How does a high income affect a property settlement?
It is often the case with a separating couple that one spouse earns a high income while the other has sacrificed their career opportunities to fulfil a role as homemaker and primary carer of children. Family lawyers are often asked how a Court would deal with an Application for a division of property with this factual background.
It is a common misconception that assets and liabilities of separating couples are simply divided “50/50” or equally.
The Court has a broad discretion in property matters and there are many factors Judges are obligated to consider. One factor the Court must consider is the income of each party. The Full Court case of Clauson illustrates how the issue of a disparity in the income or income-earning capacity of parties, may be dealt with.
The circumstances of the parties in Clauson were as follows:
The Husband was aged 50 years old and had the capacity to earn approximately $220,000 per annum. He paid around $2,000 per month to the Wife in child support.
The Wife was aged 34 years old and while she had the capacity to work, her income was “severely restricted” by having the primary care of the 4 children of the marriage (the eldest of whom was 8 years old).
The duration of the relationship was almost 10 years.
The net assets of the parties were approximately $1,400,000, and the Husband had assets at the start of the relationship of somewhere between $538,000 and $800,000.
The Judge initially awarded the Wife an extra 15% of the assets due largely to the Husband’s income and the effect of the length of the marriage on the Wife’s earning capacity.
The Wife appealed to the Full Court of the Family Court seeking a higher percentage of the assets.
The Full Court regarded the adjustment ordered by the Trial Judge as insufficient. The Full Court ordered that while there is no right answer to this factual scenario, the adjustment in the Wife’s favour should be increased to 25% rather than 15%, for the following reasons:
It has long been recognised that the most valuable “asset” which a party can take out of a marriage is a substantial, reliable income-earning capacity.
The payment of child support in no way compensates the custodial parent for the loss of career opportunity, lack of employment mobility and the restriction upon an independent lifestyle which the obligation to care for children usually entails.
It is the real impact in money terms rather than percentage terms which is ultimately the critical issue.
In conclusion, it is clear from Clauson and other similar decisions, that the Court will recognise the need for a significant adjustment to the party who has been left with a modest earning capacity due to the circumstances of the marriage particularly when the other party earns a high income.
