- 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
- 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
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
- 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.