There are certain exceptions to the general rule that once you have been in a marriage, civil union or de facto relationship for more than three years, all relationship property is divided equally upon separation. One of those exceptions is where a couple have chosen to take on traditional roles in their relationship with one partner putting their career on hold and raising children and the other partner continuing to work in their chosen career. Upon separation the career-partner is able to continue enjoying the higher pay that comes with having worked continuously in their career while the non-career partner must re-join the workforce after having had a long break raising children.
The Property (Relationships) Act provides that if the income and living standards of one partner is likely to be significantly higher than the other because of the effects of the division of functions within the relationship, then the Court can order a lump sum payment or the transfer of relationship property to the non-career partner to compensate for this disparity.
In order to make a claim, the non-career partner must be able to show that:
- There is likely to be a significant disparity in the income and living standards of the parties from the date of separation going forward; and
- The disparity of income and living standards was caused by the division of functions in the relationship.
In terms of whether the disparity is “significant“, the greater the income and assets of the parties, the greater the disparity that is required before that threshold is met. In one case, a disparity of about $8,000 in the parties’ respective annual incomes was considered sufficient to meet the threshold but in that case the parties had very modest finances. With a more wealthy couple, a difference of $8,000 in annual income may not be considered a significant enough disparity to trigger unequal sharing.
The Courts have created three different methods for calculating the lump sum payment that can be awarded to a non-career spouse:
- The diminution method – this method involves working out 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 expected to earn.
- The enhancement method – this method involves working out how much the non-career partner has enhanced the career partner’s income by taking on the childcare and other household responsibilities.
- The disparity method – this method involves determining:
- the likely annual income of the non-career partner against the likely annual income of the career partner;
- considering how many years the disparity should be compensated;
- applying a discount to cover the contingencies of life;
- calculating a present day value of that amount; and
- halving that amount to avoid the career partner bearing the full disparity.
It can be difficult to know if economic disparity applies to your particular situation, and, if so, the quantum of that claim. We can assist you with these issues, and in negotiating a settlement of your relationship property.