The economic consequences of marriage breakdown in Australia: A Summary

The economic consequences of marriage breakdown in Australia: A Summary

Peter McDonald

Archived publication— August 1985
The economic consequences of marriage breakdown in Australia: A Summary

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This paper has been compiled from chapters of the book 'Settling-up: property and income division on divorce in Australia' (to be published in 1986), which reports on a study of the economic consequences of divorce undertaken by the Institute of Family Studies in which 825 men and women divorced in 1981 and 1983 were interviewed. The study forms part of the Family Re-formation Project, and is also part of the research program for the Australian Law Reform Commission's review of Australia's law of matrimonial property. The paper summarises findings relating to the break-up and reformation of families, changes in housing, changes in household and personal incomes, life-time employment experiences of men and women, levels of wealth and types of property held during marriage, ownership of property during marriage, percentage shares of property distributed on divorce and determinants of shares, treatment of superannuation, special issues related to businesses and farms, the legal processes that people used, evaluations of different aspects of the legal system, maintenance, custody and access, attitudes to matrimonial property law, motivations and perceptions, and future directions for law reform and social policy. (Summary)

Contents

Introduction

In June 1983, the Attorney General of Australia referred the issue of matrimonial property to the Law Reform Commission with Terms of Reference which required a consideration of whether any changes should be made to the present law, the Family Law Act 1975.

In particular, the Commission was asked to consider proposals for equal sharing of the spouses' property. Under the present law when a marriage breaks down and the couple cannot agree over property arrangements, the Family Court is given a wide discretion to re-allocate all of the couple's property between them in ajust and equitable way, taking into account the contributions each has made during the marriage, whether financial or non-financial, and their future needs.

Those calling for change have criticized the present system on the grounds that it leads to uncertainty and undue expense and that it does not provide clear gUidelines to those involved. It has also been said by some critics to disadvantage women and by others to disadvantage men. As there had never been a systematic study in Australia of the economic consequences of marriage breakdown and of attitudes to the present law, there was an evident need for information to be gathered on these issues.

The Australian Institute of Family Studies had been planning to conduct a study on the economic effects of divorce as part of its ongoing Family Reformation Project. In discussions preceding the Matrimonial Property Reference to the Law Reform Commission, it was agreed that the Institute should focus much of this study on the process and impact of matrimonial property division. The study would thus nieet the needs of the Law Reform Commission while at the same time fulfilling the Institute's function to investigate factors affecting marital and family stability in Australia.

The study was funded entirely by the Institute but benefited greatly from input from the Law Reform Commission team and memhers of the Family Court. Without the co-operation of the Chief Judge, Justice Elizabeth Evatt, and Principal Registrar, Mr Brian Knox, the study would not have been possible and we are extremely pleased with the results of this massive cooperative effort. We are also grateful to the Law Reform Commission for providing the funds to print this summary report for public discussion_ My congratulations go to the Institute's research team for this study led by Dr Peter McDonald, and to the other staff who contributed so much to the writing, coding, computer analysis, typing and editing of this major work.

This summary has been compiled from chapters of the book Settling-up: property and income division on divorce in Australia. Authors of chapters in the book are Kathleen Funder, Margaret Harrison, Peter McDonald, and Ruth Weston. Co-authors of individual chapters are John Schwartzkoff and Teresa Tucker.

A study of this magnitude cannot be successfully conducted without the assistance of numerous people. First and foremost, wt: owe a great debt to the study participants who gave much time and oftcn, much emotion to provide the information requested. Second, thanks are due to our 36 interviewers and 4 coders. The smooth running of the study at its various stages was due to our organisers, Sue Girling-Butcher, Jean McCaughey and especially Sandra Marsden and Teresa Tucker. Professor David Hambly, Law Reform Commissioner was active and supportive at all stages.

The following persons provided advice or administrative assistance at various times:

  • Law Reform Commission, Australia:
    Ann RiscIy, Deena Shiff, John Schwartzkoff and Peter Waters
  • Family Court of Australia:
    Sophie Bordow, Susan McIllhatten, Roger Mackay, John Myers, Carmel Morfuni, and Alan Ray Consultants: Bettina Cass, Marian Dunlop, Meredith Edwards, and Sophie Watson
  • Australian Institute of Family Studies:
    Leigh Baker, Rhonda Carrington, Sharon Craig, Mari Davis, Judith Foster, Simon Freidin, Cath McConville, Andrew Prolisko and Sonia Savannah.

To these and the many others who have helped in the project, we are most grateful.

Don Edgar
Director
Australian Institute of Family Studies Melbourne

Attitudes to aspects of matrimonial property law

As consumers of legal processes are rarely given the opportunity to express their views about the operation of laws, the opinions of divorced people were considered an important part of both the Law Reform Commission's reference and the Institute's research. Consequently, participants in the survey were asked their opinion about a series of propositions essentially revolving around two issues: what types of property should be available for division between the parties, and which present or future needs of the parties should be considered as relevant to the property division.

The first question about types of property asked what should happen to a house owned before marriage by one partner in a 10-year marriage during which time each party has contributed to the upkeep of the house. About 80 per cent of men and 90 per cent of women said the house should be available for division between them. It should be noted that this question and others did not ask whether the item of property should be divided equally. The implication of the question is rather that it should not be excluded altogether from consideration in the division simply because it belonged to one partner prior to marriage.

In response to another hypothetical question, only about 35 per cent of both men and women considered that an inheritance of $5000 kept in a separate bank account should be available to be divided, but about 70 percent said that the same $5000 inheritance should be available to be divided if the money had been used to purchase furniture for the home.

Another example referred to a situation where partner A had built up a business while partner B had run the household. About 70 per cent of men and 90 per cent of women considered that thc' business should be available to be divided.

Attention was then directed to the case of a 20-year marriage throughout which partner A had been employed and partner B had run the household. Part of A's wages had gone into a super· annuation fund and in 10 years A will be entitled to a lump sum pension. Over 80 per cent of women and just over 50 per cent of men considered that this future benefit to A was relevant to the couple's property division at divorce.

Overall, therefore, people who have been divorced tend to favour an all-inclusive definition of property subject to division upon marriage breakdown as is the case in the present law. An exception was made for inheritances which were kept totally separate. Survey participants were then asked whether, at the end of a 10-year marriage, certain specified circumstances affecting one party's present and future needs should make a difference to his or her share of the property. The first such circumstance was that one person had recurring health problems. More than 70 per cent of the younger respondents and 60 per cent of the older respondents said health problems should make no difference. On custody of children, however, both younger and older women and older men strongly supported the view that the custodial parent should get more. A large minority of younger men (41 per cent) said in contrast that custody should make no difference to shares.

The third circumstance investigated was where one partner had been out of the labour force for a long time while the other had a steady job. Two-thirds of women and three-quarters of men considered that this should make no difference to shares. Next, people were asked whether the fact that one person had contributed more income than the other should make a difference to shares. Ninety per cent 6f women and 80 per cent of men said that unequal income contributions should not make a difference to shares.

Remarriage was also rejected as a reason to vary shares of property by almost 90 per cent of younger people and 80 per cent of older people while responsibility for children of a new marriage was rejected by almost all respondents as a reason to vary shares. In summary, divorced people rather strongly rejected all these specific circumstances relating to needs of a party as a justification for variation of shares of property - all that is, except the needs of a custodial parent. There is a powerful rejection of the notion of dependence implicit in the needs· based criteria except in reference to the needs of children of the marriage.

People were also asked their attitude to compulsory joint ownership of the matrimonial home during marriage. Here opinions were mixed with a slight majority of men being of the viewpoint that it should not be compulsory and a slight majority of women favouring the counter viewpoint.

Finally, the survey participants were provided with a card which set out two opposing views about how the law should work. The wordings of the statements were as follows:

  • A. The general rule should be that on divorce a couple's property is always divided SO-SO between them. While this may seem rigid, it is fair, and people will always know where they stand.
  • B. Every marriage and divorce is different, and no one rule will suit all cases. Property should be divided up according to the particular situation of the couple concerned, even if that means uncertainty and some extra cost or delay.

About 80 per cent of women and 66 per cent of men preferred statement B as being closer to their own opinion, thus indicating strong support for the continuation of some degree of discretion in the division of property. Rejection of most of the 'needs' criteria, however, indicates that divorced people consider the current level of discretion in the Family Law Act to be too wide.

Motivations and perceptions

People rarely divorce for economic gain. Other motivations are more important and many people may be willing to suffer economic loss in order to achieve their non-economic aims. This is not put forward as an excuse for injustice but rather as a reminder that the law is dealing with the total person and not merely the 'economic' person. It is most important in research of this type, therefore, to consider the total person, to examine the motivations, ideals, and general well-being of persons passing through the last stages of marriage, through separation and divorce to re·establishment of their lives. Any law which purports to achieve economic justice, but at the same time frustrates the attempts of people to get their total lives back on to an even keel, will fail.

Large scale surveys concerning the satisfactions and well-being of Australians have been conducted since 1978 by Headey and Wearing (University of Melbourne) with the latest of these being completed in 1984. The methods used in those surveys were applied in the present study so that motivations and well-being of this sample of divorced people could be compared with the general population of Australia. Survey respondents were asked to rate various aspects of their lives at three points in time: the last year of the marriage, the first three months following separation, and at the time of the interview. The aspects that they were asked to rate were their standards of living, their housing, their incomes, the work they did, their children's well-being, the respect and recognition they received from others, the extent to which they were accepted and included by others, their freedom and independence, their personal and emotional lives, ano in summary, their lives as a whole.

Compared to the general Australian population, divorced persons indicated that in the last year of their marriages they had relatively low satisfaction on all these aspects of their lives with the exception of their housing. Not unexpectedly, they rated more highly on the material aspects than the non-material, with rock-bottom levels of satisfaction in their personal and emotional lives. Women were much more unhappy than men indicating the reason why women were more likely to have made the decision to separate.

In the first three months following separation, the average levels of satisfaction dropped for men on nine out of the ten aspects measured. The exception was their freedom and independence. For women, satisfaction with material circumstances dropped but small rises in satisfaction were evident for some non-material aspects such as their personal and emotional lives, their freedom and independence, and the respect and recognition they received. Women reported a drop, however, in the extent to which they were accepted and included by others. Both men and women reported a severe drop in the well-being of their children in the first three months after separation. At this time, satisfaction with life as a whole was highly dependent upon whether the person had made the decision to separate. Both men and women who had made the decision themselves felt better about life as a whole. Where the decision had been made by their spouses, both men and women suffered a major drop in their total life satisfaction. Overall, however, the first three months after separation is a low period for all divorced persons. Clearly, negotiations taking place at this time are likely to be charged with emotion.

By the time of the interview, both men and women rated their lives as a whole at the point described by Headey and Wearing as bordering b~tween moderately high and high satisfaction, at a level equivalent to that of the general population. For both men and women, the non-material aspects had risen on average to satisfactory levels, but both still rated low on their satisfaction with household income.

An examination of the importance of specific aspects of life to life as a whole indicated that, at all three time points, satisfaction with life as a whole was highly correlated with the state of the personal and emotional life. At the time of the interview, the level of satisfaction with material circumstances was also highly correlated to feelings about life as a whole, much more highly than is the case in the general population. This suggests that the material aspects of life take on a greater meaning to a sample of divorced people because of the difficulty they have had, and in many cases still have, with the material side. Unfortunately, by the time of the interview, well-being of their children is no longer highly associated with the level of satisfaction that men have with their lives as a whole and this is even more the case where their former wives have repartnered. This progressive exclusion of fathers from the lives of their children must be a cause for concern.

An examination of factors influencing the level of satisfaction with life as a whole at the time of interview found that, for men, the all-important factor was whether they had repartnered or not. For women, repartnering status was also important but the level of household income was an even more important determinant of their levels of satisfaction. This is, of course, not at all unexpected given. the fact that women were much more likely to be in poor income circumstances at the time of interview. For both sexes, remarried persons were the most content with their lives, followed by those living in de facto relationships. Single persons were the least content. Having a partner seems, therefore, to be an important element in self-definition for people after divorce. Finally, most people were relatively optimistic about their futures with only 10 per cent expecting a deterioration in any aspect of their lives in the two years subsequent to the interview.

The message to be gained from this analysis is that people re-establish their lives in their own ways; they have individual motivations and individual aims. It is a strong endorsement for a system which encourages people to work things out for themselves and a rejection of any system which would enshrine dependency or set people within a rigid framework beyond which they cannot move.

Directions for law reform and social policy

This paper provides factual information relating to the economic consequences of divorce in Australia as background to the Law Reform Commission's reference on matrimonial property law. It is not our purpose to indicate in precise terms how the present law might be reformed; however, certain directions for law reform emerge very clearly from the study.

It behoves first of all to point out that financial and property arrangements in Australian marriages are in a state of change. Through education, employment, later marriage, control over fertility and equal opportunity policies, a greater degree of equality between husband and wife has become part and parcel of Australian marriages. This was recognised by the people interviewed, both younger and older. Answers to open-ended and other survey questions showed an overall perception of marriage as a partnership involving different but not unequal contributions. There was little support for financially disproportionate contributions by marriage partners being sufficient reason for variation of property shares. There was also strong evidence that men and women valued each other's specific contributions very differently while at the same time accepting equality of contribution overall. The message from these results is that any attempt to tote up and evaluate normal contributions of each party to a marriage will not only be extraordinarily difficult, it will in fact lead to unnecessary disagreement. An assumption of equality of contribution should therefore be the starting point when matrimonial property division is being considered.

The second major conclusion arising from the study is that specific contributions of spouses, while leading to equality of contribution to the marriage as a whole, can have a divergent impact on the ability of each to earn individual incomes. Women typically withdraw totally or partially, permanently or sporadically, from the workforce to provide for the nurturance of children. This prevents them from building up work histories which allow them to compete favourably with men or with other women who have not withdrawn from the workforce. While in the future, we may see greater sharing of nurturing roles by men and women, in the present the inequality of result ensuing from specific contributions cannot be ignored.

The Family Law Act alone cannot, and cannot be expected to, rectify the unequal opportunities currently available to men and women in our society, yet there does seem to be justification for some level of compensation in individual marriages to a party who, through division of work roles in the marriage, has incurred a disproportionate loss of opportunity. At present, this person, more often than not, becomes dependent upon the community for income at least for a period. Beyond this, compensation might involve a variation of the presumption of equality of shares in the form of a lump sum or a greater share of property. This should be seen as an entitlement ensuing from disproportionate loss of opportunity in income-earning potential which relates specifically to the division of roles within the marriage. If seen as an entitlement, the level of compensation would not be altered in the light of post-divorce circumstances, nor would it carry with it overtones of dependency upon the former spouse, a notion overwhelmingly rejected by people interviewed. We would prefer to see such a change in the law as part of an integrated scheme of income support, retraining, work incentives and child care operating in the initial years after divorce. Step 1 for social policy is the easing of income tests associated with the Supporting Parent's Benefit or more optimistically, a better integration of the taxation and social security systems such that poverty traps are reduced (see IFS Submissions to EPAC for Tax Summit, 1985).

The third major conclusion from the study is that, at present, a greater share of property is often awarded to the custodial parent in order to meet the needs of the children, in particular the housing needs of the children. Where housing is concerned, it cannot be argued that the needs of the children could be met in all cases simply through maintenance payments. Even entry to private rental accommodation requires an initial, large capital payment. Beyond this, sole parents do not fare well in the private rental market. Continued occupation of the matrimonial home by the custodial parent or accumulation of a deposit for alternative housing may imply a greater share of property for the custodial parent. Among the various 'needs' criteria specified in the Family Law Act, it was only the needs of children which received strong endorsement from survey participants as a valid reason to vary shares of property. It may be argued that a greater share of property to the custodial parent would be unjust if custody was reversed soon after the property award is made. In fact, custody is not often reversed. Furthermore, consideration might be given to later financial compensation if custody is reversed in cases where the original custodial parent had received an additional share of the property to meet the needs of the children. This seems preferable to the alternative of denying an adequate living standard to vast numbers of children whose parents divorce. There seems therefore to be strong justification to continue to consider the needs of children in property division.

Beyond the needs of children, divorced people rejected the consideration in property settlements of other needs-based criteria such as ill-health, financial responsibility to children of a new relationship, financial arrangements in new relationships and unemployment- Women, despite their frequently parlous financial state post-divorce, are not seeking to remain dependent on their former spouses nor do they wish to claim dependency as a reason why they should receive more of the property. The notion of dependency was seen as both unacceptable and unpredictable. Both men and women thus endorsed the 'clean break' principle which presently applies.

It was evident in cases involving businesses that consideration must be given to the effect upon income earnings of any proposed property division. Where one party working in the business is no longer able to do so because the business has been transferred to the other party or where sale of a business causes one party to lose their income source while the other does not, there may be a need for compensation. The law should encourage settlements which do not interfere with a person's ability to earn income. Such an approach is a benefit to the broader community and may well also be important to the children of the marriage.

Support is evident for an all-inclusive definition of property to be divided, although exclusion or partial exclusion of property owned before marriage or inherited during the marriage seems warranted on the basis of the behaviour and attitudes of the survey respondents. The all-inclusive definition would include superannuation and other fringe benefits as explicit items in all cases.

In conclusion, there seems to be a need to emphasise the right of a person to their own personal resources. There were few, if any, calls from survey respondents for one party to gain a share of the other's career, education, reputation or entrepreneurial skill. The infrequency of spousal maintenance was not regretted. Although the line drawn may be a fine one, this view is not in opposition to a call for compensation to a person whose own personal resources have been restricted by the allocation of roles within his or her marriage. The principle of non-interference with personal resources does, however, raise the question of discrimination between persons who hold their resources in the form of a career or a reputation and persons who have transformed their skill into accumulation of property in the form of business assets. This raises the controversial question of special consideration being given to entrepreneurial skill in the accumulation of business assets. This would probably only apply where the value of the business was greater than the value of all other assets combined, with the proviso that other assets were not reduced in'value through capital being diverted to the business. There appeared to be some support for this position among survey respondents in cases where businesses were involved. The more fundamental issue with businesses, how· ever, was fair valuations.

The scheme envisaged would therefore provide a more structured discretionary system than presently applies, but one that still allowed sufficient flexibility to encourage private resolution of disputes. It begins with a presumption of equality, and largely replaces the present approach of balancing contributions and needs. No special contributions would be considered other than ownership of property before marriage and inheritances. No needs would be considered other than the needs of children. All property would be considered, including rights to superannuation and other fringe benefits. Shares may be adjusted to incomeearning where the division of roles in the marriage has led to disproportionate loss of opportunity in income-earning potential of one of the partners, or where the division of property itself would affect a partner's income-earning. Personal resources would be protected, and this might imply special attention being given to business cases where personal resources are expressed in the form of the value of a business.

No reference has been made to the issue of effective control over family trusts as only a small number of such cases were encountered in the survey. We are, therefore, not in a special position to comment upon this matter in a detailed way. However, given the abuse of family trusts as tax shelters and as means to avoid responsibilities on divorce, consideration should be given to ways and means to prevent such abuse.

As a final comment, the study showed that loss of material property was of less passionate concern to people than loss of 'human property', that is, perceived loss of children and loss of spouse.

Publication details

Archived publication
Published by the Australian Institute of Family Studies, August 1985.
39 pp.

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