Order for Distribution of Sale Proceeds Set Aside: Lacked Provision for Adjustments if the Home Sold for More or Less than its Valuation


Background

In Goudarzi & Bagheri (No. 2) FamCAFC 190 (15 September 2017) the Full Court of the Family Court (Thackray, Ryan & Forrest JJ) heard the wife’s appeal against Cleary J’s property order at first instance, which effected an overall property division of 55 per cent to the wife and 45 per cent to the husband. Cleary J had ordered that the family home be sold and 65 per cent of the net sale proceeds be paid to the wife. Although valued by a single expert as being worth $5.5 million, the parties were given leave to adduce their own expert evidence as to the home’s worth, the wife ultimately conceded the husband’s expert’s value of $8.48 million.

Effect of the Adjustments under the Family Law Act

The Full Court stated that the effect of the adjustments made pursuant to s 75(2) of the Family Law Act (allowing for adjustment to each parties’ share of the property pool based on a number of considerations, including health and employment prospects of either party) was to increase the wife’s overall share of the property available for distribution from 35 to 55 per cent. Notwithstanding that the family home, which was valued at $8.48 million, was to be sold, the primary judge formulated the orders which would give effect to the 55:45 division as though the wife should receive 55 per cent of $14.46 million.

On this formula, the wife would receive 65 per cent of the proceeds of sale of the family home [assuming a sale price of $8.48 million]. It was the wife’s contention that the orders did not give effect to her Honour’s determination as to the percentage distribution of the parties’ property and that she carries a disproportionate risk of financial loss should the family home sell for less than $8.48 million.

The husband conceded that if it is accepted that the primary judge intended that the wife receives 55 per cent as ‘her overall share of the asset pool’ then the form of orders were mathematically flawed.

The Full Court further stated that to achieve an overall property division of 55 per cent to 45 per cent in favour of the wife as intended, the wife would need to receive $5,449,585, which represented approximately 65 per cent of the net proceeds of sale, assuming a sale price of $8.48 million.

Valuation of the Family Home

The Court accepted the proposition advanced that the fact that a single expert had valued the family home only twelve months earlier at $3 million less than it was valued at the date of trial demonstrated that it was far from certain that the property would sell for $8.48 million. Indeed, even without the earlier opinion, the vagaries of the real estate market meant that there will always be uncertainty about the price at which a property will sell until completion of its sale. It was clear that if a lower sale price was realised, as feared by the wife (or indeed, a higher one), this would alter the overall division of the property in percentage terms, with the final result being not as her Honour intended.


Relevant Authorities

The undesirability of making orders which do not account for the possibility of real estate selling for much more or much less than the values relied upon at trial has been consistently discussed in the authorities (eg Waters and Waters (1981) FLC 91-019, Smith and Smith (1991) FLC 92-261; Docters Van Leeuwen and Docters Van Leeuwen (1990) FLC 92-148; Jarrott & Jarrott [2012] FamCAFC 29).

Although these cases encourage the use of percentages in orders providing for the division of the proceeds of sale of a particularly asset, this should clearly be understood as meaning that the percentage employed should be the same as the overall proposed percentage distribution of the assets. The orders then need to provide for payment by one party to the other (from their share of the proceeds of sale) such adjusting amount as will bring about the desired outcome.

The framing of orders involving the sale of real property was recently considered by the Full Court in Trask & Westlake (2015) FLC 93-662 (‘Trask’). In that case, the primary judge said that the wife should receive 60 per cent of the property pool, and, noting the division of the parties other property in specie, an order was made that the wife receive 87.43 per cent of the sale proceeds of real estate.

In allowing the appeal the Full Court in Trask stated that it was within discretion for a judge to determine that orders should reflect a division that approximates 60%/40%. If that be the judgment, then small variations in the ultimate percentage received consequent upon the sale of property may not attract court intervention.

Axiomatically, however, if that be the judgment, adequate reasons must make that abundantly clear, and all the more so because of the ubiquity of orders intended to reflect, with precision, a result expressed in percentage terms. If orders were intended to reflect with precision the judgment expressed in percentage terms, those orders must acknowledge that the property may sell for a price different to the current estimated value.

Percentage Formula

His Honour’s percentage formula made no allowance for the fact that, as the assumed values of the two properties rise and fall they bear a greater or lesser proportion of the total value of the pool. That is, using his Honour’s formula would produce the assessed percentage entitlement only if the new values bore the same proportion to the total value of the pool as the original agreed values.

The Court accepted that the primary judge intended that the wife receive approximately 55 per cent of the parties’ net property. Consistent with the authorities referred earlier, the correct approach in this context would have been to allow both parties to retain the property in their name, and to allocate the proceeds of sale in the desired percentage, relevantly for the wife to receive 55 per cent. Then, having calculated the adjusting amount by reference to the retained property for that payment to be made to the wife, the husband to then receive the balance of the proceeds of sale.

Court’s Conclusion

The Court was satisfied that pursuant to s 94(2) of the Family Law Act, there should be a variation to the orders by way of re-exercise so as to give effect to the intention of the primary judge concerning the percentage distribution of the parties’ property and propose to make the order concerning the sale of the family home that should have been made in the first instance.

Orders

The appeal was allowed in part and the order was varied.

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