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Balancing the Books: Addressing Economic Disparity in Separation

Balancing the Books: Addressing Economic Disparity in Separation

The Property (Relationships) Act 1976 ("Act") is the legislative cornerstone governing the division of property and assets if a relationship ends.  The Act operates on the presumption that each individual contributes equally to the relationship, regardless of the actual cash or physical contributions made.  Its primary objective is to facilitate a fair and equitable division of the relationship property as determined by law.  While the starting point is always for an equal division of assets, certain provisions within the Act allow for adjustments to this general presumption of equal sharing.

 

One example of where an adjustment to the equal sharing provisions can be made is in instances where one partner has put their career on hold, for example to raise children, while the other continued to work to support the family. This can lead to significant economic disparity if the relationship ends.  While the career-oriented partner may continue to advance their professional trajectory and enjoy heightened financial rewards, the partner who put their career on hold often faces the daunting prospect of re-entering the workforce or pursuing training after a prolonged absence, often while assuming primary caregiving responsibilities for dependent children as well as grappling with a substantially reduced household income.  While this is a common scenario in relationship separations, it can be a difficult area of law.

 

Section 15 of the Act endeavours to redress the economic imbalances experienced by partners post-separation, particularly when one partner has made career sacrifices for the benefit of the family.  It achieves this by allowing for a lump sum payment to be paid to the non-career partner from the career partner’s share of relationship property.  To be eligible for a payment under section 15, the claimant must demonstrate the:


  • Relationship property is being divided; and

  • Marriage, civil union or de facto relationship is at an end; and

  • Income and living standards of one party are likely to be significantly higher as a result of the division of functions within the marriage, civil union or de facto relationship.

 

The court may rectify the disadvantaged party's position by ordering a lump sum payment from their relationship property or transfer other assets accordingly.  In making such determinations, the court considers factors including the earning capacities of both parties, caregiving responsibilities for dependent children, and any other relevant circumstances.  It is imperative that any compensation awarded for economic disparity is fair, and does not merely reverse the inequality in the opposite direction.

 

The Court may take into consideration whether support has been given after separation, for example by way of mortgage repayments, or whether voluntary spousal maintenance payments have been made.  In some cases, the Court may decide that an economic disparity award is not necessary because spousal maintenance payments have been made instead.


Furthermore, the Courts have created three different methods for calculating the lump sum payment in scenarios where the non-career partner meets the criteria of section 15.  These include the Diminution or "but for" Method, the Enhancement Method, and the Disparity Method, each tailored to suit the unique circumstances of the case:

 

  1. The Diminution Method involves determining the difference between what the non-career partner would have earned after separation “but for” the fact that they sacrificed their career and what they are in fact projected to earn.  This sum may be discounted for contingencies which must be calculated by an accountant.

  2. The Enhancement Method is used the least. It is difficult to quantify how much the non-career partner has enhanced the career partner’s career and income by taking on the lion’s share of domestic duties.

  3. The Disparity Method is the most useful method for lawyers assisting clients to resolve section 15 claims out of court.  It involves:

-....Assessing the likely annual income of the non-career partner against the likely annual income of the other partner whose position has been enhanced or at the least maintained by having support at home;

-....Considering for how many years the disparity should be compensated;

-....Applying discounts to cover the contingencies of life;

-....Calculating a present value; and

-....Halving that sum, to avoid passing on the full disparity to the career partner.

 

In situations where economic disparity is a concern following separation, seeking legal advice is advisable to explore potential claims under section 15 of the Act and negotiate an equitable resolution.  Additionally, pre-emptive measures such as contracting out agreements (sometimes referred to as prenups), can provide a level of certainty and protection for both parties if drafted diligently from the outset of the relationship.  If you find yourself in such a situation, do not hesitate to reach out for guidance and assistance.


This article is intended for informational purposes only and should not replace specific advice.  For personalised advice on all relationship property issues please contact us.

 

This article was accurate at the time of publishing.

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