Family Court case: adjustment of s.75(2) factors

In a recent Full Court of the Family Court case of Phipson and Phipson, the court had to consider what was the appropriate adjustment for future factors under s.75(2) of the Family Law Act.

The parties had lived together for 27 years. Their children had grown up. The husband had repartnered. The wife was aged 57 and earned $34,000 a year, and the husband was aged 54 and earned $72,000 a year. The property pool was about $945,000. The parties agreed that there had been equal contributions.

Because of the disparity in their income, the wife received an adjustment of 12% under s.75(2). The husband appealed, saying that the adjustment was too high, and should have been about 5%. He was successful.

The Full Court held (with emphasis added by me):

It is always important to keep in mind that an adjustment of X% for s 75(2) factors leads to a disparity in the value of property received by the parties representing 2 x X%. It is that disparity, measured in “money terms”, that requires consideration in determining whether the result is just and equitable: see Campbell v Kuskey (1998) FLC 92-795 at 84,928. In the present matter, the 12% adjustment led to a disparity in favour of the wife equivalent in value to 24% of the assets, or in “money terms” an amount of $226,947 out of a total asset pool of $945,614….

His Honour did not, however, expressly record the cumulative effect of his
orders, electing instead to record the amounts each party would receive from
superannuation and non- superannuation assets respectively. Whilst it would, in
our view, have been desirable for his Honour to have recorded in dollar terms
the total impact of the proposed s 75(2) adjustment, we do not consider his
failure to do so constitutes appellable error.

We do consider, however, that in making what has been called the “leap”
from “qualitative evaluation” to “quantitative reflection” of that evaluation,
his Honour arrived at an adjustment for s 75(2) factors that was outside the
reasonable range of discretion.

The outcome needs to be considered in the context of the parties having
had a long marriage and now having no dependent children. Each of them is
gainfully employed. Although the husband has a superior earning capacity to the
wife and is four years younger than her, his income earning capacity is by no
means exceptional….

The differential in the capital received by the parties in the present
matter was not far short of a quarter of a million dollars. The factor his
Honour said he particularly took into account in arriving at that outcome was
the disparity in income earning capacities and the associated impact on future
superannuation entitlements. His Honour did not quantify the impact on the
superannuation entitlements, although he did say that the value of the husband’s
superannuation “should increase at a significantly greater rate than the
superannuation entitlements of the wife”.

Reference to the husband’s statement of financial circumstances reveals
that he has salaried employment and his superannuation entitlements are held in
“accumulation” funds. We were not referred to any evidence that would suggest
the value of those entitlements would increase at any greater rate than the
wife’s entitlements. The inference we therefore draw is that his Honour assumed
the husband’s entitlements would increase at a greater rate than the wife’s
because his employer would be required to make greater superannuation
contributions commensurate with his greater income. In our view, that was a
proper assumption to make. However, when notice is taken of the current
superannuation guarantee levy (9% of gross income), the difference in
contributions into the parties’ respective funds would amount to only a few
thousand dollars per annum.

This relatively modest difference in annual contributions into the
parties’ superannuation funds would then need to be considered alongside the
disparity in net incomes of the parties (i.e. approximately $27,000 per annum)
in order to determine whether or not his Honour erred in arriving at a result
whereby the wife received $226,946 more than the husband out of a pool worth
only $945,614.

Although counsel for the wife submitted that the opening sentence of
paragraph 35 indicated that his Honour had also taken other factors into account
(which he suggested were the differences in the parties’ ages, training, skills
and health) we do not discern from his Honour’s judgment that he considered
those matters to be of any real significance, save that he did draw attention to
the fact the husband was four years younger than the wife when he was
considering the parties’ entitlement to superannuation.

In our view, the differences in the parties’ net incomes and the
associated impact on their future superannuation entitlements, even when
considered with the differences in their ages, could not justify a s 75(2)
adjustment of 12%. The adjustment was outside the reasonable range of discretion
and the appeal will therefore be allowed.

We should also observe that we consider it was incumbent upon the trial
Judge to have regard to the fact that whatever additional portion of the
non-superannuation assets the wife received on account of s 75(2) factors would
be immediately available to her to invest. This would lessen to some extent the
difference in the parties’ incomes. The fact that the wife might prefer instead
to retain her unencumbered property is not the point – she has the option to
liquidate assets in order to generate income. There is no indication that his
Honour gave consideration to this issue.