Relationship generated disadvantage- can you be compensated?

Over the course of a relationship and, in particular, when a couple have children, decisions must be made as to how time is divided to ensure that responsibilities are met at work, and at home.

The traditional roles of “breadwinner” and “home maker” are increasingly dissipating as working parents buck traditions. However, it is still very common for one parent to reduce their working hours, or give up work entirely, to care for the children, particularly as the costs of childcare increase.

According to the latest ONS statistics between April and June 2021:

1. 44.1% of  families where both parents live with their children, one parent was employed full-time and the other worked part-time; and
2. Only 3% of households including a man, a woman and children, saw the woman working full-time and their partner part-time.

When a choice like this is made, both parents are making sacrifices, be it time with the children, or potential career development. However, the decision to give up work can have implications that reverberate during the marriage, and well after a marriage has ended. The sacrifice of one’s career, and potential earning capacity, is often referred to as “relationship-generated disadvantage” in cases about financial issues arising from divorce.

In the family court, there are overarching principles which are applied in order to achieve fairness in each case. These principles are: needs, compensation and sharing, and they were firmly established in 2006 (Miller v Miller [2005] EWCA Civ 984, [2006] 1 FLR 151; McFarlane v McFarlane [2004]EWCA Civ 872, [2004] 2 FLR 893).

Of these principles, “needs” will take precedence and dictates that the assets ought to be divided so that each party’s income and capital needs can be met, as far as possible. If there are assets sufficient to meet, and exceed, each party’s needs, the court may consider whether surplus income or capital should be used in accordance with the principles of sharing or compensation.

The sharing principle dictates that spouses are equal parties in a marriage and should share the fruit of the matrimonial partnership equally. The principle of compensation dictates that payment should be made for “relationship-generated disadvantage”. It recognises that one party may have seriously damaged their own ability to earn money for the greater good of the family, with an obvious impact on their ability to achieve independent living should the relationship breakdown.

In order for the judiciary to apply the principle of compensation, it requires their comment on evolving questions about the realities of married life, and what “home-making” means to people today. The judiciary are, somewhat understandably, hesitant to engage with these questions. The reluctance to apply the compensation principle has meant that judicial development of the principle has been staggered. As a result, there is a lack of clear guidance as to how the compensation principle ought to apply in practice.

However, in 2020 a new case (RC v JC [2020] EWHC 466) appeared to breathe new life into the concept of compensation. The wife had given up a very high paid job as a lawyer in a magic circle firm in London in order to look after the children. She was given a compensation award, but the judge said that such compensation cases ‘”will be very much the exception rather than the rule”. Even if a “relationship-generated disadvantage” can be established, it may not necessarily equate to a difference in the financial award. For example, there may be insufficient assets for such a claim, or if there is a surplus of assets, any loss may already be covered in the share of the assets without having to delve into the concept of compensation.  In this case, the judge felt that her share of the assets was not sufficient to cover her loss, and he awarded her an additional sum.

The judge was, however, sure to stress that this judgment should not be considered a green light to pursue claims for relationship-generate disadvantage, unless the circumstances are truly exceptional. The compensation claim in this case succeeded because:

1. The assets were sufficient to fund the claim after a sharing award had been made and needs had been met;
2. Evidence substantiated that the wife had a proven track record in her career and that success and high salaries were likely; and
3. There was documentary evidence, which supported the arguments made about the wife’s abilities and future career prospects.

This judgment confirmed that the principle of compensation still exists in family law. It is, however, a rare set of circumstances which would lead to a successful claim. This was reiterated in another case in 2022 (TM v KM [2022] EWFC 155). This case involved a wife who gave up a very lucrative career in investment banking to pursue her relationship with the husband. They moved countries to suit the husband’s career, and she fell pregnant. Shortly after taking maternity leave she was made redundant and did not work in the investment banking field again. The judge held an award of £500,000 in total should be added to the wife’s award to compensate her for relationship-generated disadvantage.

The reviving of the compensation principle in recent case law is interesting given the judiciaries prior reluctance to engage with it. It remains to be seen whether the concept will be developed further, and clarified. As it stands, it is not as simple as a spouse giving up work and reducing their hours, and consideration must be given as to whether this is likely to alter any potential financial award. The principal of compensation therefore remains a rare, but valid, principle for use in exceptional circumstances.