The Golden Age of Joint Lives Maintenance is Dead!

There is no doubt that Family law responds, more than other areas of law, to changes in society and high earners now earn significant salaries and there is a clear trend for couples to divorce later in life, to reflect a greater life expectancy and a greater expectancy of what quality of life they will enjoy in retirement.

Joint lives periodical payments has been the norm during my working life, with the onus on the payer – invariably the husband – to apply to terminate or reduce such an order if the wife were to remarry, cohabit, or find well-paid employment, to avoid crystal ball gazing. But of course that in itself creates uncertainty in both parties being able to plan their futures and leaves open the potential for a further round of litigation and significant costs, and capitalisation at a later date.

Section 25A (2) provides that it is the courts’ statutory duty when making a periodical payments order to consider:

“Whether it would be appropriate to require those payments to be made or secured only for such term as would, in the opinion of the court, be sufficient to enable the party in whose favour the order is made to adjust without undue hardship for the termination of his or her financial dependence on the other party.”

The rationale which underpins Section 25A was properly set out by the Supreme Court in Miller v Miller/McFarlane v McFarlane [2006] UKHL 24, where their Lordships stated that:

“The goal the court is required to have in mind is that the parties’ mutual financial obligation should end as soon as the court considers just and reasonable.”

“The whole point of a divorce is to enable people whose lives were previously bound up with one another to disentangle those bonds and lead independent lives.”

By 2008 in the case of VB v JP [2008] EWHC 112 Fam, the court held:

“In ordinary circumstances a wife has no right or expectation of continuing economic parity (sharing) unless and to the extent that consideration of her needs or compensation for RGD so requires. A clean break is to be encouraged wherever possible.”

Sometimes as practitioners we forget this very simple point, and having grown up in an era of joint lives maintenance we all too often forget the drive to achieve a clean break in anything other than larger money cases.

In L v L (Financial Remedy: Deferred Clean Break) [2011] EWHC 2207 Fam, it was held that the court has a positive duty to consider a term order, even when neither party is seeking it.

If there is uncertainty about the appropriate length of term, the court held in C v C (Financial Relief: Short Marriage) [1997] 2 FLR 26:

“The proper course is to impose no term, but to leave the payer to seek the variation….. Gazing into the crystal ball does not give rise to a reasonable expectation.”

So what Is Income?

Income is easy for the average man in the street – it is what their pay slip shows.

However, I prefer Peter Duckworth’s definition:

“In relation to the husband’s annual earnings/receipts from the Business, means the aggregate of all (a) income received by him, whether in the nature of salary, bonuses, dividends, compensation, pension scheme contributions, or the like, and (b) benefits in kind, including car allowances, P11D benefits, EBT schemes, share incentive schemes or similar, less any tax and National Insurance contributions (or the equivalent in another jurisdiction) deducted therefrom in the tax year in question.”

If we are not considering the above, then we may well be missing something.

Please remember in terms of EBTs there are deferred Tax and NI issues that need to be addressed if treated as income that can support periodical payments.

As with all periodical payments cases there are two questions –

1. How much?
2. How long?

Let me start with duration.   Gone are the days where a wife would simply receive periodical payments for life and we would glibly advise the husband that the wife would remarry and periodical payments would come to an end.

I therefore want to consider the questions of “needs”, “sharing”, length of periodical payments, how we treat bonuses and quantum.

Needs and Sharing

R v R (Financial Remedies: Needs and Practicalities) [2013] 1FLR 120 – Coleridge J

Coleridge J reminds us that cases will be dealt with on the basis of needs and practicalities.

JS v L (Financial Remedies: Pre-acquired assets, needs)[2013] 1FLR 300 – King, J “Needs Trumps Everything”

Paragraph 85 – “there is no doubt that the husband came into the marriage with substantial assets, which assets are capable of being the subject of forceful arguments in favour of their being excluded as non-matrimonial property. In my judgment, however, … those assets are required in order to satisfy both the immediate and long-term needs of the wife and children.”

Duration

MacFarlane v. MacFarlane 20th June [2009]

This was an 18 year marriage to the date of separation, with three children the youngest of whom was 12. Mr MacFarlane was an accountant with Deloittes. Capital had been divided equally between the parties and in 2002 at the time of the original hearing the wife had been awarded periodical payments on a joint lives basis of £250,000 per annum.

After various appeals the original award was reinstated by the House of Lords (as was) in 2006.

In 2007 the wife applied for a further increase in periodical payments. At the time of this hearing the wife had more capital than the Husband (£3.86 million as opposed to the Husband’s £3.65 million), but the Husband had slightly more pension. She had an income of £22,000 net per annum, the Husband had an income of between £720,000 – £770,000 net per annum and hoped to retire at the age of 55. He had by now remarried a partner in Deloittes.

The court increased her periodical payments by £100,000 net, i.e. from £250,000 to £350,000 net. However, the Court anticipates a termination upon former Husband’s retirement, anticipated to be 2015 but that terms is extendable, and the Court imposed a sliding scale of 40% up to £750,000, 20% up to £1 million and 10% over £1 million.

In Murphy v Murphy [2014] EWHC 2263 , the wife was 32 and Husband, 35. They met in 2004, cohabited from 2005, and married in 2007. The marriage broke down 6 years later in 2013, at which time they had twins aged 3.

At the FDR the majority of issues were resolved in terms of capital and pensions, but a dispute remained as to whether spousal maintenance should be stepped down in the near future and should be subject to a term order.

The wife at this time was a full-time carer, but had held well-paid employment before that.   She had planned to train as a teacher, but that had not materialised and she felt it was no longer viable, and, as such, she was opposed to any stepping down of maintenance.

The Husband had been working in Hong Kong, but had now returned to London and faced a higher tax bill, and raised issues regarding variation of the level of maintenance he was paying.

The court took the view that to step down maintenance, i.e. to guestimate what the wife could or would be earning in 3 years’ time was “totally speculative”.

Holman, J. reminded us of Section 25A (2) MCA 1973, namely:

“Where the court decides in such a case to make a periodical payments order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those payments to be made….. only for such term as would, in the opinion of the court, be sufficient to enable the party on whose favour the order was made to adjust without undue hardship to the termination of his or her financial dependence on the other party.”

In the circumstances, despite the relatively short length of the marriage, the Judge declined to make a term order.

SS v NS (Spousal Maintenance) [2014] EWHC 1483 – Mr Justice Mostyn, this was a case where the wife was aged 39 and the Husband, 40.

The parties had lived together since 2002, married in 2007, had 3 children aged 11,9 & 7, all privately educated.   They separated in May 2013.   The Husband was in a new relationship.

The Husband was a banker and the wife was the primary carer for the children.

They had assets of broadly £3.29 million.

The Husband had a number of unvested shares, which on receipt would be taxed as income.   Counsel for the wife included the unvested shares, but this was criticised by the Husband.

Mostyn, J said:

“In my judgement there would have to be special features present before money earned, but which is deferred in collection and conditional on performance, is excluded from the divisible pool.”

Mostyn, J. gave the following guidance:

“a.        Spousal maintenance is properly made where the evidence shows that choices made during the marriage had generated hard future needs on the part of the Claimant. In this case the duration of the marriage and the children were pivotal factors.

1. An award should only be made by reference to needs, save in exceptional circumstances where it can be said that the sharing or compensation principle applies.
2. Where the needs in question are not causally connected to the marriage, the award should generally be aimed at alleviating significant hardship.
3. In every case the court must consider a termination of spousal maintenance for the transition to independence as soon as it is just and reasonable. A term should be considered unless the payee would be unable to adjust without undue hardship to the ending of payments.   A degree of hardship in making the transition to independence is acceptable.
4. If the choice between an extendable term and a joint lives order is finely balanced, the statutory steer should militate in favour of the former.
5. The marital standard of living is relevant to the quantum of spousal maintenance, but is not decisive.
6. The essential task of a Judge is not merely to examine each individual item in the budget, but to stand back and look at the global total and ask if it is a fair and proportionate outcome.
7. Where the Respondent’s income comprises a base salary and a discretionary bonus the Claimant’s award may be equivalently partitioned, with needs of strict necessity being met from the base salary and additional discretionary items being met from the bonus on a capped percentage basis
8. There is no criterion of exceptionality on an application to extend a term order. On such an application an examination should be made of whether the implicit premise of the original order of the ability of the payee to achieve independence had been impossible to achieve and if so, why?
9. On an application to discharge a joint lives order an examination should be made of the original assumption that it was just too difficult to predict eventual independence.
10. If the choice between extendable and non-extendable term is finely balanced the decision should normally be in favour of the economically weaker party.”

In this case the wife was awarded £30,000 per annum index-linked RPI and received a capped percentage of 20% of the Husband future bonuses.   The bonus share was non-extendable, but the base spousal maintenance had an extendable term which expired when the youngest child reached 18 (in just over 10 years’ time).

Beware Extendable Term Maintenance

Yates v Yates [2012] EWCA Civ. 532

The parties entered into a 3 year term without a Section 28 (1A) bar.

The wife’s subsequent application to extend and capitalise periodical payments resulted in the husband having to pay a lump sum of £398,000 – the equivalent of 12 years further periodical payments.

In Chiva v Chiva [2014] EWCA Civ. 1558, capital had been shared equally.

This was wife’s appeal against a periodical payments order of £700 per month for a 2 year term where the parties were in their mid-30s with a 3 year old daughter.   The husband was an IP lawyer and the wife an Actuary. (Pause There) Prior to the birth of the parties’ child the wife had earned more than he had, but was now only working part-time, earning £32,300 to his £94,000.

The wife was unsuccessful on appeal, the court taking the view that the wife could increase her 7 days to 10 days per month over a period of 2 years, and if necessary she could apply to extend the term because there was no Section 28 (1A) bar.

In Wright v Wright [2015] EWCA Civ. 201, the Husband was an equine surgeon earning £150,000 per annum, and was required by a 2008 order to pay joint lives maintenance of £33,200 to his wife, plus child maintenance and school fees.

District Judge Cushing in her Judgment had said that the wife would be expected within the following 2 years to begin making a working contribution towards her own household expenditure. Indeed the Judge had said:

“There is a general expectation in these courts that once a child is in Year 2 most mothers can consider part-time work consistent with her obligation to the children. By September 2009/10 the wife should be able to work. She will be 46 or 47 years old. I do not anticipate her having a significant earning capacity, nor would it be reasonable to expect her to muck out stables for the minimum wage. However, she should make some financial contribution.”

Upon the husband’s application to vary, Her Honour Judge Lyn Roberts reduced the spousal maintenance gradually over 6 years, at the conclusion of which payments would cease.

She notably commented that wife had made “..no effort to get a job without good reason”, and that a working mother would be “…a good role model for the children”, and “..vast numbers of women with children just get on with it” and this wife should have been doing so as well.

The Court of Appeal refused the wife’s oral application for permission to appeal saying there was no prospect of a successful challenge to the Judgment. It was open to the wife to make a further application if despite her best efforts she failed to produce a significant financial contribution both at the present and for the future, but the onus henceforward would be on her. (Lord Pitchford)

Be aware that this case cannot be cited as an authority.

With reference to quantum

In Vaughan v Vaughan [2007] EWCA Civ. 1085, the Court of Appeal held there was no authority and no foundation, even in principle, for equal sharing of future income.

In Nightingale v Turner [2015], a stay-at-home husband says £50,000 per annum on divorce is unreasonable.

The wife is a “high-flying” accountant and at the start of proceedings was 41, with a salary of £420,000 per annum and was a Partner at PwC.

She was the bread-winner, her husband the homemaker – a traditional role reversal.

The couple were married for 7 years, but had cohabited for 10 years, and had one child.

The Judge felt it was reasonable to expect the husband to go back to work full time and he should be able to earn £36,000 per annum, which was discounted against maintenance.   The husband seeks to argue that he should remain a house-husband.

The husband felt there was gender-bias and is challenging the order, seeking a stay in the sale of the family home and an increase of periodical payments by 50%.

In effect the husband simply argues that if the roles had been reversed his periodical payments would have been generously assessed.

A date for appeal is to be fixed.

So where does that leave bonuses?

In P v P [2013] – Eleanor King, 20 December 2013, the court said that when ordering maintenance payments following divorce in a case where Husband’s income comprised salary and substantial bonus, the proper approach was to make an order which met the wife’s basic needs out of salary and then to use a percentage of the bonus to top-up that figure. However, it was necessary to set a cap upon the total amount payable from the bonus to avoid the wife receiving substantially more than was appropriate.

In H v W [2014[ EWHC 4105 (Fam), Mrs Justice Eleanor King, 20 December 2013, placed a cap upon Husband’s bonus so rather than having a percentage of his bonus reducing over a period of time, she placed a cap on the amount of bonus that was capable of being shared. In this case £20,000 per annum.

In SS v NS [2014] EWHC 4183 Fam, Mostyn, J. gave his views on an obiter basis, and said:

“Where the Respondent’s income comprises a base salary and discretionary bonus, the Claimant’s support may be equivalently partitioned with needs/necessity being met from the base salary and additional discretionary items being met from the bonus on a capped percentage basis.”

Following on from the indications by King, J. in H v W (Cap on wife’s share of bonus payments) [2013] EWHC 4105, and Roberts, J. in B v B [2014] EWHC 4545 Fam, although Mostyn, J. stresses not what is necessarily required in all cases, but rather:

“…a matter of balance and degree.”

In conclusion, the title to this article is that the golden age of joint lives maintenance is dead. That is not necessarily so and perhaps in more modest asset cases joint lives maintenance remains the answer because it avoids the issue of “crystal ball gazing”; but in larger money cases I am comfortable with the title of the article.

In many ways it reflects changing attitudes and a pre-White era when a wife would seldom receive more than 25% of capital but have the security of joint lives maintenance.   In an era of 50%-50% why do we have a need for joint lives maintenance in larger money cases.

Perhaps in view of the guidance in SS v NS we now need to consider advising our clients with some caution.

But is that really the case? The Matrimonial Causes Act is 42 years old and I take you back to the start of my article –

Section 25A (2) provides that it is the court’s statutory duty when making a periodical payments or order to consider –

“Whether it would be appropriate to require those payments to be made to secured only for such term as would, in the opinion of the court, be sufficient to enable the party in whose favour the order is made to adjust without undue hardship for the termination of his or her financial dependent on the other party.”

…… So what has changed?