What happens to my earnings after divorce?
- AuthorPhilip Hoddell
In an earlier blog, called ‘For how long should spousal maintenance be paid?’, I commented on the Court of Appeal case of Waggott v Waggott and the judge’s comments that, “any extension of the sharing principle to post separation earnings would fundamentally undermine the court’s ability to effect a clean break”.
Now, the High Court has had to consider the position again in a case where the wife made a claim over the husband’s post-divorce income.
This case concerned a very long marriage – nearly 30 years – and a husband (H), aged 62, and a wife (W), aged 60. There were no minor dependent children and the assets, including various properties and family business, were worth about £6m.
£2.4m of this total was in the family business, always run by H. The net value of the business was agreed and W did not want to be involved in it in the future.
She did, however, claim that after the capital was divided equally (a claim with which H agreed) she should still receive maintenance. The trial judge awarded her £150,000 a year out of H’s anticipated net income of approximately £400,000. H appealed.
The High Court made a number of criticisms of the trial judge’s decision. The main one was his failure to properly analyse W’s actual income needs, instead leaping straight to the conclusion that after a 30-year marriage, she had a right to share in the income H generated following divorce.
The High Court confirmed that that was entirely the wrong way to look at the issue of maintenance. The law was quite clear. An earning capacity is not marital property and income generated after divorce should not be shared unless there was an ascertainable need to order spousal maintenance.
The judge then went on to analyse what W’s reasonable needs were. He interpreted them generously at £120,000 per annum – what she had originally claimed – and deducted the amount of money she could reasonably earn from that part of her capital with which she did not need to buy a house. He reduced the spousal maintenance to £68,000 a year and ordered it to end when H achieved the age of 66.
This case further reinforces that a difference in post-divorce earnings is not in itself a good reason for ordering maintenance. It is only if a court finds there is a financial need that maintenance will be ordered. Interestingly, the judge did not hold that W needed to spend her capital to meet income needs. Had the marriage been much shorter she probably would have had to.
During the hearing it was claimed that H might well sell his business for more than £2.4m when he retired. The parties had actually agreed he would keep it.
Ordinarily, H might have expected there to be a discount applied to the value of the business because business assets are inherently more risky than cash. Clearly, if he is taking the risk that the value of the business might fall, it is not unfair for him to reap the reward if it grows. W could have argued for a continuing involvement in the business if she wanted to but then she would have had less liquid cash to invest as she chose.
Not all cases involve assets of £6m, but many cases involve arguments about spousal maintenance. If yours is one of them, then why not give me a call for a free discussion about how this case might impact on your divorce.