Author: Hugo Sawer

When a couple is getting divorced and dealing with how to separate their finances, who receive the bonus, or even a share of it, can often create problems.  Naturally, the party due to receive the bonus may seek to ‘ringfence’ the award, while the opposing party will argue that it should be part of the overall matrimonial pot and be distributed accordingly.

Issues such as this, which frequently occur and cause arguments, invariably produce a litany of case law, which needs to be considered by both legal advisors and the court in determining a fair financial outcome. To ascertain whether a spouse will be eligible for any degree of a parties’ bonus post separation, one must first explore the law in relation to bonuses received during the marriage.

During marriage

Generally, bonuses awarded while the parties are together are considered matrimonial assets. These are assets acquired during the marriage, or during the period of cohabitation before marriage. Upon reaching a financial settlement, the starting point for a division of the matrimonial assets is a 50/50 split. This can be altered based on each parties’ respective needs. For example, a party who is the primary carer of the children in the marriage, and who possibly has a lower earning capacity, would likely have a greater entitlement to capital from the matrimonial assets if their ‘need’ warranted such a claim. This would include any bonuses accumulated during the marriage.

Post marriage

The situation in relation to bonuses which are obtained post separation is less cut and dry, and usually depends on the circumstances of each case. For example, if there is a maintenance order in favour of the party earning less, it is possible for this individual to be awarded a portion of the payer’s future bonuses. This was explored in the case of H v W [2013] EWHC 4105 where it was originally determined that a wife was to receive maintenance of £3,750 per month plus 25% of the husband’s net annual bonus for the rest of their lives. Given his bonusses were typically circa £250,000, this was not an insignificant amount. Upon appeal, this was drastically reduced and capped at £20,000 per year, although the judge still held that it was necessary for the husband to share his bonus, in order to meet the wife’s future income needs in a fair and proportionate way.

Nevertheless, this case is now over 10 years old. I In recent years courts have taken a less generous approach to sharing bonuses post separation. For example, in the case of Waggot v Waggot [2018] EWCA Civ 727, , the wife’s attempt to have 35% of the husband’s net bonuses for a limited period was rejected. During this case, Lord Justice Moylan stated that, ‘Any extension of the sharing principle to post-separation earnings would fundamentally undermine the court’s ability to effect a clean break.’ The court being required to try and achieve this in every case, if it can. 

In such cases, all bonuses received after a clean break would remain with the spouse receiving the bonus and subsequently, they are not to be shared. This is only relevant to circumstances where there is no spousal maintenance. If such an order is necessary, then bonuses can be used to meet future financial needs, as illustrated above in H v W [2013] EWCH 4105.

Perhaps the most difficult issue to determine when deciding to share bonuses is the timing of when they have been received. During a clean break case, if a party receives a bonus post separation, they may be entitled to believe that it ought not to be shared. However, as the case of O’Dwyer v O’Dwyer [2019] EWCH 1838 demonstrates, if a bonus is earned during the marriage but not paid out until after the marriage has ended, then there is every reason to treat it as matrimonial property in its truest sense. Again, in the case of Rossi v Rossi [2006] EWCH 1482,  MrJustice Mostyn suggested that he ‘would not allow a post-separation bonus to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after the separation’. This would seemingly give risk to the party receiving the bonus that it may still be added to the matrimonial pot, even if earned up to a year following separation.

It is therefore important that a party take legal advice, if they believe that they are either entitled to receive a bonus during their separation, or that their partner is. Here at Edwards Family Law, we are best place to guide you through your potential options and advise you in relation to an outcome which best protects your interests, either in relation to bonuses specifically, or in the broader context of your financial circumstances on divorce.

Sportsmen and women are in a unique financial position, in that those at the top end of their respective sports can earn salaries and receive endorsements that the average person could never dream of attaining. That said, their careers are short, and on retirement their incomes usually decline dramatically, save for the select few who go on to top-level coaching or secure lucrative punditry careers.

It is sadly all too well documented that many sport stars quickly declare bankruptcy upon retirement, as their diminished incomes cannot keep pace with their notoriously high outgoings to meet the lifestyle that they have established for themselves and their families. This problem can often be made worse for those who are obliged to pay eye-watering maintenance payments to former spouses, or where Schedule 1 payments have been ordered for the benefit for their children.

“Many sport stars quickly declare bankruptcy upon retirement.”

This article explores how the courts in England and Wales can protect players both during and after their careers, and what more can be done to ensure not only that the financially weaker party’s position is secured, but crucially that the paying sport star’s financial position is also protected as far as possible.

Prenuptial Agreements

Since the influential decision of Radmacher v Granatino [2010] UKSC 42, prenuptial and pre-civil partnership agreements have become an important legal tool to protect a party’s existing financial assets at the point that they are entering into a marriage or civil partnership. The agreement can regulate how their assets and income would be managed in the event of a divorce or dissolution, and the consequential financial claims that might arise from that.

This early “asset management” is especially important for a sports star who accrues a large amount of capital during their short playing career. Without the security of a prenuptial or pre-civil partnership agreement, the starting point for courts in England and Wales is to distribute assets equally between the couple. An estimated 40% of footballers declare bankruptcy within five years of retiring. One possible reason for this is that 33% of footballers are divorced within one year of retirement – for example, former England goalkeeper David James’ divorce is often cited as a primary reason for his bankruptcy declaration in 2014.

Essential Criteria for Agreements

A prenuptial or pre-civil partnership agreement is not legally binding on the courts in England and Wales (which can come as a shock to overseas sport stars) but can be an incredibly persuasive factor of a case if certain criteria are met, and something that the judge will attach significant weight to and, in most cases, uphold. The criteria include that:

  • the agreement is fundamentally “fair” in light of the facts of the case;
  • it still meets both parties’ needs since it was signed;
  • it does not prejudice any children; and
  • both parties received legal advice and disclosed their financial position at the point that it was negotiated and agreed.

“There is no doubt that a prenuptial or pre-civil partnership agreement is the best way for a sports star to secure their assets.”

Subject to the qualifying criteria being met, there is no doubt that a prenuptial or pre-civil partnership agreement is the best way for a sports star to secure their assets. Once they are married or have formed a civil partnership, the next best option would be for them to sign a postnuptial or post-civil partnership agreement, but that only works if their spouse or partner is willing at that stage to agree to contract out of the sharing principle, and define their share simply by way of financial provision sufficient to meet their reasonable needs, which might seem unlikely!

Equal Division of Marital Wealth

Since the case of White v White [2001] 1 A.C. 596, it has been established that the starting position in a financial settlement is an equal division of marital wealth, regardless of who earns the most within the marriage. It is recognised that financial and non-financial contributions (such as running a home and looking after the family) are to be given equal weight by the court.

However, this still results in high-earning sports stars potentially being left exposed to unreasonably high and sometimes unaffordable financial claims, particularly in the absence of a valid prenuptial (or postnuptial) agreement. Claims are often padded in relation to the standard of living that the family has enjoyed during the sports star’s career, but many fail to consider the short career a sports star will enjoy, and the fact that they often fall off a financial cliff edge at the point that they retire from their sport.

Parlour v Parlour

Former Arsenal footballer Ray Parlour’s high-profile divorce (Parlour v Parlour [2004] EWCA Civ 872) was one of the first of its kind to recognise that a sport star’s earning potential is time limited. It recognised that Mrs Parlour required a significant amount of income while it was still being earnt. Specifically, it was ruled that Mrs Parlour would be entitled to approximately 1/3 of Mr Parlour’s net income for a period of four years. While the judge declared this amount to be fair, due to her supporting him in such a way that facilitated his high earnings, critics may argue that she was not putting in the “labour” herself and that such an award was well in excess of meeting her “reasonable” needs.

Stockpiling

However, another rationale for this financial award, and a method often implemented by the courts for divorcing and separating sport stars, is known as “stockpiling”. This occurs when the party divorcing the star obtains an initial share of the available capital in order to meet their housing needs, and the mortgage is guaranteed by the high-earning athlete. There will then ordinarily be a maintenance sum that will more than meet the needs of the other party’s day-to-day living expenses, similar to the Parlour case, so that the receiving party can save a sum of money and start to overpay the mortgage to live reasonably comfortably after the star’s retirement when the income drops away.

In the case of AB v FC [2016] EWHC 3285, concerning an unnamed Premier League footballer, the judge held that it “was not unreasonable” to allow W to “stockpile” a portion of the sums she received in order to discharge her mortgage liability. This was despite the short length of the marriage. However, as the wife was the primary caregiver to a young child of the family, the judge was attracted by the wife’s arguments that her claims were effectively a quasi-Schedule 1 application and that she was entitled to the large sums awarded.

“Maintenance clauses are often subject to a review clause at the point that the player is estimated to retire and their earnings are expected to reduce dramatically.”

Whilst prima facie this might appear unfair on the high earner, maintenance clauses are often subject to a review clause at the point that the player is estimated to retire and their earnings are expected to reduce dramatically, or when there is a material reduction in their income as a result of a career-ending injury. This ensures that there are measures in place for the paying party to safeguard their income, as maintenance can be reviewed and subsequently reduced following any significant drop.

Conclusion

Although family law is often regarded as a “fair area” of the law, with the courts striving to meet each party’s needs, it could be argued by many that a real conversation needs to take place to explore whether sport stars are adequately protected upon divorce. Whilst it is clear that a pre- or postnuptial or civil partnership agreement does adequately protect these high earners, provided certain criteria are met, it is also clear that those without such protection are left exposed to high financial claims that often leave them bankrupt.

“Early advice is imperative.”

One must question the fairness of those without the knowledge and awareness to obtain a pre- or postnuptial agreement, who are often young sports starts without much life experience at the start of their career journeys, being left so financially unprotected and liable to very high financial claims. However, it must be considered that children are frequently involved in these circumstances, which does of course shift the proverbial goal posts. Furthermore, as evidenced, courts are well aware of the temperamental and short careers enjoyed by sports stars, and seem prepared to adjust their orders accordingly, ensuring that maintenance orders do not go further than is considered reasonable, on the facts of each case. The crucial and key message from the case law where sports stars are involved is that early advice is imperative, right from the moment that they are considering moving in with a new girlfriend or boyfriend, when cohabitation agreements and prenuptial or pre-civil partnership agreements are their best protection, before they legally commit to another person or start having children.