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No ‘Meal Ticket For Life’ – New Case Shows Tide Turning On Overly Generous Maintenance Payments

No ‘Meal Ticket For Life’ – New Case Shows Tide Turning On Overly Generous Maintenance Payments

Waggott v Waggott [2018] EWCA Civ 727

London has long been known as the divorce capital of the world. For many years, English judges have had a reputation for providing generous financial settlements to the wives of high-net-worth men. However, a recent case, decided in the Court of Appeal may indicate a change in attitude to awarding ongoing spousal maintenance payments, especially in cases where the capital of a lump-sum settlement can be invested to generate future income.

London’s status as the favoured location to bring divorce claims against super-rich spouses was confirmed in a 2017 case involving the wife of billionaire former oil and gas trader Farkhad Akhmedov. She was awarded a £453 million divorce settlement in 2017, thought to be the largest ever divorce settlement handed down by an English judge. However, in further court battles, it was revealed Tatyana Akhmedova had yet to receive her settlement. Earlier this month, a judge ordered Mr Akhmedov to hand over his £350 million superyacht to his ex-wife. The 377ft (114 metres) superyacht named “Luna” is thought to be the second largest personal luxury vessel ever built.

Despite such eye-watering settlements, there has been a gradual move towards the ‘clean break’ principle and imposing a time-limit on how long spousal maintenance must be paid. In 2015, Lord Justice Pitchford, sitting in the Court of Appeal, caused controversy when he effectively told an ex-wife of a millionaire to “get a job” and that she had no right to expect to live off her ex-husband’s money while living in a mortgage-free £450,000 home.

The judgment of Waggott v Waggott also resulted in the court imposing a time-limit on maintenance payments.

The facts of the case

Mr and Mrs Waggott married in 2000 and separated in 2012. They had one child. When they started living together in 1991, they were both working as accountants and had no great wealth.

In 2001, Mr Waggott took up new employment which required the family to move home and Mrs Waggott to leave her job. She did not return to work. By the time they separated, the couple had capital assets worth £14.4 million. Mr Waggott’s estimated income for the 2015 tax year was £3.7 million; a substantial proportion of which consisted of discretionary bonuses.

The judge at first instance determined Mrs Waggott’s housing needs as £3.25 million and her annual income needs as £175,000. She was awarded continuing maintenance to bridge the gap between her assumed net income from her free capital and the sum of £175,000. No reduction was made for assumed future earnings on the wife’s part.

Mrs Waggott appealed, claiming entitlement to 35% of her ex-husband’s net bonuses payable in respect of the years up to 2019 and ongoing annual maintenance of £190,000.

She told the court her husband’s future earning capacity was a product of their joint contribution to the marriage and therefore it should be classed as a matrimonial asset in which she was entitled to share. In addition, she argued she should not have to make use of her capital share to meet her income needs.

The judge’s decision in Waggott v Waggott

The Court of Appeal rejected the argument that earning capacity was a marital asset, recognising that future earnings would fundamentally undermine the court’s ability to affect a clean break as it could result in spousal maintenance being paid for many years.

It was recognised by the court that a balance needed to be struck, referring to Lady Hales quote from McFarlane v McFarlane [2006] UKHL 24:

Too strict an adherence to equal sharing and the clean break can lead to a rapid decrease in the primary carer’s standard of living and a rapid increase in the breadwinner’s. The breadwinner’s unimpaired and unimpeded earning capacity is a powerful resource which can frequently repair any loss of capital after an unequal distribution.”

However, the court then went on to consider Sir Mark Potters comments in VB v JP [2008] 1 FLR 742:

“… on the exit from the marriage, the partnership ends and in ordinary circumstances a wife has no right or expectation of continuing economic parity (‘sharing’) unless and to the extent that consideration of her needs, or compensation for relationship-generated disadvantage so require. A clean break is to be encouraged wherever possible”.

Noting that the Court of Appeal had twice approved the above approach, Lord Justice Moylan, in delivering the judgment, felt this statement was significant to the “outcome of the present case”.

McFarlane was distinguished on the grounds there was insufficient capital available to achieve a clean break. In this case, Lord Justice Moylan said Mrs Waggott could make up any shortfall from losing her annual payments by investing around 10% of her initial payment and using the interest.

The court, therefore, ruled payments should stop from March 2021.

Final words

Lady Hale made it clear in Mcfarlane that “a clean break is not to be achieved at the expense of a fair result”. However, the inconsistent approach of English courts when it comes to making financial orders in high-net-worth divorce cases is also providing a barrier to fairness. At present, it is difficult for those coming to the law regarding a financial settlement to know what to expect. It is unreasonable for people, whose entire financial future depends on a fair judicial ruling, to feel they are at the mercy of whether a particular judge favours a more generous approach to financially weaker spouses. Up until this point, it has been observed that Lord Justice Moylan has always leaned towards providing generous settlements – this latest judgment may indicate a more limited approach, not only to the amount of spousal maintenance awarded, but also its duration.

 

Saracens Solicitors is a multi-service law firm based opposite Marble Arch on the North side of Hyde Park in London. We have years of experience representing high-net-worth individuals in divorce proceedings, and we are members of Resolution. For confidential information, please call our office on 020 3588 3500.

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