In cases where there is a significant disparity in earnings between the parties it is likely that there is going to be an element of spousal maintenance. Unlike with child maintenance, there is no set formula to calculate the appropriate figure. Instead, it is calculated with reference to the receiving party’s generously interpreted needs.
While this exercise is often less than straightforward, the situation becomes even more complex when a significant proportion of the paying party’s income is made up of bonuses, such as in the case of bankers and others in the financial sector.
The court’s approach to bonuses in a divorce will vary depending on the nature of the bonus. A bonus that is guaranteed will be treated differently to a discretionary bonus.
The case of H v W [2013] EWHC 4105 (Fam) is a useful guide to how the court might approach bonuses where they fluctuate in value. In that case the husband was a banker earning in the region of £450,000 gross, made up of £250,000 salary and a further £200,000 in bonus. The bonus was split between cash, deferred cash and restricted awards vesting over a three year period.
The judge who first heard the case ordered that the wife be awarded £3,750 per month plus an additional 25% of the husband’s bonuses on an ongoing basis. The husband appealed the decision. One ground of the husband’s appeal was that the judge should have put a monetary cap on the 25% of the bonus.
On appeal, King J (as she then was) found that the general approach taken by the first instance judge, to award the wife a fixed monthly payment plus a percentage of the bonus, was not wrong. In doing so she stated:
“In my judgment, where the family income is routinely made up of salary and bonus and the bonus represents such a significant proportion of the total that the Judge is driven to making a convention monthly order for a sum less than that which he would otherwise feel to be appropriate… he may well provide for a part of the W’s maintenance to be paid from the bonus. Such payment, given the intrinsic uncertainty of bonuses, can only be expressed in percentage terms.”
However, the appeal was allowed on the basis that an uncapped percentage of bonus contravenes the principle that maintenance should only be awarded to meet needs, generously interpreted. The judge therefore imposed a cap of £20,000 per annum in respect of the amount which the wife could receive under her 25% of the bonus.
Each case is decided on its own facts but in recent years, where a party receives a significant part of their remuneration in the form of a bonus, it is often the case that any final order will be expressed as a fixed monthly payment and a percentage of bonus, with the latter being capped at a maximum monetary figure.