in the order of $50,000 were made in her favour. This was based upon the company assets, some value for the tax losses and her loan account. The precise amount of an overall appropriate overall adjustment was not addressed in her submissions. 42 On the basis of her present ownership of the Queensland apartment this should be retained by [NAME]. She has made most of the payments on it and maintained the apartment and its mortgage. It was negatively geared to the extent that although the rent met the mortgage it did not meet the other expenses such a Body Corporate fees. As I have recounted there was a substantial excess of earnings by [NAME] and the proportion of their earnings were 72% to [NAME] and 28% to [NAME]. The non-financial contributions by [NAME] were not substantial but exceeded those of [NAME]. There is no doubt that she contributed most of her income to the relationship and that, together with the income of [NAME], provided them with a good lifestyle, travel and holidays during the period of their relationship. Given that [NAME] contributed $12,500 to the Queensland property purchase and on the basis that [NAME] retains the Queensland property no further adjustment of these assets is necessary. 43 If [NAME] is to have the company I think that some minor adjustment is called for. Plainly the tax losses in the company cannot be sold but they may have some future value for him. In the circumstances and in order to take account of the present assets of the company and the possible benefit to him it would be appropriate for there to be an adjustment of $25,000 in favour of [NAME] with [NAME] taking over the company and [NAME]'s shareholding. 44 Accordingly, the appropriate orders should allow for the [NAME] to retain her Queensland apartment and for her to be paid $25,000 from the sale proceeds of [NAME] with the balance to be returned to [NAME]. 45 The parties did not dispute that the personal property which each party has retained should be retained by them without adjustment. I direct the parties to bring in short minutes and argue costs. **********

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