Future earning capacity- in the pot or not?

The case of C v C [2018] EWHC 3186 (Fam) concerned a Husband and Wife who had been married for approximately eight years. The parties married in May 2008 and separated in June 2016. Both parties were in their forties and shared two children, aged 9 and 6 respectively. Although both parties were educated professionals, the Wife had spent several years prior to the parties’ separation predominantly caring for the children. The Husband was a senior head of department for an investment bank and led a team in London trading a significant portfolio of equity assets. Through the course of his employment, the Husband received substantial annual remuneration packages which included deferred equity participation and Restrict Stock Units.

Within proceedings, the marital pot was valued at approximately £26 million. However, the Husband argued that £6.5 million of the pot was non-matrimonial as it was income accrued (and invested) post-separation. The Wife sought a 50% share of the Husband’s income earned during the year of separation and the 12 months thereafter.

It was argued on behalf of the Wife that inference should be drawn from the fact the Husband did not set up separate designated accounts until August and September 2017, some fifteen months after they had separated. It was countered on behalf of the Husband that the case of Waggot v Waggot [2018] EWCA Civ had removed the need to “resort to arbitrary or pragmatically convenient approaches such as a 12-month approach to the sharing of bonuses, or a reducing run off approach or even a pragmatic round up approach” (para 34). The Husband maintained that any income earned following the separation in 2016 was not marital and therefore the sharing principle would not apply.

Roberts J, when considering the arguments put forward by the respective parties in this case, re-examined the judgment in Waggott particularly in the context of previous cases of Rossi, H v H and CR v CR. Roberts J referred to the judgment of Moylan LJ in Waggott in which the question was posed whether the products of an earning capacity formed part of the marital pot to which Moylan LJ found “the clear answer is that it is not”. In the case of C v C, Roberts J held:

the definitive answer quite clearly applies to 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’

On this basis, as per the assertions made on behalf of the Husband, the remuneration received by the Husband post separation were not considered part of the marital pot and accordingly the sharing principle was accordingly not adopted in this regard.

Following the ring-fencing of the Husband’s post separation income, the matrimonial pot was divided. The Wife retained the former matrimonial home with the Husband discharging the mortgage and paying her a lump sum. The Court also ordered the Husband to pay child maintenance for each of the children at a rate of £25,000 per annum.

Whilst this particular case involves a particularly high level of income in respect for the Husband, it reconfirms the principle set out in Waggot. This case provides helpful assistance for parties looking to preserve post-separation income and makes clear that future earning capacity is not a matrimonial asset. Furthermore, the case of C v C plainly establishes that a parties’ failure to severe financial ties or differentiate incomes post-separation does not lend itself to automatically establishing that any income derived during this time remains within the marital pot.