Thursday, 14 February, 2019
Still think that the only place money comes before hard work is in the dictionary? Think again. The recent judgment from the Full Court on 28 November 2018 in Walters v Carson [2018] FamCAFC 233 is a stark reminder of how a client’s income can drastically change the final outcome of a property law settlement matter.
It is also yet another reminder that contrary to popular belief, (particularly that of many clients), the Court is neither expected nor required to make precise calculations when determining final property adjustment orders.[1]
The Walters v Carson case involved a 14 - year de facto relationship and three children, all of whom were under the age of twelve as the matter went to trial.[2] The property pool had a net value of $7,640,851 and the husband had earned a net amount weekly of about $12,000 compared to the wife who had earned a net sum of only about $824 weekly. The issue as to the difference in their earning capacities was of core importance at trial and later in the husband’s appeal.
Walters v Carson enunciates the principle that where a party to a marriage or de facto relationship has previously earned a far greater income than the other, there could be a resulting alteration of property interests,[3] which is (in the words of music artist Billy Idol) nothing short of a “shock to the system” for the party used to bringing home the bacon. In this most recent case centering on the issue of earning capacity, the shock was an incredible 15% property adjustment in the wife’s favor, (this having been intended to reflect the disparity between her earning power and that of the husband’s).[4] Unsurprisingly, the husband appealed the decision arguing predominantly that the trial judge had miscalculated his future income.
Before dismissing the appeal, the Full Court stated at paragraphs 55 and 56 that:
“The essential task of the trial judge, in making the determination of property adjustment orders, as regards the earning capacity or future earnings of each party, was to make a fair comparison between the parties, rather than there being any imperative of reaching, in absolute terms, exact conclusions about what each would actually earn over the next 15 years.
On any view of the evidence including the many variables applicable to the de facto husband’s circumstances to which we have referred, the disparity of earning capacity between the parties was rightly described by the trial judge as “huge”. It was not necessary for the trial judge to provide mathematical justification for that conclusion…”
Prior to the decision in Walters v Carson, a 15% alteration in the property interests could not easily have been predicted. Traditionally, such a large percentage adjustment on the 75(2) factors has not been made when distributing a property pool of the size found in the Walters v Carson case. It will be interesting to see what effect if any this decision may have on future cases involving similar facts.
When couples separate, their concerns naturally turn to how they will ultimately divide their property. Commonly, they want to know their rights and entitlements following the breakdown of their relationship and what methods of severing financial ties are available to them at law.
Traditionally, the Court has adopted a four-step approach when determining the distribution of property for separating couples – this approach having been approved in 2003 by the Full Court in Hickey v Hickey.[5] Whilst the four-step method is not necessarily cast in stone, particularly in light of the decision in Stanford v Stanford [2012] HCA 52, which was helpful in that regard but inconclusive, it is widely accepted that when deciding how to divide an asset pool, the four step process is still the most useful applied. While not mandatory, the most commonly applied steps are as follows:
Any special needs of the parties identified at step three, (most oft referred to as the “future needs”), are set out in section 75(2) of the Family Law Act for married couples and in section 90SF(3) of the Act for those in de facto unions.[6] It is at this stage of the process that regard is had to any disparity between the parties’ earning capacities, (particularly where considerable), before final orders are made.
Following the failure of the husband’s appeal in Walters v Carson about the size of the adjustment made in the property interests, family law professionals nationwide may now have to more cautiously consider the advice they give to separating clients who are:
Walters v Carson is a notable decision in relation to the size of property adjustments for future needs, and more particularly in relation to matters where there is considerable difference in the parties’ earning capacities. The decision could give rise to uncertainty about the methods and principles applicable in Australia when dividing a sizeable asset pool; and more specifically, just how much the earning capacity of the parties will affect the final outcome of any such division. Children’s rights activist Marianne Wright Edelman is recorded as having once said that one should “never work just for money…”, as it “won’t save your soul or help you sleep at night”. Post 2018 and the decision in Walters v Carson, it might now be safe to assume that it won’t help you in a family law property settlement matter now either.
[1] Walters v Carson [2018] FamCAFC 233
[2] Ibid.
[3] Ibid.
[5] Hickey v Hickey and the Attorney General for the Commonwealth of Australia (Intervenor) 2003 FLC 93-143 .
[6] Family Law Act 1975 (Cth).