Now the good times seem to be rolling in the City again, the issue of bonuses for high earners is back on the agenda. What happens if the bonus earner gets divorced?
The law has always recognised that bonuses received within a short time of separation are likely to be equally shared. What happens, however, if there is a history of regular bonuses being paid, albeit that the bonus is said to be discretionary? On divorce the Judge can’t just assume that the bonus will be paid and include it in the basic maintenance payment, so what is likely to happen?
The recent case of H v W suggests that if the bonus represents a significant proportion of the family income and has traditionally been relied upon to make payments of a discretionary nature for the family, then the judge is likely to order a percentage of the bonus to be paid to the dependent spouse each year. This payment is unlikely to equate to as much as half of the bonus and there is a recognition that the bonus earner should at least be incentivised by the bonus and in the recent case mentioned the judge suggested that there should be a fair cap set on the bonus to protect some of it. In this particular case the judge awarded 25% of the on-going bonus for as long as it is paid.
Of course these principles apply to more modest cases as well, although it could be that the bonus has been historically relied upon to meet the basic needs of the family rather than discretionary spending such as luxury holidays. The more modest the family income the more likely a greater percentage of the bonus will be at risk of forming part of a maintenance award.
Maintenance awards based on percentages of the bonus rather than fixed amounts are more likely to be seen as fairer as they are “self adjusting” to some extent. They are however more liable to manipulation – for example it is possible that the bonus earner may try to divert their bonus into other agreed incentive packages such as share options or other benefits, so in that situation the basic maintenance payment would need to be reviewed by the court.
In summary, as the economy recovers, bonus payments are likely to feature more in divorce settlements and dependent spouses must ensure that such payments are fully investigated to ensure that they are not ignored within the settlement. Careful enquiries need to be made by an experienced solicitor and sometimes an accountant to make sure that the full facts are known.