family law cases
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Court Order Divorce Settlement: When Is a Party’s Earning Capacity Affected by the Duration of the Parties’ Relationship and What Bearing Does It Have on the Court’s Decision?

Marriage, Separation and Finances:

Court Order Divorce Settlement: The Effect of the Duration of the Relationship on a Party’s Earning Capacity

Section 79(4)(e) of the Family Law Act requires the court to consider the “spousal maintenance” considerations set out in s 75(2), so far as they are relevant, in determining a property dispute. One those considerations refers to the effect that the duration of a relationship has had on the respective earning capacities of the parties. Wah & Golay [2016] FamCAFC 67 is a recent Full Court decision that examines this issue and provides insight into the role it has in determining how matrimonial assets may be divided between the parties.

The parties’ assets were valued at $3.9 million at the time of trial. They had lived together for approximately 8 years. Once they separated, the wife continued to live in the matrimonial home with husband paying all related outgoings. This arrangement remained in place for a period of 3 years and ceased at time of the trial. The husband and wife were 71 and 59 years of age, respectively.

The trial judge assessed the parties’ contributions at 87.5/12.5 in favour of the husband. There was no adjustment for s 75(2) factors. The wife appealed the trial judge’s decision partly on the basis of the judge’s failure to make an adjustment based on s 75(2) factors.

Court Order Divorce Settlement:

The Full Court determined that the trial judge had erred in failing to property consider the relevant s 75(2) factors. Most of court’s analysis was focused on the:

  1. degree to which the duration of the relationship had affected the wife’s earning capacity; and
  2. parties’ income, property, financial resources and capacity for employment.

The trial judge determined that the wife’s earning capacity was unaffected by the parties’ relationship. This finding was not open to the trial based on the evidence before the court, the Full Court determined. The wife’s 2003 tax returns showed that she had an income of $56,900. This period overlapped with the first 7 months of the parties’ cohabitation. The wife’s first taxation year that entirely coincided with the parties’ cohabitation was $14,300. After that year, the wife had ceased earning an income and assumed the role of full-time homemaker. For these reasons, the Full Court held that the trial judge had erred in finding that the parties’ relationship had not affected the wife’s earning capacity.

The Full Court also held that the trial judge had failed to consider the parties’ respective income, property, financial resources and capacity for employment. The wife had little, if any, prospect of gainful employment. Nor did she have much in the way of property and other capital resources. The husband, on the other hand, was a retiree with substantial resources. In terms of cash alone, he had $1.3 million dollars at his disposal. The trial judge failed to take these facts into account in determining whether an adjustment should be made under s 75(2).

Court Order Divorce Settlement: Concluding Remarks

Wah is an example of how a marriage can affect a party’s earning capacity by giving rise to a situation where a party shifts from being financially independent to financially dependent. The wife had earned an income at the time that the parties began leaving together. Shortly afterward, she ceased earning an income, devoted herself to domestic tasks and became financially dependent upon the husband. Accordingly, lawyers would be well advised to pay attention to the parties’ earning capacity – before, during and after the parties’ relationship.