Family Law Hub

H v H [2014] EWHC 760 (Fam)

In a tweet: Ding ding round 2. Coleridge breathes life into compensation after Mostyn's knock down last month

  • Summary: Here we see a husband ("H") successfully apply to terminate a joint lives periodical payments order made in 2005 (and varied in 2007) which was costing him £150,000 a year.  

    The interesting feature of this case was that H sought a termination with effect from the date of his actual retirement from full time work as an accountant. He planned to retire in summer 2015 when he would be 56 years old. The wife ("W") utterly opposed the application, stating that it was premature and should not be heard until H had actually retired and when H's financial situation would be clearer. In any event, she of course did not believe that H would be retiring completely and that he would continue to generate some earnings. During the course of the hearing though she changed her mind and agreed that the court should consider the long term position of the parties; this took her counsel by surprise a little and, for the first time, the quantum of a terminating payment was considered. W put this at £2.6million.  

    H accepted that any termination of the current order should only take effect from his actual retirement and he did not apply to disturb a child periodical payments order (£22,000 a year) in favour of his eldest his daughter who was at university. His case rested on the need, he said, to be able to financially plan for the future. The sad reality of H's life now was that his new wife, who was only 41 years old, was seriously ill with terminal cancer and the prognosis was that she would not live much beyond two years. The couple had two very young children and H wanted to be in a position to care for them full time after their mother's death.  

    H and W were both 55 years old. They had met in 1980 when they were both trainee accountants and had married in 1983. They had had two children who were now both in their 20s. W had taken redundancy prior to starting a family; H meanwhile had risen to partnership in a large, international accountancy firm. The couple had separated in 2004 with W petitioning for divorce. They had been able to settle a financial agreement at the FDR. This comprised: 

    • the former family home transferred to W; 
    • joint lives maintenance at the rate of £90,000 a year; 
    • child maintenance at the rate of £15,000 a year for the younger child and £5,000 a year for the older child; and 
    • H to pay the school fees

    W received a total of £1.37million in cash and equivalent assets. H received £1.06million but much of this was pensions and his unfunded annuity.  

    In May 2006, H married his current wife and they had gone on to have two children who were now 5 and 2 years old respectively. In July 2006, W applied to vary her maintenance upwards (quite likely this was as a result of Miller v Miller; McFarlane v McFarlane [2006] UKHL 24). There was a consensual variation which resulted in the spousal maintenance being increased to £150,000 a year. The sum was broken into two parts; the first consisted of a payment of £8,333 a month (i.e. almost exactly £100,000 a year), and the balancing payment of £50,000 was to be paid each year on 16 December from balancing payments made to H on an annual basis by his partnership. The orders for the children were also increased; for their son to £16,000 a year and for their daughter to £16,000 a year. 

    During these proceedings, H disclosed assets of £8.9million although over £3million was attributed to receipts from life assurance on the life and death of his wife and the ongoing value of the payments he would receive from the tax practice he had managed over the course of the next ten years as part of the terms of his retirement. There was a dispute between the parties as to the extent to which it was appropriate for these sums to be taken into account. The court approached the case on the basis that H had assets of £5.68million but that he would be entitled to further payments in the not too distant future. W disclosed assets of £2.7million. So far as income was concerned, from 2007 onwards, H had been receiving a net income of in excess of £650,000 a year; the prediction for 2013 was that he would receive about £800,000. W worked as a counsellor and had only low earnings.  

    H submitted that the time had come when his obligations to W should be recognised as having been fulfilled, or at least as having been fulfilled by the time of his retirement. He maintained that W had been properly and fully rewarded by the previous orders which expected W to save and indeed that is precisely what she had done. Accordingly, H argued, she should now redeploy all the capital which she had amassed and, by moving house release about £700,000, which should be used as part of her long term income fund amortised on the conventional Duxbury basis. She could re-house, he said for less than £1million. He also emphasised that, going forward and because of his particular obligations to his very young children, he had far greater needs, financially, than W.

    W contended that all the money that H had earned was earned, as it were, by both of them. It was because of her sacrifice in giving up her work that H had been able to generate significant capital assets. Accordingly she should not, she said, be put under any financial pressure particularly as H still had an earning capacity post-retirement. On that basis, she invited the court to capitalise any award on the basis of her existing £150,000 a year. Her original "compensation" claim she maintained should be fully recognised as the upward variation in 2007 was particularly made to reflect the sacrifices that she had made. She submitted she had forfeited her own substantial earning capacity for the family and thereby had made a significant contribution which should be recognised under this heading of "compensation". She emphasised that as a result of H's very high earnings he had been able to save at a very great rate year on year, and so she should be allowed to retain her savings and they should not be factored at all into any calculation. 

    Held:  

    The section which of course drives this application is s.31(7)(a) Matrimonial Causes Act 1973. That reads:  

    "in the case of a periodical payments or secured payments order made on or after the grant of a decree of divorce... the court shall consider whether in all the circumstances and after having regard to any such change it would be appropriate to vary the order so that payments under the order are required to be made or secured only for such further period as will in the opinion of the court be sufficient (in the light of any proposed exercise by the court where the marriage has been dissolved of its powers under section (7)(b) below) to enable the party in whose favour the order was made to adjust without undue hardship to the termination of those payments."

    (s.(7)(b) is the section which gives the court power to order a further lump sum in favour of a party to the marriage to cushion the effects of any termination to avoid hardship). 

    Mr Justice Coleridge drew the following conclusions: 

    • The previous orders had treated W fairly and it would be wrong to try and back-track, re-argue or re-open the provision where it had always been accepted and never appealed. 
    • A clean break was highly desirable if it could be done fairly. 
    • Much of the wealth had been generated since the couple's separation and W had benefited from the high periodical payments order. 
    • H's retirement was in prospect and it was sensible for him to want to know what would happen post-retirement - it is never necessary to wait until a particular event occurs before seeking a reassessment either by agreement or by the court's intervention. It is perfectly possible, as here, for any termination to take effect on the happening of a particular event rather than a particular date.
    • The particular circumstances of H meant that there was a human angle in achieving a termination. 
    • There was still acrimony between H and W. 

    He concluded that it was both possible and right to terminate the order and without causing undue hardship. On compensation in this case, Coleridge J said: 

    "This case does retain a tangible, obvious compensation element which deserves recognition one way or another even at this stage. It has been factored in up to now and there is no reason why it should now simply be ignored." 

    He then looked at the figures. He noted that since 2007, W had been able to accumulate savings of £700,000; and whilst a small amount could be attributed to inflationary factors and natural increases in funds, the vast majority was "straight-saving". It was therefore possible to see that W had been living on a much lower budget than she had put forward in the past. (her most recent budget put her needs at £189,000). Coleridge J found that W's actual budget was £80,000 (£70,000 attributed to actual needs, £10,000 to act as a cushion).  

    Although the judge considered that expecting W to downsize to release capital was generally a reasonable submission, here he found that the "compensation" element of this case called for an approach which reflected that element. Here he decided that the way in which W's current capital was factored into any assessment of her future position would properly recognise compensation and that W had more than just an entitlement to have her reasonable needs met. He went on to recognise this in four ways: 

    • attributing only £500,000 of the equity in her home as a part of her long term income fund, and I shall only ascribe to it a reasonable annual return of 3.75% net a year (in other words, Duxbury was not followed); 
    • taking the whole of the £1million which she had saved as being available to her but also on the same annual basis of 3.75% and not on a fully amortised capital basis; 
    • no step down at a later date was factored in; and
    • any extra savings made by W between now and when H actually retires were to be ignored. 

    Therefore W had, or could have, £1.5million of her own resources which in turn could provide an income of about £55,000.  That meant there was a £25,000 shortfall to reach the budget of £80,000. On a Duxbury calculation, a lump sum of £400,000 was needed to pay £25,000 a year. £400,000 was therefore the figure H had to pay to achieve termination.  

    Comment 

    This is what Coleridge J said about "compensation": 

    "I should only finally say that I agree with recent pronouncements about the dangers inherent in attributing special weight to arguments about compensation. However, there remain a very small number of cases where it stares the court in the face and to ignore it and simply approach the case on the basis of the more simplistic "needs" arguments does not do full justice to a wife who has sacrificed the added security of generating her own substantial earning capacity, as this wife undoubtedly did. I doubt in the end she is any worse off financially because her investment in the family enabled the husband to generate these enormous returns which she has fully participated in. However, the building up of a secure earning capacity over a working life is a greater security to an individual spouse, whether husband or wife, than merely being dependent on the future income generating resources of one's former partner however successful." 

    I wonder whether, had the court been looking at a compensation claim for the first time, whether they would have been so sympathetic to W's case?  Is W's case here really "exceptional" as we have come to understand it in the eight years since McFarlane was decided?

Case note, published: 28/04/2014

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See also

  • Application by the husband to terminate a joint lives periodical payments order in favour of the wife made originally in 2005 and later varied in 2007. The husband sought that the order be terminated without any further payment with effect from the date of his actual retirement from full time work, which was planned for 2015. The reason for the application before the actual date of retirement was due to the terminal illness of his second wife and he wanted to plan for the future. Judgment, 19/03/2014, free

Published: 28/04/2014

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