Variation and capitalisation applications

In a climate of shorter-term spousal maintenance orders and clean breaks, a paying party under an existing order may seek the dismissal of that order or the imposition of a term. One recently reported case focused on the recipient’s obligation to use their existing capital to meet their needs and therefore bring an end to the requirement for ongoing support.

Change in circumstances

Section 31 of the Matrimonial Causes Act 1973 does not require for there to be a change of circumstances to justify a variation of an existing order. Despite that, Lord Wilson in the Supreme Court in Birch v Birch [2017] UKSC 53 stated ‘unless there has been a significant change in circumstances since the order was made, grounds for variation of it under section 31 seem hard to conceive’.

This sentiment was mirrored by the comments of Mostyn J in his final judgment in Baker v Baker [2023] EWFC 136. His comments were made in the context of an application to depart from the terms of a separation agreement. Mostyn J was of the view that such an application should be treated in the same way as an application to vary a consent order. He concluded: ‘Some of the authorities even suggest that on a variation application the court reassess the income terms de novo, but the better view is that the court looks for a change of circumstances.’

Use of recipient’s own resources towards meeting their needs

In WK v JC [2023] EWFC 151, HHJ Hess considered the competing applications by the former husband and wife to vary/capitalise/discharge a periodical payments order from 2004. The parties were now in their 60s, the children were adults and the husband had been retired for a few years.

HHJ Hess considered the leading case law on applications to vary and capitalise. He summarised the key principles as follows:

a.    In varying or discharging an income related order, the court may make a capital order such as a lump sum order, property adjustment order or a pension sharing order. On the last point, it is worth noting that if a pension were shared at the time of the original divorce, it cannot be shared again upon a variation application. Any other pensions are, however, capable of being shared on a capitalisation application.

b.    The court’s power should not be used to reopen capital claims and the court should restrict itself to considering whether there should be any variation in the level of the periodical payments, whether the provision can and should be capitalised and the mathematics of the capitalisation.  

c.    In considering the variation, the assessment is a needs-based assessment. Most importantly, the burden is on the payee to justify the need for ongoing dependency and the continuation of financial provision. That is in the context of the court’s obligation to consider an end to financial dependency, without undue hardship, in accordance with section 25A(1) of the Matrimonial Causes Act 1973.

d.    In deciding whether to take into account the capital which the payee has at the time, the court has a wide discretion as to whether to include such capital in the capitalisation amortisation figures. HHJ Hess noted that there is no definitive guidance on this issue, apart from a duty to promote fairness. All results are possible, from amortising all of the capital to amortising none of it and any point in between.

e.    The court can attach weight to comments made by the judge at the time of the original order.

On the issue of a wife using capital to meet her needs, HHJ Hess referred to Mostyn J’s comments in CB v KB [2019] EWFC 78. Mostyn J’s often repeated comment about the use of capital was, ‘I struggle to conceive of any case where in the assessment of the claimant’s needs it could be tenably argued that it was reasonable for her not to have to spend her own money in meeting them. After all, that is what the money is for’.

In the present case, the wife’s capital was a combination of money from the original divorce settlement and some inherited money. Although HHJ Hess noted that there were authorities to exclude inherited money, he did not do so in the present case. The wife presently generated £12,000 per annum from her investments, although he noted that based upon Duxbury, that income could be £19,935 net per annum.  HHJ Hess took the view that the wife could be ascribed as earning an income of £18,000 gross per annum from her investments.

Perhaps surprisingly, even though the wife was aged 60, HHJ Hess noted that such an age was significantly younger than the state pension age and that the wife was in reasonable health. He therefore took the view that she could earn £10,000 per annum for a further six or seven years. Whether the wife utilised her earning capacity or not, was a matter for her.

HHJ Hess did, however, reject the husband’s suggestion that the wife could downsize, particularly as she lived in a modest house which was always intended to be her home for life. By contrast, the husband lived in a property of far greater value.

As for any future inheritances which the wife may receive, even though her mother was alive and well and aged 94, there was no guarantee that the wife would inherit. Perhaps the elderly mother may have to go into a home and utilise her capital in meeting fees for her care. Accordingly, the wife’s future inheritance prospects were not taken into account.

In summary, although the husband did not succeed in his arguments with regard to downsizing and the wife’s future inheritance prospects, the judge’s approach to earning capacity and utilisation of all of her capital towards her needs is representative of the present trend towards the self-sufficiency of spouses post-divorce.

Andrew Newbury is a partner at Hall Brown Family Law, Manchester