Under the third step of a property settlement, the Court has the power to make adjustments in favour of a party after considering and weighing up various factors that are mentioned under sub section 75(2). None of those factors are more important than the other and each of them must be considered and weighed having regard to the particular circumstances of each case.
The problem is that the Court has a wide discretion and there is no black and white answer as to how each different case should be treated.
One of the most common problems that we come across as practitioners working in the field, is the disparity in income earning and capacity to earn an income in the future. In my view, this is often the fact that can be undervalued in some cases by the Court and on other occasions, given far too much weight.
It is suggested that the length of the marriage, together with the circumstance and roles that each party took within that marriage are vitally important factors and are two of the more important factors in determining adjustments for earning capacity.
Let us look at some simple examples:
In Marriage No 1, the husband comes in with $5M in assets and the wife with nothing. After three years the husband has the same asset base and is in his late 60s and is close to retirement. He earns a high income. The wife is in her 50s and has only worked on and off sporadically for the last ten years and earns about $25,000.00 per annum. During this short marriage, the wife gave up work and travelled the world with the husband and enjoyed a high lifestyle.
In Marriage No. 2, let us assume that the parties were married at a young age (in their 20s), and both completed professional qualifications. They decided to have a family at a young age and the wife agreed to give up work and subsequently she gave birth and raised five children of the marriage over the next 20 years. The husband pursued his professional career and some 30 years later the parties separate. The husband has a high income earning capacity and he is at the prime of his career. The wife, has been working part-time in her chosen field, but due to her age and lack of previous experience, is only able to earn approximately $30,000.00 per annum.
It is clear, in Marriage No. 2 – that the impact of the decisions that were undertaken in that marriage, has had a profound effect, not only on the current income earning, but also on the capacity to earn income for the future for wife no. 2. She has effectively, over a long period of time during the relationship, given up the potential to earn substantial income. Not only has she given up the potential, but she has given up the capacity that exists with the husband at the date of separation. The capacity to earn income is made up of all of the skills, contacts, experience and other factors that have gone into someone’s working life. In these cases, there should be a substantial adjustment to the party who has given up a working career and has limited capacity to earn income in the future.
Often, such adjustments are restrained because of the size of the asset pool, or because of the notion that the party who has the substantial capacity has no “security” of employment because of changing industry conditions etc.
However, in other cases, such as in Marriage No. 1, we see often that adjustments are made, because even in a short marriage a party comes out with a lack of any earning capacity. However, there is a stark difference between Marriage No. 1 and Marriage No. 2. In the first marriage, the wife certainly had little or limited working capacity in any event when she married her husband. The length of the marriage and the assumptions and decisions during that marriage, had no impact upon her earning capacity for the future. The husband had experience well before he even met his wife. It is in these type of cases, it is suggested that the adjustments should be minor compared to cases such as Marriage No.2.
The above is an obvious example of differences that arise, but highlights the complexity that surrounds the making of or not making adjustments under this third step for property settlement matters.
Each case is different, but in my opinion more emphasis needs to be placed by our Courts on adjustments in favour of parties who have given up an earning capacity during a long marriage.