Sharing excess income: compensation for lost careers

On the divorce of a dual career couple, the law will look to see if the housing and income needs of both parties and then may make a further award of income from the higher earner to the lower earner. Many couples make a choice when they have children for one either to work part time, or if they can afford it, give up work to look after the children so that the other can pursue higher earnings. If the non-working spouse had a good career in view, the law on divorce looks to compensate him or her for loss of that career, from the higher earnings of the other. This can result in the claiming spouse receiving much more than his or her budgetted needs, even if he/she does not go back to work on divorce. Income for support of the children is paid in addition.

But what happens when the higher earning spouse then continues up his/her career ladder? In a High Court judgement given on 18th June 2009, the judge decided that a first wife, who had been awarde £250,000 a year (in addition to £20,000 a year plus school/college fees for each of three children) should have her income increased to £350,000 a year (and that for the children to £25,000 each) because the husband had continued to earn more as he was promoted in his accountancy firm. The marriage had broken down in 2000, and his promotion had come during the course of his second marriage. The judge examined aspects such as the need to insure the husband’s life, and to provide securely for the first wife’s old age. There was insufficient capital to provide for a clean break, largely because the couple spent a basic amount between them of some £250,000 a year and had in fact paid off previous mortgages from income, and lived in expensive houses.

The first round of litigation between this couple had ended in a judgement of the House of Lords, the highest court, and on this second occasion the husband had dispensed with solicitors. The wife retained the team who had been successful for her first time round.

Coupled with the increasing rates of income tax on high earners, and compulsory retirement from their jobs in their 50s, many former spouses may begin to question whether they can or want to go on working so hard for the benefit of the Chancellor and of their ex spouse. They may also advise their younger colleagues against marriage. Head of Family Law Department at Cumberland Ellis LLP, Hazel Wright advises such people either to invest in a cohabitation agreement (the law is currently generous if an unmarried couple’s relationship breaks down after the birth of children) or, if they do intend to marry, in a pre-nuptial or post-nuptial agreement providing for future difficulties.

Divorcing couples should create a formula for variation dependent on increase/decrease and should consider using collaborative family law processes to make sure that the solution suits them both, and is not one imposed by a judge.