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[2004] FamCA 1309
appellant. Appeal allowed. Orders varied: substitute $171,669 for $213,558 in relevant order; vary percentage figures in orders to 50 per cent each (paras 22-23). Costs certificates ordered in favour of...
The Full Court allowed the wife's appeal. It upheld the trial Judge's finding that the husband reasonably spent post-separation funds to re-establish himself and therefore those funds need not be added back into the property pool. However, the Court found the trial Judge erred in applying a 10% s 75(2) adjustment in the husband's favour because the pool was modest, the adjustive factors between the parties were limited and the business's earning capacity had already been reflected in its valuation. The Full Court replaced the 60/40 division with a 50/50 split and varied the monetary transfer accordingly.
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1,802 words · generated 05/07/2026
McF & McF (Full Court, Bryant CJ, Kay & Holden JJ, 25 October 2004) was an appeal from Warnick J's property division orders made on 7 April 2004. The trial Court valued the parties' property pool at about $475,000, found that contributions by the parties to that pool were equal, but applied an adjustment under s 75(2) of the Family Law Act 1975 (Cth) of 10 per cent in favour of the husband. That adjustment produced an effective division of 60 per cent to the husband and 40 per cent to the wife, resulting in an order requiring the wife to pay the husband $213,558 and other transfers (paras 1-2, 22-23).
The key factual matrix was that the husband had operated a motor mechanic business (as a sole trader) from 1989. In early 2001, the parties jointly purchased a health food business in which the wife worked. The husband sold his motor mechanic business in or about April 2001 (sale price $55,000 with a restraint of trade) on the understanding that the marriage would continue and he would have time to assist in the shop, engage in share trading and contribute substantially to child care. Shortly afterwards the wife indicated she wanted to separate and they separated in late June 2001 (paras 4-6).
After separation, the husband used funds he had available (from the business sale, drawn monies from the wife's business, sale of vehicle and other items, and some share dealings) to re-house and attempt to re-establish income (paras 7-8, 12-14). Warnick J accepted that the husband's post-separation expenditure was reasonable and therefore did not add most of those monies back into the s 79 pool (para 14). The trial Judge nevertheless allowed a modest 10 per cent s 75(2) adjustment favouring the husband, largely because the husband had primary care of the eldest child (B, then aged 15) and because the wife retained the profitable health food business (para 16).
On appeal, the Full Court (Kay J delivering reasons, with Bryant CJ and Holden J agreeing) accepted the trial Judge's treatment of the husband's re-establishment expenditure but concluded the 10 per cent s 75(2) adjustment produced an unfair and disproportionate result given the modest size of the pool and the specific adjustive matters. Kay J identified a risk of 'double dipping' because the business' profit-earning capacity had already been reflected in its valuation (paras 15-19). The Full Court substituted orders to divide the pool 50/50 and adjusted the monetary transfer to $171,669 (paras 20-23).
Two discrete questions drove the Full Court's reasoning.
First, whether the husband's post-separation expenditures should have been added back into the pool. Kay J accepted (following Warnick J's findings) that the husband had sold his business under marital plans that were frustrated by separation, that he needed to re-house and establish, and that the expenditures were 'fully explained and . . . reasonable' (para 14). Where a trial Judge makes such findings on the evidence, there is no proper basis to add those sums back to the pool. The Full Court therefore declined to disturb the trial Judge on that factual evaluation (paras 11-15).
Second, whether the 10 per cent s 75(2) adjustment was appropriate. The trial Judge gave weight to the husband's greater child care of the eldest child and to the wife's retention of an earning business (para 16). Kay J accepted those factual matters but required the Court to step back and look at the arithmetic and practical implications of the adjustment. The 10 per cent adjustment meant a transfer of about $47,000 from the wife's half to the husband; as Kay J observed, this converted an otherwise equal contribution-based split into a 60/40 division, giving the husband 'half again as much as the wife' (para 17). In Kay J's view the remaining s 75(2) matters were of 'fairly small compass', a 15-year-old child (already largely self-supporting and able to be supported by child support assessments), and the wife retaining the business whose value was already included in the pool. Because the pool was modest, and because the business valuation already reflected earning capacity, to apply an adjustive percentage produced an unfair, disproportionate outcome and risked double counting (paras 17-20). That justified appellate interference and substitution of an equal division (paras 21-23).
In short, the Court upheld the trial Judge's factual assessments about the husband's post-separation conduct but corrected what it saw as an error of overall evaluative judgment when applying s 75(2) in a modest pool.
Before this decision, well-established family law principles required Courts to:
McF & McF reinforces two points within that framework.
Treatment of reasonable post-separation expenditure: the Full Court confirmed that a trial Judge may properly exclude from the pool monies spent post-separation for reasonable re-establishment and self-support where those expenditures are fully explained and supported by the evidence (para 14). The decision reiterates that such findings are primarily factual and not lightly disturbed on appeal (para 15).
Appellate oversight of s 75(2) adjustments: the decision emphasises that appellate courts may intervene where a trial Judge has failed to consider the practical fairness of an adjustive percentage in the context of the whole pool. In modest pools, relatively small percentages can produce disproportionately harsh outcomes; the Court must guard against 'double dipping' where the earning capacity underlying an adjustive reasoning has already been accounted for in the asset valuation (paras 17-20).
Thus the case is consistent with established principles but serves as a caution to trial judges to consider overall fairness and the arithmetic consequences of s 75(2) adjustments, especially in modest pools.
Para 14: "He accepted that the husband had to re-house and re-establish a household . . . the expenditure of the husband was fully explained and was reasonable . . . and should not now be represented in the pool of assets."
Para 16: "Whilst his Honour was correct to suggest the adjustment meant that arithmetically there was $47,000 from the wife's half share to be transferred to the husband's share . . . he was of the view it was not appropriate to place significant weight on that factor."
Para 18: "The profit making capacity of the business was already factored into the valuation, and I perceive there is an element of double dipping, paying attention to the income it earnt."
Para 20: "It seems to me that the pool is so modest that neither party could really afford to make a s 75(2) adjustment in favour of the other. Accordingly, I think it appropriate the division be in the terms of 50/50."
McF & McF is particularly relevant when:
In these fact patterns McF & McF supports excluding reasonable re-establishment spending from the pool, and scrutinising s 75(2) adjustments for proportionality and double counting.
This decision is an example of appellate intervention where the trial Judge's s 75(2) adjustment produced a disproportionate division in a modest pool. Later courts confronted with similar fact patterns would likely cite McF & McF for the propositions that: (a) reasonable post-separation re-establishment expenditure need not be added back into the pool; and (b) a trial Judge must 'stand back' and assess the overall fairness and arithmetic effect of any s 75(2) adjustment, guarding against double counting when business earning capacity has been included in the valuation. Users should check subsequent authorities and reported citations to see how later Full Courts and the High Court have treated these propositions in different factual matrices.
For practitioners: emphasise careful trial findings on the use and reasonableness of post-separation expenditure, present clear valuation evidence that distinguishes capital value from income, and quantify the practical effect of any proposed adjustive percentage so judges can 'stand back' and see the arithmetic fairness of the proposed division.
OF THE FAMILY COURT OF AUSTRALIA Appeal No NA24 of 2004
APPEARANCES: Mr Page of Senior Counsel, instructed by Butler McDermott & Egan, 66 Howard Street, Nambour, Qld 4560, appeared on behalf of the Appellant Wife.
Mr Fleetwood of Counsel, instructed by Bernadette Farnell, Shop 3, Ocean Court, Cnr Ocean Street & Beach Road, Maroochydore Qld 4558 appeared on behalf of the Respondent Husband.
Catchwords: PROPERTY - Whether trial Judge erred in refusing to add to the pool of assets moneys the husband had available to him immediately post separation properly spent on self support or re-establishment- Whether a 10% s75(2) adjustment was appropriate where the equally contributed to pool was $470,000 and the only adjustive factor was the sole care of a 15 year old by one party whilst two younger children where shared between the parties.
1. KAY J: In this matter it is a wife's appeal against the decision of Warnick J on 7 April 2004 wherein his Honour ordered the property of the parties, found by his Honour to be worth approximately $475,000, should be divided between them so that the husband receives 60 per cent of that pool of property. The trial Judge found the contributions by the parties to the pool of property that he determined should be divided to have been equal, but there should be adjustments in favour of the husband to the extent of 10 per cent of the pool taken into account matters under s 79(4)(e).
2. In order to give effect to the proposed division, the wife was required to pay the husband $213,558, and the husband was to transfer the former matrimonial home to the wife and his interest in their business, and the wife was to become responsible for the tax liabilities relating to the business.
3. The parties now each in their 40's married in 1983 and separated in 2001. There are three children born of the marriage, B 15, H 13, and L 10. Post separation, the children spent a week about with each of the parents, although in the beginning of 2002 B elected to remain with his father on a full time basis.
4. The husband had a mechanic repair business, which he was operating as a sole proprietor from 1989. In 1998 the parties jointly purchased a health food business, and the wife commenced working in that business.
5. The husband increased his role in caring for the children thereafter and the trial Judge accepted his evidence that early in April 2001 the wife and he decided he should sell his business. The trial Judge appears to have accepted his evidence that when he and the wife agreed to sell the business, it was with the intention that he would have available time which would enable him to work in the shop, trading shares, and assist significantly in the care of the children.
6. He then sold his business, but a couple of weeks later the wife told him she wanted to separate and they did late in June 2001 when he left the home. The business was sold for $55,000 and it included a restraint of trade clause, which did not allow the husband to act as a motor mechanic within a 20 kilometre radius.
7. After separation, the husband drew approximately $10,000 from wife's business, which he used in part to pay $4000 in creditors of a personal nature and he used the balance to establish a new home. He sold some shares in a boat and a motor vehicle to pay for the existing tax liability. He said, and the trial Judge accepted, that he used the balance of the moneys from the sale of the business to live on, although he had invested $20,000 in the share market and subsequently paid $10,000 to attend a share trading seminar. His trading in the stock market led to a $10,000 loss. By February 2002, he commenced a mobile mechanical business, but that had not been demonstrated to be particularly profitable.
8. The wife remained in the former matrimonial home and began to pay mortgage payments herself. She had access to all the profits in the business, apart from the moneys which the husband had taken out of the business. The wife entered into a new relationship. Other than making a finding that her new partner had made no contribution to her support, the trial Judge made no findings about his financial situation.
9. The husband also entered into a new relationship. The lady he is living with had two children. The husband appears to be making some provision towards their support.
10. There was a dispute about the valuation of the business, each party having called an accountant. The trial Judge accepted the business had a future maintainable earning of about $38,500 and applying a capitalisation rate of 30 per cent, decided the business had a value of $128,650. This was a sum significantly less than that urged by the husband's valuer, but the valuation itself is not the subject of this appeal.
11. The appeal essentially focused on whether the trial Judge had been in error in refusing to add to the pool of assets the moneys that the husband had available to him immediately post separation arising out of the assets he took with him, including the moneys from the sale of his own business, as well as other moneys received from jointly owned sources, such as shares and the like.
12. In total, the husband asserted that he had available to him about $106,000 whilst the wife asserted the sum to be closer to $150,000. The trial Judge found the sum was not less than $106,521 and added back into the pool only furniture that the husband had acquired; the husband's amount he had spent on legal fees; and moneys that were used for the acquisition of two motor vehicles. There was approximately $33,500 represented in the existing pool from the moneys the husband had used during the course of separation.
13. As I said, the trial Judge had accepted the husband had entered into the contract of sale of the auto centre on an assumption the marriage would continue and he would be better carrying out the burden of child care, assisting in the health food shop, and engaging in share trading. Those intentions were frustrated by the break down of the marriage.
14. His Honour accepted that the husband had to re-house and re-establish a household for himself and the children, without any immediate source of income, and he accepted in the circumstances the expenditure of the husband was fully explained and was reasonable in the circumstances, and should not now be represented in the pool of assets. He went on to say that that was an effectively generous outcome for the husband. It was offset by the fact that he had more of the care of the child B than the wife had in the past two years and the wife, in the meantime, had access to his share of the profits of the shop.
15. We were urged by counsel for the wife to have added back into the pool of assets the moneys the husband had utilised to use in the children's support in the years between separation and trial. I am not persuaded that this was appropriate. There was no suggestion of waste by the husband or of anything other than good intentions in respect of his share trading, and accordingly I can see no proper basis for interfering with the trial Judge's manner of dealing with this matter.
16. Of more concern is the issue of the s 75(2) adjustment. The trial Judge said he recognised the husband had the child, B, but having regard to the fact that he is only one of three children and the younger ones being shared between the parties, and that he was already 15 years old, his Honour was of the view it was not appropriate to place significant weight on that factor. He then went on to say that the wife had the shop which was a functioning and profitable business and would continue to be so. The husband would improve his earnings significantly with the finalisation of the case. In a modest adjustment of 10 per cent, a variation would only be $47,000, and that he thought such an adjustment was appropriate on account of these factors.
17. Whilst his Honour was correct to suggest the adjustment meant that arithmetically there was $47,000 from the wife's half share to be transferred to the husband's share, the reality is that this creates an outcome where the husband gets half again as much as the wife, that is the ratio of six parts to four. I am of the view that the trial Judge fell into error at this point in the process and that he failed to actually stand back and see whether it was fair in the circumstances where the wife's share of assets, based on contribution, was about $225,000, to require her to give the husband $47,000 when the factors that remained between them were of fairly small compass, namely the full time care of the 15 year old, who will be capable of being supported to some degree by appropriate child support orders or assessments, and the fact that the wife retained the business, which was producing for her wages of $44,000 plus profits of another $38,000 in circumstances where the trial Judge had found the husband will improve his earnings significantly on the conclusion of the case.
18. The profit making capacity of the business was already factored into the valuation, and I perceive there is an element of double dipping, paying attention to the income it earnt. If the wife sold the business, she lost her greater earning capacity. Accordingly, whilst its value was appropriately included in the pool of divisible assets, the fact that she will be required to buy out the husband's half share immediately compensates him for that difference, while increasing her outgoings by borrowings necessary to finance the purchase. Once that factor is recognised, there is really very little difference between the parties' positions.
19. I think that if the trial Judge had stood back and viewed the exercise from afar, he would have appreciated the prospect of the wife being able to meet a settlement on the husband and retain some form of housing for herself and the children, and retain the business, would be something that would be extremely difficult for her.
20. Whilst the husband is without his own house and has one more of the children to house than the wife, it seems to me that the pool is so modest that neither party could really afford to make a s 75(2) adjustment in favour of the other. Accordingly, I think it appropriate the division be in the terms of 50/50 rather than 60/40.
21. Whilst I am conscious of the limitation of appellate interference in a discretionary judgment, I am of the view that failure to give due attention to matters above justify the change in the orders pronounced at trial. Whilst the grounds of appeal did not ultimately reflect the basis upon which I would decide this case, Mr Page for the husband, was quick to adopt them when we raised them in the course of argument and the wife's counsel did not take objection to that course nor seek to argue that it was somehow limited because of the actual grounds of appeal.
22. In the circumstances, I would allow the appeal and make orders which I will come to in a moment. The orders are based on the calculation of the trial Judge that divide the pool into two parts for the purpose of the orders, namely managed funds were to be sold and the parties were to get a percentage each and that left a balance of $418,897 to be divided between the parties. The husband's share of the balance of that pool would $209,448.50. The husband already has assets to the value of $37,780 represented in the pool, leaving a balance to come to him now from the wife of $171,669.
23. Accordingly, I would make the following orders:
2. That Orders 16 and 19 of the orders made by the Honourable Justice Warnick on 7 April 2004 be varied by substituting the sum of $171,669 for the sum of $213,558 therein appearing;
3. that Orders 19 and 21 be further varied by substituting for the figure 60 per cent where appearing, the sum of 50 per cent; and,
4. that Order 21 be further varied by substituting the figure 50 per cent where the sum of 40 per cent appears.
There should be the usual orders for costs certificates, that is a cost certificate pursuant to s 9 of the Federal Proceedings (Costs) Act in favour of the appellant and a costs certificate pursuant to s 6 in favour of the respondent.
5. BRYANT CJ: I agree with the orders proposed by Kay J, and the reasons expressed by him and have nothing further to add.
6. HOLDEN J: I also agree with the orders proposed by Kay J, and with his reasons for judgment, and have nothing to add.
7. BRYANT CJ: The orders of the Court will be as proposed by Kay J.
_________________________________
Appeal allowed. Orders varied: substitute $171,669 for $213,558 in relevant order; vary percentage figures in orders to 50 per cent each (paras 22-23). Costs certificates ordered in favour of appellant (s 9 Federal Proceedings (Costs) Act) and respondent (s 6) as per para 23.