Is it fair that one spouse should not share an income stream built up during the marriage?

Divorce|July 30th 2019

The concept of ‘fairness’ lies at the heart of the law governing financial settlements on divorce. One ‘strand’ of fairness is what is known as the ‘sharing principle’. The sharing principle derives from the basic concept of equality permeating a marriage. Marriage, as it is often said, is a partnership of equals. Thus the sharing principle dictates that when their partnership ends each spouse is entitled to an equal share of the assets of the partnership, unless there is a good reason to the contrary.

The question, then, is: what are the ‘assets of the partnership’ (which we usually refer to as ‘matrimonial property’)? Well, they essentially comprise assets acquired by either or both spouses during the course of the marriage (i.e. between the marriage and the separation), save for gifts or inheritances. Thus if, for example, the couple acquired £1 million worth of assets during the marriage, then they could each expect to receive half upon divorce.

But we are only talking here about capital assets. What if one spouse acquired an income stream during the course of the marriage. Surely, fairness would dictate that the other spouse should be entitled to a share of that?

Well, no. It was clearly established last year in the case Waggott v Waggott that the sharing principle does not apply to an income stream (for further details on that case, see this post), and the recent High Court case O’Dwyer v O’Dwyer has confirmed that, despite what some may consider an unfairness to Mrs O’Dwyer.

The O’Dwyer case concerned an appeal by the husband against a spousal maintenance order made, coincidentally, by His Honour Judge O’Dwyer in the Central Family Court.

The relevant circumstances of the case were, briefly, as follows. The parties were married in 1988 and have four grown up children. The husband is 62 and the wife is 60. They separated in March 2016. For many years the husband ran a business, which the parties agreed had a net value of some £2.4 million. The total assets of the marriage, including the business, were worth some £5.8 million. The parties agreed that this was a “paradigm sharing case”, given the length of the marriage and the full contributions that they had each, in their different ways, made. Accordingly, each party would receive some £2.9 million.

But Judge O’Dwyer went further. Aware of the fact that the husband’s business would produce for him an income of approaching £1 million a year, he made a maintenance order in favour of the wife, in the sum of £150,000 per annum. In doing so he queried why after the divorce only the husband should continue to live well upon that income, when clearly it was the product of matrimonial endeavour? He then said this:

“…it is clear that the business itself produces these incomes and of course although Mr O’Dwyer should have credit for the management of the business to a significant figure [sic] however the ownership of [this business] is much valued asset [sic] for the income stream. I identify that [it is] matrimonial property. I identify that [its] value is not only the capital value at this point but also the income that [it] will produce over the coming years.”

(For simplicity I have referred to the business in the singular.)

The husband appealed against the maintenance order, on the grounds that it contravened the principle established in the Waggott case.

The appeal was heard by Mr Justice Francis in the High Court. He accepted that it was now settled law that income cannot be shared, and said that an award of maintenance must usually “be based on properly analysed arithmetic reflecting need, albeit that the judge is still left with a significant margin of discretion as to how generously the concept of need should be interpreted.”

Various arguments were put forward on behalf of the wife to distinguish Waggott from the present case, such as that the marriage in this case was much longer, and that the wife would be suffering a considerable relationship generated disadvantage if the income was not shared. Mr Justice Francis rejected these arguments: Judge O’Dwyer had been plainly wrong to identify the income stream of the business as matrimonial property.

Mr Justice Francis then did the arithmetic. He found that the wife’s income needs were £120,000 per annum, and that she should be able to realise some £52,000 per annum from the capital she had left after rehousing herself. Accordingly, he made a maintenance order for the difference, £68,000 per annum, in place of the previous order for £150,000 per annum. In doing so he did make this comment:

“It is clear that, in selecting the figure of £150,000 per annum by way of periodical payments, the judge intended that the wife should preserve her own capital during the period of the [maintenance] order. I accept that to the wife there may seem to be an unfairness in the fact that she has to start living on her capital straightaway … whereas the husband does not. That, it seems to me, is the inevitable and direct consequence of the fact that an earning capacity is not subject to the sharing principle.”

You can read the full judgment here.

John Bolch often wonders how he ever became a family lawyer. He no longer practises, but has instead earned a reputation as one of the UK's best-known family law bloggers.

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