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Family Law, divorce, Waggott v Waggott, periodical payments, sharing principle, income needs, free capital
The other significant aspect to the decision in Waggott v Waggott, which really does assist us in advising our clients in respect of periodical payments, is the interplay between ‘free’ capital which is available to a spouse following the application of the sharing principle, and the use which they can be expected to make of it in meeting their income needs.
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Apr 25, 2018, 09:15 AM
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The case of Waggott v Waggott EWCA Civ 727 is being hailed by some as the end to the ‘meal ticket’, but the decision in respect of periodical payments is perhaps not surprising, there are few cases these days where a ‘joint lives’ order is the eventual outcome.
The other significant aspect to this decision, which really does assist us in advising our clients in respect of periodical payments, is the interplay between ‘free’ capital which is available to a spouse following the application of the sharing principle, and the use which they can be expected to make of it in meeting their income needs.
In the case ofWaggottthe wife’s capital as the conclusion of the case was £9.76m. Of this, after allowing for housing needs and pension provision, the wife’s free capital was approximately £3.5m. The judge applied assumed net return of 1.75% – producing c£60,000 per year. The wife argued that;
‘The judge was wrong to attribute any income to the wife's capital resources, allocated to her by application of the sharing principle, when determining how she could meet her income needs because the husband would not have to make use of his capital to meet his income needs.’
This is an argument which we see in the courts time and time again on much smaller money cases, that where capital is divided equally but one party is a high earner and the other is not, it is unfair to expect the low income party to use their capital to create an income for themselves when the other party doesn’t have to and has ample income to support both.
The Court of Appeal soundly rejected this argument. More specifically and perhaps significantly, the Court of Appeal even rejected the argument that if the wife’s capital had to be utilised to support her, it should only be the income generated by the capital which she could be expected to have to rely on, and she should never be expected to have to deplete her capital to meet her income needs. Lord Justice Moylan said:
‘If, in some circumstances, a wife can be expected to meet her income needs out of inherited capital, it is difficult to see why the same should not apply to a wife's share of marital wealth.’
He made it clear, however, that it very much depends on the circumstances of the case as to whether a spouse will be expected to deplete their capital and to what extent:
‘In some cases it will clearly be fair for that part of the sharing award available to meet income needs to be fully amortised, for example, because neither party has any resources other than those being shared. In other cases, the court might take the view that the applicant should have a greater level of security than that provided by an amortised sum because of the respondent's earnings and apply only an assumed rate of return. To repeat, when determining this issue, the court will need to have regard to all the relevant circumstances, to the clean break principle and, as appropriate, the issue of undue hardship.’
This case has, therefore, been absolutely instrumental in resolving the long debated question of whether a spouse can ever be expected to deplete their capital in meeting their income needs where there is a disparity in income, but no doubt will be replaced by many arguments about whether he or she should do so in the circumstances of the case.