Which Types of Income are Relevant to the Property Split?
‘Income’ can be a deceptively simple term. The most recognisable example of an income stream would be the regular salary that is deposited into a bank account. Yet when it comes to a relationship breakdown with the associated division of property, the concept of income becomes a little more complex. How the courts might look at current and future income will depend to a certain extent upon the four steps of property division. We take a look at each of these in turn, with a particular focus on the ‘income’ side of the equation.
The court will first be interested in the pool of assets that comprises the net property of the marriage. In many cases, these will be relatively tangible items such as houses, land, term deposits, shares and vehicles. At first glance, these common examples of property are not a form of income. But some will produce income in the form of rent, interest and dividends as examples. Later in the calculation process, this income-producing capability will be kept in mind as the final property division is made. And superannuation – that complex species of saving – is also a source of future income that cannot be discounted.
The many contributions
Most divorcing couples will have been busy adults with work, community and child-related obligations filling the marital years. In looking at the direct and indirect financial contributions made by each partner throughout the relationship, the court will examine the full gamut of income streams and other contributions across time. Prior to any formal division, it can be useful to consult with your accountant first, so that a thorough brainstorm of known contributions can be carried out.
Careful analysis will be made of the timing of contributions relevant to the life span of the relationship. For example, significant income-earning investments brought in by one spouse could be given particular weight. It should be recalled, however, that courts give credence to non-financial contributions such as child raising, which might have the effect of balancing out income contributions. Contributions can be quite a complex field and should be closely examined with your specialist family lawyer.
Future needs and streams
The courts have a rather unenviable task in the third step of property division – they need to attempt a prediction of the future. The future needs of both of the separating spouses are considered. A large aspect of this analysis will involve looking at earning capacity. The court will then look at any caring responsibilities that one or both of the spouses might have into the future. This element is important to consider, as raising children can limit the amount of income that can realistically be earned by the spouse carrying out this important task.
As discussed above, income streams other than traditional wages and salary will certainly be taken into account when examining future needs. And the outcomes can be as diverse as the nature of the relationship breakdown itself. One example might be a couple where the wife has never earned income during the marriage and has the majority of child care duties. Let us say that the husband earns a good salary and has sound career prospects. The lower income earning capacity of the wife could see her take a larger portion of the property division – inclusive of the home and some superannuation entitlements for example – in order to accommodate her future needs.
In contrast, let us suppose a couple of high income-earning spouses have shared care of the kids. If the wife wishes to retain a high yield investment property for example, the courts might consider that her future needs are less than the husband’s and award him the greater percentage of the property division. Each couple and each case is unique, and will be likely to produce slightly different results.
Just and equitable?
We can see from the above that income – including income-earning potential – plays an important role in the overall analysis of a couple’s financial situation. The fourth step taken by courts before awarding the final division will be to see if the proposed split is ‘just and equitable’ in all the circumstances. This aspect of the exercise reflects that the great variety of unique circumstances for ex-spouses can raise questions of overall fairness. It is at that point that unusual issues around assets, needs and future income can be aired and considered. On occasions, courts will alter a proposed property split in order to create a more just outcome.
The world has become a complicated place, with financial arrangements forming some of the more challenging aspects of our 21st century lives. If you and/or your ex-spouse have multiple income streams or complex financial arrangements, it can certainly pay to have these clearly laid out prior to the division of property. Our dedicated family lawyers can assist you to work out what is and what is not ‘income’ for the purpose of the property division. It can lift one stressful task from your mind as you navigate post-separation life.