Can I seek compensation for lost earnings as part of my divorce settlement?

Every so often, a family court judge concludes that it is appropriate in a particular case for a financial settlement upon divorce to reflect an element of compensation to one party for what is termed "relationship-generated disadvantage". The disadvantage in question is generally the fact that they have given up a lucrative career during the marriage and in doing so lost the ability to return to such a career upon divorce.

These compensation-based decisions are uncommon, and tend to provoke discussions amongst lawyers about whether the law should be expanded to allow for more successful compensation-based claims, or whether the principle of compensation in this context should be discarded altogether. The point that lawyers can agree on is that, as things stand, there are very few cases where a compensation-based argument will succeed in enhancing the financial settlement awarded upon divorce. In most cases, the relationship-generated disadvantage will feed into the party’s inability to meet their own financial needs, and so will be reflected in a need-based financial settlement without a compensation award being considered separately.

One case in which a compensation argument did succeed was RC v JC [2020] EWHC 466 (Fam), in which our firm successfully argued that the wife's award should reflect an element of compensation for giving up her high flying legal career. My colleague Stacey Nevin, who acted in that case, has written a blog about her client's experiences which can be found here.

The decision in RC v JC has recently been followed by another decision in the case of TM v KM [2022] EWFC 155, in which the wife again received compensation for the loss of her career. Ms TM (now aged 50), had attained an MBA from Wharton Business School in Pennsylvania and had had a highly successful career in investment finance in the USA and subsequently the UK. Her gross income was $804,166 in 2003, when she met Mr KM (now aged 48). They married in 2006, and Ms TM then gave up her investment finance career in 2008 after she was made redundant following the birth of the first of their two children.

The marriage broke down in 2021, by which time Ms TM had been out of the workplace for 13 years. Mr KM, by contrast, continued to have a highly successful career in investment finance. The family had relocated to the Middle East from 2010 to 2016/2017 to facilitate him taking a role there, which allowed him to earn at a very high level without incurring income tax. Having earned at a not dissimilar level to his wife before she left her investment finance role, Mr KM’s gross annual income from 2017 – 2021 ranged from $1,887,280 - $2,200,000. The judge concluded that he did not think it was unreasonable “to predict that (unless he chooses otherwise) [Mr KM] will most likely remain by most standards a very high earner for a significant number of years ahead”.

The judge found that the reason for the loss of the wife’s job in 2008 “were first the move to London to be with the husband and secondly the arrival of her first child in 2008 and her decision to devote herself to the child-care role – both in my view relationship-generated sacrifices by the wife. If neither of these things had happened, I am satisfied that she would have remained a very high earner, probably in New York”. He considered that her ability to be a high earner was “further inhibited by two further relationship-generated developments - the arrival of their second child in 2011 and the move to the Middle East”.

The judge accepted Ms TM’s position that she could not now return to the investment finance world at a high level given that she had been out of the field for a significant period of time, although he found that it was more likely than not that she could earn a gross salary of around £50,000 per annum gross (and possibly significantly more) in business-related employment.

The judge noted that the facts of this case were very similar to those in RC v JC and concluded that the case was “one of those rare and truly exceptional cases where a discrete compensation award is appropriate”. He ordered that Mr KM should pay Ms TM a compensation-based payment of £500,000 over and above the amount he had calculate as her share of the matrimonial assets. This meant that Ms TM would be leaving the marriage with £6,354,103 (54.3% of the total realisable assets), and Mr KM with £5,354,103 (45.7%). There would be a clean break as to income and capital, meaning that Mr KM would retain all of his future income with no obligation to pay spousal maintenance to Ms TM, though he would continue paying child maintenance and school fees.

Ms TM’s experiences demonstrate that, in the right circumstances, family court judges can still be persuaded to order compensation-based lump sum payments as part of an overall divorce settlement. However, it remains very rare for a judge to conclude that the facts of a case justify such a payment. Many divorcing parties will consider that they have been disadvantaged in some way by the relationship, but as things stand it appears that their circumstances will need to closely match those in RC v JC and TM v KM to justify pursuing a compensation claim. In such cases, it is important to consult a family law solicitor at an early stage to assess the merits of pursuing such an argument.

FURTHER INFORMATION

If you have any questions about the issues raised in this or other blogs in this series, please contact Cate Maguire or a member of our family and divorce team

ABOUT THE AUTHOR

Cate Maguire is a Senior Associate in the Family Team, advising clients on matters including divorce and civil partnership dissolution, associated financial issues and issues surrounding children. She has particular expertise in jurisdictional issues and complex financial matters.