“Earning the Big Mac” - a Discussion on the Principle of a Person’s Earning Capacity and How it is Not an Asset to be Divided Following Divorce in Hong Kong or England.

It’s always a mistake to be too greedy in life.

If you get a Big Mac, and then eat it, don’t complain that it’s all gone.

You can’t have it both ways.

It’s well known that the population of Hong Kong is not a voracious eater of Big Macs. So this mistake is hardly likely to be made here. According to the most recent figures, there are 31,490 Hong Kong inhabitants per McDonald store.

Our friends in England recently witnessed a judge dealing with some rather greedy eating, metaphorically, of Big Macs.

This happened in a family law case, which illustrates a very important principle which is equally true in Hong Kong and in England. Namely - that a person’s earning capacity is not an asset to be divided following divorce. Let alone equally divided. You can’t obtain half of the capital for one of the parties, and then ask for a defined share of the other person’s income in the future. Earning capacity is not an asset which you can just expect to be shared or divided. The maintenance requirement has to be based on need, not on sharing.

The case involved a McDonald’s franchise holder in England, and the reference is O’Dwyer v O’Dwyer [2019] EWHC 1838(Fam).

The husband’s McDonald’s business, together with his other assets, amounted to about £6 million. This was a 30 year marriage, and so the matrimonial capital was divided 50-50, the husband exiting with about £3 million and his earning capacity, and the wife exiting with £3 million but no earning capacity.

The 62-year-old husband was also ordered to pay £150,000 per annum of maintenance to the 60 year old wife until his 66th birthday, whereupon her rights to maintenance would come to an end. The judge in the case being appealed erroneously based his decision on the fact that the husband’s earning capacity had been built up during the marriage. And that the wife was entitled to a fair share of it.

The husband appealed and was successful, because he showed that the judge had treated the earning capacity as a matrimonial asset which could or divided. But it can’t be. The Court of Appeal authority for this current rule is Waggott v Waggott [2018] 2 FLR 406 (a case which was briefly touched upon by the Hong Kong Family Court in the case of SSLT v SMFC [2019] HKFC 250). And this principle was neatly applied in O’Dwyer.

So when you go to the English pubs in Hong Kong, or when you chat with the man on the MTR to Kowloon, and hear that after a long marriage a spouse is entitled to half of everything upon divorce, including earning capacity, you can say that this nonsense.

The principles in Hong Kong and England can therefore be very succinctly summarised as follows:

1. A husband or wife at the end of a marriage may argue that the marital wealth, that is, the value of the assets generated during a marriage, may be equally divided.

That excludes inheritances received during the marriage. Or the wealth that is protected by a marital agreement (see Radmacher). Or income generated by dual earners who intend that income to be kept by the person who earned it (as per Lady Hale and the majority of the Supreme Court in Miller and Macfarlane).

2. Does a party then need more?

If so, look at what a party NEEDS.

This is where the need principle comes in. It may supplement the capital that has been shared.

Applying those principles in this Big Mac case, the appeal judge, assessed what the wife reasonably needed for income provision for the next six years of the maintenance term. She therefore got £68,000 per annum for the next six years, rather than the £150,000 per annum which had been based on the erroneous sharing of the husband’s earning capacity.

So the family law world is forever grateful to Big Macs, and to this tasty illustration that a person’s earning capacity is not to be glibly, let alone equally, shared upon divorce. You can’t order a Big Mac, eat it, and then want another one to be equally divided. That would be a Big Mac fantasy. 

 

Jurisdictions: 

Farrer & Co LLP

Ip and Heathfield