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Waggott v Waggott: ‘Meal ticket for life…?’

Wed 25th Jul 2018

In the last twelve months the financial remedy world has had to get to grips with two key Court of Appeal decisions – Hart and Sharp – which deal with issues including matrimonial and non-matrimonial property, short marriages and sharing. To complete the trio, in April of this year, along came Waggott v Waggott [2018] EWCA Civ 727.

The Facts

The Husband was 53 and the Wife 47.  They commenced cohabitation in 1991, married in 2000 thereafter separating in 2012. This was, on any view, a long marriage. There was one child of the family, aged 14. At the outset of their relationship both were accountants working at the same firm. Following a job offer for the Husband, the family relocated to London in 2001 and, save for a short period of employment in 2002/2003, the Wife didn’t work again. The parties agreed that the capital, eventually determined to be £16.4m, should be shared equally.  They also agreed that the Wife should receive an element of the Husband’s bonuses. There was however a dispute as to which bonuses should be included and the relevant percentage. The Wife sought joint lives maintenance of £190,000 per year and the Husband offered stepped maintenance of £80,000 for 3 years, £50,000 for 2 years and thereafter a clean break.

First Instance

The Wife was awarded 50% of the capital and an element of future bonuses such that her capital award was £9.76m together with joint lives maintenance of £115,000 per year. The effect of this was that after buying a property and excluding pensions the Wife had ‘free’ capital of £3.5m, which at 1.75% return would provide her with £60,000 per year (and thus make up her income to meet her needs of £175,000). The judge did not consider that the wife could adjust without undue hardship to the termination of maintenance.

On Appeal

The Wife appealed and argued that:

a) She was entitled to a greater share of the Husband’s post separation income by application of the sharing principle, arguing that an earning capacity is a matrimonial asset;

b) Having found that the Wife had not suffered a relationship generated disadvantage, the compensation principle had not been applied properly as it failed to take account that the Husband has sustained a relationship generated advantage (his earning capacity); and

c) It was wrong to attribute any income from her capital as she should not have to use her share of the assets to create an income when the Husband does not have to.

The Husband cross appealed arguing that a term should have been imposed.

Decision

Moylan LJ gave the lead judgment. Turning to the key issues…

(a) Earning capacity – matrimonial asset?

Is an earning capacity a matrimonial asset subject to sharing? No.

The headlines:

  • Any extension of the sharing principle to post-separation earnings would fundamentally undermine the court’s ability to effect a clean break. Looking at its impact more broadly, it would apply to every case in which one party had earnings which were greater than the other party, regardless of need.
  • It would inevitably require the court to assess the extent to which the earning capacity had accrued during the marriage. Moylan LJ posed the question: where would the court start and by reference to what factors would the court determine this issue?
  • Miller and subsequent cases, in particular Jones and Scatliffe, do not support the extension of the sharing principle to an earning capacity.  The sharing principle applies to marital assets, being ‘the property of the parties generated during the marriage otherwise than by external donation (Charman v Charman (No 4), para 66).  An earning capacity is not property and, in the context advanced by the Wife, it results in the generation of property after the marriage.

(b) Compensation: relationship generated (dis)advantage?

Is the compensation principle to be applied not only when the applicant has sustained a financial disadvantage in his or her prospective career but also when the respondent has sustained a financial benefit? No.

Referring to Miller, Moylan LJ notes that compensation is for the ‘disadvantage’ sustained by the party who has given up a career.  The benefit to the other party’s career is an assumption rather than an evidential issue which has to be determined, in part because of the difficulty of undertaking any such exercise. As a necessary factual foundation the court would have to determine, on a balance of probabilities, that the applicant’s career would have resulted in them having resources greater than those which they will be awarded by application of either the need principle or the sharing principle.  Further, the court must separately determine whether, and if so how, this factor should be reflected in the award so as to ensure that it is fair to both parties.

(c) Creating an income from a party’s share of the capital assets

Is it wrong to attribute any income from capital received by application of the sharing principle when the other party does not have to do so? No.

Moylan LJ referred to this as the Wife’s ‘more extreme’ argument, concluding that this, again, would conflict with the clean break principle to such a significant extent as to undermine the statutory “steer” because, absent other resources, the applicant spouse would always have a claim for an additional award to meet his or her income needs. Miller and Charman make clear that, as a matter of principle, the court applies the need principle when determining whether the sharing award is sufficient to meet that party’s future needs and, further, there is no suggestion that the question of needs for these purposes is to be determined by reference to a different need principle, or more broadly, by means of a different approach.

As to the specific issue raised in this case, namely whether it is fair for an applicant spouse to be required to use their sharing award to meet their income needs when the other spouse will meet their needs from earned income, the answer is that the latter factor will be relevant to the court’s determination of the former issue.

Husband’s Cross Appeal

In relation to the Husband’s cross appeal Moylan LJ said:

“The judge determined whether to impose a term maintenance order by reference only to whether the wife would be able to earn the shortfall between her income needs and the amount generated by her free capital (para 25 above).  He decided that, by this measure, she could not adjust without undue hardship.  For the reasons set out above this was too narrow an approach.  The judge should have addressed the issue more broadly including by considering whether it would be fair for the wife to deploy part of her capital to meet her income needs.  This broader consideration was required both so as properly to address the question of undue hardship and also so as to give proper weight to the clean break principle” (para 146)

A periodical payments order to March 2021 with a s.28(1A) bar was imposed.

Implications in practice?

This case puts to bed the suggestion that a future earning capacity is a matrimonial asset. Clarity is also provided in relation to the court’s approach to the suggestion that the compensation principle is to be applied both ways – where one party sustains a financial disadvantage or where the other party has sustained a financial benefit. This case also highlights the significant risks to litigation and pursuit of appeals… having secured a joint lives order of £115,000 per annum, the Wife’s maintenance will now come to an abrupt end in March 2021, with no prospect of extension.

In my view, Waggott is another decision to add to the armoury when representing the main breadwinner and is helpful in seeking to achieve an immediate clean break. If representing the economically weaker party, this decision is unhelpful and is another indication that the law in relation to spousal maintenance is much less generous than it used to be. Achieving a joint lives maintenance order, in my view, just became that little bit harder…

Emily Ward

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