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Divorce: how to calculate “reasonable needs” – by Rachel Roberts

As family lawyers, we talk a lot about needs when we advise our clients. We talk of capital needs for housing, transport and to redeem liabilities and income needs to meet ongoing annual and monthly expenditure. Needs are trump cards for arguing for a departure from an equal division of capital for a wife with children who cannot otherwise re-house, even if it means taking inherited assets away from the beneficiary in some cases. Needs apply equally to income as to capital, and are an important concept in family law.

Within ancillary relief proceedings, each party will give full and frank disclosure of their financial situation. As part and parcel of that disclosure process, each party must also complete a budget sheet, setting out what they say they need to meet their outgoings. We provide all Stowe Family Law clients with a budget sheet at the outset of the proceedings, so that they can consider their own needs early on.

I thought of this as I read an article over the weekend in the Saturday Telegraph Magazine, about a family who had been asked to account for every penny that they had spent in a month. The point of the article was to highlight whether we are in fact aware of what we spend, even in the current recession driven economy. The couple in question were successful, with an income of £150,000 per annum, an income that most people would consider enormous, yet they were still spending more than they earned.Even after breaking down their expenditure and analysing why they were overspending, they concluded that they would not alter their spending, save for limiting their last minute trips to Sainsburys, and did not consider themselves to be extravagant.

Of course, deciding to manage your finances in this manner when you are operating as a family unit, and have one household to run is one thing. It is quite another to decide to continue to do so following a divorce, when there are two households to run out of the same income pot. Upon separation, items that are considered an essential during the marriage become impossible to fund.

The courts have been very clear in their view that when parties disclose their financial situations, they do themselves no favours by submitting inflated budgets that do not reflect the reality of their lifestyle pre-separation, or indeed the income available between the parties. One only has to look at the approach that the court adopted towards Heather Mills and her income claims against Paul McCartney to see the sort of response that such exaggeration receives from the judiciary.

Of course, the levels of income that are talked about in that case and many of the other publicised cases bear no resemblance to the vast majority of the cases that go before district judges on a daily basis. In those cases, the judges may only be able to give scant regard to what parties claim their needs are, and will simply have to divide up what limited income there is between the parties in a way that is fair. So both parties will have to cut their cloth accordingly.

In such a case, an income need for cable television may seem to be a luxury. In cases with surplus income, however, £1,000 per month or more on holidays plus similar sums for savings might be considered legitimate needs.

In essence, what constitutes a need and what constitutes a want in family cases will very much depend on the available income, the lifestyle prior to the marriage and the circumstances of the case as a whole. In almost every case, save those where the income exceeds the needs of both parties, items that were fundamental before the marriage must, by necessity, be regarded as luxuries.

So how do you go about completing a budget?

The starting point is to break it down into categories, which you can set out as follows:

  • Housing, fuel and power
  • Household goods and services
  • Transport
  • Communications
  • Food and drink
  • Recreation and culture
  • Health
  • Eating out
  • Holidays and accommodation
  • Clothing and footwear
  • Child specific costs
  • Miscellaneous goods and services

You then list each cost in the appropriate category. For many items, a client can simply review previous bank statements and work out fixed sums, such as the mortgage and utility costs. Other items, perhaps household maintenance and clothing, will be less straightforward, as the costs are often irregular and met as and when they arise. In those circumstances, it is best to take an average over a period of time, taking into account unforeseen costs that inevitably arise from time to time.

In some cases, budgets will need additional categories. Examples include second houses, boats, yachts, horses and the like. Again, a budget has to be determined by the lifestyle enjoyed prior to separation within the context of what is likely to be available after separation and is individual to each person. We have had clients with monthly budgets of £5,000 per month for clothing, and other clients who wouldn’t spend that in five years.

It is important not to understate your budget. Before the landmark decision of the House of Lords in White v White (2000), a wife’s maintenance and overall requirements were generally limited to their reasonable needs, regardless of the wealth of the paying party. We have long since moved beyond that point. Now the idea that one party, usually the husband, can retain the bulk of the income simply because the wife can objectively “manage” on a small portion of it is not an approach adopted.

Recent case law such as McFarlane v McFarlane even introduces the concept of compensatory maintenance in – admittedly rare – cases of surplus income for wives who have given up potentially excellent careers for the benefit of family life.

Nevertheless, in some cases reasonable needs will still be a feature of the Judge’s thinking when deciding on an appropriate level of maintenance. For that reason, the budget figures are important. Any party completing a budget sheet should do so with care, ensuring that it accurately reflects their needs, is realistic and can be evidenced by past expenditure.

Careful preparation, together with documented evidence, will help a budget stand up to cross examination in Court. It will also stand a client in good stead to manage their finances within the context of the financial settlement going forward.

Regardless of divorce proceedings, perhaps we should all do this budget exercise to have an honest look at our financial expenditure!

 

Rachel has been with the firm for over 17 years and as Regional Director in the North, heads up the Yorkshire team across Beverley, Harrogate, Huddersfield, Ilkley, Leeds, Sheffield, Wetherby and York. Known for her caring and compassionate approach, she builds an excellent rapport with clients, leaving them feeling confident and reassured as she guides them to the right outcome for them.

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Comments(13)

  1. Dave Parkinson says:

    Does anyone have a sense over what one should budget for annual building maintenance. Is there a metric which might be considered acceptable i.e. % of current market value of the property or £ per sq metre?

  2. Luke says:

    “£1,000 per month or more on holidays plus similar sums for savings might be considered legitimate needs.”
    =============================================
    .
    I think this sort of thing is going to the core of the problems of our system. £24,000+ described as legitimate ongoing “needs” for this sort of stuff is in my opinion absolutely ridiculous – in fact when you consider the average household income it is insulting to them.
    .
    When a marriage comes to an end there may have to be some accommodation for re-education for a short period to allow one party to rebuild – that’s reasonable, but the idea that one should continue to ‘leech’ off the other party for a long period to this extent I find to be outrageous.
    .
    This sort of position is one of the main reasons why the marriage rate is in such a dreadful state. Basically you have to be a complete fool to sign a contract that allow the courts to asset strip you indefinitely in this way.

  3. Sarah says:

    I receive DLA for my disabled son. I live with my partner and he is going through a divorce. He has been asked to complete an e form. Do I have to disclose the DLA that is paid to me for my son? As well as my earnings and money received from my sons father, which is not much. Thanks

  4. Petal says:

    These are excellent peer counseling books you can read:
    amazon.com/gp/bookseries/B01DCBROP2/ref=dp_st_1498465854
    Hope it helps. Kind regards

  5. Kim says:

    When DLA is paid to me for my son is this money my sons or for me to care for him over and above general care needs. My ex says it s my sons and i should not spend it and should pay back what has been spent over the last few years whilst my son lived with me. Thank you

    • Kate Nestor says:

      Thank you for your comment. To start with I would recommend giving our Client Care Team a call on 0330 404 2912 or email at [email protected] and they will be able to help you. Thanks.

  6. Neeba says:

    My sister in law is going through a divorce. She gets own salary 1200 + 500 odd (maintenance from her ex-husband. Her husband moved out and stopped the mortgage and council tax etc.
    The mortgage itself is 1400 + council tax is 145. Will she be expected to pay the from her salary and child maintenance which is what the husband is asking.
    Any good website or books that you can suggest or any advice from yourselves would be much appreciated.

    • Kate Nestor says:

      Hi, I have passed on your comments to our Client Care Team who will be in touch and able to help you. Kind regards,

  7. DRJ says:

    Spouse steadily withdrew various sums from joint account and transferred into her account over 20 years of marriage, while contributing nearly nil into the account. Her trick was put in a little and remove a lot. Yes I was blind and trusting and have only just found out. Now I find she has also slowly emptied the children’s account ( standing order into it was from joint account) and closed the account over 13 months ago. And then, as if not enough, has an affair and brings lover into the family home for shenanigans.
    Where do I stand?

    • Sally Shakespeare says:

      Hi. Thanks for your question which I have passed to our Client Care team who will be in touch. Best wishes

  8. Keeby says:

    I get Personal Independence Payment (PIP), do I need to disclose that account on the E-form as part of marriage assets?

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