Posted by Patrick Hart, Partner
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Recent case throws light on court treatment of bonuses in divorce proceedings
The question of bankers’ bonuses has long been in the news and indeed garnered further attention last year following the EU cap on bankers’ bonuses.
More recently however in the divorce courts, a banker husband has argued successfully that his wife’s share of future bonuses should be capped, in the context of a financial remedy order ancillary to divorce.
In the case of H v W  EWHC 4105 (Fam), Mrs Justice Eleanor King at the High Court ruled that the wife’s share of bonus payments should be capped at £20,000 per annum, regardless of the amount of bonus payments received by the banker husband.
This ruling offers more clarity for litigants and their legal teams going forward in respect of the division of future bonuses on divorce.
The case of H v W involved a director of a Russian bank and his wife who started to cohabit in 1992, married in 1997 and separated in 2011.
The husband’s income consisted of a basic salary of £250,000 gross, plus a discretionary bonus and deferred cash of £195,750 gross, plus an award of £18,000 of shares vesting over three years from April 2013.
The wife, who had previously been a legal secretary, had not worked for 15 years and thus relied on her husband’s income.
District Judge White initially awarded the wife a substantial proportion of the equity in the former matrimonial home, spousal maintenance of £3,750 per month, as well as 25% of all of the husband’s annual bonuses (after tax and National Insurance) on a joint lives basis.
The husband appealed the ruling relevant to the bonus and asked that the bonus element of the award be removed on the basis that the District Judge had adopted the language of “sharing”, not “needs” when determining this award.
At the appeal hearing, Mrs Justice Eleanor King found that the District Judge had not erred in applying the legal principles as the sharing principle had not been applied when awarding the wife 25% of the husband’s net bonus. Mrs. Justice King did however find that, where a needs-based award is made which includes a percentage of a bonus, then the proper approach is to impose a monetary cap on the amount of bonus awarded to the other party, taking into account their needs, ‘generously assessed’.
Mrs. Justice King therefore allowed the appeal (albeit on a different basis than that argued on the husband’s behalf) and imposed a cap of £20,000 pa on the wife’s 25% share of future bonuses.
In reality, the amount at which maintenance awards from future bonus payments is capped, will depend entirely on the circumstances of individual cases. The decision however provides some clarity as to the treatment of bonuses within financial proceedings on a divorce and will provide some comfort to those who are a party to such proceedings and whose income may well consist of awards received through discretionary bonus schemes.
By Alexandra Wilks, Solicitor in the Family Department at City lawyers Royds LLP
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