Pearce v Pearce

On discharging future periodical payments under section 31(7A)–(7B) of the Matrimonial Causes Act 1973, the court must substitute fair provision for the terminated income stream and complete the clean break. It must not reopen capital claims settled by a final order or redistribute capital to reflect later investment outcomes or changed prosperity.

The court should first determine any variation of maintenance, then its effective date, and only then capitalise the future payments. Duxbury provides the usual starting point, subject to a narrower discretion for special case-specific factors. Where available, a pension-sharing order equivalent to the payments should be considered before capital orders.

Following their divorce, the parties compromised all capital claims in 1997. The wife retained joint-lives periodical payments of £36,000 a year and the use of a holiday home. She later sought increased maintenance and capitalisation. The husband sought a clean break under section 31(7B) of the Matrimonial Causes Act 1973.

Hedley J increased the wife’s assessed needs, capitalised the payments, and added a substantial uplift for debt relief, sharing in the husband’s later prosperity and backdating. He ordered a lump sum of £740,000. The husband appealed. The central issue was whether section 31(7B) permits a fresh redistribution of capital or only fair substitution for the periodical-payments order.

1. Appeal allowed. The substituted lump sum was reduced from £740,000 to £655,000.

2. The court rejected the construction of section 31(7B) advanced in Cornick v Cornick (No 3) [2001] 2 FLR 1240. Its wider discussion was obiter and erroneous. On discharging a periodical-payments order, the court’s function is to substitute fair provision for the income stream and achieve a clean break; it is not to reopen finally compromised capital claims or make a new capital redistribution.

3. The judge should decide matters in sequence: first vary the existing maintenance order under section 31(7); secondly fix the commencement date, thereby settling past and present liabilities; and thirdly capitalise the future income stream. Duxbury is the normal basis for the third stage, although the court retains a narrower discretion to depart from its mathematics for special factors.

4. The wife could not require the husband to fund discharge of her mortgage. That would revisit the capital settlement to reflect later investment loss. However, the maintenance increase could be backdated so that arrears of £10,000 addressed the capital debt, without duplication. A £25,000 payment for loss of use of the holiday home was also proper.

5. Thorpe LJ would reassess the maintenance at £45,698 a year, capitalise it at £620,000, and add the holiday-home compensation and arrears. Mantell LJ and the President agreed.

• Court of Appeal (Civil Division): Allowed the husband’s appeal and substituted a lump sum of £655,000: [2003] EWCA Civ 1054.

• High Court of Justice, Family Division (Hedley J): On 26 November 2002 ordered capitalisation at £740,000 after determining the parties’ cross-applications.