Earning capacity 'not part of divorce sharing principle'

A wife has been told that her husband’s earning capacity should not be part of a financial settlement after they divorce.

The court held that it was not a matrimonial asset to which the general sharing principle applied.

The ruling could mark a significant change in the way courts regard divorce settlements.

The case involved William and Kim Waggott, who married in 2000 and separated in 2012. They had one child. When they started living together in 1991, they were both working as accountants and had no significant wealth.

In 2001, Mr Waggott took up new employment which required them to move home and for Mrs Waggott to leave her job. She did not return to work. By the time they separated, he was the finance director of TUI travel and they had capital assets worth £14.4m.

Mr Waggott’s estimated income for the 2015 tax year was £3.7m, a substantial proportion of which consisted of discretionary bonuses.

The judge at the first hearing determined the wife's housing need as £3.25m and her annual income need as £175,000. She was awarded continuing maintenance to bridge the gap between her assumed net income from her free capital and the sum of £175,000.

No reduction was made for assumed future earnings on her part. She appealed, claiming entitlement to 35% of the husband's net bonuses payable up to 2019, and ongoing annual maintenance of £190,000.

The Court of Appeal ruled against her. It held that earning capacity wasn’t a matrimonial asset to which the sharing principle applied.

Any extension of the sharing principle to post-separation earnings would fundamentally undermine the court's ability to produce a clean break, since the entitlement to a share could potentially continue for a period of many years.

Giving judgment, Lord Justice Moylan said: "The expression 'meal ticket for life' can be used as an unfair trope. I, of course, acknowledge that long-term maintenance can be required as part of a fair outcome.

"But it is plain to me that the wife would be able to adjust without undue hardship to the termination of maintenance.”

He added that Mrs Waggott would be able to make up the "shortfall" created by the loss of the maintenance payments by investing some of her huge pay-out and living off the interest.

If that was not enough to meet her financial needs, she "would be able to obtain employment" from next year.

The court allowed Mr Waggott’s cross-appeal for a clean break after five years.

Please contact us if you would like more information about the issues raised in this article or any aspect of family law and divorce proceedings.

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