As we all know, financial orders in divorce can include a provision for spousal maintenance (also known as a periodical payments order). A maintenance order is inherently variable, that is, either spouse can apply to increase or decrease the payments paid by one to the other. It is also possible to ask the court to capitalise the maintenance payments, giving the recipient a lump sum in lieu of future payments and a clean break between the parties.
It is worth mentioning that maintenance will come to an end automatically on the remarriage of the receiving party, or upon the death of either party. Recent cases are now putting more weight on the cohabitation of the receiving spouse as a good reason to reduce or to end spousal maintenance payments.
But what if one party wants to vary the maintenance payments? That party will need to show that circumstances have changed since the making of the original order. This could be, for example, redundancy of the paying party leading to a drop in income so payments are no longer affordable and need to be reduced, or the receiving party losing their job so that they can no longer manage on the previous maintenance and need to increase the payments.
If an application to vary is made, the court must consider:
1) what (if any) change to make to the amount;
2) when the new level of payments will commence; and
3) whether it would be appropriate to capitalise the maintenance order so that it is paid as a lump sum and the parties’ ongoing financial connection is ended. This method for dealing with variation applications was set out by the Court of Appeal in the case of Pearce (2003) and will be applied by any judge dealing with an application. Two recent cases have, rather unhelpfully, given slightly differing guidance on dealing with variation applications.
The case of Lauder (2007)
When Mr and Mrs Lauder divorced in 1988, Mrs Lauder was awarded maintenance of 35 per cent of her husband’s income and a share of the matrimonial home. However, the order was never put into effect and the parties agreed instead that the wife should remain in the home with the children while the husband would meet the outgoings on the property and provide the wife with £50 per week. She continued to earn a modest income as a secretary, then sold the home and applied to the court for a variation and capitalization of her spousal maintenance. Her former husband’s financial position, by this stage, was significantly improved.
Following the House of Lords’ guidance in Miller and McFarlane, the judge said that the wife's needs should be generously interpreted. Further, the capitalisation award should contain an element of compensation since this wife had been put at a severe disadvantage in the labour market as a result of the decision that she would stay at home and raise the children. The concept of sharing was not relevant, as capital claims had already been dealt with – there is no second bite of the capital cherry. The judge awarded the wife capitalised periodical payments of £725,000, which would provide her with net income in the region of £65,000 per year – a similar proportion of the husband’s income to that which she was awarded upon divorce.
The case of North (2007) (previously discussed as N v N)
Confusingly, without any reference to the Lauder case, the Court of Appeal has just decided an appeal by the husband in the case of North v North (2007). This case was discussed in detail in the last newsletter. You may recall that the wife was awarded a capital sum on divorce in 1981 and ground rents from some of her husband’s properties. She was also awarded nominal maintenance, ie, her maintenance rights were not dismissed but no substantive maintenance payments were ever made. The three children of the family stayed with the husband.
The years went by and the husband prospered, but she chose not to work. Recently, she sold her house and settled in Australia, investing her money in shares. She lived a lavish lifestyle in Sydney, but some of her investments failed and she applied to increase her maintenance from nominal to £40,000 per year to make up the shortfall. The lower court awarded her the sum of £202,000. The husband’s first appeal against that sum failed.
The Court of Appeal however allowed his appeal. It drew a distinction between the financial consequences of those misfortunes of which the wife could be said to be her own author, namely her refusal to work and her lavish lifestyle, and those such as her failed investments, which she could not. The court said that, although the wife’s needs were the dominant factor in the award to be made, the husband was not liable for the needs created by the wife’s mismanagement, extravagance or responsibility and should not be called upon to pick up the financial pieces. The wife’s award was reduced to £3,000 per year maintenance, and the court invited capitalisation by agreement for no more than £50,000.
So where does this leave us? The differences in the decisions seem to rest on the differences in the post-divorce behaviour of the wives. Mrs Lauder cared for the children and earned what she could. She was compensated for her reduced earning capacity and her needs were looked at generously. Mrs North neither raised the children nor worked and, although the court considered her needs, they certainly were not generously interpreted and there was no lost career for which to compensate her. There is one matter of which we can be sure: ongoing spousal maintenance, whether substantive or nominal, can be a recipe for a substantial shock years down the line when a variation application is made.