Family Law Act – is future professional income “property”?

We aim to deliver Just, Redemptive Outcomes®

Marlowe-Dawson & Dawson (No. 2)[1] is a property settlement decision of the Family Court of Australia. The wife in this case sought an order that she receive 25% of the husband’s future professional income for the next 10 years. This required the Court to consider whether future income constituted ‘property’ under the Family Law Act.

The meaning of “property” under the Family Law Act

Pursuant to s 4 of the Family Law Act  “property” means:

in relation to the parties to a marriage or either of them –  property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion… (emphasis added)

The Story

Ms Marlowe-Dawson (“the wife”), aged 49 and Mr Dawson (“the husband”), aged 48, commenced cohabitation in 1990 and were married in 1991. They have 3 children together aged 14, 18 and 20 years. In the beginning of their relationship the parties lived off the modest income of the husband who was employed as a junior professional at a law firm in Brisbane.

In August 1994, the parties along with their first child relocated to the United Kingdom where the husband pursued his professional career and obtained membership as an equity partner of an international firm. In 2001, furtherance of the husband’s career saw the parties again relocating, this time to Asia now with their three children.

The Dawsons separated on 22 October 2002 whilst remaining under the same roof. Later in September 2004, the wife and children returned to Brisbane and the husband moved back to the United Kingdom. The parties divorced in March 2011. During the period between the parties separating and divorcing, the husband paid substantial financial support to the wife and children.

Almost 9 years after the parties separated, the wife commenced an application with the Family Court seeking a property settlement. In particular she sought an order whereby she would receive 25% of the husband’s prospective income as a law partner for the next 10 years. However subsequent to the trial concluding, the husband entered into involuntary retirement and was therefore unemployed. On 11 March 2014, the husband filed an Application to re-open the proceedings citing the change in his financial circumstances. The parties’ joint assets were in the vicinity of $6 million.

The Decision

Does s 79 provide power to make “the 25% orders” sought by the wife?

His Honour Kent J began his discussion by explaining that pursuant to the decision in Stanford[2] the Court is required to determine the existing legal and equitable interests of the parties in the property. That is, the husband was required to have a present entitlement in his prospective income for the next 10 years for the income to be considered “property” within the meaning of the Act. Such an interest must be distinguished from a future or contingent interest in property which the definition does not extend to.

His Honour helpfully laid out some examples of interests that have constituted ‘property’::

  • ‘Vested rights of superannuation, redundancy and long service leave entitlements have been held to be property[3] whilst a future or non vested entitlement to long service leave has been held not to constitute property.’[4]
  • ‘Funds paid into Court to be invested by the Senior Master on behalf of a successful claimant in a personal injuries action were held to be property[5] but an action for an unliquidated claim in tort for personal injuries has been held not to constitute property.’[6]
  • ‘The interests in trust assets of a party whose control over those assets is such that they can deal with the assets as they please has rendered the conclusion that trust assets are “property” as compared with those cases involving trust assets where such powers of disposition do not exist.’[7]
  • In W & W (1980) FLC 90-872 it was held that works in progress in a legal partnership are not property.
  • In Perrett & Perret (1990) FLC 92-101 it was held that a right to payments of a weekly pension was not property because it was dependant on the husband surviving from week to week.

(at [51]).

Turning to the circumstance at hand, Kent J held that the husband’s future income was dependent on a number of contingencies including the husband’s survival for the 10 year period, the husband’s ability, both health wise and to continue working in an equivalent partnership position. Therefore the husband’s income over the next 10 years did not constitute ‘property’ because he had no present entitlement to it. His Honour explained:

‘Thus the future income to which ‘the 25 per cent orders’ are directed is far more contingent then the real and imminent prospect of the ‘work in progress’ of the solicitor in W & W (supra) or the pension entitlement of the husband in Perrett (supra). (at [55]).

Whilst in the future the husband may have had a series of choses in action, this did not constitute a property interest now. His Honour concluded that the 25% orders were directed to the ‘husband’s earning capacity and his personal right of exercise of his earning capacity which is not a right constituting “property” within the meaning of s 79 (at 72]). Therefore there was no basis for the wife’s claim to the 25% order.

Despite this, the Court went onto consider that the husband had a significant prospective income and therefore made an adjustment of 20% in favour of the wife. In the final property settlement, the wife was granted 70% and the husband 30% in the total property pool.

Lessons

The wife’s argument in this case is rarely seen in property settlements. This is because the definition of ‘property’ under the Family Law Act requires that one or more of the parties has an existing legal or equitable interest in the property. The definition does not contemplate future or contingent interests being relevant to property settlements. Thus in this case, the 25% orders did not concern a right constituting property but rather the husband’s future earning capacity. Therefore the wife’s claim had no jurisdictional basis.

For more information regarding the post separation contributions (including future income) in property settlements

Contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our Family Lawyers today.

[1] [2014] FamCA 599.

[2] (2012) FLC 93-518.

[3] In the Marriage of Woolley (No 2) (1981) FLC 91-011; Burke & Burke (1993) FLC 92-356)

[4] Whitehead & Whitehead (1979) FLC 90-673 per Baker J; Nolan & Ingram (1984) FLC 91-585.

[5] Holmes & Holmes (1988) FLC 91-944, see also Williams & Williams (1984) FLC 91-541.

[6] See Saba & Saba (1984) FLC 91-579; Palmer & Palmer (1985) FLC 91-606; Pleym & Pleym (1986) FLC 91-762; Zorbas & Zorbas (1990) FLC 92-160.

[7] R v Dovey; Ex parte Ross (1979) 141 CLR 526; Tiley & Tiley (1980) FLC 90-898.