Work in progress is not property

Work in progress is not property

Moffatt & Dobbs

11. The wife asserted that the husband’s (omitted) Credit Union account balance should be recorded as $9,462, the sum reported in his financial statement of 10 February 2016, rather than the amount set out in his trial balance sheet of $421. There was no explanation of this discrepancy and I have adopted the figure in the financial statement.
12. The husband asserted the value of the wife’s Toyota (omitted) was $22,000 but called no evidence other than attempting to rely on hearsay in the form of a Red Book entry. I accept the wife’s valuation as an admission adverse to her interest.
13. The wife asserted that the husband’s work in progress at the date of trial, which he calculated as having a nominal value of $152,675, should be included in the balance sheet. The husband rejected this and relied on a passage from the High Court decision of Mullane v Mullane^[2] that “… s 79 on its proper construction refers only to orders which work an alteration of the legal or equitable interests in the property of the parties or either of them”. He also relied on an earlier case, W & W^[3]. There Nygh J held that work in progress of a legal partnership was not “property” for the purposes of the Family Law Act. He said that word indicated “… some present right of value which the law will enforce and that an expectation, however real or imminent, of future income or gain is not ‘property’”. He relied on remarks of Barwick CJ inHenderson v Commissioner of Taxation [1970] HCA 62; (1970) 119 CLR 612 to the effect that only when a legal fee is due under an agreement or, in default thereof, the general law, is that a fee earned and recoverable as a debt.
14. The wife relied on an unreported decision of Monteith J in Grey v Stone^[4] in support of her submission that work in progress was to be considered as “property”. However, that case does not support the submission. In that case an accountant valuing a business took into account the value of work in progress and stock in trade at the beginning and end of a financial year but the purpose was to identify any anomaly affecting profitability. There was no finding, express or implied, that work in progress was “property”. It is not challenged that the husband’s (business omitted) is basically a (business omitted) so the “value” of that work is even more difficult to assess. I am satisfied that work in progress is not “property” for the purpose of the Act although it may be a financial resource indicating likely future income.
15. The husband asserted that a personal costs order against him should be included as a liability. The costs order was made following an unnecessary adjournment of a workers’ compensation trial in the Local Court. The costs have not been assessed. Correspondence was tendered showing an itemised claim for costs by the other party of about $45,000. The claim was plainly excessive in my view and included items which were not costs thrown away. I considered a more realistic claim was probably about $20,000. In any event, until taxation or agreement about the sum of costs the claim is entirely contingent. As it is clearly part of the husband’s (business omitted) and, no doubt, only one of a number of business liabilities: actual, contingent or future, I do not consider it appropriate to include in the balance sheet for reasons similar to those applicable to work in progress.
16. The husband also submitted that his taxation liability should be included in the balance sheet representing the property pool. The wife submitted, initially, that it should be excluded but ultimately submitted that the amounts relating to the 2013/2014 and 2014/2015 tax years, the years before separation, should be included and the amounts relating to the 2015/2016 tax year, after separation, should be excluded. The wife also submitted that if the earlier amounts were included it should be considered as a negative contribution against the husband because he ought to have paid the debt as it arose. The wife submitted that such an approach was merited, in addition, because the parties, in substance, kept their finances separate. For the reasons set out in paragraph [3] I do not accept entirely accept that submission.
17. The husband gave no satisfactory explanation for his failure to pay his tax as it accrued and for allowing the liability to build up over a number of years. He gave no explanation for his failure to lodge his tax returns or BAS when due. He had cash resources: the amounts from his inheritance and damages awards, which would have enabled him to pay the tax as it accrued. He gave no explanation as to how his “extra” untaxed income was expended. There is no evidence it was spent on the family. Of course, had the tax been paid when it accrued the actual income available to the husband would have been reduced. It may also be that other assets would have been reduced in value. Given the extent to which the parties separated their financial affairs I consider the most likely scenario is that the husband, if unable or unwilling to pay the tax from income, would have drawn on his own personal cash resources to meet any liability rather than, say, increasing the mortgage on the matrimonial home. There is no evidence that the wife benefited in any particular way from the husband’s failure to pay his tax as it accrued or would have suffered any loss had the tax been paid or that she was complicit in or approved of his laxity in relation to his taxation affairs.
18. Notwithstanding this I feel constrained by authority of Trustee of the Property G Lemnos, a Bankrupt & Lemnos & Anor^[5] to include the husband’s tax debt as a liability of the parties, at least that part of it that accrued before the parties’ separation. This amounts to $34,261 for the 13/14 tax year and $25,091 for the 14/15 tax year, a total of $59,352. The parties separated in April 2015 and the tax liability in respect of the period May 2015 to May 2016, $77,281, should be borne by the husband alone. While I have left this latter amount in the pool, I have taken this amount into account in reaching my assessment of overall contributions.