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Paying maintenance may last a lifetime

Date: 12 Jul 2010

Citywealth

By Pauline Fowler, Partner, Hughes Fowler Carruthers

“The publicity surrounding David Vaughan’s case will have been disturbing for anyone still paying maintenance to an ex-spouse following a divorce. In fact, the Court of Appeal (CoA) decision does not represent new law, but rather a restatement of principles well known to family lawyers although not widely appreciated or understood by the public at large.

David Vaughan, an eminent QC, had divorced from his first wife, Philippa, in 1985 after an 18-year marriage, and had remarried. He had three children by his second marriage. On his divorce from Philippa, David was ordered to pay maintenance for life. The amount of the maintenance at the time he applied to terminate the maintenance order was ¬£27,175 a year. He was aged 71 and Philippa was 66. She had worked as an art historian in the past, but had not worked for some years. She had inherited money from her parents, lived in a house worth ¬£1m, and had a pension income of ¬£32,000 per annum. However, she maintained she could not manage without maintenance from her ex-husband. David Vaughan’s capital worth was said to be ¬£5m. The trial judge agreed to bring the maintenance payments to an end in October 2009. The first Mrs Vaughan appealed the decision. In a judgment delivered in March this year, the CoA ordered that Philippa Vaughan should receive ¬£14,000 a year from David until he paid her a lump sum of ¬£215,000 in July. David Vaughan subsequently sought leave to appeal to the Supreme Court. This has not been granted, and so the CoA decision stands.

The essential point to understand is that a commitment to pay maintenance does not automatically come end on retirement or on your own remarriage or on the birth of children. An English maintenance order for an ex spouse (often called alimony) is normally expressed to come to an end only on death or on the remarriage of the recipient – a daunting prospect for many, and a concept that is not found in many other countries in the Western world. You – or your ex spouse – can, of course, apply to the court to vary the maintenance order at any time. The court will consider all the factors, including your ability to pay and your ex spouse’s needs. As part of that consideration, the court is obliged to decide whether it is appropriate for the maintenance order to be brought to an end, whether by ordering payment of a capital sum or not.
It is worth taking time to understand the principles a judge must bear in mind when reaching a decision. The CoA reiterated these in its recent judgment.

First, the court has to assess the appropriate level of ongoing maintenance and whether it is possible for the recipient of maintenance to adjust “without undue hardship” to maintenance being terminated. There are three major factors in this assessment.

• What does the recipient of maintenance reasonably need?
• What can she (or he) contribute from her own resources to meet that need?
• What, if anything, should the payer contribute, taking into account his (or her) income and wider financial commitments? (It is within this context that the court takes into account someone’s financial responsibilities to a second spouse and/or to children.)

If the result of that exercise is that the court considers the payer must continue to pay maintenance, it then applies the “Duxbury” formula to work out what capital sum would be necessary to give the recipient so that she no longer needs maintenance. (The Duxbury formula is a complex calculation, based on actuarial tables of life expectancy, designed to provide the recipient of maintenance with enough money, through a mixture of interest and capital draw down, to enable her to meet her income needs for the rest of her life.) Once the court has reached the appropriate capital figure, it then considers whether it is fair to both parties to replace the ongoing maintenance with a lump sum. In that context, the court will consider the payer’s capital resources.

The references to courts and judges do not mean that it is inevitable that spouses with a long-term maintenance order will find themselves caught up in litigation. It is sensible for both parties to negotiate a suitable arrangement between them, as it means they will avoid spending excessive amounts on legal costs, which could themselves erode the capital resources each of them has. In that context, negotiations with an ex spouse will inevitably be easier if she has an understanding of the major events in the payer’s life. For example, it is best to alert her to any likelihood of early retirement well before it happens rather than simply present her with a fait accompli. She may be much more sympathetic if she knows the business pressures the payer is under and how they are affecting him. In any event, someone paying maintenance should not simply put on one side his (or her) commitment to pay ongoing maintenance when making financial plans. Much earlier in the game, it might well be helpful to discuss with an ex spouse what her own plans are for the future. She may be more than willing to go back to work, or to retrain if she is offered help with practical arrangements or with course fees. It is in the payer’s longer-term interests for the recipient of maintenance to return to the workplace, and, if need be, retrain.”

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