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Testamentary trust excluded from pool

Testamentary trust excluded from pool

Shrimpton & Shrimpton

Assets and Liabilities

The Husband’s testamentary trust

  1. There is an issue between the parties as to how the Court should deal with the Husband’s testamentary trust.
  2. It is submitted on behalf of the Husband that the Court should take a global approach to the parties’ assets and liabilities including the Husband’s testamentary trust.
  3. It is submitted on behalf of the Wife that the Court should take an asset by asset approach in relation to the parties’ assets and liabilities and that the Husband’s testamentary trust should be treated as his financial resource rather than an asset available for distribution between the parties given the Wife’s concession that she made no contribution whatsoever to the Husband’s trust and that it has always been treated by the parties as his sole asset.
  4. The Court has a discretion as to whether it takes an asset by asset approach or a global approach in the manner in which it determines how to divide the parties’ assets when making orders pursuant to section 79 of the Act.
  5. In this matter I am of the view that an asset-by-asset approach is best adopted and that the Husband’s testamentary trust should not be included in the pool of assets for division between the parties but rather as a financial resource of the Husband to be taken into account under section 75(2) of the Act.

Savings expended by the Husband post-separation

  1. The Husband filed a sworn Financial Statement on 10 May 2016 in which he set out that he had $69,865 in his (omitted) Bank Savings Account. Those monies were saved by him whilst he was in employment and prior to the date of separation.
  2. As at the date of the hearing, the Husband’s savings had reduced to $15,000.
  3. It is the Husband’s evidence that those savings have been used by him since the physical separation of the parties to meet his living expenses, including rent, groceries, utilities, motor vehicle expenses and the like. He has also paid legal expenses of $30,000 from those savings.
  4. Whilst the Husband deposes in his Financial Statement sworn 10 May 2016 that he has income of $542 a week from his testamentary trust and term deposit, in his vive voce evidence the Husband indicated that the earnings from the testamentary trust and the term deposit are retained in those investments rather than he receiving them and using them to meet his living expenses. The reinvestment of those monies into the testamentary trust and his term deposit are reflected in the current value of those assets.
  5. It is submitted on behalf of the Wife that the monies expended by the Husband from his savings account on legal fees should be notionally added back to the pool of assets for division between the parties given the Wife has had to fund her legal costs from her income and/or from borrowings from family which she will have to repay at the conclusion of these proceedings.
  6. In the matter of Bevan (supra) Finn J questioned whether the long standing practice of notionally adding back into the pool of assets for division between the parties assets that were no longer in existence was appropriate given the decision of the High Court of Stanford (supra) which required as a starting point that the Court determine the parties’ equitable and actual interests in property. The Full Court in the matter of Vass & Vass [2015] FamCAFC 51 at paragraph 138 answered that query by stating as follows:
    “138. 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 v Bevan [2013] FamCAFC 116; [2013] FLC 93-545 or, more particularly, the decision of the High Court in Stanford v Stanford [2012] HCA 52 is authority for any necessary contrary solution.”
  7. The long-standing case law in relation to the question of adding back property that has been expended by a party post-separation is well established. Where that property has been used for the purposes of meeting the parties’ reasonable living expenses, it is most unusual for that property to be notionally added back to the pool.
  8. Where, however, joint property has been used by one party in the payment of their legal fees, in circumstances where the other has not been able to pay their legal fees from joint assets, the Court has often exercised its discretion to notionally add back the sum expended by that party on those legal fees to the pool of assets for division between the parties.
  9. In circumstances where the Wife has had to meet her legal expenses from her own earnings and borrowings, I think it is only appropriate that the monies utilised by the Husband from savings accumulated during the relationship should be notionally added back to the pool.

Contributions

  1. It is submitted on behalf of the Husband that the Court should give considerable weight to the Husband’s initial contribution of the unencumbered former matrimonial home to the parties’ pool of assets. Its value at the commencement of cohabitation was $195,000. The former matrimonial home, it is submitted, now constitutes 37% of the total property pool (including the Husband’s testamentary trust) available for distribution between the parties.
  2. It was further submitted on behalf of the Husband that if the Husband’s testamentary trust is included in the property pool, that trust constitutes 28% of the total pool. This is an asset to which the Wife made no contribution.
  3. The Husband concedes that the Wife contributed her interest in her Property A unit of $90,000 ten years into the relationship but argues that the totality of his contributions greatly outweighs those of the Wife’s.
  4. In relation to the contributions by the parties throughout the course of the relationship, the Husband concedes that the Wife was the greater income earner but argues that both contributed to the welfare of the family to the best of their abilities throughout the entirety of the relationship.
  5. It is therefore the Husband’s submission that he made by far the greater contribution to the parties’ assets.
  6. It is submitted on behalf of the Wife that the mathematical percentage approach of the Husband is not how this court should consider the contributions made by both of the parties.
  7. The Wife concedes that the Husband owned the former matrimonial home at the commencement of cohabitation. It is submitted on behalf of the Wife that the proceeds of sale from the unit owned by her prior to cohabitation was utilised to undertake extensive renovations to the former matrimonial home which has greatly enhanced its value.
  8. Further, it is submitted on behalf of the Wife that she made by far the greater contribution during the entirety of the parties’ relationship, both financially and as homemaker and parent.
  9. It is the Wife’s evidence that not only did she earn more than the Husband but that she utilised her greater earnings in their entirety for the benefit of the family including paying private school fees for the parties’ two daughters, meeting the bulk of the cost of the parties’ and their children’s extra-curricular activities, paying for all of the children’s clothing, books and other expenses and meeting the majority of the costs of feeding the family.
  10. It is the Wife’s evidence that a major issue between the parties was the Husband’s reluctance to contribute to the family finances. It is submitted that this is best shown by the fact that at separation the Husband had in excess of $350,000 in savings from his earnings whilst the Wife had none.
  11. It is therefore submitted on behalf of the Wife that over the totality of the parties’ lengthy relationship their contribution should be considered as equal.
  12. I agree with the Wife’s submission that to take a mathematical or percentage approach when trying to determine the contributions made by the parties is not the appropriate manner in which to determine the question of the respective contributions made by both of the parties.
  13. There is no doubt that the Husband’s ownership of the unencumbered matrimonial home at the commencement of the relationship provided the parties with an advantage many young married couples do not have.
  14. However, the Wife also had real estate and its sale during the course of the relationship enabled the parties to complete renovations on the former matrimonial home that significantly enhanced its value.
  15. Further, the Wife’s contributions during the course of the relationship were considerably greater than those of the Husband, not only financially but also as, using the term adopted by the parties when giving their evidence, the CEO of domestic and parenting matters.
  16. Accordingly, I am satisfied that the contributions of the parties to the assets available for division between them in circumstances where I have determined that the Husband’s testamentary trust is not to be included in the assets for division should be considered equal.

Section 75(2) factors

  1. It is submitted on behalf of the Husband that he is 68 years of age, is retired and will not be returning to paid employment.
  2. In contrast the Wife is 55, in good health, is good at her job and has the capacity to continue to earn an income for at least the next ten years.
  3. Whilst conceding that the Husband has the benefit of the testamentary trust arising from his inheritance from his mother, it is submitted on behalf of the Husband that the Wife too has the expectation of an inheritance from her father.
  4. The Wife’s father is aged 97 years and is suffering from dementia. Whilst he still had testamentary capacity he executed a will in which his three children, including the Wife, are the named beneficiaries. The Wife’s father is the owner of a four bedroom home in (omitted) which is currently being rented by the parties’ eldest daughter and her partner. The value of this property is unknown.
  5. The Wife’s father currently lives in a nursing home where he was placed after the unfortunate death of the Wife’s mother. It is the Wife’s evidence that in order to be accommodated in the nursing home there was a requirement he pay a bond of $550,000. The Wife and her siblings were able to negotiate that her father only made a payment of $330,000. The value of this bond has reduced to a current value of $270,000 because her father is required to pay interest on the initial shortfall of his payment of the bond. This interest is deducted from the bond held by the nursing home.
  6. It is argued on behalf of the Husband that the benefit that he has arising from his interest in the testamentary trust established by his mother is off-set by the Wife’s expectation of an inheritance from her father which, given his age, must be considered by this court to be a reality in the foreseeable future.
  7. For these reasons, the Husband argues that there should be an adjustment in his favour for section 75(2) factors.
  8. The submission of the Husband is that he should retain 70% and the Wife should retain 30% of all assets including the testamentary trust on the basis that a global approach be taken.
  9. The Husband’s proposal of a payment of $360,000 to the Wife and she otherwise retain her car, shares and superannuation would result in a division to the Wife of 41.8% of the asset pool excluding the Husband’s testamentary trust.
  10. It is submitted on behalf of the Wife that the submissions made on behalf of the Husband in relation to the differences in the parties’ earning capacity are misguided.
  11. Whilst conceding that the Wife currently has a greater earning capacity than the Husband, it is the Wife’s evidence that her current employer is going through a restructure which makes her position somewhat tenuous and that if she were to be retrenched at the age of 55, her future employability is not certain.
  12. Further, it is submitted on behalf of the Wife that the Court must not only consider he parties income earning capacity but also the reasonable standard of living of both parties. It is submitted that the Husband is a frugal man who has always been parsimonious in his expenditure, something perhaps shown by the Husband’s own evidence that he currently eats regularly at Salvation Army services where there is no charge for his meals.
  13. It is submitted on behalf of the Wife that in those circumstances, the Husband’s current income is more than sufficient to provide him with a reasonable standard of living.
  14. In contrast to the Husband, the Wife submits she continues to support her three children even though they are now adults. Z and Y live with the Wife. Z has only just embarked on tertiary education and will be dependent on the Wife’s support whilst she completes her education.
  15. In relation to the Wife’s expectation of an inheritance, it is submitted on her behalf that whilst the Wife’s father is 97 and suffering from dementia, he is in excellent physical health and could live for many years. The impact this may have on his assets and particularly the bond at his current nursing home is unknown.
  16. In contrast, it is submitted on behalf of the Wife that the Husband has the benefit of his late mother’s testamentary trust of $660,000 from which he can generate an income. The Husband can also access the capital in that trust at any time.
  17. It is submitted on behalf of the Wife that in all the circumstances there should be a division of the parties’ assets excluding the testamentary trust such that she retain 70% of same and the Husband retain 30% of same.
  18. In relation to the Wife’s expectation of an inheritance from her father, the Full Court in the matter of De Angelis & De Angelis (2003) FLC 93-133 held at paragraph 95 as follows:
    “The discussion by the Full Court in White and Tulloch v. White (1995) 19 Fam LR 696 of this question of the treatment of anticipated inheritances in property settlement proceedings indicates that there is no absolute rule and that each case will depend on its own facts. However, we think it important to remember that the Court is required in exercising the jurisdiction under s.79 of the Family Law Act 1975 to accord justice and equity to both parties. The question therefore has to be asked whether, in the present case, it would be just and equitable to the husband for the Court to have ignored the probability that, in what could well be very short period of time (given the ages of her aunt and mother), the wife could well be the owner of two properties having a combined value of almost the same amount as the value of the parties’ property currently available for distribution, and particularly in circumstances where the husband had been found to have done substantial improvement and maintenance work on both properties?”
  19. In this matter the Court has no evidence before it as to what the value of the Wife’s father’s (omitted) property is. There is no evidence before the Court as to the Wife’s father’s state of health or when it may be he would be expected to pass.
  20. There is clear evidence before the Court that the Wife’s father lacks the capacity to alter his will and that therefore the Wife will inherit a one third interest in his (omitted) property. Whilst the Wife’s father may be in robust physical health, he is 97 years of age.
  21. As noted, the Husband has the benefit of a $660,000 testamentary trust which he can cash in and access at any time he chooses.
  22. The Husband has on his own evidence lived comfortably on approximately $450 per week, including being able to pay his rent. He is clearly a man of simple needs who prefers to live frugally.
  23. Whilst the parties’ three children are now adult and the two elder children close to being self-sufficient, the financial responsibility for the care of the parties’ youngest daughter Z whilst she completes her tertiary education will fall solely on the shoulders of the Wife.
  24. The Wife has the capacity to earn an income for some time into the future, albeit there is some uncertainty about her current employment whilst her employer restructures.
  25. At some time in the future the Wife will inherit from her father. When this will occur and how much she may receive is not known. I accept however that the Wife should inherit a one third interest in her Father’s four bedroom home in (omitted) when her father does pass away unless that property has had to be sold to fund his ongoing care.
  26. Having considered the benefit the Husband has of the financial resource which is the testamentary trust, the disparity in the parties’ earning capacity, what constitutes a reasonable standard of living for each of the parties, the Wife’s responsibility for the parties’ adult children and particularly Z whilst she completes her tertiary education and the potential of the Wife’s inheritance at some stage in the reasonably foreseeable future, I am of the view there should be an adjustment in the wife’s favour for section 75(2) factors of 10%.

Who is to retain the former matrimonial home

  1. Both parties are seeking to retain the former matrimonial home.
  2. It is submitted on behalf of the Husband that as he owned the property prior to the parties’ marriage, he should be the party to retain that home.
  3. It is submitted on behalf of the Wife that she has lived in the home for 27 years and she had an integral part in renovating the property. She, Y and Z are all living in the property and wish to continue to do so. It is submitted that to disrupt not only the Wife but two of the three children of the marriage cannot be seen to be an appropriate way forward and accordingly the Wife should retain the property.
  4. I am more persuaded by the Wife’s arguments as to who should have the opportunity to retain the former matrimonial home. Orders will be made that allow her the opportunity to do so.

Just and equitable

  1. As can be seen, I have determined that the appropriate division of the parties’ assets are such that the Wife retains 60% of the parties’ realisable assets, the Husband retain 40% of the parties’ realisable assets together with his entitlement to the testamentary trust set up by his late mother.
  2. Such an order requires the Wife to make a payment to the Husband of $215,000 in order for her to retain the former matrimonial home, her (omitted) Shares and (omitted) Shares, her motor vehicle and her superannuation.
  3. The Husband will retain his term deposit, the savings in his bank account, his superannuation, the payment from the Wife together with his interest in his mother’s testamentary estate. This totals $1,319,8790.
  4. The amount received by the Husband well and truly enables him to reaccommodate himself and have sufficient remaining funds to generate an income from which he will be able to more than adequately support himself.
  5. The Wife will retain assets to the value of $988,568.80. Whilst the Court has no evidence of the value of the Wife’s expected inheritance, it is not unreasonable to suggest that in the long term she will be in a similar financial position to that of the Husband.
  6. In the submissions made on behalf of the Wife, it was indicated that she would consider making payment to the Husband by accessing her superannuation. Given the Husband is over 65 and retired, any splitting order from the Wife’s superannuation fund to the Husband’s superannuation fund would immediately be accessible by the Husband and would enable the Wife to retain the former matrimonial home without the necessity of a mortgage. The Wife however may not wish to reduce her superannuation by that amount.
  7. In those circumstances, on the handing down of this judgment the Wife will be given a period of seven days to nominate in writing to the Husband how she intends to make the payment to the Husband, whether that be by way of a cash payment to the Husband, by way of a superannuation splitting order or a combination of the two.
  8. Upon the Wife nominating the method of payment to the Husband, orders will be made requiring either payment and/or a splitting order being effected no later than 60 days from the date of the judgment.

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