Following on from Edward Kenny’s article last month on Maintenance Pending Suit, it seemed logical to think next about spousal maintenance at final hearing but, of course at that point thoughts automatically turn to the Court of Appeal’s decision in Waggott v Waggott  EWCA Civ 727, 2 FLR 406 and, what seemed at the time to be its settling of issues. However, on further consideration and, despite that decision having been made three years ago now, it nonetheless seems to be the case both that spousal maintenance, or rather all the issues surrounding future earnings and income needs, remain the points that so often prevent settlement and, what is more, that the principles that Moylan LJ so carefully set out there are still so often the ones argued about. A re-examination of that decision and what has happened since might therefore be called for, particularly as we have not done that before on this website. And, the result of that exercise perhaps reveals both the complexities of the case and the reasons why it does not always provide the answer.
It is of course worth noting straight away that, like so many of the reported decisions, Waggott was a case with a lot of money involved. Although the Court of Appeal’s decision (lead judgment from Moylan LJ with agreement from Sir James Munby P and MacDonald J) was about what W should receive in respect of H’s future earnings and her maintenance needs, it had already been decided (in fact largely agreed) that W would receive £9.76m, with, one of the lighter notes in the Judgment occurring when His Lordship said that H’s Counsel “commenced his oral submissions by observing, with broad simplicity, that surely with £9.7m the wife must have sufficient resources for the court to be able to fairly effect a clean break” .
That did not, however, prevent W from arguing that she was also entitled to a share of H’s future earning capacity as an asset under the sharing principle, that she was also entitled to a further award under the compensation principle because H’s income amounted to a relationship-generated advantage and that her share of the capital should be preserved entirely rather than being regarded as available to meet her income needs. H cross-appealed against a joint-lives maintenance order.
In short, W lost all her arguments and H succeeded in his. But the thirty three page judgment says a lot more than that.
Sharing Future Earning Capacity
H had already agreed to W having about £1.4m of deferred remuneration received after the parties had separated. From her total award of £9.76m, after deducting housing and other capital needs, W would have free or liquid capital of £3.5m. But, H’s annual income was about £3m and therefore W argued that H’s earning capacity was a matrimonial asset in which she was entitled to share as a product of the marital endeavour and that anything else would be discriminatory against the homemaker on White v White principles.
Moylan LJ referred to the various Court of Appeal decisions that appeared to make it fairly clear that the sharing principle applies to property rather than income and that sharing/parity ends on exit from the marriage, culminating at  in Jones v Jones  EWCA Civ 41 in which:
“Wilson LJ expressly decided that a spouse’s established earning capacity at their date of the marriage did not fall ‘to be capitalised or otherwise brought into account, for the purpose of the sharing principle’ (at para ”
Then, at  quoting Wilson LJ at :
“There is no denying the extreme importance of an inquiry into the earning capacity of each party at that date [of the hearing]: indeed s 25(2)(a) of the Matrimonial Causes Act 1973 makes it mandatory. A spouse’s earning capacity will usually be a central foundation of an order for periodical payments, and thus of any order by way of capitalisation thereof, pursuant to the principles of need and/or of compensation. Even if, however, an earning capacity may also sometimes be relevant to a fair distribution of the assets pursuant to the sharing principle, it does not follow that the earning capacity should itself be treated as one of those assets, still less that an attempt should be made to capitalise it.”
As His Lordship says, that really provides the answer to W’s case on this point .
Nonetheless, in conclusions at [121- 128], further reasons are given for saying that earning capacity cannot be a matrimonial asset to which the sharing principle applies, including: it would fundamentally undermine the court’s ability to effect a clean break; it would apply in every case where one party had earnings greater than the other’s regardless of need; it would require the court to carry out an exercise to assess the extent to which the earning capacity had accrued during the marriage – at para 98 His Lordship effectively asked how the court could possibly assess the extent to which an earning capacity was accrued during marriage and due to it rather than despite it; then again the Jones decision above; and again the sharing principle applying to property, which earning capacity is not.
However, the point remains of course that, as per Wilson LJ, above, current earning capacity may well be determinative of a periodical payments order or capitalisation thereof but also, more than that, could well influence a decision about a fair distribution of assets overall although, not so as to treat it as a matrimonial asset to which the sharing principle applies. But frankly, is the latter not a rather “nice” distinction?
Further, Mostyn J’s decision in CB v KB  EWFC 78,  1 FLR 795, provides another fine distinction: H was a very successful musician who received income from his music in five different ways. Because four of those income streams were effectively royalties from past compositions, they were capitalised at just under £4.5m, and W received half pursuant to the sharing principle whereas, the fifth income stream, because it related to future performances, was regarded as pure future earnings and was therefore not a matrimonial asset subject to the sharing principle.
If earning capacity can influence the distribution of the marital assets overall and an income stream can be capitalised and equally shared under the sharing principle, then there is clearly still room for argument in the right case, although it does seem that that which can be regarded wholly as future income not derived directly from any past activity already completed is not available for sharing.
W’s case was that the compensation principle “properly understood” (apparently QCs can get away with saying things like that to the Court of Appeal) does not just apply where W has suffered a relationship-generated disadvantage but also where H has accrued an ongoing relationship-generated advantage that has produced a surplus of resources over needs in income (apparently, they can get away with saying things like that too).
To make this point it was necessary for W to resort to saying that the compensation principle had previously been misunderstood  – how else could she explain that the principle had only ever been couched in terms of compensation for relationship-generated disadvantage?
Also, W never explained how her argument could possibly apply where W’s needs would in fact be met by the uncontroversial routes at a level greater than her case as to what she had lost  – which was fatal to her case .
And again, how it could possibly be calculated how much each party had gained or lost that is attributable to the marriage [96-98]?
Moylan LJ was very clear that the principle of compensation applied only to those who had been disadvantaged, that it is probably limited to someone who has given up a career, that it has very rarely been established and that:
“as a necessary factual foundation, the court would have to determine, on the balance of probabilities, that the applicant’s career would have resulted in them having resources greater than those which they will be awarded by application of either the need principle or the sharing principle. Further, the court must separately determine whether, and if so how, this factor should be reflected in the award so as to ensure that it is fair to both parties.” 
Expanding on one of His Lordship’s points: If W is already benefitting under the sharing principle from the capital gain resultant upon the parties’ jointly chosen marital arrangement, why should she be compensated for a perceived and lesser “loss” relating only to her own situation that ignores the shared joint benefit?
There is now also the decision of Moor J in RC v JC  EWHC 466 (Fam) which again emphasises the limits of this principle and the rarity of its application – for further detail on which see Christopher Wall’s article on this website.
Capital to Satisfy Income Needs
W’s case was that she should not have to use any of her share of the capital to satisfy her income needs as H will not need to because of his income.
His Lordship referred to a passage from Charman to the effect that if the application of the needs principle results in a greater result than that suggested by the sharing principle then needs prevails but that, if the result of the sharing principle would be greater then that prevails [107c].
His Lordship emphasised the statutory duties under S.25A to consider a clean break and to consider whether the recipient of periodical payments can adjust without undue hardship [100-103] and then the interrelationship between the principles of sharing compensation and need in determining whether or not a clean break can be achieved and that interrelationship being directly relevant to the issue of whether W’s share of capital should be deployed to meet her needs .
In the conclusions, W’s argument was rejected as again conflicting with the clean break principle and as contrary to basic principle that the court applies the needs principle when determining whether the sharing award is sufficient to meet the party’s future needs [130-131]. Although it was recognised that, in the same way as Wilson LJ said above that earning capacity can be relevant to a fair distribution of assets, so also it can be taken into account when the court is deciding whether the shared capital received by W should be amortised in full [i.e. drawn down on for life until used up], in part or not at all and when deciding what rate of return to apply to the free capital . And then His Lordship added:
“As to the specific issue raised in this case, namely whether it is fair for an applicant spouse to be required to use their sharing award to meet their income needs when the other spouse will meet their needs from earned income, the answer is that the latter factor will be relevant to the court’s determination of the former issue.” 
At which point, one can surely only agree with His Lordship that it is “impossible to be categorical about what the law expects in this area.”
Joint Lives Maintenance
In Waggott little account seems to have been taken of the factor that is so often pivotal in lesser money cases, that W was only 47 and perfectly capable of going back to work, but then H’s acceptance that her income would be about £30,000 whereas his would be about £3m probably put that point into context.
H’s appeal against the joint lives order succeeded because:
“The judge determined whether to impose a term maintenance order by reference only to whether the wife would be able to earn the shortfall between her income needs and the amount generated by her free capital ……. He decided that, by this measure, she could not adjust without undue hardship. ……… this was too narrow an approach. The judge should have addressed the issue more broadly including by considering whether it would be fair for the wife to deploy part of her capital to meet her income needs. This broader consideration was required both so as properly to address the question of undue hardship and also so as to give proper weight to the clean break principle.” 
Thus, requiring W to use part of her capital to provide herself with income meant that, applying S.25A(2), she could “adjust without hardship” to the termination of maintenance and so periodical payments were limited to a 5 year period (just short of three years from the appeal) with a S.28(1A) bar.