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Should the law treat a partner’s ability to earn income as relationship property?

In many relationships, the partners work hard to develop the career of one of the partners. A partner might provide most of the child care and housework so the other partner is free to work. Or the partners might use their finances to fund one partner’s study. They are investing in human capital – one partner’s career and ability to earn income.

The courts have said that a person’s skills and talents, like an ability to earn income, are not items of property that can be divided if the partners separate.

This might be unfair in some cases. Take the following examples.

Example 1
Gary and Sue get together at the same time as Kevin and Josh. Gary starts his own business as a car mechanic. He incorporates a company through which he runs the business, G Mechanics Ltd. He is the sole shareholder of G Mechanics Ltd. Over the next ten years, Gary works very hard. He builds up a successful business which employs two other staff and has many customers. He earns around $75,000 each year through G Mechanics Ltd.

Kevin trains as a lawyer. He works very hard after graduating. He is later headhunted by a multinational business, M Co Ltd, to be in-house counsel. After ten years of work, Kevin earns $150,000 each year through his employment with M Co Ltd.

Gary and Sue separate. Kevin and Josh separate. Gary may have to divide the value of his shares in G Mechanics Ltd with Sue because company shares can be relationship property. Kevin will not have to share the value of his employment in M Co Ltd with Josh because his income earning capacity is not relationship property.

Example 2
Harriet and Rob are in a de facto relationship. They are both finish undergraduate degrees at university with good grades. They decide that Harriet will go on to study for a post-graduate qualification that will enable her to work as an audiologist. But the couple decide that they need income to support their family. So Rob stops study and gets a job as an airport baggage handler.

Five years later Harriet and Rob separate. Harriet earns $90,000 per year. Rob still works at the airport and earns $45,000. Harriet has developed a career as an audiologist because of Rob’s contribution to the relationship. But Harriet does need to share the value of her ability to earn income because it is not relationship property.

In the examples, it might be fair if Kevin and Harriet’s ability to earn income was considered property. That way, they would have to share the value of the future income they might earn in the same way that Gary has to share the value of his company shares with Sue. And Harriet would have to share the value of the career Rob has helped her develop.

But it can be very difficult to treat someone’s ability to earn income as relationship property. Here are some of the problems:

  • The value of someone’s ability to earn income depends on the future income they are likely to earn. This requires people to speculate what will happen in the future, like what will be the person’s future career path, when will the person retire, how likely is it they will get sick. These all require estimations which might be imprecise.
  • It can be difficult to work out how much of a person’s ability to earn income should be shared. Usually, property people acquire before entering a relationship is their separate property and does not need to be shared. So if a person entered a relationship with qualifications and work experience, but then develops more skills and experience during the relationship, how much of the person’s ability to earn income should be relationship property that should be shared?
  • A person might want to change careers or retire early. What is the value of someone’s ability to earn income when they do not want to earn the income?

Our preliminary view is that it is not workable to treat a partner’s ability to earn income as relationship property, but we want to know what you think.

But that does not mean a partner can keep all the income they earn in the future. We consider other ways of sharing a partner’s future income when equal sharing does not lead to equality.

What do you think?

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