This is a question on many people’s minds when going through a divorce. Bonuses are usually earned by an individual’s hard work, commitment and success, so it can often be a pressing question when somebody is going through a divorce as to whether bonuses are at risk of being shared. Here, McAlister Family Law’s Frances Bentley looks at what the court will consider and how to protect your bonuses.
What does the court consider generally?
When considering how to divide assets/income on a divorce, the court’s starting point is an equal division of what are seen as the “matrimonial assets”. The court then has to look to a number of factors to decide whether to depart from that to determine what a fair outcome would be.
The court’s primary focus has to be meeting the needs of any children. The court would then look at what division of assets is required to meet any the housing/income needs of the parties, by looking at what financial resources that the parties have available to them now and in the future, amongst other factors.
In short, a bonus earned by one party is a “financial resource”, ie a factor that the court can consider when looking to the sharing of assets. That is the case whether it has already been received (ie it is available now) or if it is going to be a “future” financial resource (ie it has not yet been paid/received).
Despite bonuses being financial resources that the court can consider, it does not mean that they are automatically shared with the other party on divorce. Whether a bonus is shared depends on the individual facts of each case. It and also depends on 1. when the bonus is received (ie before or after separation) and 2. when it is actually earned.
If a party has already received their bonus
In this scenario, then it would be hard to persuade a court that a bonus is not a capital resource available for sharing. Specifically, if the bonus was earned during the marriage, then this would be treated as a “matrimonial asset” which, as referenced above is subject to a starting point of an equal division.
If, however, a bonus is earned after the separation of the parties, there is an argument that it is “non-matrimonial” in nature. Whether it is shared in those circumstances usually depends on whether or not the children’s or the other party’s housing/income needs can be met without receiving a share of the bonus as well. This does differ with every case and different Judges can have different views as to when a bonus becomes “non-matrimonial”. For example, there is some case law which indicates that bonuses should only be treated as “non-matrimonial” if it relates to a period at least 12 months from separation.
What if you have not received the bonus yet, the bonus is discretionary or is to be received in the future?
For bonuses which have not yet been received, whether they are shared depends on when they were earned. If the bonus was earned during the marriage, then it is seen to be an asset of the marriage (i.e., a matrimonial asset), and the court would likely look to share it.
Future bonuses which have not yet been earned or received (or which are discretionary) are more likely to be treated as “income” or a future income resource.
There is well established case law that on divorce, there is no automatic entitlement to share in another party’s future income. This means that future bonuses are not automatically divided on divorce. Whether they are shared depends on whether or not the other party’s income needs can be met without recourse to it.
If the case is one where spousal maintenance is required (i.e., the other party cannot meet their income needs without ongoing financial support), bonuses can be looked to when calculating the amount that should be paid as they form part of the payer’s total income. How far they are relevant will likely vary from case to case and may depend on how much the other party realistically “needs”.
Protection of bonuses
If you are able to negotiate a settlement where there is a division of assets and no ongoing spousal maintenance, then you can obtain a legally binding order which provides for a “clean break”. This would protect future bonus payments that are earned because a clean break order severs all financial ties between the divorcing parties, meaning that neither can make a further financial claim against the other for income (to include bonuses), lump sum, pension or property.
To conclude, sharing of bonuses is different in every case and depends on a number of factors. At McAlister Family Law we will be able to advise on the likelihood of being able to protect bonus payments in the particular circumstances of each case.