My ex-wife is claiming economic disparity and wants a $150k payout. Is this fair? - The Ex-Files with Jeremy Sutton

My ex-wife works part-time to look after our children, but I think she could put them in after-school care.

OPINION

Q: My wife and I separated last year after a marriage of 10 years. We are negotiating the division of relationship property through our respective lawyers. Yesterday, my ex-wife’s lawyer sent through a settlement proposal. In the proposal, in addition to half our assets, she asks for a lump sum payment of $150,000 as “compensation for economic disparity”. The letter points out she is working part-time as a secretary earning $70,000 per annum and her career progression has been constrained by childcare commitments, and if she had continued to progress her career, it would not be unreasonable to assume but for the division of functions during the relationship with me that she would now be earning approximately $120,000 per annum. What is economic disparity, and how do you suggest I respond? By way of further background, I am working in the IT industry earning about $150,000 per annum. Also, I believe my ex-wife could work fulltime and put the children (aged 7 and 9) in after-school care, but she chooses not to. Is this relevant?

A: What is economic disparity?

Relationship property is generally divided equally in New Zealand. Despite this, Family Court judges have the discretion to award one party compensation where there is a disparity between the separating parties’ income and living standards at the end of a relationship.

The intention behind economic disparity awards is to recognise that during the relationship, the partners may have arranged their affairs so that one partner had a greater focus on home-making and raising children, enabling the other to focus on their career. The consequence is that at the time of separation, the parties are not on an even footing. A “typical” case would be a wife or mother who has taken time out of work to raise children, enabling the husband/father to advance his career.

The person claiming economic disparity must show:

1. Their ex-partner’s income and the living standards are likely to be significantly higher than theirs; and

2. This is because of the division of functions within the relationship.

Regarding point two above, there is a “working assumption” that in long-term relationships where one partner has had primary responsibility for caring for the children and home-making, any disparity in income and living standards will be because of the division of functions in the relationship. However this is not always the case, particularly if there was already a significant disparity of income at the start of the relationship.

If a judge is satisfied the criteria above are met, they can award compensation (or less frequently, order the transfer of property) to the “disadvantaged” party. There is no set formula for working out what the compensation figure should be. However, it should be “just” or fair overall. The judge may look at any of the following factors:

1. What each party is earning now;

2. What their earning potential is likely to be moving forward;

3. How many years the disparity will likely exist;

4. What the income of the “disadvantaged party” likely would have been now and in the future had it not been impacted by the division of functions during the relationship; and

5. Any possible “contingencies of life” that warrant discount/s being applied.

Forensic accountants

Most clients solicit the services of a forensic accountant for a Section 15 claim under the Property Relationship Act 1976 (economic disparity). These services can cost a significant amount but are worthwhile, depending on the matter. Forensic accountants play a crucial role in assessing financial aspects and providing expert testimony in court proceedings or through mediation.

How do you suggest I respond?

Based on the information you have provided, I agree your ex-wife probably has a claim for economic disparity compensation. Your marriage was relatively long, and your ex-wife appears to have had greater child-raising responsibilities. There is a substantial disparity in your current income levels and it is usually presumed that if this is the case there will be a disparity in living standards. You should consider negotiating an agreed sum for economic disparity.

Does the letter from her lawyer provide any indication as to how they reached the amount of $150,000? If not, it is worth asking for this information as a next step. Once you have received this information, I recommend you engage a forensic accountant who has experience in economic disparity claims (your lawyer should be able to provide you with some recommendations). They will undertake calculations to work out whether the proposal of $150,000 is reasonable or not. They will provide information to help substantiate a strong counter-proposal if necessary.

Ex-wife’s decision not to work fulltime

If the matter were before the Family Court, this may be a factor the court would consider. A judge might look at:

1. What the arrangements for the children were after school prior to separation;

2. Any evidence of what expectations you both had on this issue prior to separation; and

3. The costs of after-school care and whether these costs would be greater than your ex-wife’s salary.

If a judge considers this point to be relevant, it would likely impact the amount of compensation your ex-wife would receive.