2021 saw enormous bonuses across the banking sector and as a result, 2022 bonuses look set to reduce.
Following the end of another financial year, bonuses are on many professional’s minds, with some possibly wondering how a divorce might affect their future bonuses.
Bonuses can take many forms: Discretionary or contractual. Cash or stock options. Deferred or immediate. Often a very precious and emotionally charged asset, bonuses have always proved to be a point of fierce contention throughout divorce and financial remedy proceedings.
Over the past 15 years, the courts have taken contradictory approaches on how future bonuses should be treated. Advising with certainty over future bonuses upon divorce has at times been difficult for family lawyers.
The general principle in English law is when dividing assets, the financially stronger party will either share the matrimonial assets or if this is not sufficient, they will provide a package to meet the financially weaker party’s reasonable needs (in line with affordability and the standard of living enjoyed during the marriage).
Furthermore, courts are becoming increasingly keen to make a clean break order (in that neither party can seek further sums from the other in the future).
Following the case of E v L in 2021, there is now clear guidance that post-separation earnings should not be considered matrimonial assets and therefore, should not be shared. However, if the financially weaker party’s future capital and income needs cannot be met through an equal division of matrimonial assets, then post separation income (which includes future bonuses) can be used to meet their future financial needs.
Therefore, unless the financially weaker party will be unable to meet their future income needs following receipt of an equal share of matrimonial assets, it is possible that the financially stronger party’s future income (including bonuses) might be made available to meet their needs.
The courts are now encouraging financial independence and ordering more clean break orders than ever before, but this must always be considered alongside the needs of any minor children.
High earners with particularly significant cash bonuses should still be alive to the fact that following separation, there is still a possibility that future bonuses might be required to meet their former spouse’s needs.
To talk to one of our family law team, please call us on 01689 887887.