Entitlement to post-separation earnings – C v C (2018)
In C v C [2018] EWHC 3186 (Fam) Mrs Justice Roberts applied the principle which was confirmed by the Court of Appeal in the recent case of Waggott -v- Waggott. The case, which involved entitlement to post-separation income, hinged on the question;
“Is an earning capacity capable of being a matrimonial asset to which the sharing principle applies and in the product of which, as a result, an applicant spouse has a continuing entitlement to share?”
And answered:
“The clear answer is that it is not.”
In the case of C v C – both parties were in their mid-forties, with two young children. The couple had been married for 8 years (but had lived together for 10 years in total) and they separated in June 2016.
The wife (‘W’) had given up her job in an investment bank to look after the couple’s children. The husband (‘H’) carried on with his work as a senior head of department within an investment bank.
When the trial started, H declared that there was £25.36m available for sharing between the parties, not including some Restricted Stock Units (RSUs) that he had been awarded in 2018. Although these RSU’s hadn’t been earned or vested yet, W asked the court to consider total assets of £27m.
H was earning a substantial amount – £4.287m in 2016/17 and £3.124m in 2017/2018. His earnings included a basic salary, along with a supplemental compensation allowance (which he considered an integral part of his salary), and an additional discretionary bonus.
W wanted the former matrimonial home to be transferred to her, along with lump sums equal to 50 per cent of H’s future receipts from the RSUs awarded for years 2014-17. She agreed to waive the RSUs that had been awarded in 2014 and 2017, if H accepted her proposal. She also asked for all other assets to be equalised and periodical payments to be made for their children in the amounts of £25,000 per child, school and university fees plus the costs of their nanny until the youngest child turns 11.
H’s proposal was based on him ring-fencing around £6.5million of his post-separation assets. The first open offer resulted in a division of 66:34 in his favour. His second open offer provided for a division of 60:40 in his favour by way of a balancing lump sum payment of £1.78m, leaving W with assets in the sum of £10.2m. He agreed to W’s claim for child periodical payments but also asked W to make an equal contribution to the costs of education.
The parties disagreed about the splitting of the RSUs. H had set up new bank accounts post-separation to set clear divisions between his pre and post separation income, and he said that a significant account of his post-separation remuneration would be RSUs. He pointed out that these were subject to performance-based claw back provisions, and he would have to perform well at work for between 4.5 and 6.5 years after they were awarded, for them to reach their full value. He added that 25 per cent of the vested RSUs and 60 per cent of the unvested RSUs were non-matrimonial.
W said that she was entitled to an equal share of all RSUs made prior to May 2016 along with the supplemental compensation allowance awarded at the end of 2015 but paid in 2016; and all RSU receipts in 2016 and 2017. She believed she was entitled to this because of her contribution to the marriage, including the childcare she had provided.
Following the decision in Waggott, post-separation earnings must now be treated as falling outside the definition of matrimonial property; and there must be clear justification for any sharing of it.
The court decided that ‘an earning capacity in terms of its present and future potential to generate income, the product of which may well be savings, investments or any tangible accretion to future capital wealth”’ did not represent matrimonial property subject to the sharing principle, and also didn’t accept that W’s provision of childcare post-separation entitled her to H’s post-separation earnings; although this did not mean that the parties’ contributions were irrelevant to the assessment of needs and fairness of outcome.
On the basis of the finding of fact that the marital partnership had ended by May 2016, and the receipts thereafter were in the sum of £3.413m, the Judge found that there was a clear dividing line between matrimonial and non-matrimonial property.
The judge ordered that W should keep legal ownership of the former matrimonial home, and H should pay lump sum payment of £1,877,854 to discharge the mortgage. He was also ordered to pay a lump sum of £1,781,962 to equalise the matrimonial capital held by the parties, to make child periodical payments in the sum of £25,000pa per child; and to be wholly responsible for the children’s education costs until the they complete secondary education.
For more detail on the case see: C v C Family Law Week.