Bonuses earned after a couple have separated are often a source of dispute for two reasons. First, problems arise when assessing income for the purpose of future maintenance payments. Second, problems arise where bonuses have been earned over a lengthy period of separation and there may be a dispute as to whether the bonuses should be treated as part of the matrimonial assets for division between the parties.

The starting point in respect of post-separation income is reflected in the comments of former president of the Family Division, Sir Mark Potter, in VB v JP [2008] EWHC 112 (Fam), in which he stated: ‘On exit from the marriage, the partnership ends and in ordinary circumstances a wife has no right or expectation of continuing economic parity (“sharing”) unless and to the extent that consideration of her needs, or compensation… so require.’

Accordingly, the extent to which the wife (which is usually the case) shares in her husband’s bonuses in future will often depend upon whether she has been awarded sufficient capital to meet her needs. By way of example, in S v S [2008] EWHC 519 (Fam), the court ordered a joint lives maintenance order following on from an 11-year childless marriage. Although the assets amounted to more than £3m, it was held that was insufficient for a clean break.

The husband earned variable bonuses and his future in the City was uncertain. The court held that a joint lives periodical payments order was the fairest approach. In assessing the quantum of periodical payments, the husband’s bonuses were taken into account.

By contrast, in H v H [2007] EWHC 459 (Fam), Charles J preferred a run-off approach in which the wife received a share of the husband’s bonuses over three years post-separation. She was awarded a one-third share of income during the year immediately post-separation, one-sixth of the income in the year thereafter and one-12th of the income earned in the following year. This run-off approach has not found favour elsewhere.

In R v R (Financial Remedies: Needs and Practicalities), [2011] EWHC 3093 (Fam), Coleridge J adopted the approach of awarding the wife 20% of any sums received by the husband by way of bonus payments, albeit with a cap of £20,000 per annum. In his decision, the periodical payments were finite as they were to terminate upon the wife receiving a deferred lump sum.

It is the approach that was adopted by Coleridge J in R v R which has recently found favour with Mrs Justice King, in her decision in H v W [2013] EWHC 4105 (Fam) (also reported as Parr v Parr and P v P).

The case of H v W involved a 19-year relationship. The husband was 43 and the wife 55. He was a managing director of a bank earning a gross income of £250,000 a year. He also received a substantial bonus which varied year on year, but over the last three years have been in the region of £200,000 to £250,000 a year.

At first instance the district judge held that following a long marriage, the wife was entitled to a share of the husband’s full income, albeit limited to 25%. The district judge also clarified that the maintenance from the salary was to meet the wife’s ‘basic’ needs with a share of the bonus going towards a more generous interpretation of her needs.

Upon hearing the appeal, King J was satisfied that the original order was made by reference solely to the wife’s maintenance requirements and not in relation to her receiving a continuing ‘share’ of the husband’s bonus. Following on from the approach established by Mostyn J in B v S (Financial Remedy: Marital Property Regime) [2012] EWHC 265 (Fam) and followed by Blair J in G v B [2013] EWHC 3414 (Fam), it is clear that the correct approach is that periodical payments awards should be assessed by reference to need alone as opposed to an entitlement to sharing.

King J held that the district judge fell into error by failing to identify a figure which would represent a wife’s maximum reasonable maintenance entitlement taking into account all the circumstances of the case, namely what she described as ‘a cap’.

King J therefore articulated what was the proper approach when dealing with circumstances where a significant part of the payer’s income is made up of a discretionary bonus. 

She concluded: ‘The proper approach would be for the district judge to calculate a total figure for maintenance which covers what he finds to be her ordinary expenditure, together with such sum as would provide for… additional, discretionary items which will vary from year to year and which are not reflected in her annual budget.

‘Having carried out this exercise the court will then make a monthly order to be paid from salary at whatever rate the district judge feels to be fair, and for the balance to be expressed as a percentage, of the net bonus up to a stated maximum each year.’

King J was of the view that a cap is essential to avoid the unintentional unfairness which may arise as a consequence of a wholly unanticipated substantial bonus paid to the husband. Such a substantial bonus would, without a cap, result in the wife receiving a sum substantially in excess of what the district judge regarded as appropriate in order to maintain her maintenance at a fair level.

King J therefore set a cap at £20,000 a year on the 25% share of the husband’s bonus.

Finally, King J also expressed the view that the wife should share in any risks or uncertainty with the husband. In the present case, the husband’s bonus was paid in the form of a number of elements, including stock or cash deferral. Accordingly, the wife’s percentage should apply pro rata across the various elements.

It would not of course be fair for her to be entitled to receive the entirety of her maintenance from the cash element, leaving the husband to take the risk on stock movements and the cashflow consequences of deferred cash payments.

Although the decision of King J in H v W has provided useful clarity regarding the treatment of bonuses for the purpose of assessing periodical payments, the position remains less clear regarding the treatment of bonuses earned (and therefore capital generated therefrom) after a lengthy separation. In Rossi v Rossi [2006] EWHC 1482 (Fam), Nicholas Mostyn QC, who was then sitting as a deputy High Court judge, expressed the firm view that a post-separation bonus should not be classed as non-matrimonial, unless it relates to a period which commenced at least 12 months after separation.

In a similar vein, in Charman v Charman [2007] EWCA Civ 503, a bonus of £1m was paid to the husband for work he carried out over 14 months post-separation. It was treated as non-matrimonial property. Singer J also adopted a similar approach in H v H (Financial Provision) [2009] EWHC 494 (Fam) in respect of bonuses earned more than a year after separation.

Those decisions should however be contrasted with others in which post-separation bonuses were treated as part of the matrimonial assets. In M v M (Ancillary Relief: Division of Assets Accrued Post-Separation) [2004] EWHC 688 (Fam), Baron J acknowledged that although post-separation monies arose from the husband’s hard work, the assets were to be divided equally between the parties.

By contrast, in B v B [2010] EWHC 193 (Fam), the husband earned bonuses post-separation which ran into the millions. The wife was awarded a significant share of the bonuses earned post-separation, together with a lesser share of those bonuses earned, but which were not yet paid to the husband.

Ultimately, it can however be seen that the lack of absolute consistency on post-separation accrual can only reflect the significant difference in individual circumstances and the broad discretion of the court.

Andrew Newbury, Pannone, part of Slater & Gordon