Economic Disadvantage in Divorce: Can You Be Compensated?

Lisa Pepper

Giving Up High Earnings: Can A Party Be Compensated For Economic Disadvantage?

In financial remedies cases, the fact that one party acquired assets before the marriage usually means a deviation from an equal split. However, that position may change where assets have been ‘matrimonialised’ – or potentially where the doctrine of ‘compensation’ applies.

A recent case signals a greater inclination by the courts to compensate a party who has clearly given up lucrative earnings – putting them at an economic disadvantage. At Osbornes Law, the specialist financial remedies solicitors work with clients in very high value cases. We are highly successful in negotiating and securing fair awards for our clients.

The compensation principle

The compensation principle may enable a party to rebut a departure from the usual sharing principle. In other words, notwithstanding the existence of pre-acquired assets, the sharing principle should still apply.

Until recently, the courts have been most unwilling to apply the compensation principle because of the inherent problems and challenges it presented. It would only be applied in rare and exceptional cases, for instance where it was certain a party had abandoned a very highly paid career and, therefore, at least the level of earnings the other party now enjoyed.

Furthermore, compensation is to reflect the ‘economic disadvantage’ the party has suffered, but how should that then be quantified? The court must decide if and how such disadvantage should be reflected fairly in the final award.

A recent decision has clarified the circumstances in which the compensation principle may apply in financial remedies proceedings.

What’s the background?

This was a very high value financial remedies case [1AT v BT [2023] EWHC 3531]. W was an accountant and had given up a very successful and highly paid position in a top private equity house (where she had met H). Unfortunately, W had to leave the company because her fellow partners were concerned about a potential conflict of interest after she became engaged to H (who was then in a senior role at a rival firm).

The parties subsequently married and had two children before they separated in 2002.

W sought more than £9.1m as a lump sum on the basis of the sharing principle and the principle of compensation. However, H argued that as some of the assets were non-matrimonial assets, this was purely a needs-based case. He offered W a relatively paltry £3.54m.

The dispute around non-matrimonial assets centred partly on trust funds to which H had access. While W conceded some of the assets were non-matrimonial, she argued that they had been ‘matrimonialised’.

The judge carefully reviewed the current position as to the compensation principle and the correct approach to be taken. He noted that W had given up “what was already a glittering career at the age of only thirty-seven, for reasons directly connected with her relationship with the husband”.

Her case was far from speculative. The judge went so far as to say that to ignore compensation in this case would “be an affront to the proper application of the compensation principle”.

The award

In order to make a fair award, all the assets (including pre-marital assets and trust monies, and accounting for tax on the trust that would later fall due) would be considered by the court.

The net value of the matrimonial assets was calculated at £13,789,582. Allowing for necessary adjustments, the judge ordered an equal split between the parties. This was sufficient to meet W’s needs.

Finally, W’s argument for matrimonialisation of pre-marital assets was not considered given the judge’s approach to calculating the final award. You can read more about matrimonialisation of assets in our review of Standish v Standish (2024).

How we can help

This is an important ruling providing much-needed clarity for lawyers on the compensation principle. It is likely to embolden individuals – particularly the wife – who have given up highly-paid careers to including a claim for compensation as part of a final award.

If you have a query or need legal advice, get in touch with the experienced financial remedies team at Osbornes Law. Contact us by:

• Filling in our online enquiry form below;
• Call us on 020 7485 8811