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Case law: Spouse's future earning capacity is not a matrimonial asset in financial settlement on divorce

A wife has failed in her argument that her husband's future earning capacity was a matrimonial asset to be divided equally between them in the same way as other matrimonial assets. She also had the period for which she is to receive annual maintenance from him cut from their joint lives to three years.

June 2018

This update was published in Legal Alert - June 2018

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A couple separated after many years of marriage, with one child. When they met, both were accountants, with few assets. Shortly after the marriage the wife stopped working. The husband eventually became a very high earner, although a significant part of his earnings were by way of discretionary bonuses and share plans.

At the time of the divorce they had assets of £16.4m. The trial judge awarded the wife £9.76m and maintenance of £175k per year throughout their joint lives. However, she appealed and argued that she should be entitled to a share of his continuing income after their divorce because his earning capacity was ‘an asset referable to or the product of marital endeavour and should, therefore, be divided between the parties by application of the sharing principle as with other marital assets’.

The sharing principle requires assets to be divided equally. The wife said that he should pay her £190k per year rather than £175k.

The Court of Appeal ruled that earning capacity could not be a matrimonial asset. To find otherwise would effectively put a stop to 'clean break' divorces, and entitle those divorcing a wealthy spouse to part of their ex-spouse's earned income throughout the ex-spouse's working life, whether or not they needed it.

It also found that it was fair to expect the wife to invest the capital she had been awarded to generate an income and, if that was not enough for her needs, to get a job. It therefore ordered that the husband's obligation to provide maintenance should stop after three years.

Operative date

  • Now

Recommendation

  • Divorcing couples in wealthy marriages should be aware that the future earning capacity of the higher-earning spouse is not a matrimonial asset to be divided equally into the future, and the financially weaker spouse may be expected to invest any capital wisely and get a job if the income from her capital is not enough

Case ref: Waggott v Waggott [2018] EWCA Civ 727

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