Appeal against the inclusion of debt in the pool of assets and liabilities; cross-appeal by the husband regarding the valuation of the company and his contribution.

The wife appeals a property settlement order. She argues that by including a certain debt in the asset pool calculation, she shares liability for the debt, which is the husband’s debt. The husband cross-appeals a company valuation and the weight given to his post-separation development of the company.

Background to the appeal

After a long-running property dispute, the trial judge assessed overall contributions as 55% to the wife and 45% to the husband. After taking section 75(2) of the Family Law Act into account, the judge ordered a further 2.5% adjustment in favour of the wife. The parties’ financial affairs were complicated; their businesses were managed through partnerships and several companies. On appeal, the wife asks for a further payment based on the treatment of a specific liability. The husband’s cross-appeal challenges the value given to company BA Pty Ltd and the weight given to his contribution in developing the company. He is seeking reimbursement from the wife.

The Appellant’s (the wife) arguments on appeal

• The wife’s main argument for further payment from the husband revolves around the primary judge’s treatment of a specific debt of $174,437 owed to B Pty Ltd.  The parties owned and operated the company together before separation. After separation, the husband controlled the day-to-day operations of the company. The husband withdrew funds from the company and received all the benefit from the funds. The primary judge found that the wife should not bear any responsibility for this debt to the company, but did not exclude the debt from the calculation of the asset pool. The company was included in the asset pool at a nil value because the assets consisted entirely of related party loans, including the $174,437 loan. The wife argues that by not excluding the debt, she, in fact, shares 57,5% of the liability.

The Court’s findings on the wife’s appeal

• The company has no value and tangible assets. The $174,437 liability, therefore, had no matching increase in the value of the company.  The intention was clearly that the wife should bear no liability for this debt. The primary judge should have excluded this debt from the list of assets and liabilities when making the order that the wife should have indemnity from this debt. Failure to do so was an error, and the appeal succeeds.

The Respondent’s (the husband) cross-appeal

The husband’s (now the appellant) cross-appeal had two main grounds. 

• The first one was based on the incorrect valuation of company BA Pty Ltd. The value depended on whether $151,500 was claimed as a company purchase expense or included in the husband’s loan account. The husband argued that it was properly included in his loan account. It was not attributed to business expenses.

The wife (now the respondent in the cross-appeal) argued that it was not recorded in the husband’ loan account.

• The second ground for the cross-appeal was that the primary court did not give sufficient weight to the husband’s post-separation contribution to the development of company BA Pty Ltd. He argues that his post-separation contribution offsets a significant inheritance from the wife during the relationship and therefore their contributions should be regarded as equal. He argues that the increase in the value of the company was because of his significant post-separation financial and nonfinancial contributions.

The wife (now respondent) argues on the cross-appeal that contributions should be 55% in her favour and 45% due to the husband because of her inheritance contribution.

The Court’s findings on the cross-appeal

• Regarding the valuation of BA Pty Ltd.

The value of the company was either $165,249 or $675,629, depending on whether the $151,500 was included in the husband’s loan account or the business expenses ledger.

The husband withdrew $151,500 from the company’s bank account and used the money to repay a personal loan to buy a boat. The husband recorded the transactions that made up the $151,500 as payments to creditors. He was given an opportunity to produce further evidence but did not produce any documents at trial to resolve the issue. The value had to be determined on the evidence before the court. It was found that the primary judge did not err in the valuation of company BA Pty Ltd. There was not sufficient evidence that the $151,500 was included in the husband’s loan account. There was no merit in this ground of the cross-appeal

• Regarding the husband’s post-separation contribution to the company.

On appeal, the court found that the wife’s contribution to separation should be regarded as greater that the husband’s because most of her inheritance of $391,460 was absorbed into the parties’ finances and businesses. The inheritance came late in their relationship and made up about 15% of the present asset pool. The Court found that the increase in value was not solely due to the husband’s post-separation efforts, and held that the primary judge was correct in his findings. No error found.

Court determination -The wife’s appeal was successful. The husband was ordered to pay the wife an additional amount.

The husband’s cross-appeal had no substance; the husband made false statements in respect of the issues under appeal.

It was ordered that the husband pays the wife’s costs for the appeal and the cross-appeals. He had no proper basis to resist the appeal, and his cross-appeal had no merit.

This article provides basic information only and is not a substitute for a professional opinion or legal advice. It is prudent to obtain legal advice from a Family Lawyer when contemplating a separation or soon after a relationship comes to an end. It is noted that publication of this judgment by this Court under the pseudonym Cuthbert & Cuthbert has been approved by the Chief Justice under s 121(9)(g) of the Family Law Act 1975 (Cth).