A lot of the time bonuses are not guaranteed and are discretionary. The court can however determine when looking at patterns of previous bonuses and the current financial position of the company, that a person they are likely to continue to earn bonuses (or not as the case may be) If the court assesses that a bonus will be continued to be earned and paid, they can be taken into account by the court on divorce.
Whether there is any entitlement by the other party to share in a bonus will on a number of factors to include when the bonus was earned (ie was it during the marriage or after separation) and the court will assess the answer on the basis of ‘need’.
Taking into account the first point (and focusing on when the bonus was earned), bonuses that are acquired whilst the couple are together are usually considered to be “matrimonial assets”. This is the case if the bonus is received after separation but relates to a financial period whilst the couple were together. In these circumstances the bonus received will count as part of the “matrimonial pot” alongside other assets that are to be divided.
If the bonus received relates to a period of work after the couple have separated, it is not the case that bonus is automatically excluded (“ringfenced”) from the division of the matrimonial assets. In this instance the court would look at whether the other spouse has financial “needs” that are required to be met. “Need” can include monies required to purchase a property or to meet outgoings/living costs and the court will look at whether or not the bonus is required to be taken into account for there to be a fair settlement.
In cases with larger assets, and in circumstances where bonuses acquired post separation (and are not required to meet ‘need’), there may be an argument that they should be “ringfenced” on the basis that the bonus relates to a period outside of marriage and relates to that individual’s sole contributions.
What about bonuses earned in the future? Once the appropriate division of assets has taken place, if there is to be no ongoing spousal maintenance (ie financial support to the other party) there will be a “clean break” implemented. This means that neither party could make any further claim against the other for income, pension, lump sum or property. So, this includes future bonuses and where there is a clean break, there can be no further claim against those and they will remain with the spouse that has earned them.
Whilst the law says that there should be a financial clean break between a couple if this is possible, in some cases one spouse cannot manage financially without spousal maintenance from the other. The court will assess this by looking at two questions. Firstly, whether there is a shortfall between their income and their reasonable outgoings, and secondly whether the financially stronger spouse can actually “afford” to make up any shortfall and pay it to the other party. If there are regular large bonuses, a judge will not ignore those. The court can order a percentage of a net bonus to be paid to the other spouse in addition to other payments when assessing a fair outcome and when looking at the “need” and “affordability” test.
If however, reasonable needs can be met without recourse to bonuses, then recent case law says that there is no automatic sharing of future income (to include bonuses). This means that when needs can reasonably be met without having to look to income that will be received in the future there is no “automatic” right on the other party to share in that bonus.
It can therefore be seen that each case will be determined on its own facts, taking into account the timing of the bonus payment and most significantly needs.
