Court of Appeal ruling may impact maintenance agreements

A recent high-profile divorce ruling may have far reaching implications for future payments under maintenance agreements in divorce proceedings.

Waggott -vs Waggott, which has been called the ‘meal ticket for life’ case, reached the Court of Appeal recently, where it was decided that the annual maintenance payments Kim Waggott had been awarded for life from her husband should in fact end after three years.

When the couple started living together they were both accountants. By the time they divorced, Mr Waggott was a multimillionaire. They had one child, and they moved to Manchester in 2001 where Mrs Waggott gave up work (apart from a short one-off period.)

When they divorced in 2012, Mrs Waggott was awarded a settlement of £9.76m plus another £175,000 per year for life. She went back to the court to apply for an increase in her annual payments, using what’s called the ‘sharing principle’ which says that couples should share their matrimonial assets upon divorce, to argue that her ex-husband’s earning capacity was a matrimonial asset she was entitled to share.

Originally, the judge had decided to award Mrs Waggott wife continuing maintenance to make up for the shortfall between her assumed net income if she had carried on as an accountant (£60,000) and her annual income need of £175,000. Looking at the amounts awarded, he didn’t think that she would suffer ‘undue hardship’ if the maintenance payments were stopped.

Mrs Waggott appealed, and her husband cross-appealed in response.

Mrs Waggott argued that courts should take into account whether awards determined by the sharing principle actually meet a party’s financial needs, and whether it was fair for her to have to use her lump sum award as income when her husband continued to make more money? She said that she didn’t believe it was right that she had to use the capital sum awarded in 2012 to live on when her ex-husband was able to accrue more assets with his employment, and regular periodical payments would better meet her financial needs.

Mrs Waggott asked the court for 35% of her husband’s net bonuses for the years up to and including 2019 (payable until 2022) and regular maintenance at the rate of £190,000 per year for the rest of the parties’ joint lives – a joint lives order.

Mr Waggott’s lawyers argued back that his earning capacity shouldn’t be treated as an asset under the sharing principle. He added that the court would be able to see that as his ex-wife had already been awarded £9.7 million, it was likely that she would have enough money to meet her needs and he was entitled to a clean break.

Mr Waggott’s lawyers said that the original judge had failed to give enough weight to the clean break principle, and that he was, “clearly wrong to make a joint lives maintenance order and was also wrong not to determine that the wife could adjust without undue hardship to the termination of maintenance”.

Lord Justice Moylan said Mrs Waggott could potentially make up the shortfall using the interest on just 10% of her initial lump sum payment, so her annual payments should actually stop altogether from March 2021.

He said that ‘Any extension of the sharing principle to post separation earnings would

fundamentally undermine the court’s ability to effect a clean break.’

In future, when courts make decisions on maintenance, they will have to take into account whether extending the sharing principle to a spouse’s post-separation earnings would fundamentally undermine the ability to effect a clean break, as it would apply to every case in which one party earned more than the other, regardless of what their financial needs were. 

Courts will also have to assess the extent to which the couple’s earning capacity had built up during the marriage, which could lead to issues with working out exactly when the court starts calculating it, and how exactly they would determine this.

The decision confirmed that the sharing principle applies to marital assets, or “the property of the parties generated during the marriage otherwise than by external donation“. Although property can technically be generated through one or both parties’ income, it’s not to be treated by the courts as an asset. 

According to Henry Hood, head of the family department and partner at London firm Hunters Solicitors, this decision could mean a more limited approach to maintenance, both as to amount and duration, than was the case a few years ago.