How should the law remedy the lower standard of living of those who forgo a career to care for children and support their partner while he or she continues to develop a career?  Is the law working when cases involving economic disparity (laws allowing adjustments to the “homemaker” who supported the “high-earning partner” during the relationship) are taking up to 8 years to get a resolution in court?

This is a question central to a very recent Supreme Court decision which came out yesterday.  We note that it is very rare for cases to go to the supreme court especially for what we call “section 15 economic disparity” cases.

Relevant Links

The Decision is Linked here

The media release is linked here

Section 15 Economic Disparity – what are the current rules?

Under the Property (Relationships) Act 1976 (“the Act”), the general presumption is that property is divided equally when a relationship ends.

Section 15 (Economic Disparity) of the Act is a departure from the equal sharing regime.  It contains rules surrounding the just division of property when one person in the relationship earns a lot more than the other at the end of the relationship due to the other person managing the household over the years.

Economic Disparity will be awarded if the Courts consider it just to compensate one party for the lower standard of living they have, post relationship, as a result of the division of functions in a relationship.

There must be evidence to satisfy the Court that B’s income and living standards are likely to be ‘significantly’ higher than A’s as a result of the division of functions during their relationship. There must be a causal nexus between the effects of the division of functions and the standard of living the party is now receiving as a result.

Unfortunately, the Act does not give any guidance on how to calculate any adjustments (normally in the form of lump sum payments) to be paid to what we call the “disadvantaged party” (i.e. the party that manages the home while the other builds up a high-paying successful career).

What is a “division of functions”?

Some examples outlined in the Law Commission Reform issues paper include situations where the “disadvantaged party” may:

  • take just a few years off paid work in order to look after children or a dependant relative;
  • work part-time and also perform a household management role and support the “advantaged party” in a high-stress occupation;
  • relocate to another region or country to accommodate the “advantaged party”’s work; or
  • work in a particular job to ensure income for the family while the “advantaged party” is studying for a qualification that enhances longer term earning capacity

Law commission reform – Issues paper released October 2017

The law commission released an Issues Paper in October 2017 which includes some commentary about section 15 Economic Disparity and how it needs to be amended so that it is clearer in its application and works better for the “disadvantaged party”.

Are the laws working? What are the issues?

There is a view that section 15 Economic Disparity has not achieved its potential.  Some issues that the Issues paper highlights include:

Costs of making a section 15 application:

  • Section 15 claims that proceed to hearing can incur significant legal fees and fees for expert evidence from actuaries and forensic accountants.
  • The cost of making an application would otherwise mean that any compensation awarded under section 15 would not make it worthwhile.
  • An unsuccessful claim will also risk an order for costs against the applicant.
  • Costs of lawyers and experts can be disproportionate to the amount awarded, the stresses for the long period of litigation and the risks.

The length of time for section 15 applications to be finally determined Is on average three years.

  • Scott v Williams was highlighted as an extreme example that took eight years.
  • A key consequence of the time it takes to obtain a decision under section 15 is that it can leave the “disadvantaged party” with reduced economic resources for a long time.
  • Simply having the resources to pay for legal assistance to bring a section 15 claim can be difficult.

Section 15 awards can only be paid from the advantaged party’s share of the pool of relationship property.

  • This is problematic when the size of the relationship property pool is limited.
  • There is no ability under the PRA to order future payments to the disadvantaged party from the advantaged party’s income.
  • This leaves the potential for an otherwise established section 15 claim to go without an effective remedy.

Keeping in mind the above, the Law Commission will be considering what is the best way to achieve the outcome of addressing economic disparity for the “disadvantaged party”.

11 December 2017 –  Supreme Court Decision – Scott v Williams

Facts

  • W is a partner in a law firm, aged in his early 60s.
  • S is also an accountant (she later also did a law degree) but spent much of her married life caring for the couple’s two children, aged in her mid-50s. She was referred by the court as “the primary caregiver and homemaker”
  • S also supported her husband at home and at work helping W with his accounting work.

Summary of proceedings

  • The Family Court awarded $850,000 for s15 purposes
  • The High Court awarded $280,000 for s15 purposes
  • The Court of Appeal awarded $470,000 for s15 purposes

Supreme court decision

  • Supreme Court awarded $520,000 for s15 purposes. The Supreme Court appeared to favour the Family Court decision over the High Court and Court of Appeal decisions.
  • The Court confirmed that a section 15 order is limited to the extent of relationship property.
  • There is no one formula or approach that can be applied to calculate a s15 order as there is no single way to prescribe what is just. This will depend on the individual circumstances of each relationship and each partner.
  • The Supreme Court has broadened the application of section 15 and emphasized that it is a case by case analysis rather than relying on one specific formula
  • However, the Supreme Court also commented that it may be easier to prove a section 15 order is necessary in a long-term relationship rather than shorter relationships. In the latter situation, it will be easier to show that disparity following separation resulted from something other than the division of functions in the relationship.
  • Chief Justice Elias commented that section 15 is not as successful in meeting its purpose as it could have been, demonstrated by “the modest and infrequent orders made”.
  • For example, Elias CJ did not agree with the suggestion that the Courts might adopt a rule of thumb and award 15% of the relationship property instead there should be an evaluation of all circumstances to determine a “just” decision.
  • Elias CJ also referred to the age of the parties being relevant.

What is the correct approach?

  • Elias CJ commented that the approach taken in the Court of Appeal and High Court to apply the “but for” assessment in X v X was wrong. The correct inquiry is the “actual disparity between the husband and wife as to income and living standards and the extent to which it was to redress it by an award to the wife out of the relationship property of the husband.”

Our comments

  • It is clear that the Supreme Court Judges preferred adopting a “broad approach” and deciding whether an order should be made on a case by case basis rather than having a set methodology.

 

  • However, the problem with this is that it leaves a lot of room for uncertainty, which as discussed above is likely to lead to a higher cost of legal fees for both parties (in particular the disadvantaged party that has a lot less resources) and delays in litigation through the Court systems.
  • Costs of lawyers and experts can be disproportionate to the amount awarded, the stresses for the long period of litigation and the risks.

 

  • There were significant comments by the Supreme Court Judges on the ongoing Law Commission Review on Section 15. We would expect a strong push for more certain formulas and processes for section 15 applications.