Wife successfully appeals a roughly equal property division on the ground that the net effect of the order was not such as to divide debt associated with a failed business venture equally
In Bellamy & Gladwell (No. 2) [2017] FamCAFC 238 (17 November
2017) the Full Court (Murphy, Kent & Watts JJ) heard the wife’s appeal against Judge Brewster’s property order made in relation to a 9 year childless
marriage. Initial contributions were made by the wife (“Property B”) which still existed at trial and by the husband (“Property C” and “Property E”)
which were rented during the marriage until Property C was sold. Property C was sold after the husband bought a licence for a business (“ABC”) which
subsequently failed, with all but $2,000 of the sale proceeds of Property C being used to pay off debts. As the parties had borrowed against Property
B to fund the failed business the wife unsuccessfully sought a notional add-back at trial, the court at first instance finding that it would not ascribe
responsibility for the loss.
On appeal, the Full Court said (from [26]):
“On 4 July 2016 the trial judge made the following orders:
(1) That the wife be entitled to retain the property owned by her at [Property B] and is to be responsible for the [Bank D] mortgage on that property.
In this respect she is to indemnify the husband in relation to any liability with respect to that mortgage.
(2) That the husband be entitled to retain the property owned by him at [Property E] and is to be responsible for the [Bank F] mortgage on that property.
In this respect he is to indemnify the wife in relation to any liability with respect to that mortgage.
(3) That the parties take all steps necessary to divide any monies held in trust equally between them.
(4) That as against the other each party be entitled to the chattels in his or her possession and the choses in action in his or her name.
( … )
[28] The trial judge’s conclusions that these orders will leave the parties with roughly property of equal value was not challenged. The effect of the
trial judge’s orders is in fact to give the wife slightly more than half of the net assets
( … )
( … )
[36] The trial judge at [3] of his Reasons says:
‘The gravamen of the dispute involves the treatment of debts incurred during the relationship. When the parties commenced their relationship the wife was,
and still is, the owner of [Property B]. At the commencement of the relationship this property was subject to a mortgage of about $150,000. Additional
borrowings have increased this mortgage to some $320,000. … Essentially the wife maintains that the husband should be responsible for the debts
incurred during the relationship.’
( … )
[40] At trial the wife asserted that because the husband two and a half years prior to the separation alone had initiated ‘the business ventures’ and had
the sole and total control over them, the husband should be responsible for the loss of assets and income and those losses, particularly the business
losses, should be notionally added back into the asset pool against the husband.
( … )
[42] ( … ) The trial judge without engaging in that controversy said:
‘This is a most unfortunate case. There is no doubt that the financial history of the parties’ relationship was a disaster. Essentially this was a result
of the failure of a business purchased during the marriage called “[ABC]” … It failed. I do not ascribe the responsibility for this failure to either
party.’
( … )
[46] The wife’s fundamental complaint was that she came into the cohabitation with a property which had a mortgage on it of $150,000 and has been left
at the end of the hearing with the same property but now with a mortgage of $320,000. … The trial judge left all of the debt raised for the
ABC business and secured over the Property B with the wife. The wife asserts that upon the facts that was unreasonable and plainly unjust.
[47] The wife’s central assertion is that the trial judge failed to take into account that the wife had made a superior initial contribution by way of
introduction of real property. … At the date the parties commenced living together in 2004 Property B had a mortgage of $150,000.
( … )
[57] The trial judge does not actually say what adjustments (if any) he makes based upon the limited findings he did make in relation to contributions.
… [I]t is tolerably clear that the trial judge concluded that on an overall basis the parties had made equal contributions. This is for two
reasons:
The trial judge finds that no adjustment should be made for s 75(2) factors at [32] and concludes at [35] that ‘each party will retain a property of roughly
equal value’;
There is nothing in the trial judge’s discussions of the parties’ contributions that would indicate that one party’s contributions should be seen as greater
than the other.
[58] There was some evidence before the trial judge which made it important for him to focus on whether or not there was a significant disparity in initial
contributions between the parties, namely:
At the date of hearing Property B was worth $610,000; Property E was worth $370,000 and Property C had been sold in 2015 for $400,000. There is no indication
that any increase in the value of these properties during the cohabitation was due to anything other than market forces. These facts gave some clue
as to how the gross values of the properties might have compared at the date of cohabitation with the inference being that the husband’s two properties
might have been worth slightly more than the wife’s property;
However, and most significantly, there is no information as to what level of debt existed in respect of the husband’s two properties. ( … )
( … )
[61] The trial judge’s orders have the result that the wife is left solely responsible for slightly more than 70 per cent of the total debts of the
parties or either of them. That includes, as a major component, the entirety of the accumulated debt attributable to funding, relatively late in
the relationship (April/May 2011 onwards), the failed ABC business; that debt was added to, and remains as part of, the mortgage debt upon the
wife’s Property B. Thus, aside from any inferences that might have been drawn from evidence concerning the debt level each party had at the outset
of the relationship referable to initial capital disparity, issue was squarely joined between the parties as to the allocation of debt accumulated
during the relationship and, specifically, the debt accumulated by reference to the failed business.
[62] To focus, as the trial judge did, only upon an approximately equal division of the net assets now remaining, was to lose sight of that issue.
( … )
[64] It is clear enough that the trial judge determined that responsibility for the business failure should not be ascribed (solely) to either
party. Implicit in that conclusion is that the loss should be shared equally. Yet, the trial judge completely failed to recognise that by leaving
the entirety of the current mortgage debt on Property B as the wife’s responsibility his Honour was, in practical terms, ascribing to the wife
sole financial responsibility for the business failure. That is, it does not logically follow, as it would seem the trial judge has assumed,
that by apportioning the value of the net assets now more or less equally, this results in the parties more or less equally sharing financial
responsibility for the business failure. It bears repeating that the wife introduced Property B with a mortgage debt of only $150,000. The
effect of the orders is that she retains the Property B mortgage but now with a debt of $320,000, an increase attributable to the money lost
because of the failed business venture.
[65] On that basis we conclude that the order which left the wife with the responsibility for the whole of the current mortgage on Property B is
unjust and unreasonable.”
The appeal was allowed and the matter was remitted for re-hearing.