(Family Division, Holman J, 4 July 2014)
Financial remedies – Periodical payments – Step down or future termination – Wife’s potential earning capacity
The full judgment is available below
When the husband and wife separated after an 8-year relationship they participated in financial dispute resolution and were able to reach an agreement on most issues. They agreed final capital apportionment including a pension sharing agreement and periodical payments for the wife and the two children on the basis that the husband would pay the current nursery fees. They were unable to agree on whether there should be a step down in financial provision and whether periodical payments payable to the wife should at some point terminate. A final order was made by consent and the outstanding issues were set down for a hearing.
The wife had cared for the children full time for the last 3 years but submitted that she wanted to return to employment as and when she could juggle employment with childcare. Prior to having the children she had worked in retail earning £30,000 pa.
It would be entirely speculative to estimate a date by which and a level at which the wife would be able to obtain employment in the future. On those particular facts the court would not order a step down in periodical payments. The husband had already negotiated an agreement in the consent order whereby he would be credited 50p in the pound on any work the wife did obtain.
On the circumstances it was not appropriate to place a limit on the duration of periodical payments. The wife was in a precarious financial provision without support from the husband and with the responsibility of raising their two children. She had very little capital and an uncertain earning capacity. The consent order would remain in its current form but with a clear recital expressing the wife’s clear desire and intention to obtain the best paid work that she reasonably could.
The fully referenced, judicially approved judgment and headnote will appear in a forthcoming issue of Family Law Reports
. A detailed summary and analysis of the case will appear in Family Law
Neutral Citation Number:  EWHC 2263 (Fam)
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
Friday, 4th July 2014
MR JUSTICE HOLMAN (Sitting in public)
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B E T W E E N:
JULIE ANNE MURPHY
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Transcribed by BEVERLEY F. NUNNERY & CO. (a trading name of Opus 2 International Limited) Official Court Reporters and Audio Transcribers One Quality Court, Chancery Lane, London WC2A 1HR Tel: 020 7831 5627 Fax: 020 7831 7737 email@example.com
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MR J. TOD (instructed by Brookman Solicitors) appeared on behalf of the petitioner wife
MR S. WEBSTER (instructed by Hughes Fowler Carruthers) appeared on behalf of the respondent husband
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J U D G M E N T
MR JUSTICE HOLMAN
I have heard this whole hearing in public and now give this judgment in public. The situation with which I am faced today is a somewhat unusual one. Following the breakdown of their marriage and divorce, the parties participated in a financial dispute resolution (FDR) before a deputy district judge at the Principal Registry of the Family Division on 7 November 2013. Very commendably, on that day and occasion the parties were able, in large measure, to reach agreement and to compromise the financial issues. Indeed, a recital to the subsequent formal order reads: "… at which hearing they reached a compromise (on most but not all issues)…"
The parties were able to agree final capital apportionment between them, including the making of a pension sharing order. They were able to agree the rates of periodical payments for their two children and the proposition and basis that the husband would pay current nursery school fees. They were also able to agree current levels of periodical payments to be paid by the husband to the wife.
The two areas upon which they could not agree were whether or not there should be some "step down" in the relatively near future (that is to say, within a small number of years) in the level of periodical payments payable to the wife; and whether or not those periodical payments payable to the wife should be the subject of some ultimate term or cut off.
As a result, an order, which in all respects has the appearance of, and takes effect as, a "final" order as to ancillary relief was made by consent on 7 November 2013. But paragraph 9 of the order then provided that the case should be transferred to the High Court, and paragraph 10 provided as follows:
"10. The following issues shall be determined at a hearing listed on the first open date after 1 June 2014 before a High Court judge:
(a) whether the initial step down in the petitioner's maintenance should be defined in time, and whether there should be further step down in the provision; and
(b) whether the maintenance for the petitioner should be paid during joint lives (per the petitioner) or should be the subject of a term order, ceasing when the children finish their secondary education (per the respondent)."
Provision was made, and has been complied with, for the parties to exchange further short statements related to earning capacity and current incomes in preparation for the present hearing, and that has been done. This, therefore, is the hearing for the determination of those two issues that were identified in paragraph 10 of the order made at the FDR on 7 November 2013.
The reason why I say that the situation is a somewhat unusual one is that issues around the duration of periodical payments and potential cessation of periodical payments are not normally completely separated out from issues with regard to capital. It does, for instance, commonly happen that as part of a negotiated outcome (or even a court imposed outcome) there is some further capital adjustment or capital provision from a payer to a payee spouse to reflect or compensate for subsequent cessation or reduction in levels of maintenance. But in this particular case the parties have completely and finally resolved all capital issues and I am, in fact, left in the somewhat unusual and not entirely comfortable situation of having to adjudicate on the two issues that were identified in paragraph 10 as a somewhat abstract exercise, when no power has been left to me to make any further or alternative capital adjustment at all.
Further, it is a striking feature of this case that by their agreement, and by the terms of the consent order of 7 November 2013, the parties have already clearly contemplated that the wife will seek and obtain work, and that once she has done so there will be a reduction, which is already provided for, in the level of maintenance payable by the husband to the wife. Undertaking (J) in the order is that the wife "will inform the [husband] as and when she commences remunerative employment, including disclosing her net income". That undertaking, in the overall context of this case, when coupled with paragraph 6(i) of the order itself [see below], clearly contemplates that the wife does wish and intend to seek and obtain remunerative employment.
Paragraph 6 of the substantive order itself provides as follows:
"6. The [husband] shall make or cause to be made to the [wife] periodical payments until the [wife's] remarriage or further order of the court as follows (the question of a term on the maintenance order being determined in accordance with paragraph 10 below):
(a) at the rate of £21,000 per annum payable monthly in advance by way of standing order into the [wife's] bank account with effect from 1 January 2014;
(b) £10,000 per annum payable annually with effect from 30 October 2014. It is further directed that: (i) the maintenance payable to the [wife] shall reduce by an amount equal to 50% of the [wife's] earned income at the end of her first year of paid employment."
Pausing there, it is necessary just briefly to explain why the primary provision of maintenance is divided into two portions under sub-paragraphs (a) and (b). That is because the husband's own remuneration consists of a combination of regular monthly salary and one off annual cash bonuses and stock awards payable in the autumn. So the primary order is, in effect, an order for periodical payments at the rate of £31,000 per annum, but a part of it is to be paid in a single payment of £10,000 around the time that the husband receives those annual bonuses or awards. Most importantly, it can clearly be seen from paragraph 6(i) that the order already makes clear and express provision that as soon as, and whenever, the wife starts to earn income, there will be a 50p in the pound reduction in the amount of periodical payments payable, once she has been in employment for a year. I mention that although the word "net" does not appear in paragraph 6(i), it is common ground that the reduction shall be based upon the wife's net earned income not her gross earned income, and my order today will include a recital making that plain for the avoidance of doubt.
It is now necessary to record the essential facts and chronology of the case within which I have to decide these two issues. The wife is now aged 42. The husband is aged 35. They met in 2004 and began living together in 2005. They actually married in June 2007. Sadly, their marriage broke down and there was final separation around the beginning of April 2013, when the wife petitioned for divorce. It thus follows that the duration of the marriage itself was about 6 years, but there were about 2 years of seamless pre-marital cohabitation, so the context here is a case of an enduring relationship of about 8 years. That is not, of course, a particularly long one, but nor is it an especially short one amongst those marriages and relationships which, sadly, later break down with separation and divorce. 
At the time of the marriage, and indeed right up to shortly before the parties' children were conceived, both had good employment and good working histories. In the case of the wife, she has a degree in English and psychology from Strathclyde University in Glasgow. She worked for several years in the field of publishing, and then later in the field of web-based marketing. Her last job, between June 2008 and September 2009, was working for Selfridges as a "website trading manager". In that employment she was paid £30,000 a year.
On New Year's Eve 2011 the parties' twins were born. They are a boy and a girl and now aged about 3½. Until recently the wife, very understandably, did not work again. Her husband was, as he is, a relatively high earning businessman in secure employment, and she obviously had her hands full with caring for their babies and growing children. The demands on a parent of caring for twins hardly needs to be emphasised.
By the time of the FDR hearing last November, the wife was still engaged full-time in looking after the twins and did not have any employment. She had stated at that stage, in answers to questionnaire, that her plan was to embark on teacher training as soon as she reasonably could, with a view to working as a teacher from about September 2017. But at that stage she had not actually embarked on any of that.
The broad agreement at the FDR was that the available capital between the parties would effectively be evenly divided and their then pension CETVs equalised. A document headed "Net effect of the consent order", prepared for today, indicates that the resulting financial position of the wife is in general terms as follows. She now owns the former matrimonial home in Twickenham. This is said to have an open market value of about £700,000. She reduced the previous mortgage substantially as a result of the lump sum payable to her by the husband, but it is still subject to a mortgage of around £250,000 for which she is responsible. So she lives in a home with a net equity currently of about £430,000. Her remaining capital from all sources is around £50,000, against which she has liabilities (mainly legal costs) shown in the schedule as about £12,000. But I have been told that there is a further costs liability, as a result now of the attenuation of these proceedings, of a further £10,000. The upshot is that, apart from the equity in her home, her only available capital is about £28,000. After pension sharing orders, she has aggregate pensions with a CETV of about £44,500. As a result of the even distribution of capital, the overall net capital position of the husband is, of course, currently similar.
At the time of the FDR last November, the husband was still working for Apple and iTunes in Hong Kong. As it well known, the tax regime in Hong Kong is relatively low. Since then he has returned to work (still for the same employers) here in London. As I understand it, there has not been any particular change in the level of his gross remuneration, but he now faces the much higher tax burden of UK taxation. As a result of that, it has been trailed today that he now intends in any event to apply for a variation of the levels of maintenance that were agreed last November to lesser amounts to reflect the reduction in his available net income. That is entirely a matter for his own decision. It is not before me today. I do not give, by this judgment, the slightest encouragement for that application. It is necessary to bear in mind that although his net income may have reduced it still remains relatively high, and a reduction in his income does not, of course, in any way reduce the needs of the wife and children, including her need to service her substantial mortgage. But whether or not there should be, or will be, some resource-based reduction in the levels of maintenance is not a matter which is before me today.
The wife has made a statement dated 30 June 2014 in which she explains that she has now appreciated, after further research, that her plan of training as a teacher is not a realistic one. The reason is that she has now come to appreciate the sort of hours that she would have to work in training and, indeed, the sort of hours she would have to work in full-time employment as a teacher. Although working as a teacher may have the effect that she would be free for substantial parts of the children's school holidays, she says that researches have indicated that she would have to work, both in training and as a teacher, from at least 8 a.m. to 6 p.m. She adduces material to indicate that primary school teachers are currently working as much as 60 hours a week. She says, very understandably, "It was clear to me from this information that I would not be able to become a teacher as this conflicts with my ability to care for the children who are still below school age. Originally, my primary wish to become a teacher was premised on being able to work child-friendly hours.”
She has, however, started doing a certain amount of part-time work, mainly working from home for two organisations, from which she is earning modest amounts. If she maintains even that level of work and remuneration then, of course, at the end of the period of a year the formula in paragraph 6(i) of the order of 7 November 2013 will kick in. However, she actually makes perfectly clear that she wishes to seek greater and more remunerative employment. She sets that out clearly in paragraphs 24 and 25 of her statement; and her counsel, Mr Jonathan Tod, has readily agreed (in her presence) that the order today should be predicated "upon the basis of the wife's statement dated 30 June 2014 and in particular paragraphs 24 and 25 thereof, and her counsel having stated in court today that her express instructions and position are that she would like to work, and intends to work, and to earn as much as she reasonably can as and when she is able to juggle childcare for the twins and employment.”
So Mr Tod, on behalf of the wife, argues and submits that I should not in fact identify any particular date upon which, or amount by which, there should be a "step down" in the relatively near future, nor should I make the order for periodical payments subject to an overall term ceasing when the children finish their secondary education. That would be around the age of 18, at which time the wife will be around the age of 57. 
On behalf of the husband, however, Mr Simon Webster has strenuously and with great clarity argued that I should today identify a date for a step down and a reduced level of maintenance at that date; and, further, fix that the entire periodical payments should cease about the time the children attain the age of 18 and the wife is 57. He does acknowledge that there should not be a direction under section 25A(3) of the Matrimonial Cause Act 1973 so that even if I do make a term order that term would be extendable upon application by the wife before the expiry of the term. As he himself has said, to some extent all these arguments are around onus. If there is an identified "step down", then the onus would be on the wife in a few years' time to show why that step down should not operate. If the order is made a term order, then the onus would be upon the wife, before the expiry of the term, to show why the term should be extended. If, alternatively, there is no step down identified now, and no term fixed now, then it will always be open to the husband to apply for reduction in, or termination of, the maintenance at any time; but, of course, the onus would be upon him to make out the case and reasons for doing so.
I would like to pay particular tribute to the detailed written argument of Mr Webster, which extends to some 15 rather close-typed pages and 38 paragraphs, and displays great scholarship and learning. Not only has he referred to a considerable number of authorities in this field, but he has referred to, and indeed attached, significant parts of the recent Law Commission Report on "The financial consequences of divorce", and even a Private Member’s Bill which has been presented to the House of Lords by Baroness Deech of Cumnor and apparently had its second reading before that House last week on 27 June 2014. I wish to stress that although I may seem to have given Mr Webster relatively short shrift in court this morning, and to have come into court with a relatively clear provisional view as to outcome, that is only because I had already read, with the utmost care, that very detailed written skeleton argument by him.
So far as any reliance upon Baroness Deech's Bill is concerned, that is a bill which clearly aims to change and reform the law. By its nature, it gives no indication whatsoever as to what the law currently is, save in the sense that the law currently is not the law as it would be if Baroness Deech's Bill is ever enacted. It is, of course, the current law which I must apply.
The Matrimonial Causes Act 1973 does not itself make express statutory provision as to so-called "step down", although, of course, the flexibility and width of the language of section 23(1)(a) is such that a court can, as it routinely does, make orders for periodical payments which may go up or down at various defined points to reflect anticipated future circumstances and, in particular, anticipated gain of employment. It is, of course, the statutory duty of the court under section 25(2)(a) of that Act to have express regard not only to actual income but also "earning capacity", and "including in the case of earning capacity any increase in that capacity which it would in the opinion in the court be reasonable to expect a party to the marriage to take steps to acquire.” So undoubtedly in a situation in which the court is of the opinion that it would be reasonable to expect a party to the marriage to take steps to acquire an increase in his or her earning capacity, then that circcumstance and opinion operates to influence future levels of maintenance and, most probably, some identified step down. But the court still has to form that necessary opinion.
The essential argument by and on behalf of the husband is that before the birth of the twins the wife had a good working history and CV, culminating in working full-time at Selfridges earning (in 2009) about £30,000 a year gross. Based on that, the argument of Mr Webster is that I should form the opinion that it would be reasonable to expect the wife to take steps to acquire an earning capacity of between £25-30,000 a year gross by not later than 1 September 2017 when the twins will be aged about 6½ and obviously in full-time school. So Mr Webster, on behalf of the husband, argues that I should adjust the language of paragraph 6(a) of the order of 7 November 2013 so as to add, after the words "from 1 January 2014", the words "until 1 September 2017 and thereafter at the rate of £12,000 per annum". In other words, he argues for a reduction in the maintenance by £9,000 with effect from September 2017. He agrees that paragraph 6(b) would remain in full force and effect, so that the £10,000 a year would continue seamlessly on 30 October in each year. Of course the husband cannot have his cake and eat it, and Mr Webster accepts and agrees that if paragraph 6(a) is amended in the way I have indicated, then paragraph 6(i) should be deleted, at any rate with effect from 1 September 2017.
Just pausing there for one moment, it is instructive to see what the net effect of all this might be. Mr Webster has argued that I should assume, and conclude, that the wife could reasonably be expected to earn between £25-30,000 a year gross, at any rate by and from September 2017. He says, looking at At A Glance, that that results in a net income of between £17-22,000 a year. If one just takes the midpoint of those net figures, that is net income of £19,500 a year. If the order of 7 November 2013 remains in its present form, then the wife by then will anyway be having to credit the husband with half those net earnings of £19,500. Half of £19,500 is £9,750, so paradoxically there would actually be a slightly greater reduction in the overall level of maintenance payable if the order remained in its present form than if it was amended or altered in the way that Mr Webster contends for, which would delete the automatic 50p in the pound reduction but merely reduce the overall level of maintenance by £9,000. However, as Mr Webster says, the difference is that if the order is amended in the way that he contends for, then there is a more certain future position with the onus being firmly on the wife to show why it should not prevail. His argument was put metaphorically that I should "set out a path" which the wife is expected to follow.
This, however, seems to me to be highly speculative and probably not realistic. It is true that in 2009 the wife was able to earn £30,000 a year gross at Selfridges. At that time the parties were living in Kennington and she had a relatively short journey to and from work. Nevertheless, she says at paragraph 18 of her recent statement, which has not been challenged:
"Prior to having children I worked in online merchandising for Selfridges … The contracted hours at Selfridges were 9 a.m. to 5.30 p.m., but in reality I regularly worked from 8 a.m. to 8 p.m. on around three or four days each week. On the other day (or if I was lucky, two days) I could arrive at 9 a.m. but would not leave until 7 p.m. at the earliest. … I could not return to a role structured such as my previous employment that I had with Selfridges, as the hours are too demanding and it would be impossible to care for the children. …"
As I have mentioned, she now in fact lives in Twickenham. It is accepted that the travelling time between the home in Twickenham and Selfridges would be around an hour each way, so that if she was to return to that employment, or similar employment in central London, it would involve her leaving home at around 7 a.m. and only returning around 9 p.m. on at least three or so days a week; at best on the other days she might leave at 8 a.m. and be home by about 8 p.m. As she has pointed out, this would only be achievable by paying out substantial sums for childcare or the employment of a nanny. Paradoxically, if meantime she had to credit the husband with 50p in the pound pursuant to paragraph 6(i) of the order, she might rapidly find that she was considerably worse off as a result of working those very long hours.
I asked Mr Webster repeatedly what sort of employment he, on the husband's behalf, suggests she actually realistically can obtain and where. He was only able to answer in very vague generalisations, that she must be able to obtain full-time employment somewhere and maybe in Twickenham. I asked what sort of hours. He suggested 8.30 a.m. to 5.30 p.m., which, of course, would be likely to involve leaving home at least at 8 a.m. and be home not earlier than 6 p.m., even if she obtained work locally in Twickenham. I asked how this could be reconciled with proper childcare for these young twins, who require to be taken to school and picked up from school during school term time, and require to be cared for throughout the day during school holidays, except in those periods when they stay with their father. Mr Webster has no answer. He, for a while, reverted to contending that she could work as a school teacher, as she had earlier contemplated, which might mean that she was relatively free during school holidays. I gave him an ample opportunity (during which I rose) to take instructions as to whether or not he should cross-examine the wife on her change of position with regard to teaching. Upon instructions, he declined to do so. I made crystal clear to Mr Webster, in the presence of the husband, that as I had afforded to him an ample opportunity to cross-examine to whatever extent he wished around the changed position, or indeed in relation to employment generally, the husband would be bound by what the wife had said in her statement unless he took advantage of that opportunity and cross-examined her. The clear decision was that they did not desire to cross-examine the wife.
The reality of this case seems to me to be this. These parents gave birth to these twins when the wife was at a relatively (I stress the word 'relatively') older age. She is now already 42. She still has highly dependent twins, only aged 3. Yes, she does have a good working history, although she has no special vocational or professional qualifications. She has made quite clear that she wishes and intends to obtain such work as she can, but her absolute priority must be their children. Further, it is the statutory duty of the court under section 25(1) of the Act to give first consideration to the welfare of the children while they are minors.
I am, frankly, quite unable to say, and it would be totally speculative, whether or not by September 2017, or any date in the relatively near future, she is going to be able to obtain work at any particular level of remuneration. The husband already has the advantage and protection of paragraph 6(i) of the order and will be credited 50p in the pound for any work that she does obtain. But for me to assume that by September 2017 she can and will, or should be, earning anything remotely approaching £25-30,000 a year gross seems to me to be totally speculative.
For those reasons, on the particular facts of this case, I am not at all willing to add to the order any "step down" in any defined amount at any identified relatively near future date. In my view, the husband has already successfully bargained or negotiated for valuable protection by the terms of paragraph 6(i) of the order.
The question then arises whether, by application of section 25A(2) of the Act, I should make the maintenance subject to an overall term, and specifically (as the husband and Mr Webster contend for) when the twins cease secondary education around the age of 18. It is quite unnecessary to elaborate this particular case with copious reference to authority. All these cases turn on their own particular facts. I was, for instance, referred to some decision by Mrs. Justice Eleanor King in a case called L v L
 1 FLR 1283. But the facts of that case were that the wife in question already had very substantial capital, including a farm. Further, in the language of the judge: "This wife is comparatively well placed - she has substantial capital of her own … She has never left the workplace and has her well-deserved reputation open which to build a business in order to produce a more substantial income.” In that particular case the children concerned were already aged 12 and 9, which just shows how far removed that case was from this case, and how fact-specific all these cases are.
My statutory duty is to be found in section 25A(2) which provides as follows:
"Where the court decides in such a case to make a periodical payments … order in favour of a party to the marriage [which this court has done by the order of 7 November 2013], the court shall in particular consider whether it would be appropriate to require those payments to be made … only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party."
It is extremely important to observe that that sub-section requires the court, as a first step, to form an "opinion". Second, the critical word in the sub-section is not "should" but "would". In other words, the court has to be able to form an opinion that by the end of the selected term the payee will be able to adjust without undue hardship to the termination.
The proposal in the present case is that the term should expire when the children are around the age of 18 and the wife is around the age of 57. I have already indicated that the extent to which she can work, and the amount that she can earn, is speculative even in the near future. What this lady will be able to earn, and how much she will be able to have earned, and what pension she will be able to have accrued by the time she is 57 is, frankly, totally speculative. At the moment her pension provision is very meagre, namely the CETVs of around £44,500. This lady, unlike the lady in the case of L v L, has no capital to fall back on. The equity in her home in Twickenham would, at current prices, only extend to a relatively modest flat. She will not, of course, receive the state old age pension until she is 67.
Again and again Mr Webster impressed upon me the relatively short duration of this marriage. He said, correctly, that I must take into account the duration of the marriage in making a judgment as to "undue hardship". He stressed how this wife had always worked until shortly before the children were born. He said I should bear in mind the ages of the parties now. That actually, in my view, cuts both ways in this particular case. It is in part the fact that this wife is already aged 42 and that her children are only aged 3 that makes her future financial position so relatively precarious.
What, frankly, the arguments by the husband overlook is that the having of children changes everything. Of course this wife could never have expected a "meal ticket for life" on the basis of six years of marriage and two years of cohabitation if there had been no children. Far from it, she would no doubt have continued to work at Selfridges, or in similar employment, and at the point of the breakdown of their marriage and divorce there would have been a fair capital division and a clean break and each would have gone their own way. But the fact of having children, and their obvious dependence in this particular case on their mother for their care, changes everything, as I have said. The economic impact on this wife is likely to endure not only until they leave school but, indeed, for the rest of her life.
I do not know, nor do the parties know, what the future will bring. It may be that this wife will find another partner with whom she chooses to share her life and the maintenance will all end. It may be that she will be able later, if not sooner, to obtain well remunerated employment, carrying with it a good pension, and any dependence will end. But at the moment this lady is in a precarious position. She is very largely dependent on her husband, and it is frankly impossible for me to form the opinion that section 25A(2) requires as the trigger to then making a term order.
For those reasons, on the facts of this particular case, I decline to do so. The upshot is that the order of 7 November 2013 will remain essentially in the form in which it has already been drafted and ordered, but the order today will, as I have already indicated, contain a clear recital with regard to the wife's desire and intention to obtain the best paid work that she reasonably can, and will clarify, in certain other respects, the language of that order.