Facts:
- W and H had a long marriage. They had one child, aged 14. At the start of the marriage, both parties were working as accountants. At the time of the proceedings, W had not been working since 2001 while H earned c.£3m per year. A substantial part of H’s income was received by way of bonuses and performance related shares.
- The parties agreed to divide capital equally. The main issue at the Final hearing was maintenance. H argued that W should receive £80,000 pa for 3 years, then reducing to £50,000 pa for 2 years, followed by a s28(1A) bar. W argued for a joint lives order.
- The judge at the final hearing awarded W £9.76m in total, consisting of £8.4m in capital, and just under £1.4m in H’s deferred remuneration. The judge used an assumed net return of 1.75% to ascribe a net income of £60,000 to W’s ‘free capital.’ Periodical payments of £115,000 were ordered on a joint lives’ basis, to make up the shortfall between W’s income and her needs of £175,000 per year.
- W appealed, seeking an increased joint lives order of £190,000 pa, and a 35% share of H’s net bonuses payable in respect of future years in 2019. She argued that H’s earning capacity was a matrimonial asset to which the sharing principle applied. She also argued that she should not be required to use her sharing award to meet her income needs, and that she was entitled to the order she sought under the compensation principle.
- H cross-appealed, seeking a 5-year term order from 2016 with a s28(1A) bar. H argued that any entitlement to sharing ceased with the end of the marriage, save only to the extent that any deferred emoluments had been “earned” prior to the separation. He contended that the judge had not given sufficient weight to the clean break principle.
Held, dismissing W’s appeal:
- Earning capacity is not a matrimonial asset to which the sharing principle applies. The sharing principle applies to marital assets, being “the property of the parties generated during the marriage otherwise than by external donation” (Charman v Charman (No 4), para 66). An earning capacity is not property. W was therefore not entitled to a share of H’s future remuneration under the sharing principle.
- Any extension of the sharing principle to post-separation earnings would fundamentally undermine the court’s ability to effect a clean break. It would lead to an application of the sharing principle in every case in which one party has earnings which are greater than the other’s, regardless of need. This would be inconsistent with Lady Hale’s observation in Miller that in general “it can be assumed that the marital partnership does not stay alive for the purpose of sharing future resources unless this is justified by need or compensation”.
- In some cases it will clearly be fair for part of the sharing award available to meet income needs to be fully amortised. In other cases, the court might take the view that the applicant should have a greater level of security than that provided by an amortised sum. When determining this issue, the court will need to have regard to all the relevant circumstances, to the clean break principle and, as appropriate, the issue of undue hardship. The fact that the other spouse will meet their needs from earned income rather than capital will be relevant to the court’s determination.
- Here, it was fair for W to be required to use 10% of her total award to meet her income needs. Although H continued to generate a very substantial income, which enhanced his financial position, it was plain that W would be able to adjust without undue hardship to the termination of maintenance, having regard to all the s.25 MCA 1973 factors. She would still have free capital of £3.6 million and a housing fund of £2.75 million.
- W had no claim under the compensation principle because her retained award would in any event be greater than any award by reference to her lost net income.
- Accordingly, H’s cross-appeal was successful. A term order of three years with a section 28(1A) bar was imposed in place of the joint lives’ order.
