News and insights from our Family Law team
Earnings after divorce - will they be shared?
- AuthorNeil Denny
The recent case of O’Dwyer v O’Dwyer has revisited this thinking and provided some additional thoughts on the circumstances where a high earner might still have to support their spouse.
There are several questions that need to be asked when considering if there is going to be a maintenance order or not; remember, the fact that one partner earns more than the other does not mean that maintenance will be automatically payable.
Consider the following issues ...
Can the lower earning partner demonstrate a valid need for ongoing maintenance in order to meet living expenses?
What are the living expenses?
Be aware that a court would assess living expenses generously as opposed to looking at the bare minimum.
The degree of generosity to be applied will increase with the overall level of income earned by the couple. The outgoings of a family earning £50,000 before tax will, after all, be very different to a family where the combined earnings are in the region of £150,000 upwards.
Compare these living expenses with the lower earning partner’s income. If there is already a surplus of income over needs, then there may not be a valid claim on the other partner’s higher income.
If there is a shortfall, then be aware that maintenance is still not automatic.
Income from capital
Can the lower earning partner generate income from any surplus capital that they will have after paying for housing and other essentials? It will be necessary to show what returns could be earned on invested surplus funds and how. If no income can be generated, then again, be ready to explain why not.
This investment income should go towards paying the lower earner’s living expenses before they can succeed in making a claim against the higher income earner.
Even then, if there is still a shortfall, then a maintenance claim is still not going to succeed automatically.
Amortisation of capital – what does it mean and what is the effect?
Amortisation of capital is the process where the capital savings are reduced month by month to supplement the lower earner’s income. Essentially, they withdraw a part of their savings or investments every month to add on to their income and any interest or return generated by investing capital.
As a result they are able to meet their own income needs but their capital reserves reduce, or amortise, over time.
What happened in the O’Dwyer case?
In O’Dwyer, the court originally ordered that she should receive capital for a home, car and other essentials together with surplus capital that would leave her with £1.7m to invest.
The husband’s income was in the region of £400,000 net a year. He was ordered to pay his wife £150,000 maintenance a year.
He appealed the decision on the basis that the judge had assumed that his high income, after the marriage, should be shared.
The thought process on appeal was as follows.
- There is no automatic presumption of sharing post-marriage income, even if one party’s income is very high.
- Consider the lower earner’s income to include any interest or returns on non-housing capital, savings and investments; Mrs O’Dwyer was assessed as being able to generate returns on her surplus capital amounting to £52,000 a year after tax.
- Calculate the lower earner’s reasonable but generously assessed income needs. Compare this with their income and consider if there is a shortfall. In this case, there was a shortfall; her needs were re-assessed at £120,000 (originally £150,000) per year and she was able to generate £52,000 herself. She had a shortfall, therefore, of £68,000.
- Should the shortfall be made up by making withdrawals on surplus capital – amortisation? In this case it was held that Mrs O’Dwyer should not have to do so immediately. This was because her husband would not have to draw down on his capital for another five years or so until his own retirement.
- Therefore, the husband was ordered to pay £68,000 until his 66th birthday, being his date of retirement. This topped up the £52,000 his wife could generate through investing her surplus capital, providing her with a total of £120,000.
- Note how this maintenance order was not required because his high income had to be shared. The new reduced sum was ordered because that was the shortfall between his wife’s income and needs and because she was able to argue that she should not have to reduce her invested capital or savings to make up the shortfall for the next several years.
Compensation-based claims for maintenance?
There is another basis for calculating maintenance claims which is based on compensating one of the married couple for having lost out on an income or career of their own as a result of the marriage. That aspect did not arise in the case we are looking at here and will be the subject of a future article of its own.
What does this mean for you and your family?
If you are thinking about or going through divorce then you need to take careful, independent and expert family law advice. Every case will be decided depending on its own circumstances. The reported case and process set out above is a helpful guideline and your solicitor will be able to advise you on how it applies to your own situation. You can call our team of family law solicitors in Spalding on 01775 842500 or Neil Denny, divorce lawyer, in Nottingham on 0115 9454425.