Maintenance: Where are we now? A review of recent case law

Margaret Hatwood, Partner
Family Law Journal - June 2010
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Introduction
For the client the key issue is “How much am I going to receive?”
For the lawyer there is the additional conundrum of for how long?

There is arguably even more uncertainty in maintenance than there is in assessing the capital award. There are still many cases going to court on maintenance even where capital is agreed.

1. NEEDS
This is the starting and finishing point in many cases.

“In the great majority of cases, the court is trying to ensure that each party and their children have enough to supply their needs set at a level as close as possible to the standard of living which they enjoyed during their marriage” Baroness Hale (Miller); In practice the court looks at income from all sources including tax credits and state benefits against the parties’ needs having regard to the S25 criteria. Form Es require statement of “current income needs” and an explanation of any changes there might be in the near future with an estimate of the future cost. This should not be an aspirational list of future outgoings.
When it comes to assessing maintenance there is no formula. Some readers may be old enough to remember the one third rule which provided you added income of H and W together divided by 3 and deducted the recipient’s income from a third. The resulting figure was the maintenance payable. In April 2009 Alexander Chandler in Family Law Week reviewed a selection of cases from Miller; McFarlane in 2006 to April 2009 and found that spousal maintenance ranged from 14% to 34% of payer’s income.

2. NEEDS GENEROUSLY ASSESSED
A. In McCartney v Mills McCartney 2008 EWCA 401 the W’s ambitious list of expenditure included holiday expenditure of almost £500k per annum, £39,000 per annum for wine (although she did not drink alcohol), £125,000 for clothes AND enough to run 7 fully staffed properties. In all her total list of required expenditure was an astronomical £3.25m per annum for herself and Beatrice. The court awarded her £600,000 PA about one fifth of what she was looking for which was then capitalised. Both sides wanted a clean break so on the issue of capitalisation there was argument as to whether the approach in Frick or Duxberry should be used. Frick capitalisation was £11m and Duxbury £17m. Bennett decided that a figure between the two would be fair and so the maintenance award capitalised was £14m. (W’s overall award meant she exited the marriage with property and funds of £24.3m). However it was found that a large amount of pre trial expenditure was reckless and was embarked upon to justify her ambitious wish list. That sum amounting to £500,000 was added back in as part of her assets.

B. In S v S 2008 EWHC 519 the co called “maintenance for horses’ case” DJ Segal awarded the W pps of £50,000 for joint lives. Sir Mark Potter declined to interfere with the award on appeal. The high award was partly to fund the W’s passion of horse riding. This was an 11 year marriage with no children. H was an investment banker earning £100,000 gross and a bonus which had varied between £93,000 and £242,300 gross per annum. An equal division of capital had already been agreed. Part of which was to provide W with a fund providing some income for the future but not at a sufficiently high level to provide solely for the W’s future maintenance needs. DJ said he had to decide a number of issues,

1. What would it be reasonable for the W to spend on a house,
2. What would her income be once she bought it?
3. How much should that income be increased by periodical payments.
4. Should H pay pps for joint lives or as he wished for 5 years only reducing over the period to allow W to increase her earning capacity.

W’s earning capacity was £15,000. Horses were a keen feature of this couple’s lives. W was a talented eventer. H put his housing needs at £900,000 and W placed hers at £900,000 to £1.25m to enable her to purchase a house large enough for her to keep her three horses. W pointed out that if H’s net bonus was taken as the average figure over the last 3 years i.e. £106,000 PA then he would have, if she were awarded £56,000 pa, double her disposable income for herself i.e. his income would be £60 k net salary and £100,000 net bonus.

So far as W’s housing needs were concerned H said that of the capital of £1.4m W would receive, she should spend no more than £600,000 on a property and invest £800,000 to produce an income of approx £ 35,000 pa. If she wished to keep her horses she should pay for livery. H also argued that over a 5 year period her earning capacity would rise from £12,000 net to £30,000 net so proposed a reducing term maintenance order for 5 years -£20,000 in Years 1 and 2 £10,000 for the remainder of the term. DJ accepted W’s case that her earning capacity was circa £12,000 net. She had given up work as a PA shortly after the parties married at the H’s behest. The judge found that a reasonable amount for W to spend on a house was £1m. This would leave W with £400,000 to invest and provide a Duxbury fund of £400,000 producing an income of £20,000 pa which, with her maintenance, gave her an income of £70,000 net pa. The original award was generous. But not generous enough for the appeal to succeed.

3. COMPENSATORY MAINTENANCE?
When is such an award justified?

In VB v JP [2008] EWHC 112 (Fam), [2008] 1 FLR 742 the W was treated harshly. W, an Oxford graduate, had worked in personnel but had been unable to take up promotion because of H’s career. After 11 years of marriage she received around 60% of the capital assets and was awarded pps of £33,000 pa At the time of the divorce the H’s income was £340,000 net (her pps were only 10% H’s income). W applied for an upward variation to £130,000 claiming she was entitled to an element of compensation for loss of earning capacity following Miller; McFarlane 2006 UKHL 24. H argued that the only time for consideration of the principle of compensation was at the exit point of the marriage. Whilst that argument was rejected, the court said any element of compensation was best dealt with by a generous assessment of the W’s continuing needs unrestricted by purely budgetary considerations. The judge increased W’s pps to £65,000 pa, just over one half the increase she was seeking so she received just 14.4% of H’s income.

However in McFarlane v McFarlane 2009 EWHC 891 W applied for an upward variation of her periodical payments. This meant the court had to consider whether the time had been reached for a clean break or a deferred clean break.

By 2009 Mr McFarlane’s net income for the previous 3 years was £899,139 in 2006, £982,664 in 2007, and £1,109,696 in 2008. At the time of the original hearing in 2003 his net income had been £753,381. In House of Lords H was ordered to pay £250,000 pa spousal periodical payments for joint lives. Shortly before the second child was born it was agreed W should give up work as a solicitor. W had not returned to work as a solicitor but had found employment at a firm of Patent and Trade Mark Attorneys and intended to qualify as a trade mark attorney. H reverted to a central plank of W’s original case that she was extremely talented and would have had a successful career if she and H had made a different choice as to how they should conduct their lives together. Charles J rejected H’s assertion that W would be regarded as someone a large firm of solicitors would be keen to employ notwithstanding the fact that she had not worked in the profession for over 15 years. W’s evidence was that she was earning £22,000 net for a 4 day week; she hoped to work until she was 60 and that she was likely to earn £46,000 to £58,000 net by that time. Charles J imposed a term maintenance order and chose to end W’s maintenance 7 months after H was expected to retire. However, he increased the maintenance payable equal to the following percentages of H’s net income 40% up to £750,000: 20% between £750,000 and £1m and 10% of the balance over £1m.

4. DIFFICULT ISSUES
A. The bonus.
So how might the court treat a future bonus? Is W entitled to share in H’s future wealth?
Not surprisingly the answer is “sometimes”.

In H v H 2009 EWHC 494 this was a 7 year relationship and H was a high earning broker in derivatives. H received a basic salary of £250,000 and an order was made for a (virtually) equal division of capital, around £3m by the time of judgment, plus spousal maintenance of £125,000 per annum. But H did not have to share an investment fund which included discretionary bonuses earned more than 12 months post separation. The judge however rejected what he called the over simplistic approach of Mr Mostyn QC sitting as a deputy judge in Rossi v Rossi 2006 EWHC 1482 i.e. for a 12 month watershed.

The judge, Singer J, asked the important question: when does the “clock (or the meter) stop in a case where one spouse continues once cohabitation has ceased to accrue savings or wealth from earnings or elsewhere”? W’s counsel argued the bonus should be taken into account. However most of the bonus £845,000 represented bonuses earned over the period stretching between 12 and 33 months after the end of the marriage. The judge also noted that the evidence was that H would not be able to touch the bonus until 2023! This case however is also interesting for its treatment of W’s cohabitation. See below.
In H v H 2007 EWHC 459 Charles J grappled with how huge salary bonuses earned post separation should be dealt with.

In this case the assets were £24m excluding H’s post separation bonuses, so there was more than enough for a clean break. W had been a school teacher. H earned a bonus of £2.3m in the year of separation and in the following year. H argued W was entitled to half the capital assets including the bonus for the year of separation but excluding the bonus for the following year. W argued that she was entitled to 50% of the assets including both bonuses plus £1.5m as compensation for her loss in the future of a share of the H’s income. W received £13.7m - 50% of the assets at the date of separation and declining percentages of the H’s 3 subsequent bonuses. So she received 1/3 in Year 1 1/6 year 2 and 1/12 year 3 - effectively a run- off award.

Some words of caution. Here H was a very high earner by any standards. This was a case where there was enough capital for a clean break. It certainly does not mean that there will be a cut off after 3 years where the assets are of a more modest amount. It is probable that W will receive a percentage of future bonuses especially in those cases where there is continuing maintenance.

B. The court’s approach on an application to vary/ Capitalisation
In Pearce v Pearce [2003] EWCA 1054, [2003] 2 FLR 1144 the court made it clear that, on dismissing an entitlement to future periodical payments, the court’s function is not to reopen capital claims. Just three questions need to be asked: (1) what variation, if any, should be made in the order for periodical payments; (2) the date from which the variation should take effect; and (3) whether to substitute a capital payment calculated in accordance with the Duxbury tables, to replace the income stream being terminated.

Baron J concluded that the DJ was plainly wrong when she assessed W’s variation claims at £40,000 and capitalised it at £500,000. Baron J decided the appropriate lump sum for the termination of her periodical payments was £725,000 which on a Duxbury type of formulation would provide the W with somewhat less than £60,000 pa net.

“About 30% of the H's net spendable income”.
In Vaughan v Vaughan 2010 EWCA Civ 349 The parties had separated in 1981 and divorced in 1985. The first W was appealing an order where her maintenance payments of £27,000 pa had been terminated. H had remarried. H was a QC who had been a leading exponent of EU law. H was in poor health and at 71yrs had no future earning capacity. At the first hearing W put forward a budget of £62,000 pa. The trial judge accepted Mr Mostyn QC’s submission that a single woman of 66yrs could live on £48,000 for life. The trial judge had found that H’s income was between £46,000 and £53,000 net per annum. However he had only taken into account one half of H’s pension income. (Mr Mostyn QC had argued successfully at the original hearing that one half of the H’s pension should be regarded as the second W’s). He had also argued (and the trial judge accepted) that virtually all H’s present capital had been built up during his second marriage, which had lasted for many more years than the first. In the Court of Appeal Wilson L J referred to the case of Roberts’s v Roberts 1970 P1 which was still good law and concluded:
“One may conclude with confidence that the court should always have the principle in mind; that it should give effect to it where it reasonably can; and that although it should not go as far as to give priority to the claims of the first wife, it should certainly not give priority to the claims of the second wife.”
It should be noted that the court had not frowned upon H proposing to make an election in respect of his pension which would mean that W2 would receive the same income if he died rather than the usual arrangement where W2 would only receive an annuity of half the rate of H’s pension.

C. W’s cohabitation
This is always a thorny issue. In H v H 2009 EWHC 494 (considered above on the bonus issue) it emerged at the hearing that W was in a relationship with another man, Mr Thompson who spent most of his leisure time at her home. W was pregnant with his child. However the judge took a traditional approach ignored W’s relationship and awarded her periodical payments of £125,000 pa. The judge reviewed the cases on cohabitation and said the authorities go all one way until Coleridge J’s first instance decision in K v K (periodical payments: cohabitation) 2005 EWHC 2886. Here Coleridge J put forward a case for a revised approach to cohabitation praying in aid the changes in the public perception of cohabitation as “normal, commonplace and as acceptable as marriage”. In K v K Coleridge did not end maintenance for the W. He did however reduce and then capitalised it.

However H v H has been appealed on the cohabitation issue and is now reported as Grey v Grey 2009 EWCA Civ 1424. H’s 2 main submissions were:

1. The judge had failed to make proper findings of fact regarding the relationship between W and Mr Thompson.
2. The judge misdirected himself in law, failing to apply established authority and rejecting a submission that a new approach had emerged based on a proper recognition of the inter relationship between pre marital and post marital cohabitation.

W had admitted in cross examination that Mr Thompson and she were in “a fixed permanent relationship”. It emerged that Mr Thompson was a Group Programme Director for a group running a large number of radio stations across Europe. At trial Singer J had drawn a distinction between the present case and the case of K v K which had dealt with a settled cohabitation of 5 years and said “Making every possible allowance for the lack of candour or even downright dishonesty on the part of W her relationship with (Mr Thompson) is some way from that”.

On appeal Thorpe J accepted Mr Pointer QC’s submission that the judge’s finding was inadequate. Whilst the judge correctly directed himself in law by reference to the case of Kimberly v Kimberly 2000 1 FLR 383 where social security authorities were reviewed to assist in the question of what constituted cohabitation, it was not enough for the judge to resolve this issue by simply saying:

"They may or may not cohabit- an unsatisfactory word and concept in my long- held view, vague as to quality and duration and not a reliably valid indicator of anything long term.”

In Thorpe LJ’s view the judge should have approached the question thus:

1. The unchallenged evidence established cohabitation for 5 weeks of surveillance;
2. W had presented a false case in preparation for the trial and at the trial itself.
3. W’s motive for her false case was to protect her claim for periodical payments from reduction to reflect Mr Thompson’s arrival in her life.
4. W’s explanation for Mr Thompson’s presence was fundamentally implausible.
5. The judge should not have accepted W’s evidence on this topic without corroboration.

Thorpe LJ said that in ancillary relief proceedings the judge was not confined in the search for fairness by the nature of counsel’s submissions nor is he bound by the evidence that the parties chose to adduce. (Is this a hint of a more inquisitorial approach?)

Thorpe LJ felt that he could not be fair to H without investigating whether Mr Thompson was making any financial contribution to the household and, if not what his capacity was to make a contribution. Although Mr Thompson, who was a resident of the Irish Republic, was not a compellable witness, that circumstance did not prevent investigation. The judge had only to require W to produce evidence of Mr Thompson’s means or risk the drawing of adverse consequences.

However Thorpe J felt that there are two points that must be considered:Firstly S28 (2) MCA does not apply to cohabitation. Thus in the absence of legislation there can be no automatic termination of periodical payments. Secondly, at present the status of cohabitation does not ordinarily lead to a financial claim against the partner. Thus the breakdown of the new relationship may lead to financial hardship for the dependant ex- spouse if she is unable to be self sufficient.

Mr Pointer QC suggested a practical solution to these difficulties:

1. If settled cohabitation be established then as a matter of ordinary practice that ought to lead to no substantive maintenance payments being made.
2. In a case where the court has continuing concern as to the dependant’s ability to become self sufficient and has no obvious recourse against the cohabitant then a nominal order should be made.

Thorpe concluded that Singer J did not direct himself correctly in law. “It was plainly open to the judge to discount the periodical payments claim to reflect the relationship between W and Mr Thompson applying the orthodox line of authority culminating in Fleming.....The judge should have attached significant weight to the new relationship and investigated its financial consequences fully. ...The appeal must be allowed. What other orders should be made depend upon an assessment of Mr Thompson’s financial circumstances and an assessment of his capacity to contribute to the W’s economy.”

The further investigation and judgment were remitted to Singer J before whom H’s alternative application for variation of the periodical payments was fixed for a 3 day hearing in the New Year.

D. Relationship related disadvantage is alive and well
In Hvorostovsky v H 2009 EWCA Civ 791 H was an opera singer and W a ballerina in a 12 year marriage. H and W married in Russia and moved to England to further H’s career. Proceedings compromised and H earning circa £550k per annum agreed to pay W £113k from offshore funds for W and children. W came back to court. H was by then earning £1.86m gross. Judge fixed W’s pps at £120k; £12,500 for each of 2 children plus school fees with total cost to H of £170K net. Grossed up amount needed to meet the order was £285K. Originally W had received 30% approx of H’s income for herself and children and this fell to 20% on the application for variation. W said that the DJ, having found that W had moved to London to promote her H’s career and was incapacitated by her commitment to the children and by her lack of qualification and English, had failed to reflect that relationship related disadvantage in his award. Having regard to the need for proportionality W’s pps were increased to £140k per annum. HELD Reasonable requirements should not be a limiting factor in cases where payers had acquired an ability to pay more than the payee’s financial needs.

CONCLUSIONS:

• There is no formula to help us; the range of percentages of payer’s incomes awarded is quite large from 10% in the original VB v JP to 40% plus in McFarlane.
• There is no starting point of equality or one third. The court looks at need, generously interpreted in some cases.
• Indeed the courts can be generous in the exercise of their discretion. See S v S. It should be noted that in that case the hobby of horse riding was a hobby that had played an important part of the parties’ lives during the marriage.
• Be realistic when drafting Form E.
  • Following the recent case of Vaughan the court will not give priority to a first W over a second W or vice versa.

For further information email Margaret Hatwood or call 020 7940 4000.