Following separation, and when dealing with the finances as part of a divorce/dissolution of a civil partnership, the court will look to achieve a clean break between the parties at the earliest opportunity to allow for both parties to be financially independent from one another.
Sometimes, to facilitate a clean break, a Duxbury Calculation may be used to calculate a lump sum paid by one party to the other, which is the equivalent of maintenance payable for life, paid up front. This means that instead of the payer making regular payments to the payee, which in turn keeps the parties financially connected to each other, the payee instead receives a one off lump sum payment.
In 1987, following a 22 year marriage and 3 children, Mr and Mrs Duxbury became the subject of a court case to determine how their assets should be divided upon separation. The husband was the higher earner in the marriage making Mrs Duxbury the financially dependent party. He accepted that Mrs Duxbury should continue to enjoy a lifestyle following the separation which was similar to the standard enjoyed throughout the marriage.
Both parties wished for a clean break, therefore it was to be determined what lump sum value would be most appropriate to allow the wife to meet her future needs. It was Mrs Duxbury’s accountant who devised a computer programme which was able to calculate a lump sum estimate equivalent to maintenance that would last until end of her life. This was what has now become known as the Duxbury calculation.
How is it calculated?
In order to reach a lump sum value, the Duxbury calculation considers a number of factors including:
- Life expectancy of the recipient
- Net annual amount required by the recipient
- Rates of inflation
- Investment return
- Rate of capital growth
These factors are based on assumptions, which are reviewed from time to time by the Duxbury Working Party. This group consists of leading family lawyers and Duxbury practitioners, who attempt to maintain the accuracy and fairness of the assumptions relied upon. For example, based on the Duxbury table for tax year 2021/2022, a wife aged 50 who requires whole life maintenance at £40,000 per annum shall require a capital sum of £692,000.
The suitability of the Duxbury calculation
The Duxbury calculation is only relevant when parties are looking to achieve a clean break and if there are sufficient assets to allow for a lump sum settlement. Therefore, the Duxbury calculation is generally most relevant in cases where there is considerable capital.
The calculation should be used with caution and is in no way a definitive method to work out a lump sum payment. Back in 2000 in the House of Lords case White v White, Lord Thorpe stated that the calculation is ‘a tool not a rule’. In the same case, Lord Nicholls highlighted that ‘financial needs are only one of the factors to be taken into account in arriving at the amount of an award.’ Over time, the courts have remained consistent in this view of the Duxbury calculation with Mr Justice Holman reiterating the need for caution when using the calculation in the 2019 case of FN v AC (Financial Remedy- Agreement). He stressed that it should be viewed ‘as a starting point or guide and in no way as determinative of an appropriate capital award in lieu of maintenance.’
Most recently, in 2021, Mr Justice Mostyn in AZ v FM reminds us that ‘unpredictable things happen’. This can be epitomised by the coronavirus pandemic, the unprecedented global event that has thrown previous predictions to the wayside. Therefore, it is difficult to accurately predict what may happen over the rest of the recipient’s life which may affect the fairness of a lump sum payment made at the time of separation.
Overall, the Duxbury calculation can be best described as a method available to support and guide parties to achieve fairness and financial independence upon separation.
If you are considering obtaining a divorce in England & Wales or your spouse has commenced divorce proceedings, it is important to receive advice on reaching a financial settlement. Get in touch with a specialist family solicitor here at Rayden solicitors, who can assist you on all aspects of financial matters following the breakdown of a relationship.