A common question asked in cases where one person in a marriage earns significantly more than their spouse is “why can’t I share in my spouse’s future income?”
In many cases the spouse with the high income will have built up that income capacity through the marriage and will have the ability to earn at a higher level than their spouse for many years after a divorce takes place.
It is enshrined in family law that the financial division of assets between divorcing couples should be equitable and fair, with the starting point being an equal distribution of assets. However there are frequently cases where there is a very good reason for there to be “departure from equality” with one spouse receiving a greater than 50% share of the capital.
This being the case, why in these circumstances should the spouse with the lower income not receive an equal share of the parties combined income?
This question has been considered by the courts on several occasions over the past few years.
The starting point for consideration of a spouses claim for spousal periodical payments is a consideration of their income and needs on a ‘generously assessed’ basis. The court must effectively consider what the reasonable budget for the claiming spouse is, consider how they can meet that budget from their own income and resources which could be from one or more source, such as paid employment, investment income, benefits, and child support payments.
The court must then consider whether the higher earning parties income exceeds his or her needs and determine in the light of these considerations as to whether or not it is fair for an order for spousal maintenance to be made and if so, for how long.
The matter was considered by the Court of Appeal in 2018 in the case of Waggott v Waggott. In that case the wife argued that an earning capacity is “an asset referable to or the product of marital endeavour and should, therefore, be divided between the parties by application of the sharing principle as with other marital assets”.
She further argued that she should not be required to use her capital to invest and produce income to assist meeting her income needs, which she argued should be met purely by an award of periodical payments.
The court refused the wife’s application citing a number of reasons why income capacity is not an annual asset capable of being shared. These included:
The matter was considered again by Mr Justice Francis of the High Court in the case of O’Dwyer v O’Dwyer in 2019. The Judge held that income cannot be considered to be a future asset upon which sharing can be based, and maintenance payments must be paid only by consideration of a careful calculation of the claiming spouse’s income needs.
The Judge did however comment that the trial Judge retained a broad discretion as to what income needs were and how any surplus capital could be equalised to meet those needs.
In a case of C v C in 2018 the wife sought to argue that her post separation contributions in bringing up the children of the family, matched the post separation contributions of the husband in the form of earnings he sought ring-fenced.
The court rejected this argument, commenting that an earning capacity is not matrimonial property subject to the sharing principle.
In the case of CB v KB in 2019 the husband was a musician who played in a famous rock band.The issue before the court was whether his wife would receive a share of her husband’s share of the bands’ future ticketing and merchandise revenue from ongoing tours. The husband had agreed that his wife could receive a share of his income from royalties and other income generated by the band.
The Judge commented that the husband’s future income would be based on future touring and that his wife would not be entitled to a share of it. The Judge reiterated that it was reasonable to expect the wife to use capital to generate some of her future income.
The key points to take from these recent cases is:
This article was written by Michael Sheville, Partner in the Family Law Team. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of March 2021.