When a marriage ends, dividing the finances is not simply a matter of adding up the assets and dividing them equally. The court’s overarching objective is to achieve a fair outcome, taking account of all the circumstances of the case.
One factor that can sometimes arise is compensation, particularly where one person has suffered a significant financial disadvantage because of the way the couple organised their lives during the marriage. Compensation is concerned with what is sometimes described as “relationship-generated disadvantage”. In simple terms, one spouse may have suffered a long-term financial disadvantage because of decisions made during the marriage, while the other has retained or increased their earning capacity. Commonly, this is where one person has given up work to be a “stay at home” parent.
Essentially, there are three strands that can be relevant when determining a fair financial outcome on divorce:
- needs;
- sharing; and
- compensation.
In practice, compensation awards are relatively unusual. There is often considerable overlap between compensation and a person’s financial needs, particularly where the available assets are required to provide both parties with suitable housing and income.
A compensation argument is more likely to become significant where there is clear evidence of a substantial relationship-generated loss of earning capacity, particularly alongside a continuing disparity in the parties’ respective incomes or earning potential. For example, there may be a stronger argument where someone left a highly paid professional career to care for children and, many years later, cannot realistically return to the position or earnings they would otherwise have achieved.
There is no simple formula to determine the amount of any compensation payment, and it may be awarded in the form of property, lump sums, pensions or ongoing periodical payments.
Every case is different. A successful compensation argument is highly fact-sensitive and should not be assumed simply because one spouse earned less during the marriage.