Future Earning Capacity Not a Matrimonial Asset

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The Court of Appeal has made an important decision in a divorce case in which the main argument was over the availability of future income to fund maintenance payments in divorce settlements.

The couple involved are both accountants and the husband is at the peak of a very successful career, being the finance director of a public company. They have combined assets exceeding £16 million. Their marriage lasted more than 20 years and they have one child.

The wife was awarded just over half of their combined assets and the husband was ordered to pay her £175,000 per year in maintenance. In addition, she was awarded nearly £1.4 million as a share of deferred remuneration her husband was due to receive after their separation.

She appealed against the award, arguing that her husband was due to receive substantial bonuses for years after their divorce and that these should be taken into account in the settlement. In addition, she requested an increase in the annual maintenance payments, claiming that his earning capacity was the result of a ‘joint effort’ by the two of them and was therefore a matrimonial asset. The rule of thumb with such assets is that they are split more or less evenly.

The Court found that the husband’s earning capacity was not capable of being a matrimonial asset and rejected the appeal. A decision to the contrary would create a lack of clarity in the law and undermine the fundamental ability of family judges to implement ‘clean break’ divorces. If the wife’s arguments were correct, the husband’s obligation to pay her part of his earned income would continue throughout his working life, regardless of her financial needs.

In upholding the husband’s cross-appeal, the Court found that it was fair to expect the wife to invest her free capital in order to provide herself with an income. If that income fell short of her requirements, she could find employment in the future. In the circumstances, the Court ordered that the wife’s maintenance payments should cease after a further three years.

Source: Private Client Library Content