Economic Disparity Claims
S.15 Property (Relationships) Act 1976
On separation, you may be able to claim a larger share of the available assets because of the division of duties during the relationship.
For simplicity let us refer to the parties as husband and wife (we are somewhat old-fashioned) they could be partners, same sex or otherwise, in a de facto relationship, a civil union or a same sex marriage. For duties generally this will be looking after children and caring for the household and generally it will be the wife doing that so let us generalise and refer to the common situation. In fact we are unaware of any situation where the husband has received an award under this section of the Act.
Out of the pool of relationship property, the Court may award a sum to the wife to compensate her for the loss of her potential career, or more rarely to share the benefits to the husband that he has been able to obtain as a result of opportunities that would not have existed had the wife not looked after him, the children and the household.
There are three key factors that must exist for the claim to be awarded, Causation, Significant disparity of income and standard of living. These are issues that are the realm of the legal fraternity.
The way the Courts have assessed the adjustment to the presumed 50/50 division is to calculate the income that the wife would have been earning had she not managed the household (the “But for” scenario) and taken off the now expected income. The loss is the difference between the expected income and the “but for” income.
All this is income that would have been received in the future, so because a settlement is required now, we have to calculate the present value. This is the tricky part. Case law has provided a major precedent for discounting the future amounts by 50%. This was over an 18 year period where, as can be imagined, the risk that the projection is incorrect is high. A Family Court decision covered this quite simply we think by applying an increasing discount rate starting at 15% and increasing annually by 5% so that at the end of 18 years there was no loss.
The annual deficits are then discounted by the “time value of money”. Simply put, even excluding all the risks, the value of a dollar received in one year’s time is not as valuable as a dollar received now. This is a small discount of about 3% – 4%.
It seems to be relatively settled law that the amount quantified is halved on the basis that both husband and wife made the decision that the wife would give up her career to look after the children.
There are some cases where the husband’s career has blossomed resulting in a substantial earning capacity that the Courts have held happened only because the wife gave up her career to look after the household. We generally quantify this in the same way, the difference in the projected income and the “but for”. Again the present value is halved.
A very simple example shows why halving is fair. Take a husband and wife who were school teachers. She stopped to care for the children, he worked hard and became a principal. On separation, when she can, she gets a job as a teacher (with no current experience). She could have been a principal. So we calculate the value of her loss. Had she not looked after the children, he would have remained a basic teacher. We calculate the value of the increase in his income. If we gave both to the wife, we would effectively giving her all the compensations reducing him to her position and his to her’s. Halving is equitable. The division of assets is to be fair.
Saying all that, the Court is not bound by the formulaic methodology that forensic accountants live by. A recent High Court decision upheld the Family Court judgement to apply a broad brush approach and divide the assets 70% to the wife and 30% to the husband. In that case, the wife’s income was modest and relationship assets were also modest compared to the husband’s income.
We expect to see the formulaic calculation put before the courts in most cases, but on occasion the Court may deviate if it does not provide an outcome that is an equitable division of the assets when considering the circumstances that each party is in at the end of the relationship.