Waggott v Waggott

An earning capacity is not matrimonial property subject to the sharing principle. Post-separation earnings generated by that capacity therefore create no continuing sharing entitlement, although they may be relevant to need or compensation.

When deciding whether a sharing award meets future needs, the court must consider how the recipient can deploy the award. It may require full or partial amortisation or assume an appropriate return. The payer’s earnings remain relevant to fairness, but do not require preservation of the recipient’s capital.

Compensation requires relationship-generated financial disadvantage to the applicant. The court must find that the applicant would otherwise have resources exceeding the award produced by need or sharing.

Following a long marriage, the parties agreed to share their capital and pensions equally. The resulting award to the wife was approximately £9.76 million. The Family Court also ordered the husband to pay maintenance sufficient to meet her assessed annual income need of £175,000 for their joint lives.

The wife appealed, seeking a greater share of the husband’s post-separation bonuses. She argued that his earning capacity was a matrimonial asset, that his relationship-generated financial advantage engaged the compensation principle, and that she should not have to deploy her sharing award to meet income needs.

The husband cross-appealed. He sought a non-extendable maintenance term ending in 2021. The central questions concerned the relationship between sharing, need, compensation and the statutory objective of a clean break.

1. The wife’s appeal was dismissed. An earning capacity is not property and therefore is not a matrimonial asset to which the sharing principle applies. Extending sharing to post-separation earnings would impede clean breaks, require artificial valuation of personal earning capacity and produce indeterminate questions about percentages, duration and changes of employment. The authorities, particularly Jones v Jones and Scatliffe v Scatliffe, supported confining sharing to property generated during the marriage otherwise than by external donation: per Moylan LJ, Sir James Munby P and MacDonald J agreeing.

2. The court rejected the contention that a recipient’s sharing award, apart from housing, must be preserved while the payer meets needs from earnings. The needs principle determines whether the sharing award is sufficient. That necessarily requires consideration of how the award may fairly be deployed. Depending on all the circumstances, the court may require full or partial amortisation or may apply an assumed return. The payer’s earning capacity may affect that evaluation, but does not itself become a shared asset. The Duxbury model and its assumptions offer a useful starting point, promoting consistency between needs-based awards and assessment of a sharing award’s sufficiency.

3. Compensation addresses relationship-generated financial disadvantage suffered by the applicant, rather than a free-standing financial advantage enjoyed by the respondent. The applicant must establish on the balance of probabilities that the abandoned or diminished career would have produced resources exceeding those awarded under need or sharing. The court must then decide separately how, if at all, compensation should be reflected fairly. The wife’s possible lost net earnings were below her award, so no compensation was due.

4. The judge was entitled to reconsider housing costs and the assumed return before the order was made. The wife’s challenges to those decisions failed.

5. The husband’s cross-appeal was allowed. The judge had assessed undue hardship too narrowly by asking only whether the wife could earn the shortfall. Proper weight to the clean-break principle required consideration of whether she could fairly deploy part of her capital. Using approximately £950,000, about 10% of her total award, would leave substantial housing and free capital and would not cause undue hardship. Maintenance was limited to 1 March 2021 with a section 28(1A) bar under the Matrimonial Causes Act 1973.

1. Court of Appeal (Civil Division): In [2018] EWCA Civ 727, the wife’s appeal was dismissed and the husband’s cross-appeal was allowed. The joint-lives maintenance order was replaced by a term expiring on 1 March 2021 with a section 28(1A) bar.
2. Family Court: Recorder Tidbury divided the parties’ capital and pensions equally, awarded the wife a share of specified deferred remuneration and ordered maintenance sufficient to meet her assessed income needs for the parties’ joint lives.