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The division of assets on separation is governed by the Matrimonial Causes Act 1973 (herein the 1973 act), and specifically section 25. For a petition to divorce to be successful, the party must be able to prove that the marriage has broken down irretrievably. The most common ground to satisfy this test is that the respondent has ‘behaved in such a way that the petitioner cannot reasonably be expected to live with the respondent’[1].

The starting point for the division of assets is set out in White v White[2], that there is a legal presumption of equal divisions of the assets. Departure from this should only occur if ‘there is good reason for doing so’ [at para 25]. This is done by placing both parties’ assets into a ‘pot’. This pot represents the combination of capital assets accumulated during the marriage from both parties which can then by divided. Both parties must provide full disclosure of their financial circumstances in a document called the ‘form E’. Two avenues may then be chosen, either court proceedings or alternative dispute resolution. Court proceedings are both financially hard but also lengthy and in recent years a majority of couples have opted out of court proceedings for alternative dispute resolutions or ADR. ADR options include mediation or arbitration whereby for mediation both parties come together with their solicitors to reach resolutions by agreement as opposed to having the court decide.

But who gets what on separation? Often there is a presumption that divorce ensures a clean break for couples however, when children are involved often child maintenance is agreed whereby money is paid in instalment to the partner where the child resides for the majority of the time, to spread the costs of the child’s upbringing and expenses. Furthermore, spousal maintenance can be imposed for a set period of time, whereby periodical payments are secured during a transitional period to allow for the other spouse to adapt without undue hardship[3].

Further contentious topics is what happens with pensions and what is the position in terms of future earnings? If we look at pensions first.

Pensions

The 1973 Act sets out that courts have the power to decide and divide pensions accumulated during the period of marriage. The court may order one party to transfer a percentage of their pension accumulated during their marriage so that it provides a new pension pot for their spouse. This is a ‘pension sharing order’. Alternatively, the value of the pension can be put into the ‘pot’ of assets to be divided as opposed to the actual pension itself. This is called ‘offsetting’ which allows the parties to agree that one spouse will keep an asset such as the matrimonial home but won’t then receive any of the other spouse’s pension. This is the more popular practise in terms of dealing with pensions. However, this does not necessitate that all future income may be subject to such provisions. Indeed, the position of future potential earnings was explored in the Court of Appeal decision in Waggott v Waggott[4].

In the case of Waggott, the couple were both accountants living in Manchester and married for 21 with one child. In 2001 Mr Waggott accepted a job in London which meant the family relocated, and Mrs Waggott stopped working as a result, to support Mr Waggott’s career progression. On separation, Mr Waggott was earning roughly £3.7 million per annum after tax. Mrs Waggott argued that instead of receiving spousal maintenance payments which are assessed on the basis of financial needs, and did not include child maintenance which was dealt with separately, that she should receive an equal share of Mr Waggott’s continuing income. This amount would have been far in excess of that calculated for spousal maintenance.

Mrs Waggott’s main argument was that earning capacity should form part of the ‘shared asset pot’ on separation. The husband argued in the contrary, that earning capacity could not form part of the shared pot of assets that comes under the case of White and White where assets are divided equally as a starting point. The husband maintained that the division of assets that would be awarded to his wife would be sufficient and that should be not be placed as a disadvantage if ‘future earning capacity sum’ were not taken into account.

The Court of Appeal held, as set out by Moylan LJ that "there are a number of reasons why the clear answer is that it is not"[5] fair to take into account future earning capacity. Three main reasons were set out in justification of this decision;

  • To extend the sharing principle to include post-separation earnings would fundamentally undermine the principle of a ‘clean break’ at separation.
  • Its application would result in any party who earned less being able to claim for future earning capacity regardless of financial need for it.
  • The court would have to assess each case to ascertain the extent to which the ‘future earning capacity’ accrued during the marriage period. Such a subjective test would make it difficult to set out a number of factors for an objective test to be used for each such case to be decided fairly.

This decision reflects the courts understanding of the need to draw a line in the sand on divorce. To decide otherwise would arguably be contrary to the underpinning legal principal of a divorce providing a clean break.

Summary

Therefore, despite the provisions under s.25 of the 1973 Act setting out how assets are to be separated on divorce, they afford a degree of flexibility to the court in terms of who gets what from the ‘pot’ of assets. This includes pensions, whereby they may be offset or a pension sharing order made. However, in terms of the disposal of capacity for future earnings the decision in Waggott v Waggott[6] shows the courts resolute objection to allowing this so that as far as possible a clean break can be had on divorce.

By Kellina Gannon

Lewis Nedas

If you require advice upon this issue, we have a highly regarded specialist family lawyer, Laurie Avadis.

Contact us on 02073872032 or use our online enquiry form.

[1] Matrimonial Causes Act 1973, section 1(2)(a).

[2] White v White [2000] UKHL 54.

[3] Matrimonial Causes Act 1973, section 25A(2).

[4] Waggott v Waggott [2018] EWCA Civ 727.

[5] Ibid at para 122

[6] Waggott v Waggott [2018] EWCA Civ 727.

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