Where a couple have chosen to take on traditional roles in their relationship and one partner has put their career on hold, for example to raise children, this can lead to significant economic disparity if the relationship ends. The career partner continues to grow their already established career and enjoy the higher pay that comes with that and the non-career partner must commence training or re-join the workforce, sometimes after a long break, often while still taking care of dependent children with a much lower income to subsist on. While this is a common scenario in relationship break ups, it can be a difficult area of law. If this describes your situation, come in and see the Family – Relationship Property Team at Lewis Lawyers for assistance in navigating the law described below.
Section 15 (s 15) of the Property (Relationships) Act 1979 (Act) aims to remedy the economic disparity experienced by partners on separation when one of them has sacrificed their career for the family. It achieves this by allowing for a lump sum payment to be paid to the non-career partner from the career partner’s share of relationship property.
To be eligible for a payment under s 15, the claimant must show:
1. The relationship property has been divided;
2. 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
3. The disparity of income and living standards was caused by the division of functions in the relationship.
The issue is that the section provides no guidance on how to quantify the lump sum payment, except that it be “just”. This means that the courts have been left to work it out.
Three methods for calculating the payment
The Courts have created three different methods for calculating the lump sum payment that may be awarded to a non-career partner who has met the threshold of s 15.
1. The Diminution or “but for” method – used in the 2018 case of H v H where the parties both started their relationship with careers on relatively high salaries. This method involves determining 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 projected to earn. This sum may be discounted for contingencies which must be calculated by an accountant.
2. The Enhancement method – this method is used the least. It is difficult to quantify how much the non-career partner has enhanced the career partner’s career and income by taking on the lion’s share of domestic duties. It also leads to nasty arguments about the worth of stay-at-home parents that the courts (and parents everywhere) do not appreciate.
3. The Disparity method – this method is from the most recent Supreme Court decision on s 15 of Scott v Williams and is the most useful method for practitioners assisting clients to resolve s 15 claims out of Court. It involves:
(a) Assessing the likely annual income of the non-career partner against the likely annual income of the other partner whose position has been enhanced or at the least maintained by having support at home;
(b) Considering for how many years the disparity should be compensated;
(c) Applying discounts to cover the contingencies of life;
(d) Calculating a present value; and
(d) Halving that sum, to avoid passing on the full disparity to the career partner.
Rolling the dice by going to court
Since Scott v Williams no cases involving s 15 have made their way to the Supreme Court or the Court of Appeal. Recent case law indicates that the lower court decisions are unpredictable, extremely fact specific, and may involve the creative use of other legislation (for example Trust busting legislation). This makes advising clients on likely outcomes nearly impossible and has increased the risk of bringing these cases to Court.
The Future is FISA
In its 2019 review of the Act, the Law Commission recommended that the government repeal s 15 and replace it with a Family Income Sharing Arrangement (FISA). The amount and duration of a FISA would be determined by a statutory formula that equalizes the partners’ incomes for approximately half the length of the relationship, up to a maximum of 5 years from the date of separation. Unfortunately, while FISA is the preferred approach of Family Court Judges, the Law Commission, and the New Zealand Law Society, it is unlikely to be made into legislation for some time.
Confused about a s 15 claim?
Given the different methods available to quantify a claim for economic disparity, you would be forgiven for being confused about whether a s15 claim applies to your circumstances and, if so, how much the claim is worth.
The sooner you get expert advice from your solicitor and accountant after separation, the better prepared you will be for your financial journey to independence.
Come and talk to us about your financial position, the division of functions in your relationship, and your concerns going forward.
We can advise whether the section 15 threshold has been met, assist you with calculating the quantum of the claim, and negotiate an outcome with your goals in mind.
Written by Tarsha Makgill
This article is current at the date of publication. It is intended to provide general comments only about legislation and case law. Lewis Lawyers accept no responsibility due to reliance by any person or organisation on the content of this article. Please contact the author of this article if you require specific advice about how this applies to you and your circumstances.