Divorce Battle: Wife Seeks Capital Gains Tax Ruling on Husband's Company in $50 Million Asset Dispute
Kerr & Christie [2021] FamCA 624 (27 August 2021)
This is a divorce case involving a couple with a net pool of assets worth around $50 million, with the wife controlling $35 million and the husband controlling $15 million. The wife is seeking an order from the court that the husband's company apply for a Private Binding Ruling (BPR) in relation to capital gains tax issues that pertain to assets held by the company, and the husband is seeking $200,000 to cover his needs up to and including the conciliation conference. The court has the power to make the order sought by the wife regarding the BPR application, but the question is whether it should do so in the circumstances.
Facts:
The case involves a married couple who have three adult children and are in the process of divorce. They have a net pool of assets worth around $50 million, with the wife controlling $35 million and the husband controlling $15 million. The wife is seeking an order from the court that the husband’s company, B Pty Ltd, apply for a Private Binding Ruling (BPR) in relation to capital gains tax issues that pertain to assets held by the company. The husband opposes this order and would prefer the matter to proceed to a conciliation conference. The issue at stake is whether there is a capital gains tax liability that affects the value of the shares held by the husband in the company.
The second issue in the case is that the husband is seeking $200,000 to cover his needs, including interim costs, up to and including the conciliation conference, and a further application will be made after that date, should the matter not settle. The wife opposed the making of this or any order for funding, particularly having regard to the husband’s asset position.
The court has the power to make the order sought by the wife regarding the BPR application pursuant to s 114(3) of the Family Law Act 1975 (Cth), which allows the court to grant an injunction in any case in which it appears to be just or convenient to do so. The court is satisfied that it has the power to make the order sought, but the question is whether it should do so in the circumstances. The wife would prefer the BPR to be sought as soon as possible, but she is nonetheless prepared to attend a conciliation conference to explore settlement.
Issue:
Whether there is a capital gains tax liability that affects the value of the shares held by the husband in the company.
Applicable law:
Family Law Act1975 (Cth) - pursuant to which the Court was satisfied that the preferred statutory foundation of the claim was under s 117(2) of the Act, but on the basis that if the order were made, a trial judge could make a compensatory costs order in favour of the wife at final hearing.
Blueseas Investments Pty Ltd v Mitchell (1999) FLC 92-856; [1999] FamCA 745 - provides that the principle that underlies the jurisprudence about interim financial provision within the family law jurisdiction is the imbalance of power between litigating parties.
Analysis:
The husband is a farmer who has been impacted by drought and his income has decreased as a result. The court accepts his evidence of the impact of the drought on his farming operations. The husband has substantial equity in the properties he owns, but he also has liabilities of almost $2.7 million. The court does not accept that the husband should be forced to borrow money on the security of his assets or liquidate his assets to fund his litigation. The wife has significant liquid assets that could be used to fund the litigation without any ultimate prejudice to her claim.
Conclusion:
The court has referred a matter back to the Docket Registrar for a Direction Hearing on September 8, 2021, to make directions for the matter to proceed to Conciliation Conference and allocate a date for the same. If the parties do not reach an agreement within four weeks following the date of the Conciliation Conference, the husband, in his capacity as a director, shareholder, and public officer of B Pty Ltd, is required to apply for a Private Binding Ruling from the Commissioner of Taxation regarding the ownership of Property C and Property D. To
Case: Kerr & Christie [2021] FamCA 624
Judgment of: ALTOBELLI J
Counsels:
Counsel for the Applicant: Mr Alexander
Solicitor for the Applicant: Russell Kennedy Aitken Lawyers
Counsel for the Respondent: Mr Richardson SC
Solicitor for the Respondent: Barkus Doolan
