What’s MINE is YOURS. But hands off my bonus!

Are income bonuses received after marital separation still regarded as matrimonial property? The picture is far from clear.

You may remember the case of Wright –v- Wright [2015] where the husband varied downwards his maintenance obligations to his ex-wife. The case attracted much media attention because the court roundly criticised wife for having not made sufficient attempts to maximise her own earning position.

She claimed she was looking after their 10 year old daughter. The court disagreed, saying many women with children work and she had no right to expect an income for life from her ex. I am sure thousands of hard working men and women across the country cheered in agreement! The issue of spousal maintenance has become increasingly difficult and reform is urgently needed. One of the proposed statutory amendments is that spousal maintenance should not exceed a term of 5 years unless “serious financial hardship” is likely.

Judges are varied in their approach to post-separation bonuses. In the case of Rossi –v- Rossi [2006], it was suggested that the payer (let’s call him “husband”) will validly argue that he earned the bonus after separation without the support of the spouse, and that he should therefore keep it. The wife would, however, counterclaim that the husband’s ability to earn was generated during the marriage to which she had fully contributed. To square the circle, the judge in Rossi found that a post separation bonus received more than 12 months after separation could be less likely to be regarded as matrimonial property and was therefore less likely to be shared.

Somewhat differently, in the 2007 case of H –v- H, the judge found that the contribution made by the wife would continue to have some effect for a while after separation and that she should, therefore, receive a share of the husband’s additional earnings/bonus after separation. The court approved a “run off” approach over 3 years: namely 1/3rd of the husband’s income in the year of separation; 1/6th the following year and 1/12th in the final year.

In the important case of H –v- W [2013], the court recommended two budgets in cases where the husband has a significant discretionary element of income. The first budget would be for ordinary/basic expenditure to be largely taken from the husband’s basic income and the second budget would be for additional/discretionary items (which may vary from year to year) and could be taken from the husband’s bonus.

The benefit of this approach is that although the marital partnership had clearly come to an end, there can still be a share of the bonus which is not limited to, for example, just 12 months or even 3 years as in the case of H-v-H. Rather, share of bonus would only be permitted where strict “need” justifies it and not on the abstract basis of “sharing”. A cap on bonus income would therefore be imposed by the court so that the wife did not obtain a huge windfall for which she contributed little.

The picture regarding maintenance or split of bonuses is far from clear, it is very fact specific and therefore difficult to predict. What is awaited, and indeed recommended by the Law Commission, is the introduction of a formula to calculate the amount and duration of spousal maintenance and bonuses. Until this is in place, get yourself a good lawyer!

The article was first published in Canary Wharf Magazine.