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One of the topics that we will be covering in our upcoming January event (Starting your own Family Law practice) is why you need to use an accountant, early, and not simply insert figures from balance sheets and tax returns into settlement statements. The risk of getting this wrong was helpfully highlighted in a recent judgment handed down by the Full Court.
If you want to know more about our upcoming event then head over to this post to find out more, or scroll down to the bottom of this post to read about Marianno Rossetto, Director of Forensic Accounting at Vincents, who will be speaking to us on Thursday at this event.
You cannot just take the figure that you are given on a tax return or on a set of business records. This issue was the substantial cause for a successful appeal in the matter of Barnwell & Kendrick [2020] FamCAFC 283; (18 November 2020)
The Court didn't remit the matter for rehearing, but instead changed the amount that the de facto wife had to pay to the de facto husband (by reducing it). The primary problem in this case can be summarised by simply including three paragraphs from the case, starting at Para 27 -
It is clear that the primary judge was led into error concerning the total amount of $662,257 submitted by the husband’s Queen’s Counsel at trial to be the amount of the wife’s earning capacity from operating her business, for the purpose of the primary judge assessing the s 90SF(3) factors. The submission is erroneous for two primary reasons. First, a significant portion of the income received by the wife’s business, approximately 40 per cent according to the single expert accountant, is derived from the customer list. Included in the schedule of assets submitted to the primary judge by both parties was a capital value for the customer list, capitalised on a future maintainable earnings basis. In other words, that significant proportion of future earnings of the business was already brought into account in the capital value adopted by both parties identifying relevant property interests to be considered by the primary judge.
Secondly, the total figure of $662,257 includes $231,410 in capital gains from asset sales by the wife’s trust, plus $115,737 being the discounted capital gains tax amount distributed from the trust to the wife. In short, $347,147 of the total is referable to capital receipts from asset sales having nothing to do with income derived from the operation of the business.
At the further hearing on 26 June 2020, it was accepted by both senior counsel for the wife and Queen’s Counsel for the husband that, when appropriate adjustments are made for these (and other less significant) factors, the accurate figure attributable to income derived by the wife from sales commissions earned in her business is approximately $240,000 per annum, and not the figure of $662,257 urged upon the primary judge.
(my emphasis added)
Interestingly, weight was given to the de facto husband's current inability to earn an income (beyond rental income) due to his psychological issues and alcohol abuse, but not the wife's unchallenged evidence at trial that she intended to retire in two years (being 58 years old at the time of this judgment).
Prior to the appeal being heard the parties actually agreed on this particular appeal point, but of course the Court still had to make a finding on it.
The original judgment provided for the split to be 61/39. As a result of the appeal this was changed to 66 per cent to the de facto wife, and 34 per cent to the husband. There was no order for costs.
Mariano Rossetto
As a Forensic Accountant Mariano sees everyday what can go wrong in a business, and often there are little things that could have saved a lot of heartache down the track. He wants to share this experience with you and help you to avoid the problems he sees.
He also wants to share with you some mistakes that people make when they are interpreting accounting reports and talk to you about avoiding those in your own practice. Mariano worked at Furzer Crestani for fourteen years and he was a director/owner so he knows how these reports are used by lawyers, but also how accountants and lawyers speak a different language.
A practical approach
Join us on 21 January 2021 for our all day event for people who are starting their own law firm, or have started their own law firm in the past year. Mariano will also be taking questions, and talking about some more pragmatic points around outsourcing generally.
If you want to find out more about some of the other speakers then you can do that here.
If you want to attend our event then you can register using the form below.