Writing out a cheque in settlement of an ex-spouse's claim
in divorce proceedings can be an unedifying experience at the best
of times, ameliorated only by the certainty that it's the last
instalment. However, in cases where the capital assets are
insufficient to permit the parties to go their separate financial
ways, the Court may consider it appropriate to make an order which
provides for part of an ex-spouse's on-going maintenance to be
paid from a percentage of the breadwinner's future bonus
Bonus payments in the finance and banking sectors are usually
contingent not only upon market factors but also work related
performance. Consequently it may seem inherently unfair that a
proportion of such bonuses may be ordered to be paid to a former
spouse who is no longer making any contribution to the home-life of
It is important to remember that the Court will only take
account of future bonus payments where there is insufficient
capital in the "matrimonial pot" for a "clean
break" to be ordered. A clean break divides the existing
capital and ends further financial claims between former spouses.
This is often the desired solution but where capital is more
limited, recourse may be had to future income to fund spousal
maintenance payments by one party to the other either for a fixed
term or during their joint lives (i.e. until one of them dies).
Historically, there has been no cap on the amount a party could
receive from their spouse's future bonus payments. If, for
example, the Court awarded the wife 15% of the husband's future
bonus payments for their joint lives, the wife would receive 15% of
the bonus whether or not the bonus was in the sum £1,000 or
There is however some good news. In the recent English case of
H v W  EWHC 4105 (Fam), the High Court gave guidance
about the correct approach to assessing, making and drafting
spousal periodical payments orders payable from future bonuses.
H v W: Round One
The parties in H v W started to cohabit in 1992,
married in 1997, separated in 2011, and were therefore together for
some 19 years. The husband was the managing director of a bank and
earned approximately £250,000 gross, plus a non-guaranteed
bonus of about £200,000 consisting of cash and deferred cash
and shares. The wife had not been in the workplace for
approximately 15 years at the time of trial, but had previously
been a legal secretary. The judge considered that the wife had a
limited earning capacity in the region of approximately £500
per month gross (£6,000 per annum).
At first instance, the capital assets were divided between the
husband and wife, who was awarded spousal maintenance on a joint
lives basis at the rate of £3,750 per month, as well as 25%
of all of the husband's annual bonuses (net of tax and National
Insurance) on a joint lives basis. The husband appealed and
contended that the judge had been plainly wrong in awarding the
wife 25% of all his future net bonuses on a joint lives basis.
H v W: "Bonus" Round
On appeal the Court found that the judge at first instance had
fallen into error in failing to identify a cap on the amount to
which the wife would be entitled from the husband's total
annual bonus. The Court agreed that the wife was entitled to 25% of
the husband's annual bonus income, but held that this
entitlement should be capped so as to ensure that, regardless of
the amount of bonus payments earned by the husband, the wife would
not receive more than £20,000 per annum from those bonus
Of course whether spousal maintenance is ordered at all, in what
sum and for how long lies in the discretion of the judge when
negotiations fail. Inevitably some judges will favour encouraging
wives along the path to financial independence while others may
consider long term on-going support to be appropriate. To eradicate
such inconsistency, the introduction of a formula to calculate the
amount and duration of spousal maintenance has been recommended by
the Law Commission's long awaited Report on Matrimonial
Property, Needs and Arrangements published in February 2014.
However it will be several years before such a formula is devised
In the interim, the amount at which maintenance from future
bonus payments is capped will depend upon the circumstances of the
case, and will be calculated accordingly but H v W
illustrates a more equitable approach by the Courts in dealing with
future bonus payments on divorce, and should provide some relief at
last for earners with a bonus boosted income.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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