Business life exposed in family law matters

With the significant changes to taxation proposed in the federal budget recently, there’s been a lot of attention on the operation and structure of family and small businesses.

It may seem tempting to some to play fast and loose with the compliance side of business, but a recent Federal Circuit and Family Court judgment is a stark reminder of the consequences that can follow when the operation of a business becomes evidence in a Family Law matter.

The matter of Sauter & Holt No 2 concerned a property settlement where the husband and wife operated several businesses as well as constructing various investment properties during their relationship.

Significant elements of the case were:

• A loan the husband had obtained from a third party allegedly for the expenses of the fit-out of the businesses
• The husband transferring the business interests to the third party, and
• The value of the businesses.

This meant that key evidence in the matter was the application of the money lent and the income of the businesses.

In what is probably not a surprising development, the wife’s brother who had worked in one of the businesses became a key witness providing evidence regarding how employees were paid, how income was reported and various other cash transactions. This was relevant regarding the calculation of what was the income of the businesses to assess the value of the businesses.

The judgement is strong regarding “the numerous offences under various Commonwealth and State laws (that) may have been committed in the conduct of the businesses”. The judgement orders that various matters be referred to the relevant Attorney General’s department, including:

• In relation to possible tax evasion by not recording all cash receipts
• Possible offences of fraud regarding purchasing property on behalf of a foreign national, perhaps preaching the Foreign Acquisitions and Takeovers Act and regulations
• Admission of entering into oral contracts with subcontractors contrary to building and construction legislation
• Possible breaches of visa conditions when paying cash to students on restricted work visas, attempting to circumvent limits on operating businesses and working outside the location allowed by visa conditions
• Possible payroll tax offences by failing to record tax payments
• Loans not being recorded in the company books being possibly in breach of the Corporations Act obligation to keep proper books and records
• Evidence regarding when documents were purported to be signed in Australia conflicting with evidence of when the relevant party was out of Australia
• Possible taxation offences relating to the allegation there were payslips were created to make it appear the wife worked in the business
• Possible criminal offences relating to evidence that salary payments were made to the wife to support the application for loans.

This judgment and those referrals are a stark reminder that when a matter proceeds in the Court, all cards are laid on the table with possible wide-ranging consequences.

The potential of the operation of a business being exposed later in family law matters or the potential for a judge to refer possible offences to the Attorney General Departments (AG) is something that would be far from the radar of most couples during relationships.

Under the Commonwealth Evidence Act it is possible for a witness in court proceedings to obtain in a certificate regarding evidence that could be self-incriminating. While that doesn’t necessarily prevent a referral to AG’s like in this case, it is a step that should be considered where evidence may include consideration of possible offences.