username

password

Coram ChambersGarden Court1 Garden CourtHarcourt ChambersCafcass advertimage of 4 Paper Buildings logoHind CourtDNA Legalsite by Zehuti

Maintenance after Miller and McFarlane: Sharing the income resources

David Hodson proposes a new approach to valuation of maintenance following the judgment in Miller & McFarlane.

David Hodson

This article proposes for discussion a formula for calculating spousal maintenance in the post-Miller and McFarlane era. It takes account of sharing the income needs of the spouses after deducting direct and indirect costs of children. It is relatively easy to operate and, by making use of standard IT facilities, could be updated as often as was necessary.

Following the House of Lords' judgment in Miller and McFarlane, there are now three strands of financial provision: needs, compensation and sharing. Each needs to be considered in every case although, in practical terms, in the vast majority of cases there will be only sufficient resources to provide for needs, if defined generously.

Nevertheless, the concept of sharing should go further than the strict division of 'matrimonial property' as contemplated in Miller and McFarlane itself. The House of Lords referred to sharing in the 'fruits of matrimonial endeavours'. Based on the concept of equality permeating marriage as understood today, Lord Nicholls described a husband and wife as being now for all practical purposes equal partners in marriage. They commit themselves to sharing their lives, to living and working together and so when the partnership ends, each is entitled to an equal share of the assets of the partnership unless there is good reason to the contrary. The yardstick of equality, thus, is not a rule, but merely an aid. Baroness Hale referred to this approach as sharing the fruits of the matrimonial partnership.

Sharing does not stop with capital. Why should income, especially income resulting from work carried on during the marriage, not be shared when, after allowance for child costs, the needs of spouses are generally similar? In such circumstances, is it possible to devise a spousal maintenance formula that can produce some consistency of approach across a range of cases and from year to year? After all, consistency was described by the House of Lords as so important even if, sadly, it was not promoted by some of the inconsistencies in the judgments!

The formula
This article proposes such a formula, adopted in a recent mediation, and it is hoped that it will find favour with some parties.

For the purposes of this example and the ensuing commentary, the wife is the primary residence parent and the husband the second residence partner and the principal earner.

The formula is as follows:

Total net income of husband

A

Plus:

Total net income of wife

B

Total income resources (A + B)

C

Direct school fees, extras and related expenses

(D)

Additional child expenses to be paid direct

(E)

Sub Total (C – D – E)

F

Child maintenance needs of wife as primary residence parent

(G)

Child maintenance needs of husband as secondary residence parent

(H)

Subtotal, being available income for parties themselves (F – G – H)

J

Shared needs of each party (J x 50%)

K

Less total net income of wife

(B)

Spousal periodical payments (K – B)

L


By way of example: the husband earns £120K (A) and the wife £15K (B). School fees are £35K (D) and other direct children's expenses £20K (E). It is agreed by the parties that the direct children's cost of the primary carer are £20K pa (G) and, in respect of the 5 nights a fortnight in which the children are in the residence of the secondary carer, they are £16K (H).

Then the total available income is £135K (C: 120K + 15K), the amount after school fees and other direct children expenses is £80K (F: 135K – 35K – 20K) and the amount available after child support for each parent is £44K (J: 80K – 20K – 16K). The resulting balance of £44K is available for division equally between the parties, producing £22K (K). From this is deducted the wife's own income of £15K to produce alimony, spousal maintenance, of £7K (L: 22K – 15K).

The calculation
In categories A and B, there will be included the parties' earned income of whatever form, including bonuses and commissions. One benefit of such a formula is that it can be applied to regular monthly income and to 'one off' annual payments. It will also cover unearned income unless, perhaps, it is pre-marital or there are other circumstances which render it inappropriate to be included. In longer marriages and in basic needs cases, the resources pre-marriage and from gifts/inheritances are more likely to be brought fully into account. In exceptional cases income might include a notional amount attributed to one party who might reasonably have been expected to generate greater income than has, in fact, been the case. It might also include capital gains although parties who live off capital may find the formula inappropriate.

This formula is sufficiently flexible to permit adjustment if a wife later gains an income after time spent at home in child caring. The consequence is that her spousal support income will decrease; but equally if the husband's income increases, then so will the funds available for her spousal maintenance.

Adding the parties' individual incomes produces the total income available for the family (category C).

The children's educational costs and related expenses, such as school fees, school trips, uniforms, are totalled within category D and then deducted. The court order or settlement will direct who should pay any school fees. There are then non-educational direct children expenses (category E) which need to be deducted from the available income. These might include private health insurance, medical expenses, opticians, dentists, sports equipment, holidays other than with one parent. All these items are payable to a third party, although it will need to be resolved who will pay what and how amounts are to be passed to the party who will make the payments. These direct child expenses and costs (categories D and E) are totalled and the total deducted to produce available income (category F).

Even if a parent cares for the children for only one night a fortnight, there are inevitably both indirect costs of accommodation and some direct costs which should be taken into account and shared. Increasingly, children spend significant amounts of time with each parent. Naturally the primary residence parent has the greater need and this can be calculated by reference to assessments of needs or other methods e.g. CSA formula. But the other parent, having the children for perhaps a third or half of school holidays and three to five nights a fortnight, has not inconsiderable indirect accommodation costs and direct costs. Surely the days of providing child support for the primary residence parent and taking no account of the child support costs of the other parent must be numbered! Perhaps the ratio might be in the order of, say, £100 per week for the primary residence parent and £60 - 70 for the secondary residence parent. Some realistic allowance must be included.

These separate amounts of child support for each parent (categories G and H), one described as formal child support and the other as costs of child support for the non-primary residential parent, must be included, and then deducted from the available income.

The balance (category J) is then literally what is left to be divided between the spouses. If it seems low, then perhaps the children's costs need to be examined again and the costs of the children reviewed as they would by a non-separated family unless there were jointly agreed sacrifices.

But is there any reason why, at this stage and at the initial stage on separation and divorce, the remaining available income should not simply be divided equally? From the half amount (half of J above, i.e category K), the income already received by the wife (category B), if applicant for spousal support, is deducted to produce the spousal alimony element (category L).

After the substantial mediation in which this formula was first devised, I tried it in another mediation, in which the parties had laboriously and painstakingly worked out detailed budgets on income requirements. With a total net income of £135K pa, all from the father with the father seeing the children five nights per fortnight, the difference in spousal maintenance between the formula and the needs budget was £3K pa, too close in most cases to decide which is fair. Yet the formula involved substantially less work, is more flexible for future years and changes, can be operated by parties without significant lawyers' involvement and took more account of child support of the secondary carer.

Departing from equality?
There may be a number of reasons to depart from this formula, but this is where the lawyer has a more specific and specialist role in deciding what departures are fair.

One reason to depart from this formula is that one party has been attributed a mortgage earning capacity which is then taken into account in the calculation of capital. This mortgage cost should act as a deduction before sharing out available income.

Another reason to depart is that one party has costs associated with earning, perhaps travel to work, work clothing, tools or similar.

Child care costs should also be deducted before the final division between the spouses. These may be assistance for a mother at home but will classically include the costs to allow a mother to take employment. These could be in item E or as a deduction before arriving at the net income of the wife.

It may be that one party has greater needs than the other. These will not be child related as this will be taken into account in the child support of the primary parent or the notional child costs of the secondary parent, usually the primary earner. But in the post-White, and especially now post-Miller, world of reasons to depart from equality, there will have to be very good reasons to show why one spouse as a single person immediately post-divorce (and child costs being separately accounted for) should have materially greater needs than the other. The available income should surely be shared in many cases.

It may be inappropriate in bigger money cases when issues of compensation beyond needs may arise. The compensation element is dealt with below.

Indexation may be appropriate for the child support for each parent. Unlike the spousal support, which is simply what is left after the remaining calls on income are deducted, the child support is entered into the formula at a needs basis. So, apart from the different costs as a child get older, there is good reason for indexation.

However the spousal maintenance should not be indexed on this formula. If the income of either party increases each year, at whatever time in the year the reassessment takes place, then there is more available on the literal bottom line. If all child costs stay the same and there is an extra £20K pa net income, this is shared as to £10K each. It literally benefits the bottom line of each spouse.

Moreover as over time the wife is expected to move towards self-sufficiency, her increasing income, going into the top line of the formula, will increase the net income available to divide between the parties, although with her extra income deducted, she may find that she receives less. But this is fair.

Of course there is an argument that the formula gives no incentive to go back to work. What should be the incentive? Perhaps the fact that England is possibly the most generous country to allow spousal maintenance to continue post-divorce. Almost unnoticed, the countries around England have moved to short and fixed term spousal maintenance. Scotland rarely allows it beyond a few years. The Nordic countries led the way as they presumed spouses would rely on the then generous state benefits. France and many other European countries do not expect long term maintenance. The east coast of the US has many states with a presumption of fixed term alimony. This is not English law (yet) but the culture is surely moving away from those mothers who, years after the children are in full time schooling, are not contributing to any degree in post-divorce family support or are "playing" in careers which rarely produce any material and reliable level of income. Of course, it may be no problem when there is ample to go round, including any element of compensation, and/or when there has been an agreement that the children will have a full-time parental carer and resources amply allow this. But if the concept of sharing the fruits of matrimonial endeavours, including as to income, is to be applied honestly, the ongoing endeavours of each should be the same. The situation in modest, even moderately well-off, cases of one spouse working very long hours and in hugely stressful situations, whilst the other (former) spouse produces minimal contribution to the overall income, cannot continue in the new sharing culture.

Where does compensation come into this?
If the above formula produces only enough for the needs of the two spouses, compensation will not arise. In many cases, the amount required to compensate will in any event be met by the provision of needs. (No-one, including the House of Lords, has seemingly any idea how to calculate compensation!) Moreover it will be an exceptional case where a compensation claim will result in payment of more than half of available income, after deducting direct and indirect children costs.

If available income is shared, then often compensation will not arise. Sharing must surely be paramount to compensation! A paper, scissors and rock of the three strands of financial provision? A sharing under the formula will often subsume compensation.

The major question is: when does the above formula stop being appropriate? Certainly when the wife has attained self-sufficiency (although she might then want to revive her compensation claim); where a payer is able to show that a higher income stream derives wholly from endeavours, and perhaps a new employment direction, post-separation and divorce; when the pension sharing order takes effect and the husband has retired (per Coleridge J in D v D (2004) 1 FLR 988); probably on the wife cohabiting (on the very recent authority of Coleridge J in K v K (Periodical Payments: Cohabitation) (2006) (yet to be fully reported)); perhaps when the children have left full time secondary education; and probably a few years after the divorce when a review of circumstances is often appropriate to fine-tune fairness.

The IT imperative
I admit to riding a now rather ancient hobbyhorse. From well before the time of the Web, I have felt that the mass volume litigation of family law finance disputes requires the clarity and certainty that arithmetic formula can produce as a starting point. The high costs, delays, uncertainties and disruption to the wider families, to children, in the workplace and across society generally of the wide discretionary process of resolution are unfair for most and fair only for those few who can afford it. Reformist noises in the mid-90s fell on deaf, discretionary infatuated ears, although met some resonance in White.

The Web has changed our lives. But not family law resolution. The CSA calculation was botched and the web version came late and was not well presented. The myriad of figures in At A Glance, even in pink, can be brushed aside with a wave of the discretionary wand. However, in the rest of our lives, we are accustomed to and expect the highly personalised and interactive calculations facilitated by the Web: car insurance and mortgage quotes, holiday flights and hotel choices, internet banking. There are so many examples. Many web sites contain incredibly complex, sophisticated (yet hidden) formulae, requiring entry of many variables which then produce very personalised outcomes.

I simply cannot accept that, save for a minority of cases, we are unable to devise a formula for the majority of family law finance cases. Outcomes would not be binding but they would take the parties substantially further down the road than at present where they and their separate lawyers consider section 25 and the latest (too often conflicting) higher court decisions. Some cases will be inappropriate for any formula. Some cases will need tweaking and variation to the formula outcome. The formula is only on spousal income and can certainly be refined and improved. But I believe a good number of couples may find the outcome of a formula, and the process of getting to it, fair, especially as it should involve less cost and delay.

Whilst I deplore the Brussels II 'first to issue' principle, it does produce certainty of outcome. And across Europe, many consider that very element of certainty creates its own fairness.

Has our law, by being often uncertain through discretion as well as sometimes by unhelpful higher court decisions with many opportunities to litigate, created its own unfairness? Has it refused to accept what the Web can do for our clients and the resolution process? Has the time now come to embrace the IT opportunities in the family resolution system?

Conclusion
Each case is different as the House of Lords, justifying its failure to give us more certain guidance, was at pains to tell us.

But clients seek more certainty. Some seek a fairness and flexibility found in the mediation room, and not found in the court room. Some seek an arrangement where the spousal periodical payments float with the income of the primary earner. Some seek a formula to work without lawyers' substantial intervention. Some want help getting closer to a fair outcome than the present system provides. Some want their lawyers to fine-tune a basic fair outcome to their special circumstances.

No doubt there may be other formulae, and variations can be introduced. But in the immediate aftermath of Miller, I put this forward as one way of seeking ongoing fairness by sharing and taking full account of children's costs and each parents' child support. I encourage a debate on the creation of a fair resolution model, based on existing principles of family law such as White and Miller but through a complex, sophisticated mathematical formula, available on the Web, at least as a good and well advanced starting point to the final settlement. In the marathon which too often family law finance resolution becomes, can we not use IT to help our clients avoid the first 25 miles?!

David Hodson is an English and Australian specialist family law solicitor and mediator. He welcomes feed back to encourage a debate on the creation of a better model of family law resolution, using IT and web resources as a better starting point for a fair outcome. He can be contacted on dh@davidhodson.com