Divorce can be an extremely challenging process for all parties, both emotionally and in terms of the legal procedure involved. One of the most sensitive and crucial aspects of a divorce, after children and childcare arrangements, is the arrangement of finances.
If you have recently began divorce proceedings and are concerned as to the division of your assets with your estranged spouse, please contact us and our specialist family solicitors would be glad to guide you through the process and provide clarity on any concerns you may have.
The main difficulty with a financial remedy, which is also commonly referred to as ancillary relief, is the division of assets between the parties. Generally, the starting point in financial remedy cases is the sharing principle which was introduced in the precedent case of White v White. The sharing principle states that “as a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so.”
However, in the most recent case of Waggott v Waggott  EWCA Civ 727, it appears that the courts have taken a different approach to the division of assets as some argue that this case has paved the way to stray away from the sharing principle.
The above case involved Mr and Mrs Waggott who were married for 21 years. The couple initially lived in Manchester and they were both employed as accountants; the marriage bore the couple with one child. In 2001, Mr Waggott was able to secure employment in London and as such Mrs Waggott decided to stop working in order to allow Mr Waggott to accept the offer of employment in London and further progress in his chosen career. During this period, Mr Waggott was able to earn a significantly high income thus increasing his earning capacity which allowed the couple to have live a luxurious lifestyle. It should be noted that this was a case concerning high net worth individuals as Mr Waggott had an income of approximately £3.7 million per year after tax. The marriage broke down and the couple commenced proceedings to legally end their marriage. The main issue within this case related to the division of assets and whether Mrs Waggott was entitled to receive an equal share of Mr Waggott’s post-separation income instead of being in receipt of spousal maintenance payments based solely on her financial needs.
What was the outcome?
The courts decided that Mrs Waggott should receive capital valued to the sum of £9.76 million and that her financial needs were to the sum of £175,000 per year. It was further decided that any shortfall had to be covered by Mr Waggott through spousal maintenance payments which were ordered to be paid on a joint lives basis. Spousal maintenance payments via of this kind means that one party must continue the payments to the other until either party passed away, or if one party remarried, or if the Court made another order.
Usually, the courts will consider the potential future earnings of each party and make a reduction accordingly, however the courts did not make a reduction for Mrs Waggott’s future earnings as the judge deemed this to be unfair due to the fact that Mr Waggott’s significantly high income and Mrs Waggott’s employment and future earnings seemed unclear.
However, both parties appealed the decision having not agreed with the judgment and the order made.
What were the grounds of appeal?
The appeal was based on the following grounds:
- The court should have considered Mr Waggott’s income following the separation as his earning potential was aided by Mrs Waggott. It was therefore argued that the post-separation income should be shared equally in accordance with the sharing principle.
- The court was unfair and discriminatory because it made an award which rendered both parties in serious financial inequality as Mrs Waggott would be left in a much weaker position to successfully continue her separate life due to Mr Waggott’s high earnings. Again, it was argued that Mr Waggott was only able to obtain such an earning capacity as the breadwinner which Mrs Waggott had to give up on and become the homemaker instead. In summary, the award discriminated in favour of Mr Waggott, the breadwinner, and that it was insufficient to give such an award to Mrs Waggott only because it met her needs as this is straying from the sharing principle.
- It should not be required of Mrs Waggott to rely on her capital to meet her income needs as the same is not required of Mr Waggott.
- The courts should award Mrs Waggott with open-ended maintenance as she would be placed in undue hardship once payments cease.
The legal representative for Mr Waggott stated that the sharing principle should not apply to an individual’s earning capacity. It was further stated that it is fair to terminate the share of financial resources if the needs of both parties are met as otherwise, this would not allow for a clean-break rendering one party with the right to continuously rely on the financial assets of the other party long after their divorce.
What was the final judgment?
It was stated that the sharing principle does not apply to the earning capacity of an individual and that this principle could only be applied if this was the only way in which she could meet her reasonable needs.
The Court of Appeal further stated that Mrs Waggott will need to use her capital to satisfy her financial needs once the spousal maintenance payments end which should allow a clean break but without placing Mrs Waggott in an undue hardship. It was argued that if the sharing principle was further applied to post-separation income, it would not allow the court to effectively implement a clean break.
The final judgment stated that the spousal maintenance payments would cease in 2021 which would allow a clean break to take place. Mrs Waggott’s income to be derived from her pension would only start in 2028 and as such Mrs Waggott is expected to rely on her invested capital for seven years, from the termination of maintenance payments in 2021 to the start of her pension in 2028.
This would therefore allow Mr Waggott to rely on his substantial income in its entirety as well as his capital and income from investments.
What is the impact of this judgment on homemakers?
This case suggests that there is now possible discrimination in favour of breadwinners thus leaving homemakers in an unequal financial position making it harder for homemakers to have the same chance in starting their lives separately.
As stated in the case of White v White, there is no place for discrimination between the breadwinner and the homemaker. However, this judgement has seemed to stray from this point with the decision to expect Mrs Waggott to rely on her capital to bridge the gap between the end of her maintenance payments and the start of her pension income which Mr Waggott is not required to do.
It should be noted that Mrs Waggott invested 21 years of her life in her marriage as a homemaker in order to allow Mr Waggott to further progress his career, without which he may not have had his earning capacity. Mrs Waggott had also not been in employment for some time, therefore, placing her in a difficult predicament in terms of her ability to secure employment and rely on her own income. It can be argued to some extent that homemakers may no longer face an entirely fair financial award and that the courts are now starting to favour breadwinners. The sharing principle has not been applied to its full potential in this case which is concerning as this may now pave the way for the courts to follow a similar approach thus placing homemakers in an unfair financial position and an uncertain future despite their investment and efforts as homemakers. This case has definitely highlighted the discrimination that could potentially be made against homemakers.
We have a dedicated team of solicitors who will be able to provide you with clear and detailed advice in a compassionate and friendly manner as we understand that financial arrangements in divorce can be a very sensitive and challenging time.