Business professionals, facing the prospect of rising taxes, will be deterred from climbing up the career ladder if they fear their higher earnings will also attract higher payouts to divorced spouses following a recent significant judgement, Withers, the law firm, has said.

The comments came after the High Court in London issued a judgement allowing a divorcee, Julia McFarlane, to apply to increase maintenance payments to her from £250,000 per year to £350,000, based on her former husband’s earnings. The ruling also underscores how divorce case law has become an important aspect of wealth management as some cases can involve huge sums and wreck years of patient financial planning and accumulation of assets.

This ruling could deter divorcees from earning more money if they believe maintenance payments will rise commensurately, the law firm said.

“The ability for each party to vary income payments upwards is a huge source of anxiety to the paying party, and can act as a real disincentive to progressing up the career ladder,” said Suzanne Todd, family partner at Withers.

“The paying party needs a reason to go to work, but with 50 per cent of the top slice of their gross income going to the tax man, and then potentially 40 per cent of their net income going to their ex-wife, there is a real risk that they will throw in the towel as they may think it’s hardly worth getting out of bed and may head for the sun instead. Many feel strongly that their former partners should not have a ‘meal ticket’ for life.” 

Withers noted that in the McFarlane case – held initially in 2006 - the House of Lords, which is UK’s most senior legal authority, said marriage was a partnership of equals and that there was to be no discrimination between the breadwinner and the homemaker.

As a result, Mrs McFarlane, who had given up a high-earning career to be the homemaker, was awarded £250,000 a year for life. At the time of the Lords hearing, Mr McFarlane was earning around £750,000 per year after tax and it was envisaged that he would apply for a reduction in maintenance in future, most obviously on his retirement.

However, three years later, Mr McFarlane’s ex wife asked to increase the payments. Last year, Mr McFarlane’s career blossomed further when he entered an elite pool of the top 2 per cent of managers at Deloitte, the accountancy giant. The move meant his annual income rose above £1 million, Withers said.

In this case, the judge handling the matter said that, given the uncertainties relating to the economic climate, he believed that a payment which included, or was entirely based upon a percentage of net earnings, was the correct method of fixing maintenance. As a result, maintenance will be paid on the following formula: 40 per cent of Mr McFarlane’s net income up to £750,000, 20 per cent of anything received between £750,000 and £1 million and 10 per cent of the balance over £1million.