Vaughan v Vaughan

When deciding whether to capitalise periodical payments, the court should first determine the payments that should continue in principle, including whether they should continue at all; then calculate their capital equivalent using the Duxbury formula; and finally consider fairness and practical payment. Departure from Duxbury requires special factors. A second spouse’s hypothetical divorce claims do not create a present proprietary entitlement to the payer’s assets or justify giving that spouse priority over a first spouse. The payer’s obligation to support the second spouse must be assessed against resources already attributed to that spouse. The court also indicated that inherited capital may, in appropriate circumstances, be applied towards maintenance needs.

The parties separated in 1981 and divorced in 1985. The husband had since made periodical payments to the wife under a deed of separation and a court order. He applied to terminate both obligations. The wife sought capitalisation under section 31(7B) of the Matrimonial Causes Act 1973.

The deputy judge revoked the deed arrangements under section 35(2)(i) and discharged the periodical-payments order under section 31(1), finding that the wife could adjust without undue hardship to termination under section 31(7)(a). He dismissed her capitalisation application. The central issues were the treatment of the second wife’s hypothetical claims and whether the wife’s inherited and other capital should be amortised when assessing her maintenance needs.

1. Appeal allowed. Lord Justice Wilson gave the leading judgment, and Lord Justices Hughes and Patten agreed.
2. The approach in Pearce v Pearce [2003] EWCA Civ 1054, [2003] 2 FLR 1144 governed capitalisation under section 31(7B) of the Matrimonial Causes Act 1973. The court should first identify the level of periodical payments that should continue in principle, including whether the payee could adjust without undue hardship to termination. It should then calculate the capital equivalent using the Duxbury formula, and finally consider fairness and the practical ability to pay. The discretion to depart from Duxbury is narrow and should be exercised only for special factors.
3. The judge had wrongly treated the second wife’s hypothetical claims on divorce as an existing proprietary entitlement to the husband’s assets. The principle in Roberts v Roberts [1970] P. 1 remained applicable: the court must consider the husband’s obligation to maintain a second wife, but should give priority neither to the first wife nor to the second wife. It was therefore wrong to attribute half of the husband’s private pension income to the second wife. Her needs were relevant only to the extent that she could not maintain herself from resources already attributed to her.
4. On the corrected assessment, the husband’s net annual income was approximately £69,000 to £83,000. The wife’s reasonable needs were £48,000 annually, and she could contribute approximately £32,000. The husband should therefore continue payments at £14,000 annually.
5. The court’s discussion of inherited capital was expressly provisional and academic. Although inherited capital will generally not be treated as available for maintenance, the distinction between income and capital is not categorical. In suitable circumstances, particularly for an older person with significant capital, some use of inherited capital may reasonably be expected. The court should not assess this by analysing prospective beneficiaries under a will.
6. The Court of Appeal conducted the discretionary exercise itself. It ordered capitalisation at £215,000 under the Duxbury formula, payable on or before 21 July 2010, with interim periodical payments of £14,000 annually from 3 November 2009 until payment.

1. Court of Appeal (Civil Division): In [2010] EWCA Civ 349, the appeal was allowed. The order was varied by requiring payment of a £215,000 lump sum and interim periodical payments.
2. High Court of Justice, Family Division: On 3 November 2009, Mr Richard Anelay QC, sitting as a deputy High Court judge, terminated the husband’s periodical-payments obligations and dismissed the wife’s capitalisation application.