Often on divorce, a husband or wife may earn a bonus after they have separated but before divorce. The question often raised is: can I keep this money as it was received after separation or is it up for grabs as part of any divorce settlement?
Just because a bonus is earned after separation and is classed as ‘a non-matrimonial asset’ does not mean the court will exclude it from being shared on divorce. Much will depend on the needs of the parties and their income, or lack of income.
If access to a bonus is necessary to meet the on-going maintenance of a spouse who, for example, stays at home to care for children, the court will be more likely to divide the bonus, as required. But they may be more inclined not to divide it equally between the parties and instead only divide it as required to meet the other person’s needs.
The recent High Court case of H v W did just this. The parties had lived together for nineteen years and been married for twelve. The husband had an annual gross income of £250,000 and approximate discretionary annual bonuses of £200,000. The wife did not work.
As well as other financial awards on divorce, including £3,750 per month in maintenance, the wife was awarded by the Court 25 per cent of the husband’s future bonuses for the rest of her life.
The husband’s appeal was based on the fact that the division of bonuses was in excess of the wife’s needs, given the maintenance award already made. In addition, the husband claimed that the bonus award was unjustified, particularly as the wife had not and would not in the future contribute to his ability to earn such bonuses.
The court found that the bonuses were required to help pay for the wife’s essential monthly expenses, because throughout the marriage the family’s standard of living had in part been funded by them. As such she was entitled to receive a percentage of the husband’s annual bonus going forward.
However, the judge capped the amount the wife could receive from any bonus payment to £20,000 per year. Otherwise if the husband had a particularly lucrative year and earned a bonus of say £500,000 it would be unjustified and excessive.
Where one spouse earns a significant income and bonus, the correct way to calculate maintenance will be to calculate a total income figure required by the wife (to meet her expenses) and determine what would be a fair amount of that to be paid by the husband from his normal salary, taking into account his financial needs as well. The balance should then be expressed as a percentage of the net bonus, up to a stated maximum each year.
The percentage of future bonuses would apply pro rata across the various elements of any bonus award (cash, stocks etc), as it would not be fair for the husband alone to take the risk of any deferred stock awards.
Ultimately, the division of post-separation bonuses will be in the lap of the courts and it may consider them necessary to achieve a fair outcome taking into account the circumstances and facts of each case.
Bonuses earned after separation will not automatically be kept separate, and may indeed be required to meet regular maintenance payments. If they are, the court has now provided that a cap be set, to prevent future iniquity.
Lucy Marks is a partner and Robert Micklem is an assistant at Dawson Cornwell Solicitors