WILL I HAVE TO PAY MY EX MAINTENANCE IF WE DIVORCE?
When a couple divorce there are often three elements to their financial settlement. Firstly, the division of capital assets, which includes properties, business interests, savings and investments. Secondly, the division of pension assets. Once we know what each spouse will receive by way of capital and pensions, we must look at their respective income positions and income needs. If one spouse is unable to meet their income needs the other spouse may be ordered to pay them spousal maintenance, assuming that the paying spouse has more than sufficient income to fund their own income needs as well as pay spousal maintenance. This maintenance is separate from child maintenance.
When a couple divorce the law states that you have to look at earning capacity and not just what is currently being earned. One spouse may not have worked for some time, but that does not necessarily mean that they do not have an earning capacity, particularly if they are not looking after young children. Those divorcing are expected to mitigate their own financial circumstances and will be attributed with an earning capacity if they can work, but are not currently doing so, or are working part time but could work on a full- time basis. They may be given some time to find employment, or increase their hours of work, so they may be awarded a higher level of spousal maintenance for a period of time, whilst they find a suitable job. The maintenance payments will then reduce or may end altogether, depending upon the circumstances.
Income from capital will also be considered, not just earned income. If a spouse receives capital or investments as part of their divorce settlement, which are not needed to fund their housing, the income that these can generate should also be taken into account. If one spouse is retaining a business as part of their share of the capital assets, this business will usually generate their income and be what they pay spousal maintenance from. It is therefore only fair that the spouse receiving the spousal maintenance payments uses the capital they receive (unless it is the house that they live in) to generate income as well. Any income that can be received from a pension, once retirement age is reached, should also be taken into account.
With regard to how long spousal maintenance is payable for, it can be for a specific number of years or there can be a joint lives order, which means that it is paid until one of the couple dies, or until one of them applies to court to vary the order. Joint lives maintenance orders are usually made when it is unclear when the spouse receiving the maintenance will become financially independent, which is often the case when that spouse is the main carer of very young children and does not work. There has been a move away from joint lives maintenance orders in recent years, as judges have been concerned that they create little incentive for those receiving the maintenance to move forward with their lives for financial reasons. However, every case is decided on its own specific facts.
If a spousal maintenance order is made it will automatically end if the recipient remarries. It will not automatically end if they cohabit, but their cohabitee’s income will be taken into account when looking at their income needs, so the maintenance order may then end or at the very least be reduced, depending upon how much their cohabitee earns.
Spousal maintenance orders are always variable, so if the payer’s or the payee’s financial circumstances change, they can be varied, either upwards or downwards. This creates financial uncertainty for both going forward, as neither knows what the future holds financially. It also means that there is an ongoing financial bond between the couple and an ongoing financial commitment for the payer, which is not always ideal. In light of this, the law says that where it is financially possible a clean break should be achieved between a couple. If spousal maintenance must be paid, the court will look at capitalising that maintenance, if there are sufficient funds to do so.
Paying a capital sum in lieu of spousal maintenance has positives and negatives for the both the payer and the recipient. The payer gets certainty and there is no risk of the maintenance being increased in the future, but if the recipient gets remarried only a few years later, they may feel that they have over paid, given that spousal maintenance ends on remarriage. The recipient may be worried that it will take them longer to re-establish themselves in employment and not have enough money to live on if they accept a capital sum. On the plus side they do not have to worry about what will happen if the payer loses their job or if their business takes a dip in performance.
It is worth noting that if there is insufficient money to capitalise spousal maintenance now, either the payer or the payee can apply to have it capitalised in the future. For example, if a business owner sells their business and receives a large sum of money, an application can be made to court for a capital sum to be paid in lieu of the monthly maintenance payments. Sometimes the recipient will also apply to increase the maintenance payments before they are capitalised. Business owners who plan to sell their business at some point in the future would be advised to obtain a clean break settlement, if they divorce, if they can afford to do so.
If you are thinking about divorce and want to discuss your options, please do not hesitate to contact us on hello@mcalisterfamilylaw.co.uk
