Maintenance: A fair adjustment?

Mills v Mills [2018] UKSC 38 was a landmark decision widely reported because of the perceived unfairness. H was being asked to pick up the bill for W’s increased income needs after her unwise investments meant his original court-ordered provision no longer allowed her to meet all of her outgoings. The Supreme Court unanimously agreed it was unfair to expect H to meet W’s increased housing needs in full, but the original spousal maintenance order remained in force of £1,100pcm. Applying SS v NS, W’s unwise decisions were not ‘relationship generated’ nor were they the result of decisions made during the marriage. The court was entitled to decline to increase an order for spousal maintenance therefore even when the payer could afford to do so.

Next came Waggott v Waggott in 2018 and a major challenge to the principle in SS v NS of whether income earned post-separation should be subject to ‘sharing’ as well the ‘needs’ principle. Theirs was a 21-year marriage, with one child. Both began careers as accountants, but a joint decision was made that W would give up her career to be a homemaker, allowing H to accept the job offer which ultimately led to his substantial earnings of circa £3.7M net when the marriage ended. At first instance, W received spousal maintenance of such amount to bridge the shortfall between her assumed net income of £60,000 from investments and her annual income needs of £175,000. The judge considered W could not adjust to financial independence without undue hardship and a joint lives order was appropriate. Both parties appealed.

On whether an earning capacity is a matrimonial asset and subject to the sharing principle, Moylan LJ was clear that "there are a number of reasons why the clear answer is that it is not". It would undermine the court’s ability to order a clean break and would lead to the court in every case where the parties’ earnings were unequal having to assess the extent to which earning capacity had accrued during the marriage. In short, it would be unworkable. The sharing principle therefore applies only 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 results in the generation of property after the marriage. The sharing principle therefore does not apply to earning capacity, despite W’s claim that she had helped build the husband's earning capacity and her ongoing contribution in being the main carer of the children, an approach that many considered discriminatory. It was clear, however, that the need for finality overruled such alleged discrimination in the process.

The Court also rejected W’s claim that her capital should be protected and not be used to meet her income needs. The Court held 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". The Court held 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".

The Court also held "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".

In respect of the compensation principle the Court did not accept W’s argument either. The Court held that it is clear from Miller "that compensation is for the disadvantage sustained by the party who has given up a career."

However, the Court allowed H’s cross appeal. It held that 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, and as such she could not adjust without undue hardship. The Court held that this was too narrow an approach and the issue should have been addressed 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".

The Court therefore imposed a 3-year term order expiring on 1st March 2021 with a section 28(1A) bar. The message was clear: a term order, soonest transition to financial independence and only sharing of marital assets, not a marital generated earning capacity.

Quan v Bray & Ors 2018 came after Waggott. Mostyn J was satisfied H could continue to earn ‘significant reward’ from his skills in financial advisory work and awarded W periodical payments of £64,000 per annum CPI linked on a joint lives’ basis. Mostyn J acknowledged that a limited term for periodical payments should be imposed unless this cannot be achieved without causing undue hardship and that "the courts goal should be wherever possible to achieve, if not immediately, then at a defined date in the future, a complete economic separation between the parties" (para 48). However, W had no assets and a considerable debt to those advising her so a ‘safety net’ mitigated against the hardship of a term order and justified a joint lives order.

In "equally exceptional" fashion, Mostyn J adjourned W’s capital claims, concurring with the analysis of Sir Peter Singer in Joy v Joy Morancho & Ors No 3 [2015], in which it was acknowledged that there are hard cases in which fairness and justice must prevail over the normal desirability of finality in litigation. Mostyn J viewed it as foreseeable that H will in future have accumulated sufficient sums to make a clean-break capital settlement W, justifying an adjournment of her capital claims.

In WG v HG [2018] EWFC 84 neither party could afford to live at the rate presented in their Form E budgets. The court agreed with the comment of Mostyn J in SS v NS that ‘it is a mistake to regard the marital standard of living as the lodestar’ and the observations in BD v FD [2016] that, “the use of the standard of living as the benchmark emphatically does not mean that, as referred to above, in every case needs are to be met at that level either at all or for more than a defined period . . .”

In C v C 2019 Roberts J ordered a clean break per Waggott. The parties were both investment bankers, with W at one point earning more than H. During the marriage, given the level of H’s remuneration package, the parties had built up assets of over £25m. Part of H’s bonus comprised deferred equity participation (i.e. stock units), for which he realised the funds when they vested. However, as is usual in the banking industry, these awards were susceptible to a claw-back over a fixed period if performance targets were not met. The court provided W with just over 50% of the assets on a clean break basis, allowing H to retain his post-separation accrual. The effect was that W would have her housing and income needs met but unlike H, whose income needs would be met from his significant remuneration, W had to rely on her capital. No spousal periodical payments were ordered.

Most recently, AJC v PJP [2021] EWFC B25 applied SS v NS on determining whether a long-term nominal spousal maintenance order should be converted into a substantive order, and whether this could happen because of financial difficulties arising from the lockdown. W had applied to convert a nominal order made in 2012 into a substantive order, as a short-term measure until she was once again self-sufficient, arguing that this should be treated as an ordinary variation application. After discussing the potential incompatibility of such nominal orders with clean break legislative changes, DDJ David Hodson held that it was not appropriate to convert the nominal order into a substantive order, and dismissed the application. A nominal order was only to be converted if there had been a significant change in circumstances. Losing a job due to the pandemic could not, he said, be ascribed to relationship generated disadvantage. He declined to dismiss the nominal spousal maintenance order altogether, but said he would be surprised if circumstances ever justified bringing it back to court. It begs the question, therefore, what circumstances would ever qualify in a post SS v NS world.

Where does the post SS v NS journey take us?

• An assessment is based on needs only, as Mostyn J made clear;

• There is no sharing element of an earning capacity generated during a marriage, sharing applies to marital assets only;

• The standard of living enjoyed during the marriage is not the lodestar; it is not set in stone;

• The day of the nominal maintenance order being a safety net is probably gone and I question the effectiveness of these now in court orders.

• Joint lives orders are now the exception rather than the norm. They can be used to ‘stockpile’ in limited cases, where there is insufficient capital to meet needs, or where W cannot adjust to complete financial independence, per Mills.

• Former spouses do not pick up the bill, and essentially pay for a need twice, for unwise decisions made in how a capital settlement has been invested.

• Term orders with quantum tapering off over a number of years (whether extendable depending on circumstances) will be made unless there is a risk of undue hardship by doing so.

• Any bonus element of periodical payments earned during the marriage but not yet paid will most certainly not be extendable, covering just the period earned with marital efforts.

• Payees must mitigate their loss by seeking to generate income to meet at least part of their own income needs post separation, particularly when children are in Year 2 upwards, i.e., aged 7.

• In significant wealth cases, W will be expected to meet her income needs from her share of capital and investment income, often capitalising income needs to increase her share to more than 50%.

The caselaw since 2015 reflects the modern, less paternalistic approach to spousal maintenance, protecting former spouses from undue hardship but with judicial encouragement to earn for themselves and become financially independent soonest. Sounds fair to me.

Deborah's article was published in the September 2022 issue of Family Law Journal, and can be found here.