Marriage, Separation and Finances:
Divorce Financial Support: Supporting Your Spouse While They Complete a Course of Study or Training – the Full Court’s Approach
August 6, 2017
After Divorce Financial Settlement: How Does the Court Deal With Property Acquired After Separation?
August 9, 2017

Financial Divorce Advice: Can a Disparity in Earning Capacity Be Minimized by the Distribution of Capital Under the Parties’ Proposed Property Orders?

Property Settlement After Separation

Financial Divorce Advice: Do the Parties’ Proposals Affect the Court’s Decision to Effect an Adjustment Based on a Disparity in Income?

Section 75(2)(n) provides that in determining a property and/or maintenance application, the court may consider the effect of any orders made or proposed in relation to the property of the parties. For example, a party may no longer require maintenance if the terms of a property settlement distribute a substantial proportion of the net value of matrimonial assets to that party.

In Cunningham & Cunningham (2005) FLC ¶93-212, the Full Court considered the application of s 75(2)(n) in the context of a property dispute where there was a disparity in the parties’ respective incomes. Cunningham involved an appeal from the husband in relation to property orders. The trial judge found that the wife should receive an adjustment of 7.5% based on the husband’s greater earning capacity.

The husband argued that the 7.5% adjustment fell outside the range of judicial discretion. Although it was conceded that the husband had a greater earning capacity, the husband maintained that no adjustment should have been made. The difference in the parties’ respective earning capacities stemmed from the husband’s purchase of the wife’s share of the family business. The wife, on the other hand, had capital from the sale of the business which could have been invested. On the basis of those investments, the wife could generate an income that would diminish the disparity in the parties’ respective earning capacities. .

Financial Divorce Advice: The Full Court’s Decision

The Full Court partially allowed the husband’s appeal. It did not accept the husband’s submission that no adjustment should be made on account the disparity in the parties’ respective incomes. It did, however, reduce the wife’s s 75(2) adjustment by $32,079.

The Full court determined that the sale proceeds from the business could be invested so as to reduce the disparity in the parties respective incomes. The difference in the parties’ respective earning capacities stemmed from the distribution of matrimonial assets. They had jointly operated a business for many years. An order for the sale of the business was made and the husband purchased the wife’s interest for $160,000. As a result, the respective incomes of the husband and wife were $171,000 and $74,000. The wife, however, had $160,000 that could have been invested which, in turn, would reduce the the disparity in the parties’ respective incomes.

Each of the parties were otherwise entitled to assets valued at approximately $550,000. Accordingly, having regard to parties respective capital positions and incomes, the Full Court determined that the wife’s adjustment under s 75(2) should be reduced by $32,079.

Financial Divorce Advice: Concluding Remarks

Cunningham may be seen as an example of the property orders diminishing the extent to which a party is able to rely upon a disparity in income in seeking an adjustment under s 75(2). Although the there had been a disparity in the parties’ respective incomes, this was mitigated by capital the wife had at her disposal. Specifically, the capital could have been leveraged to reduce the difference in the parties’ respective earnings.