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Compensation claims on divorce - when the clocks can’t be turned back to recover loss of future earning potential
Date: 04/05/2020 Type: Articles Topic: HNW Divorce | Finances |Jane Keir and I recently acted for the successful wife in the case of RC v JC [2020] EWHC 466 (Fam), assisted by Alice Trotter. The case has received a broad spectrum of media attention, and unsurprisingly so.
Our client was successful in her claim for “compensation” for what Mr Justice Moor described as her “relationship generated disadvantage”. The principle of compensation first appeared in the family courts in the 2006 judgment of Miller v Miller; McFarlane v McFarlane [2006] UKHL 24. Since then, there have been no reported cases where the principle has been argued successfully, until now.
What is “relationship generated disadvantage”?
In theory, the idea is quite simple. A party to a marriage gives up or seriously impedes their career prospects for the marriage and the family. It is a scenario known to many couples; the cost of childcare and the wish for children to be looked after by their parents, rather than a nanny or au pair, against career progression. A couple may decide together that one party will reduce their working hours or give up work entirely to care for the children, whilst the other party can continue with their career, acting as the main, or even sole, “breadwinner” for the family. For many, it is not a choice; the cost of childcare so often outweighs the financial benefit of a second salary, particularly if that salary is reduced to allow for flexibility to help with child care. For the more fortunate, it can be a choice that is not financially driven; a couple may have strong views about being hands on parents and a desire for at least one parent to be at home for school runs, activities and the bedtime routine.
Where such a decision has been made, there are potential consequences on earning capacity and career progression. Our client had a promising legal career ahead of her. As part of the parties’ decision to have children, not only did our client leave the law firm at which she had worked hard to build an impeccable track record, and at a time where she had partnership in her sights, she left private practice and ultimately the legal profession entirely, to ensure she had the possibility of flexible working to allow for childcare. Her hopes of future partnership and, eventually, her legal career came to an end.
Whilst our client took a step back from her career to take on the childcare responsibilities, the husband (already a partner at the time) continued to further his ambitions. He worked incredibly hard, often long hours, to achieve his career goals. He had the freedom to chase his aspirations, in the knowledge that our client took on the childcare arrangements.
By the time the marriage came to an end, the husband was earning £2million gross per annum. Had our client continued with her career progression, such income, we argued, would have been within her reach, if not already achieved. On the contrary, our client had years out of practice. Her partnership hopes were extinguished. Had she been able to return to work at all, she had no hope of earning anything like she would have earned had she remained on course for partner. The choices she and her husband had made many years ago meant she no longer had the potential of the lucrative career earnings for which she had been on track.
Why is this different to the time the husband sacrificed with his children?
Some may argue that if the primary carer can be compensated for their career loss, shouldn’t the bread winner be compensated for the time lost with children whilst burning the midnight oil at the office? Since the landmark cases of White v White and Miller/Mcfarlane, the role of the “breadwinner” as against the “primary carer” or “homemaker” is viewed equally. The principle of compensation does not change that. However, career and earning prospects cannot be adjusted in the same manner that child arrangements can.
It is of course correct that the husband in this case, and many like it, sacrificed time with his children as he worked hard for the family. That is a choice he made, but it is not a choice that dictates his relationship with his children for the foreseeable future. In fact, as is mentioned in the judgment, following the breakdown of the marriage, he had already reduced his working hours to cater for the childcare arrangements, with the children now spending five nights every fortnight during term time with their father, and half of the school holidays. Our client, however, is unable to adjust her earning abilities quite so easily; she cannot turn the clock back to restore her previous career and earning potential. The choices she made carry through into her future.
An exceptionally rare case
The scenario of one parent reducing their working hours or stepping back entirely is not uncommon. It is a decision that many couples face. For many individuals who make that decision, it is in the belief that they are financially secure; couples find a balance where the family finances can be balanced against growing families and the need for childcare that comes with that. Beyond claims for needs based maintenance on divorce, future income is not an asset that can be shared. In the event that the marriage ends and a couple separates, the “primary carer” can feel financially disadvantaged because of choices made in the relationship. However, that does not necessarily translate to a compensation award from the family courts.
In giving judgment, Mr Justice Moor was very clear that an award for compensation will only be made in cases where the circumstances are exceptionally rare. In the case of Mcfarlane where compensation was first established, the court was clear that the wife’s future success was not a matter of speculation, that the career she had given up “would very probably have been a lucrative and successful career” and that she had a proven track record. In this case, our client’s track record was exemplary, and witnesses, along with appraisal documentation created at the time, supported the case that she had partnership prospects. Had she stayed on track, and there was nothing to suggest she would not have done so, her future career would most likely have been lucrative, akin to the husband’s as it is today.
Is compensation for women only?
Relationship generated disadvantage and compensation claims are not limited to women. It is true that the only two reported cases where such claims have been made successfully have seen compensation paid to the wife. In those cases, it was the wife who had sacrificed a lucrative career whilst the husband was “relieved of the day to day responsibility” of childcare.
Families and working parents are increasingly bucking traditional trends; there are more stay at home fathers, more families taking shared parental leave and, I hope, more women starting to break the glass ceiling when it comes to wage equality and therefore more families where it is the woman who is the breadwinner. Had it been the husband in this case who had stepped back from his career, whilst the wife’s lucrative career flourished, then there is nothing to say that he would not have had a successful compensation claim.
Compensation claims will continue to prove to be the rare exception to the rule, but where a husband can show that he had given up what was probably going to be a lucrative and successful career, with a proven track record, and is therefore left at an economic disadvantage as against his spouse whose career has continued to rise, then a claim is worth considering. The bar for compensation is equally high, whether the claimant is male or female.
What does this mean for future compensation cases?
The judgment confirms that the principle of compensation still exists in family law. Given the media coverage this case has had, we may well experience a spike in compensation claims in family law proceedings. However, a flurry of successful claims remains highly unlikely and compensation will continue to be a principle reserved for rare cases. Mr Justice Moor’s closing remarks in his judgment are that this case should not open the floodgates, and that successful compensation claims will remain rare. In the family law sense, it is not as simple as a spouse giving up work and reducing their hours. Nor is it a matter of pure speculation; of what might have been had an individual decided not to have children.
Where the facts can be established to demonstrate a “relationship generated disadvantage” in the family law sense, this may not translate to a difference in the financial award. In some cases, the assets or income at the time of the divorce may be insufficient to cater for such a claim, only meeting the needs of the parties. In others, where there is a surplus of assets, any loss may already be covered in the share of the assets. In the case of our client, the judge felt that her share of the assets was not sufficient to cover her loss, and he awarded her an additional sum of £400,000.
Compensation claims should not be put in the bin. However, while family lawyers may well spot particular features and the prospect of a compensation claim at an early stage, they do need very careful consideration. In the rare circumstances where the facts do point to a potentially successful claim, consideration needs to be given as to whether this is likely to considerably change any financial award. Compensation claims remain a rare but valid principle in exceptional circumstances.
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