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​Post-split money woes

01 Dec 2016

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By Gillian Stuart, Aspiring Law Family Law Specialist

The figures may vary from country to country, but international research invariably reveals women – particularly mothers – suffer enduring financial hardship post-separation.

By way of just one example, a British study a few years back found while a mother’s available income shrunk by about a fifth, the father’s actually increased by around a third.

I’m not sure exactly how New Zealand’s stats stack up, but here at the coal face, from what I see, at least, those who care for the children during the relationship – and the children themselves – tend to bear the financial brunt when a relationship breaks down. And the cost can be high and long-standing.

Post-separation economic disparity is an international issue, which most developed countries continue to grapple with – with some faring better at dealing with it than others.

Addressing such “economic disparity” was central to one of the key 2002 additions to the Property (Relationships) Act 1976: “Section 15”. The default division of assets following a split is 50-50, assuming the relationship – be it marriage, civil union or de facto– lasting three or more years and there’s no “contracting out” agreement in place. However, under Section 15, if, on dividing the relationship property, the Family Court’s satisfied the income and living standards of one party is likely to be significantly higher than the other due to the division of functions in the relationship, it can order the advantaged party to either pay a lump sum to the other, or, alternatively, hand over some of their share of property.

Raising a claim

Addressing economic disparity is becoming an increasingly hot topic. Part of the challenge of raising a claim is that, while “Section 15” is now 14 years old, that’s still quite young in legal terms, with relatively little case law yet to guide the statute’s interpretation. In the past couple of years, though, there have been a few defining cases, which have helped further light up the way, leaving family lawyers increasingly more comfortable to explore this law for clients who risk being left significantly financially disadvantaged.

In deciding whether an award is appropriate, the Court can consider any relevant circumstances, including the likely earning capacity of each spouse or partner, together with the responsibilities held by both in the relationship, and what role each played in the on-going daily care of dependent children.

When it comes to disparity in living standards, proving a gap in incomes is by no means where the test begins and ends. An economic disparity argument can fail because, for example, the applicant has accrued other assets – for example, an inheritance – or entered into a post-separation relationship. And, despite growing case law, just what constitutes a “significantly higher” lifestyle remains far from clear-cut.

Cause and effect

To succeed under Section 15, one critical factor is proving a causal link between the division of functions in the relationship and the disparity – most commonly one party having to give up or peg back their work to take care of children and the household. The Courts have more latterly taken the view that, unless proven otherwise, the division decision was made jointly, therefore any award is likely to be split 50-50.

Further to the basic division of functions comes the thorny issue of “enhancement”. So, not only has one party been able to go and work during the relationship, while the other sacrificed their career, the working party’s earning capacity and career advancement has been enhanced by their partner’s efforts. The theory being that it is unfair to allow that party to walk off without sharing the added benefits of an enhanced career.

Until recently, enhancement cases were rarely upheld, often on the basis a high-earning spouse could simply have hired a nanny in lieu of a stay-at-home parent’s contributions. That view was rejected in the 2014 Jack v Jack case, which was also monumental in that the wife was awarded a ground-breaking 70 per cent of the relationship property.

No “paint by numbers”

Calculating the quantum of an award is shrouded in about as many shades of grey as you could imagine. Just as two relationships are never the same, neither are any two economic disparity claims. Alas, there is no whizz-bang formula that’s crunched, miraculously producing the correct, irrefutable figure. In some cases a formula is used, and in others it’s not. What the Courts have become increasingly clear on are: there is much scope for judicial discretion when it comes to deciding economic disparity claims and, secondly, when a formula is drawn on, the Court should stand back and assess whether the outcome meets the “fair and reasonable” litmus test.

A wee heads up – Section 15 can also be very relevant if you and your partner or spouse are looking at “contracting out” of the Property (Relationships) Act. Typically, contracting out agreements include a clause waiving parties’ rights to an economic disparity claim should the relationship break down. Before signing any such agreement, be doubly sure it’s in your interests to give up this right – remember, life and circumstances can change a lot over time.

Staking a claim to a greater pay-out or larger slice of the relationship property pie isn’t the easiest post-split mountain to climb, although latest case law is clearing the path somewhat.

If you have sacrificed your career and earning potential, it’s well worth at least raising at the outset with your family lawyer, who should be able to do an initial assessment and cost-benefit analysis to help you make an informed decision on whether, and how far, to pursue a Section 15 claim. It’s worth noting, too, only a very small percentage of relationship property cases actually make it to full hearing, but economic disparity can, and likely should be, properly framed and taken to the negotiating table.

Last updated 1 December 2016