Will my Bonus Count in my Divorce Settlement?

In this blog, James Pirrie, a Director at Family Law in Partnership, explores the question of whether a bonus payment will be taken into account in any divorce settlement. The question was raised by The Financial Times last week and the article can be found here.

Sorry, but the answer is one of those irritating “it depends” answers. It depends on what you are doing:

If the question is about child maintenance paid through the Child Maintenance service:

Then yes.  The CMS when first approached (and on each anniversary) will look back at the last lodged tax information.  This will include your last bonus payment and so that bonus payment will be taken into account in the figures for the income that you pay going forward.  If your current income is 25% less (and how would you know till the next bonus payment is clear) then you might ask for a lower figure to be adopted.

The bonus payment may push you up above an income of £156,000 gross per annum at which point the CMS stops but the court can consider whether further provision is appropriate.  Under the latest guidance of James v Seymour, Mostyn J would take into account the income from the bonus payment too.

If the question is about spousal maintenance:

The Family Court will be careful to avoid double recovery: the bonus payment can’t be shared within the division of assets analysis AND come into the reckoning as regards the level of maintenance – but that apart, it is likely that the bonus payment will have impacts on the level of spousal maintenance.

Maintenance is only ordered where the needs of the recipient makes this appropriate. Where the income is high enough or the bonus payment is certain enough for the payer’s and the recipient’s needs to be met, an order will be made in the usual way. (Albeit now increasingly in a way that is intended to see the recipient build towards being able to meet their needs without maintenance through reducing their spending or building their income over time or both where this can be done without undue hardship).

Where bonus payments make up a high proportion of the payer’s income and are not certain, the risk is that the situation will have to be constantly re-evaluated at great cost to the parties and to the Family Court.  To reduce the risk of this what the Family Court will do is:

1. Identify the income that is likely to be received;
2. Make an order sufficient for the recipient to meet their basic budgeted outgoings from that element; and then
3. Make an order for the earner to pay from their bonus a percentage;
4. But cap it at a level sufficient to enable the recipient to meet their additional discretionary spending which is not already showing in the budget at 2 above.

For the well-off where there is no maintenance?

Where assets are very substantial, each side is likely to be able to meet their needs from the division of the assets: if there is £10m all built up during the marriage, the court will usually regard £5m as sufficient, even though one party has a strong career and will continue to earn and so become better off than the spouse without that history of earning.

The question then crops up “well is it a guillotine?”  Does the earner keep all income after the separation date?”

The current answer is “no”.

• Assets will probably be divided at the point when the court makes its decision, the longer it takes the more assets are likely to be in the pot for division.
• But beyond this many judges will reach for the well worn quote of Mostyn J from the case of Rossi all the way back in 2006: “I myself would not allow a post-separation bonus to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after the separation.”
• Other approaches will be taken but here specific advice is going to be needed looking at all the circumstances.