Those of us who commute on a regular basis may have seen the article about bonuses on divorce appearing in the Metro on Thursday, 12 April, bearing the dramatic headline “Tycoon’s ex fails to grab a share of his future cash”
I always love to read the articles appearing in the Metro, Mail Online and The Evening Standard, and then compare them to the actual judgments handed down in these family cases. Usually the two bear little resemblance, and this is no exception.
Court of Appeal
The case that went to the Court of Appeal was the wife’s appeal against the order made in the court below. The total assets at date of separation were £14.4 million. The husband’s estimated income for 2015 was £3.7 million. Most of the husband’s income consisted of discretionary bonuses. In the first hearing the judge awarded the wife £3.25 million for a house and maintenance of £175,000 per annum.
On appeal, the wife said that her husband’s future earning capacity was a product of their marriage and therefore an “asset” in which she was entitled to share. She believed that she should be entitled to 35% of the husband’s net bonus payments payable until 2019, in addition to her annual maintenance. She said that she should not have to use any of her capital to meet her future income needs. She also said that the “compensation principle” applied in her case because this was a financial benefit that had accrued during their marriage and produced a surplus of assets over needs.
The Court of Appeal dismissed the wife’s appeal and allowed the husband’s cross-appeal (the latter was to request a bar on an extension of the term of maintenance).
In reaching its conclusion the court looked at important principles applied in cases involving high earning capacities usually by virtue of significant bonuses being awarded.
One of the questions asked and answered was, “is an earning capacity capable of being a matrimonial asset to which the sharing principle applied?”
The answer is no.
If the court were to extend the sharing principle to post separation earnings this would fundamentally undermine its ability to provide a clean break to parties on divorce or at some future date. It would also be against the principle that the marital relationship does not stay alive for the purpose of sharing future resources unless that was required by “need or compensation”.
So this case followed previous authorities which say that the sharing principle does not apply to earning capacity, which cannot be classed as a matrimonial asset.
The argument presented by the wife that her capital award should be preserved and should not be required to meet her future income needs again conflicted with the clean break principle and so therefore could not be correct.
The comments made on the principle of “compensation” confirmed that an entitlement to compensation is only intended to address the disadvantage experienced by one party who has given up a career, and does not apply where a financial benefit has been attained.
So those of us hoping for a change in the law will be disappointed, as this case is important only in that it confirms previous authorities in respect of the above points.
If you have any queries about finances on divorce or concerning family and divorce matters more widely, please contact Louise or another member of our expert team on firstname.lastname@example.org or call 020 7631 4141.