If we divorce how much maintenance will I have to pay to my spouse and can I capitalise this?

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It is not uncommon for divorce lawyers to be asked if a spouse is entitled to maintain the lifestyle “to which they have become accustomed” during their marriage, once they are divorced. Whilst the law does not state that they are entitled to this, the lifestyle that the couple had whilst they were together, is one of the factors that a judge will take into account when deciding a fair divorce settlement. Fiona Wood, partner with McAlister Family Law, looks at the issues involved.

For many divorcing couples funding the purchase of and running two houses when they divorce, means that their lifestyle will inevitable be impacted negatively. Income that was once used to fund holidays, eating out and other non-essential expenditure, may now have to be used to fund another mortgage.

If, after the capital and pension assets have been divided between a couple, one of them still has insufficient money to meet their income needs, the other spouse may have to provide them with spousal maintenance, as part of the divorce settlement. The spouse who needs maintenance will have to mitigate their own financial circumstances by fully utilising their earning capacity (only those with serious health problems or those that have young children to look after are deemed not to have an earning capacity) and they must generate income from the assets that they have (excluding their home). However, once they have done this there may still be a need for spousal maintenance to be paid, particularly if the other spouse is a high earner.

To calculate the amount of spousal maintenance needed, the spouse who says they need maintenance will have to prepare a detailed budget confirming their income needs. This needs to be prepared very carefully, as if the amount claimed is clearly far more than was spent whilst the couple were together, it is likely to be considered a “wish list” and criticised by a judge. If an agreement cannot be reached and a judge has to adjudicate on this issue, the spouse can be asked to justify their budget, with reference to expenditure during the marriage being a way of doing this.

A point that needs to be remembered when calculating spousal maintenance is there is no legal right to share an earning capacity. Therefore, if one spouse is a high earner, the other spouse has no legal right to say they want sufficient spousal maintenance so that they both have the same amount of money to spend. If their income needs can be met from a lower amount of spousal maintenance, that is what they will receive. Spousal maintenance is based upon reasonable needs in all the circumstances, and the payer’s ability to pay the shortfall between those and the recipient’s income from all sources. The paying spouse’s reasonable income needs must also be taken into account.

The law states that there should be a financial clean break between a divorcing couple where possible. This is more difficult to achieve if one spouse requires maintenance. However, it is possible to capitalise a spousal maintenance claim and achieve a clean break, if there are sufficient assets. How do you calculate the amount to be paid to capitalise maintenance? This will depend upon the amount of maintenance that is considered appropriate and how long the maintenance should be paid for. If maintenance should only be paid for a few years, for example whilst the recipient of the maintenance gets back into work, you would calculate how much would be paid over the maintenance term and discount that sum because it is being paid up front. The amount of discount is negotiable.

If the maintenance is to be paid for the couple’s joint lives, which means the maintenance will only end when one of them dies, the recipient remarries or a later court order is made terminating the maintenance payments, you have to calculate how much money the recipient will need to provide them with a specific amount of money each year until they die. To do this lawyers often refer to the Duxbury tables, which calculate, by factoring in average life expectancy, state pension and rates of return on investments, the capital sum that is required to give a person of a specific age a specific amount of money each year until their death. These tables work on the basis that both capital and income are spent, with no money being left when they die.

There are pros and cons of capitalising spousal maintenance. For the payer, the benefit is that their spouse will not be able to make any financial claims against them in the future, even if they make a lot of money, for example by selling their business. The downside is that they could feel that they have over paid if their spouse remarries in the next few years (remarriage automatically ends a spousal maintenance order) or their spouse’s financial circumstances improve much more quickly than was anticipated when they start working again. For the recipient it means that you are not impacted negatively if your spouse loses their job in the future or their business struggles. The downside is that you have to manage on the money that you have, as you are not entitled to make any more financial claims if you cannot.

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