“Skill set” is not the new “special contribution”

“Skill set” is not the new “special contribution”

Pfenning & Snow [2016] FamCA 29 (27 January 2016)

The following is annotated. For full case: http://www.austlii.edu.au/au/cases/cth/FamCA/2016/29.html

Summary of husband’s case

30. As already noted the husband contends for an overall 70 per cent/30 per cent division of the net property interests for which he contends (after deducting the contingencies referred to) in his favour. The essence of the husband’s case giving rise to the resultant 40 per cent disparity between the parties is:
    1. His claim to an initial disparity between the parties of capital contributed to the marriage.
    2. More particularly the husband’s claim to have brought to the marriage, his having “laid down a base of qualifications and experience” in the decades preceding the marriage, a business and skill set he utilised during the course of the marriage to produce substantial income and consequent wealth.
    100. That it cannot be concluded in the circumstances of this case that what was produced by the husband and his business, particularly in the early years of marriage, was the product of mutual efforts or joint contribution of the husband and wife.
31. The husband contends that on the basis that he will retain the company
    Pfenning -Snow Pty Ltd which holds substantial assets; extracting funds from that company, potentially including for the purpose of the wife being paid a cash sum to achieve property settlement, will potentially involve the sale of one or more of the real properties owned by the company with consequent costs of sale and CGT liabilities being incurred; and taxation on dividends being incurred to extract funds from the company.
32. The husband contends that those “liabilities”^[3] need to be brought to account either in determining the value of the existing property interests by deducting these amounts (his primary position); or by taking account of them “…underS75(2) or S79(2) in a quantifiable way that allows the parties to understand what has been done”.^[4]
33. The husband contends that any case the wife might otherwise have had for a s 75(2) adjustment in her favour, whether by reason of wealth disparity produced by a 70 per cent/30 per cent outcome, or otherwise, is answered by reference to the wife’s expectations regarding her own family’s trust (in which she is a beneficiary) and the prospect that the wife will benefit from a substantial inheritance from her mother who is contended to be exceedingly wealthy with assets worth in the order of approximately $30 million.
34. It is part of the husband’s case that whilst he acknowledges that “formal” separation occurred in March 2013, he contends in his evidence and written submissions to the effect that “…the parties lived separate lives albeit under the same roof from around 2003-4”. He thus contends that the assessment of the parties’ respective contributions is characterised by that context.
35. Some emphasis was placed by the husband upon the feature that whilst cohabitation commenced upon marriage in 1991, the wife’s homemaking and parenting contribution is to be considered in circumstances where the parties’ first child was born in 1997; and by January 2001 the husband reduced his work commitments as a consequence of sale of the business and the parties’ relocation from Sydney to Brisbane. In that context, the husband advances the proposition that the wife’s primary parenting role was undertaken between the birth of their first child in 1997 and early 2001 when the husband contends on his case that he thereafter participated equally with the wife in parenting of the children.

Summary of the wife’s case

36. The wife contends for an overall 55 per cent/45 per cent division of the net property interests for which she contends (without deduction for the contingencies advanced by the husband) in her favour.
37. The essence of the wife’s case giving rise to the resulting 10 per cent disparity is that whilst the parties’ contributions over the course of some 22 years of marriage, whilst differing and disparate, are nevertheless properly assessed as being equal; save only in respect of gifts the wife received from her family to be treated as her sole contribution.
38. Such gifts include the wife’s interests in two real properties conveniently referred to as the G Street property and the H Street property, interests with a combined total value of $1,184,000.
39. The wife thus contends that the parties’ contribution based entitlements are appropriately assessed at 53 per cent/47 per cent in the wife’s favour having regard to the gifts referred to.
40. The wife further contends that consideration of relevant s 75(2) matters ought result in a 2 per cent adjustment in the wife’s favour having regard in particular to:
    1. The husband’s capacity to access his superannuation, a capacity she does not have.
    2. The husband’s access to and use of funds post-separation.
    100. The wife’s potential liability for CGT in respect of the G Street property and the H Street property.
41. The wife joins issue with the husband’s contentions concerning his claimed initial contribution of capital, or at least that the disparity in contributed capital is as contended for by the husband or reflects in the ultimate percentage terms for which the husband contends.
42. More fundamentally, the wife challenges the notion that the husband’s earning capacity per se, as it existed at the outset of the marriage, is to be treated as a contribution solely by the husband by reference to the product of the exercise of that capacity during the marriage.
43. To the extent that the three real properties owned by the company Pfenning-Snow Pty Ltd (or any of them) are not actually required to be sold for the purpose of realising the wife’s entitlement/cash payment to the wife; the wife disputes that sale costs and estimated CGT referrable to such items if sold is to be deducted from the value of these assets in arriving at a value for them; or that these contingencies are a relevant s 75(2) matter or s 79(2) consideration.
44. The wife also disputes that estimated taxation on fully franked dividends paid from the company Pfenning-Snow Pty Ltd to extract funds from that company are to be brought to account either in valuing the property interests or as a s 79(2) or s 75(2) matter.
45. The essence of the wife’s case in these respects is that historically the husband has been a holder or accumulator of property and will do what he can to retain the current assets within Pfenning-Snow Pty Ltd if history is any guide. Moreover, the wife suggests other possibilities may exist for her entitlement to be met, for example, by the husband borrowing funds against assets in discharging any obligation he has to pay a cash sum to the wife.

231. Whilst Queen’s Counsel for the husband avoided any resort to the label or descriptor “special contribution” so called (as Senior Counsel for the wife highlighted), his submissions for the husband to support a 40 per cent disparity in outcome repeatedly sought to emphasise the weight or added weight to be given to the husband’s financial contribution by reference to the husband’s working life prior to marriage, over decades, commencing with the husband’s apprenticeship in the 1960s. That is, it was contended that particular emphasis or weight ought be given to the husband’s financial contribution, (or credit to the husband) because of his work history from when he commenced work in the late 1960s until cohabitation, a period of decades.
232. Amongst Queen’s Counsel’s written submissions in this respect was reference to part of a statement in a trial judgment of Warnick J in SL & EHL^[58]. Queen’s Counsel’s written submissions in these respects included:

…The parties commenced cohabitation in Sydney in … 1991 by which time the Husband, then aged 42 years, had identified a niche market in [DD Pty Ltd], had commenced a fledgling business in this market in September 1989 and having “laid down a base of qualifications and experience” in previous decades, was then able, using his skills “in a direct and significant way to produce wealth during the subsequent cohabitation” (Warnick J in SL & EHL (2005) FamCA 132 @ para 218)…^[59] (emphasis added)
…
The major issues relate to how the Husband’s initial contributions and those made by him in the decades prior to cohabitation which have produced substantial wealth (or the springboard to that wealth) during the course of particularly the early part of cohabitation from … 1991 to late 2000 when the goodwill/contacts of [DD Pty Ltd] was sold.^[60] (emphasis added)
…
That brings us to the critical issue in this case of how Your Honour assesses the weight to be given to the massive earnings potential the Husband brought to this marriage in 1994 [sic] after 15 years of doing what Warnick J checked but found did not exist in SL & EHL (2005) FamCA 132. He said
“…this is not a case in which prior to the commencement of cohabitation, a party had laid down a base of qualifications and experience which in a direct and significant way produced wealth during the subsequent cohabitation”.
…
…in terms of first principles there ought be no issue that the Husband’s contributions to create his earning capacity in the many years prior to the date of the marriage are contributions to which he is entitled in these proceedings.^[61]
…
There ought be no doubt that the Husband’s efforts over the years prior to cohabitation to build his future earning capacity has a “sufficiently relevant connection with the marriage”.
…
Here, the very substantial business and the profits therefrom arose as a direct result of the base of qualifications and experiences the Husband brought to this marriage and such ought not be treated as if part of the fruits of the marriage. That business and its profits were the result of the 25 years of effort devoted by the Husband in the pre-marriage period in respect of which the Wife made no contribution at all, and the contributions of the parties during the period of cohabitation. The Husband grew the tree from which the fruit fell during the period prior to cohabitation. The fact that the fruit fell during the course of cohabitation does not make it “the result of joint efforts”.^[62] (emphasis added)
…The Husband had been in the workforce for some 25 years since he commenced his apprenticeship in the mid 1960’s.
The most substantial benefits the Husband brought to the relationship were twofold, namely:
(i) The “base of qualifications and experience” which the Husband had laid down in the 25 years from the mid 1960’s to the time of the marriage in … 1991…which “in a direct and significant way produced wealth during the subsequent cohabitation.”… (emphasis added)
…

233. In SL & EHL (supra) Warnick J considered the case of a husband who had qualified as an accountant and then as a chartered accountant and had earned significant income in that capacity as well as via managing property investments.
234. For completeness, the full statement made by Warnick J at [218] of his Reasons for Judgment was as follows:
     218. As to the contributions by the husband in and about the acquisition and conservation of the wealth of the parties, I consider this is not a case in which, prior to the commencement of cohabitation, a party had laid down a base of qualifications and experience which in a direct and significant way produced wealth during the subsequent cohabitation. True it is that the husband had completed a substantial part of his accountancy studies before marriage, but he did not qualify until after marriage and he then pursued the further studies necessary to obtain admission as a chartered accountant.
235. It is trite that to practice and earn income as a professional accountant, medical practitioner, engineer, lawyer or the like a person must undertake specific studies/training to qualify for that occupation. Moreover it can readily be seen that there is an obvious nexus between obtaining the qualification and using it to earn income. That was the context of the statement made by Warnick J.
236. Whilst in this case the husband has detailed his entire work history and experience, the evidence does not particularise (beyond what will be shortly referred to) how there is the relevant nexus between such work history and experience and what occurred with the husband pursuing the business.
237. What fundamentally occurred in this case is that, during the latter stages of working for CC Pty Ltd, the husband identified a market for complimentary work.
238. There is no evidentiary basis for concluding, as the husband’s submissions would have it, that, for example, an apprenticeship in toolmaking undertaken in the 1960s gave the husband any relevant qualifications and experience in pursuing the business he first commenced 20 years later. The same can be said of the husband’s subsequent employment positions he refers to.
239. To adopt the husband’s approach why would, in the case of a professional by way of example, one only start with tertiary study? What about school performance equipping the person with the qualifications to gain entry to tertiary study?
240. None of this is to diminish that having identified the market opportunity referred to; and having established the so described “fledgling” business in that market in September 1989, some two years prior to marriage; and assiduously pursuing that opportunity over a nine year period approximately subsequent to marriage is not significant. However, I reject the proposition that the husband is somehow to be credited with all that he did via work or work experience commencing in the 1960s as itself constituting a contribution. In other words, I do not accept that “decades” of gaining the work experience the husband did has the direct causal nexus discussed by Warnick J, relevant to assessing the husband’s contributions in this case, even if that approach is considered legitimate.
241. In my judgment, it is consistent with Full Court authority^[63] that as I have earlier observed at [204] pre-marriage acquired skills, experience or training of a party can only be relevant to evaluating contributions made during the marriage rather than in and of themselves comprising a contribution of a relevant kind.
242. I have already noted that the particular focus invited by and on behalf of the husband on the financial performance of the business from the outset of cohabitation in 1991 until the 1996 financial year; and/or until the business was sold in 2000; has the potential to divert proper attention being paid to the holistic process of assessing contributions under s 79(4).
243. In Hoffman & Hoffman^[64] the Full Court undertook a detailed examination of authority particularly concerning the notion of “special contributions” and whether or not there was any binding rule or legitimate guideline of “special contributions”.
244. At [61] the Full Court said:
     61. We consider that the true position is, with respect, put correctly and succinctly by O’Ryan J in D & D [2005] FamCA 1462 at [271]: “…the notion of special contribution has all been a terrible mistake … what I have to do is identify and assess the contributions made by each of the parties without any presumption of entitlement” (emphasis in original). The task is to make findings as to the nature, form, characteristics and duration of each and all of the contributions made by each of the parties referenced to s 79(4), without adjectival qualification. Thereafter the court must undertake the exquisitely difficult task of assessing how those respective contributions, often of differing types (a task which his Honour referred to below as a comparison of apples and carrots (at [42])), find expression in qualitative assessments. In the context of a case such as the present one, the duration of the marriage has an important influence upon what evidence is relevant in respect of contributions. There is no need to conduct a minute forensic examination of the details of contributions over many years with each party extolling their own efforts and attempting to diminish the other’s. (footnotes omitted)
245. In Bolger & Headon^[65] the Full Court discussed the flawed approach of attempting to attribute percentage figures to identified or discreet components of contribution. The Full Court said:
     23. This Court said some 20 years ago in Aleksovski v Aleksovski (1996) FLC 92-705, per Baker and Rowlands JJ at 83,437:

It is therefore necessary that trial Judges weigh and assess the contributions of all kinds and from all sources made by each of the parties throughout the period of their cohabitation and then translate such assessment into a percentage of the overall property of the parties or provide for a transfer of property in specie in accordance with that assessment.
It really comes down to questions of weight. Whilst weight would and must be given to a contribution which a party makes shortly before the separation, less weight may be given to a contribution made by one of the parties to a marriage early in the cohabitation period of a long marriage, particularly in circumstances where the contribution has gone into the parties’ assets or been used up in the payment of family expenses.
24. Kay J held at 83,443:
What is important is to somehow give a reasonable value to all of the elements that go to making up the entirety of the marriage relationship. Just as early capital contribution is diminished by subsequent events during the marriage, late capital contribution which leads to an accelerated improvement in the value of the assets of the parties may also be given something less than directly proportional weight because of those other elements.

25. Of considerable significance to the approach of the trial Judge, this Court said in Dickons & Dickons [2012] FamCAFC 154:
    23. We wish also to refer to the approach of the Federal Magistrate in attributing percentages to differing periods within the relationship, or types of contribution made. There is in our view little to be gained, and much to be said against, approaching the task of assessing contributions by attaching percentages to components of it. (The same, it might be said, applies to attributing a percentage to each of the relevant s 75(2) factors).
    24. There can be little doubt that the classification of contributions by reference to terms such as “initial contributions”, “contributions during the relationship”, and “post-separation contributions” can be helpful as a convenient means of giving coherent expression to the evidence in a s 79 case and to giving coherence to the nature, form and extent of the parties’ respective contributions. However, the task of assessing contributions is holistic and but part of a yet further holistic determination of what orders, if any, represent justice and equity in the particular circumstances of this particular relationship. So much is clear from the terms of s 79 itself and, in particular, s 79(2). The essential task is to assess the nature, form and extent of the contributions of all types made by each of the parties within the context of an analysis of their particular relationship.
26. In passages which resonate with the arguments in this appeal and the trial Judge’s reasons to which they relate, this Court went on to say:
    25. Doing so is also consistent with the demands of authority that the ultimate assessment of contributions should be made without “…giving over-zealous attention to the ascertainment of the parties’ contributions…” (Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513 at 524) and the well-established recognition in the authorities (acknowledged specifically by her Honour in this case) that the process required of the Court by s 79 is the exercise of a wide discretion, not the performance of a mathematical or accounting exercise.
    26. The necessarily imprecise “wide discretion” inherent in what is required by the section is made no more precise or coherent by attributing percentage figures to arbitrary time frames or categorisations of contributions within the relationship. Indeed, we consider that doing so is contrary to the holistic analysis required by the section and, in the usual course of events, should be avoided.
27. In the same year, in Lovine & Connor and Anor (2012) FLC
    93-515, this Court said:
    42. As part of the process of ultimately determining just and equitable orders under s 79 there is included a complex of discretionary assessments and judgments of many components of contribution, only some of which are capable of measurement in money terms and then often only in historical, rather than present, money terms. Any dictate to the effect that in the course of assessment each disparate component part or kind of contribution must be assigned a discrete and identifiable value or percentage is antithetical to the nature of the discretion involved.
28. We seek to respectfully repeat and emphasise the reference in Lovine to such an approach being “antithetical to the nature of the discretion involved” and the reference in Dickons to such an approach being avoided in the usual course of events. Doing so, we repeat, is not consistent with a holistic assessment of the parties’ contributions which is what s 79(4) requires.
246. Various aspects relevant to the assessment of the husband’s contributions during marriage have already been discussed and I do not intend to repeat that discussion.
247. By way of summary, I am satisfied with respect to the husband that his contributions can be taken to include:
     1. His initial capital and inheritance as discussed.
     2. His contribution to the generation of substantial income from the business he first established some two years prior to cohabitation.
     100. His pursuit of financial success via the business and property investment.
     4. That from the time of the parties’ relocation to Brisbane from Sydney in early 2001, when the children were aged four years and two years respectively, that he participated in the care of the children and involvement with parenting in a manner which did not previously exist. Whilst I am satisfied that there was significant participation I accept the wife’s evidence, and the detail of it, in concluding that the wife remained the primary carer and homemaker whilst with respect to the pursuits of the company the husband remained the primary actor.
     5. The husband pursued investments and also the management of those investments via the company and continued to play a significant role in the manner he describes in managing the investment portfolio from time to time but with assistance from, and participation by the wife.
     6. In the latter years of the marriage the husband brought about the position of limiting the wife’s involvement in the affairs of the company, and in that context the husband conducted them primarily as between the parties.
     7. Post-separation that position continued in that the husband remained primarily responsible, but also had the benefit of income streams of the company in a manner and extent not available to the wife.
248. Various aspects relevant to the assessment of the wife’s contributions during marriage have already been discussed and I do not intend to repeat that discussion.
249. I am satisfied and find that:
     1. The wife’s contribution of capital via each of her capital contribution and gifts from her family as earlier discussed.
     2. The wife’s contribution of her earnings from employment in the range of $42,000 to $46,000 per annum from the outset of the marriage up until October 1996, when the wife ceased external employment at an advanced stage of her pregnancy with the parties’ first child, enhanced the capacity for earnings from the DD Pty Ltd business to be retained, (rather than being applied to the parties’ expenses), for investment purposes. So much was acknowledged by the husband in the course of his cross-examination.^[66]
     100. Both parties agreed to a plan or strategy, and committed themselves to that plan or strategy, of investing in commercial real estate. Both participated in decision making. As earlier discussed, I do not accept the husband’s qualifications or reservations in his evidence implying some reservation or lack of commitment on behalf of the wife in this respect.
     4. The wife’s family and her late father in particular played a significant and important role in assisting the parties in carrying out their strategy in investing in commercial property. That is appropriately considered as a contribution by or on behalf of the wife.

One reality of this case is that the financial success of the business, whilst highly successful and productive whilst it subsisted, took place only over a portion of the relationship from the early 1990s and obviously ended with the effective sale of the business in 2000. Whilst earnings derived from the business effectively enabled property to be acquired, the income producing nature of those properties acquired enabled their retention subsequent to the parties deriving any earnings from the business beyond the sale of the business in 2000. That which exists now, in terms of value, reflects the retention and further acquisition of commercial property more than a decade after the business ceased to be operated by the parties.

5. The wife provided the husband with emotional and other support (as he did her) throughout the years from marriage/cohabitation in 1991 until 2000 when the business was sold. To compartmentalise each party’s role ignores that each party supported the other.
6. The wife, in addition to her employment, undertook the primary homemaking role over the years between marriage and the birth of the parties’ first child in February 1997; and thereafter the primary homemaking and parenting role for the children.

In this context it is significant in considering the wife’s contribution that fertility issues for both parties having been identified, in 1995 the wife commenced undergoing IVF treatment in order for the parties to achieve their ambition of having a child. As the wife deposes to in her affidavit,^[67] this required the wife to undergo significant medical treatment. Undoubtedly, these issues and the IVF treatment itself imposed some burden upon both parties,^[68] but as the husband acknowledged in cross-examination it put more strain on the wife than on the husband.^[69]
Also relevant in this context is that as at the parties’ marriage the wife had then been working for some ten years as a journalist with a major newspaper in Brisbane. Shortly before marriage she declined a promotion/editorship with that employer because she had acceded to the husband’s wish that the parties live in Sydney so that the husband could pursue the DD Pty Ltd business.^[70]
Having then subsequently successfully pursued employment (and employment promotions) in Sydney, the wife’s pregnancy with the parties’ first child dictated with the husband’s urging^[71] that she leave her then employment as a chief sub-editor with a major media group.
It can thus be seen that marriage (and its initial relocation) and child birth heralded interruptions to the wife’s career not confronted by the husband.

7. In addition to her primary homemaking and parenting role, from leaving her external employment in October 1996, the wife worked in the DD Pty Ltd business^[72] albeit that such involvement reduced with the birth of the parties’ second child.
8. Between ceasing her external employment in October 1996 and until the sale of the business in 2000, the wife performed roles and work within the business in addition to her primary homemaking and parenting role, as was acknowledged by the husband in the course of his
   cross-examination.^[73]
9. The wife’s participation in the business also involved her in participating in the identification of potential investment properties as also conceded by the husband in the course of his cross-examination.^[74]
10. I am satisfied on the wife’s evidence, which I accept, that whilst the husband played a dramatically increased role in parenting from the time of the parties’ relocation to Brisbane in 2001, the wife continued to undertake primary responsibility for homemaking and parenting.

Post-separation contribution

250. Whilst the wife continued to have some access to joint funds post-separation, I accept her evidence to the effect that increasingly these were insufficient to meet needs beyond those of her children and increasingly she relied upon both the income she derived from working for her mother and an apportionment of the income received from the H Street property.
251. Whilst some of this is included in the notional adjustment components of the pool to be considered, it is clear that the husband has had access to lump sums or the capacity to access lump sums from the company in ways not available to the wife.
252. Credit for the husband continuing to manage the affairs of the company
     post-separation is tempered by the feature that the husband essentially brought that about with the removal of the wife as a director and shareholder of the company in the latter part of the marriage, and his determination to pursue matters thereafter more independently of the wife and ultimately, it would seem, completely independently as at separation.
253. These matters noted, it does not seem to me that there is any evidentiary basis or reason for concluding that there is relevant disparity between the parties in terms of their contribution in the post-separation period. As earlier noted, and having regard to the ages of the children at the time of separation, they achieved more or less equivalent parenting roles on and from the time of their separation.

Conclusion on contribution based entitlements

254. As at marriage the husband had identified the niche market and had established his business and company to pursue that market and was in fact pursuing it.
255. From the outset of marriage the husband’s earnings-based financial contributions exceeded those of the wife by a significant margin and that was increasingly so within a short period of marriage and that disparity endured whilst the business was operated.
256. It is obvious that income provided via the business provided in substantial part the foundation for subsequent property investments engaged in by the parties in their own right and via the company.
257. By way of illustration, in 1994 the company purchased commercial property at S Street, Suburb HH, New South Wales for $516,000. The company borrowed $300,000 from the bank on mortgaged security to fund that purchase. That mortgage was paid out in 1996, thus within a timeframe of about two years.^[75]
258. In 1995 the company purchased commercial premises at V Street, W Town, Queensland for $558,919 again using bank borrowings of about $300,000. However, that liability was discharged within about three years, in 1998.^[76]
259. Of course, to illustrate the countervailing factors, it is the case that when in June 1992 the parties had purchased their first home at JJ Street, Suburb KK, New South Wales for $325,000 on the wife’s evidence, which I accept, approximately $100,000 of that was sourced to the wife’s pre-cohabitation savings; about $80,000 came from the business account and about $135,000 was borrowed from a bank.^[77]
260. Nevertheless, substantial property investments and servicing of loans was only possible primarily because of the husband’s successful business operation.
261. I have also earlier referred to the wife’s contribution during the latter years of the 1990s in terms of her parenting freeing the husband to pursue business interests.
262. In my judgment in the holistic assessment of contributions of all relevant kinds of these parties over an approximate 21 year marriage producing two children; and notwithstanding the many and varied counterbalancing or countervailing factors in favour of the wife to which reference has been made; the characteristics referrable to the husband’s contributions in respect of the business, in terms of also contribution to the acquisition of property, has a distinguishing character resulting, overall, in a weighting in the husband’s favour; albeit not to the extent contended for by the husband.
263. In my judgment, only an undue and narrowly focused emphasis upon the early years of this marriage, and upon direct financial contribution without proper consideration of all relevant contributions (by both parties) pursuant to s 79(4)(a), (b) and (c) could result in the extent of disparity contended for by the husband.
264. In my judgment, a 55 per cent/45 per cent outcome in the husband’s favour is the appropriate reflection of each party’s contribution based entitlement. That 10 per cent disparity on an estimated net pool of $17,446,936 produces a disparity in favour of the husband, in round terms, of $1.745 million.