It’s bonus time. News on this front is varied. Deutschebank’s CEO recently suffered a blow as the deferred equity award from his 2014 bonus vested at just a quarter of its 2014 value. More concerning is the report from Options Group which predicts a 4.1% fall in bankers’ bonuses in London because of Brexit.
These two recent events highlight how difficult it might be to accurately predict what a person’s future income is.
When will spousal maintenance be paid?
In the event of a divorce, a court can order that one party pays ongoing monthly payments to the other from their income, commonly known as spousal maintenance.
Whether spousal maintenance should be paid, at what rate and for how long, is assessed on the specific facts of each case, according to the parties’ respective needs, resources and future earning capacity.
The discretionary element of bonuses and the changing economic climate means that fixing a sum of maintenance against a bonus structure may leave one or other party in a divorce in an unpredicted financial position with unintended consequences. Recent cases provide guidance on how this should be dealt with.
What is it and what is its value?
With the backlash against huge bonus payments following the recession, there are increasingly complex remuneration packages out there with multifarious ‘top ups’ to the basic salary. These can take various forms and may involve deferred and /or immediate benefits.
Firstly, establish what these are. It is important to identify each element of the parties’ incomes and, where necessary, use appropriate expert financial expertise to get a clear assessment of their value.
Where performance related benefits are discretionary there can be no certain value assigned. It is not unusual to see a dip in performance-related income during the divorce proceedings themselves, and whether or not the performance will pick up again post-divorce may be a point of dispute between the parties.
Is it a matrimonial asset?
Where an element of the bonus is paid as a deferred benefit it might originate from a period when the parties were married and naturally expecting to reap the rewards together.
Performance-based bonuses paid after separation can be identified more clearly as a post-separation asset and are therefore often outside the matrimonial asset pool.
Bonus payments can also be subject to claims for compensation in cases where the less wealthy party has foregone their own lucrative career in order to facilitate family life.
Should it be shared/how should it be shared?
Whether received as one larger lump sum or in smaller payments more frequently throughout the year, future bonuses will be treated as income and any claim against a bonus will be assessed as a maintenance claim.
Bonuses can be substantial and in many cases have defined the standard of living during the marriage. In a maintenance claim, the receiving spouse’s maintenance is established by identifying his or her needs, and assessed against the standard of living during the marriage, but only as a guideline.
The courts will favour certainty in the arrangements, and will look at determining the maintenance claim to a specific period of time, after which it cannot be extended.
The aim is to enable each party to establish financial independence of the other. There may be circumstances where this is not possible or appropriate and each case will be looked at on its specific facts.
The basic salary of the person paying maintenance is important because it is a fixed rate against which to measure liability for maintenance.
In a recent speech to the Law Society, outgoing Family President James Munby reaffirmed that the approach to be taken is that, where spousal maintenance is appropriate then, ‘needs of strict necessity’ should be met from the base salary and additional, discretionary, items should be met from the bonus on the basis of a ‘capped percentage.’
The percentage share means that neither party is unduly prejudiced by fluctuations in the amount of bonus paid. The cap provides an upper limit over which the bonus will not be shared.
This means that the receiving party whose basic needs are confidently met will also benefit from an unexpectedly high bonus but only to a fixed limit of what is assessed to be fair.