Like magic** - business valuations and family court cases

Where a business owned and operated by a couple forms part of the assets to be divided under a property settlement, there are a range of potential issues that can arise.

The case of Ledarn & Ledarn [2013] FamCA 858 provides an interesting insight into the types of concepts that the family court will consider.

The case involved a business that the wife was the general manager of and the husband was the original designer of the core product.

Both parties wanted sole control of the business as part of the matrimonial settlement, and the wife ultimately succeeded.

Some of the key aspects of the decision included the following:

1. Although there was an independent valuation suggesting the business was worth $8 million, the wife had argued that it was worth '$10 million' to her.
2. While generally, the value attributed to a business will be that which an arm’s length purchaser will pay, the family court can instead accept a value that one of the parties to the relationship subscribes to it.
3. The court also took into account the evidence that seemed to suggest that the wife had a much better understanding of the nuances of the business and how it would best operate in allowing her to take full control.
4. The wife’s request that there be a 5-year non-compete restraint imposed on the husband was however rejected on the basis that given she had significant business acumen, in addition to all of the assets of the business, the prospects of the husband successfully commencing a competing offering were at best remote.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Coldplay song 'Magic'.

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Lessons from the Family Court case of Essex

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Lessons from the Family Court case of Essex’ at the following link - https://www.youtube.com/watch?v=McHPGXipl2I

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

While Essex hasn’t probably received as much media attention as the Spry decision, in some respects, it's arguably the leading decision in the family law space in relation to trusts.  As usual, a full copy of the decision is available here http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FamCAFC/2009/236.html?stem=0&synonyms=0&query=essex.

The husband in Essex:

a          was not the trustee of the structure;

b          had not really received any distributions; and

c          had not contributed to the assets of the trust being generated in the first place as they had come down the family line.

Despite these facts, the court still held the assets to be the husband's resource and therefore took into broad account the terms of matrimonial property settlement. 

Importantly though, the assets were not considered property. That was a very important part of the decision, because the court also found that despite the fact that the husband did not have any control over the structure and had yet to receive any benefit, there was absolutely clear evidence that he would ultimately receive it, in the court's opinion. 

While on the face of the decision, Essex was probably a 'loss' for the husband, the reality is that the decision supports this idea that trust structures will only be attacked where the court believes that it is absolutely legitimate in the circumstances and in any other scenario that the integrity of the trust structure will be respected and the assets will, therefore, be protected.

Sham trusts and the Family Court

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Sham trusts’ at the following link - https://youtu.be/ERpGAlIf_ro

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

Sham Trusts are probably the most interesting aspect of what is otherwise a very interesting topic in terms of structuring of trusts from an asset protection perspective under the family law provisions.

Ultimately, a sham trust will be held to exist where there has been a deliberate and focused attempt by the people behind the trust to actually completely mislead and deceive anyone else that might have come into contact with it, whether it be other beneficiaries, former spouses or indeed the court.

Where a sham trust is held to exist, what the court is empowered to do is just completely ignore it as if the trust is a complete nullity. Obviously this is a very radical power given to courts, in that despite the legal documentation, the court can just completely ignore it.

What the cases have shown is that while the Family Court certainly has the power to deem a trust to be a sham, they are very reticent to do so, unless there is very clear evidence to support such a finding.

'Look through' powers of the Family Court

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of 'Look through' powers of the Family Court’ at the following link - https://youtu.be/4I57VXYU0w4 

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below – 

The ultimate rationale in relation to the look through powers of the Family Court which are extraordinarily wide - the Family Court has powers that do not exist in other area of the law-, is public policy.   

This is because it is seen as inequitable that a party who has been in a longstanding relationship has access to assets that they can effectively deal with as their own via a trust structure, but then suddenly those assets are completely ignored in a property settlement.   

The rules are driven by public policy and this is why the concept of 'continuum' as to the way the courts deal with trusts is so relevant. The answer to the question 'is that asset protected?' in many situations will ultimately often be 'it depends'. And it depends on the court's perception and interpretation as to how that overriding and overarching public policy framework applies to any particular factual scenario. 

Family court cases and the Stamps Office

Recent cases have explored various aspects of the Tax Office’s ability to access material lodged as part of family law cases.

The recent family law case of Kern [2014] FCCA 1108 provides an example of where the interest of a State based revenue office can be enlivened. 

If you would like a copy of the decision please email me.

The key components of the case here were as follows:

1. A couple who had a 9-year marriage were engaged in proceedings in relation to the division of matrimonial assets.
2. One of the assets related to some land that was gifted to the wife by her parents.  
3. Stamp duty was paid on the transfer at a value of $110,000.  
4. Evidence given by the wife to the family court was that the true market value of the land at the date it was gifted to by her parents was in the region of $150,000 and indeed, may have been closer to $200,000, particularly given that the final sale price for the land when it was subsequently disposed was $325,000.

While the family court accepted the wife’s arguments that she should receive a disproportionate share of the proceeds of the sale of the land due to the contribution that she made, it was also decided to refer the evidence to the Stamps Office for further investigation.

The family court has the inherent power to make a referral in situations such as this (i.e. effectively fraud) under the Evidence Act 1995.

While that Act does provide some protection for self-incrimination, that protection was not available in this case because:

     (a)  The wife provided the incriminating evidence of her own free will.
     (b)  The evidence provided was done so before a request for immunity was made.


Until next week.


Image credit: Des Daughter cc

Tax Office denied access to family law documents

Following on from recent posts, another decision arising out of family law proceedings that is worth remembering is International Litigation Partners Pte Ltd v FCT [2014] FCA 671.

If you would like a copy of the decision please email me. In this particular case, the Tax Office had sought access to material filed in the family court proceedings to assist in determining the tax residency of various related entities of the husband.  While the former wife consented to access being granted, the husband opposed access.

In ultimately denying the Tax Office access to the documents requested, the court confirmed:

1. The court must use its discretion to determine whether access to family court documents is appropriate on a case by case basis.


2. The exercise of the discretion involves the weighing of a number of competing interests, and in particular, whether the Tax Office was likely to derive any substantial benefit by breaching the confidential nature of personal documents filed in family court proceedings. 


3. The court should also take into account practical difficulties in separating documents that might be of use to the Tax Office and those that disclose personal issues (including those concerning the children of the relationship). 


4. Also of relevance is whether the spouse to the marriage is party to a Tax Office litigation (in this case, the husband was not a party).  As set out in earlier posts, in the Darling matter, the husband was a party to Tax Office audit activity.

Until next week.


Image credit: Paul Hocksenar cc

Tax Office views on accessing Family Court documents

As mentioned in last week’s post, in the case of Darling, the Tax Office was given access to material lodged as part of family law proceedings, to further its audit activities in relation to the husband of the marriage.

The Tax Office has now released a Decision Impact Statement in relation to its intended approach in this area.  As usual, a full copy of the document is available via the following link - http://law.ato.gov.au/atolaw/view.htm?DocID=LIT/ICD/M34of2014/00001

In addition to providing a useful summary of the key aspects of the court decision, the Statement confirms –

1. There is an implied obligation on the Tax Office not to make use of documents disclosed as part of a family law case for a purpose not related to the family court litigation (ie to assist the Tax Office with its tax audit activities).


2. Whenever the Tax Office is wanting access to court documents for use other than in relation to the case in which the documents were filed, it will make an application to the court for release from the implied obligation.


3. In making an application to court, the Tax Office will have regard to the factors set out in the Darling decision (as summarised in last week’s post).

 Until next week.

Image credit: Adam Rifkin cc

Tax Office access to family court material

One area of the law that continues to evolve relates to the Tax Office being able to access material lodged as part of family law proceedings.  A further example of this is the case of FCT & Darling [2014] FamCAFC 59.  A full copy of the decision is available via the following link - http://www.austlii.edu.au/au/cases/cth/FamCAFC/2014/59.html

Whereas the original decision prevented the Tax Office from accessing certain information disclosed by the husband in his family court affidavit, the Tax Office was ultimately given access to the material on appeal.

While the court acknowledged that they did not want to create an environment that discouraged those involved in family court proceedings from making full and frank disclosures, it was also the case that, given the family court had an inherent ability to refer matters of tax evasion to the Tax Office, any further access granted on a case by case basis was unlikely to have a significant impact.

The other specific reasons given by the court for allowing access included:

1 there were significant restrictions on the Tax Office in relation to the ability to use the information that they gained, particularly in relation to releasing it publicly;

2 while the husband had argued that it would be inconvenient to have the information released, there was no actual evidence supporting this argument;

3 the Tax Office was engaged in a significant and targeted audit in relation to the husband – i.e. the Tax Office was not engaged in some form of ‘fishing expedition’.

Overall, it was deemed to be in the public interest to allow the commissioner access to the material.

Next week’s post will consider the Decision Impact Statement recently released by the Tax Office.

Until next week.

Image credit: reynermedia cc