An award for compensation under Section 15 of the Property (Relationships) Act 1976 may be made if the court can be convinced that at the end of a relationship, the income and living standards of one partner are likely to be significantly higher than that of the other as a result of the division of functions within the relationship.
The court is required to analyse three primary issues before deciding whether or not to exercise its discretion and make an award of some kind:
- Income should be considered in the round from all periodic streams of money. The assessment is of potential income, rather than what is currently being earned.
- Is there a significant disparity between the living standards of each party? This is a subjective assessment.
- If the above disparity is established, has the disparity been caused by the division of functions within the relationship? It is presumed that there is mutuality to the election of roles such that the court need not enquire into the merits of the decision.
Causation – Recent Decision
It is the third ‘causation’ limb on which many claims have fallen down. There have been a number of reasons for the difficulty in satisfying this element, including where the disparity is a result of other factors such as age, health and individual choice (i.e. to not pursue a career). A common situation is where one party has remained at home to care for children whilst the other pursues a successful career. These claims have gone both ways. The recent High Court decision of Jack v Jack  NZHC 1495 (1 July 2014), reinforces the leading appellate decision of X v X  NZCA 399 (11 September 2009) and the important principles contained within it, particularly in regards to causation. Jack v Jack is an unusual case as Mrs Jack successfully established causation in respect of her ‘diminished’ income capacity as well as in respect of Mr Jack’s enhanced income capacity (this second claim has historically been very difficult to show).
Enhanced Income capacity
In this case, Mrs Jack was a single mother of a three-year-old child, homeowner and income earner (as an enrolled nurse) prior to the relationship commencing. She was self-sufficient. As the relationship progressed into marriage, Mrs Jack gave up her employment and the couple moved to various different locations, including Wellington, Sydney and London in order to further Mr Jack’s career as a medical registrar. This included supporting his study for exams, general work experience and establishing his own practice. The question of whether Mrs Jack should return to work was discussed between the parties, however, it was decided that the extra income was not necessary and she should take responsibility for running the home and caring for the children in an effort to support Mr Jack’s training and medical practice. On appeal from the Family Court, Mr Jack argued that he was “destined for the high earner’s table” and could simply have hired a nanny to care for the children. The Court found that rather “than focusing simply on whether [Mr Jack’s] career outcome is the result of natural ability and scholastic application, it could just as validly be asked whether he would have achieved as he did professionally and personally, had he for example, ‘gone it alone’”. Ultimately, it was found that Mrs Jack’s role freed Mr Jack up considerably to focus on his career. Consistent with X v X, the High Court presumed there was mutuality in the division of roles and thus commented that the focus “is not properly on what the parties could have done; it is on what they chose to do.”
Diminished Income Capacity
The Court did not need to look into the merits of the decision Mrs Jack made to remain at home. There was a causal link established between Mrs Jack’s earning capacity and the division of functions within the relationship. The length of time (28 years) Mrs Jack had remained out of the workforce made it near impossible for her to recommence her former career as an enrolled nurse. In the circumstances, the High Court upheld the Family Court’s finding that Mrs Jack should receive 70% of the net relationship property pool ($1.77 million) under the economic disparity provisions of the Act.
Causation in the classic case
If a party has remained at home to care for children and manage home life whilst the other furthers their career, it will help in terms of s15 if that was a mutual decision. It will also help if the higher earning party has undergone some training or further education which has enhanced their earning capacity, with the support of their spouse in the home. The success of the party alleging diminished income capacity will be partly dependent on their industry and the length of time they have been out of the workforce. Whether the disparity arises because of diminished or enhanced earning capacity, or both, it must be as a result of the division of functions within the relationship and not external factors.
Section 15 claims in the New Zealand Courts
The issue of economic disparity is one which arises very frequently in our practice, however very few cases make it before the New Zealand Courts. There have been approximately 13 cases before the Courts since 2010 where section 15 claims have been made. Within those, only five have been argued successfully. Those claims which have been unsuccessful tend to have failed because there is insufficient disparity in income and living standards or causation is not established. It is often the case that a claim under s15 would simply be uneconomical, as the cost of perusing it far outweighs any potential reward. Legal costs can be very high as a s15 claim often includes the use of experts to look into the potential income capacities of each party. Successful claims have resulted in awards between $16,000 and $240,000; generally however, awards tend to be modest, and in the range of $20,000 to $60,000.
“the focus is not properly on what the parties could have done; it is on what they chose to do”
In light of recent case law, the following factors appear to be important:
- Disparity will often be easily established where one party has a very high income (i.e. $200,000 or more) and the others is far less. There have been cases however where much smaller differences have resulted in a finding of disparity (i.e. $28,000).
- Claims tend to be more likely to be successful where the income of one party is high and their work hours demanding.
Economic disparity payments must come out of the relationship property pool, so it is necessary that the pool is sufficiently large to allow this.
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