In our latest Family Finance Law blog, current pupil Daniele Scanio explores the topic of Duxbury Calculations and what effect taking a new approach might have.
The Duxbury calculation seeks to calculate the capital sum which theoretically, if invested (at assumed rates and after tax on yield, management charges and realised gains), could be drawn down periodically such that it will completely exhausted at the end of the recipient’s actuarial life expectancy i.e. their life expectancy based on the average of their male or female peers, respectively.
This calculation is primarily used as a guide for capitalising periodical payments. There is the assumption that each month the whole of the interest from the investment will be spent as well as part of the capital, thus providing the recipient with an income steam in much the same way as if they were receiving periodical payments. It has been used as a tool for enabling a clean break between the parties for over 40 years, albeit there have been changes in the algorithm during that time.
One of the fundamental assumptions is that the period of financial support required by the Duxbury fund is the whole of the recipients remaining life.
However, there are problems with the Duxbury approach:
1. Theoretical and often wrong in practice
The Duxbury calculation is theoretical and does not, and cannot, predict when a payee will actually die. This dilemma could leave a payee with insufficient, or no, income at the end of their lives if they outlive their actuarial life expectancy, and at a stage when they are most economically vulnerable.
2. The Duxbury paradox
The longer the marriage, intuitively one would expect a larger capital award. It seems logical that the longer the parties’ lives were entangled the greater the award one should receive. Yet – known as the Duxbury paradox – the calculations produce the counter-intuitive result that the longer the marriage (and therefore the older the payee will be) the smaller the capital sum required, because of the actuarial expectation that the payee will die sooner.
3. Payee remarries
On the other side of the coin, an unjustified benefit for the payee arises if the payee remarries. In this scenario they become a net winner because, but for the Duxbury award, periodical payments would have stopped as soon as they remarried.[1] The payee, having already received a Duxbury capital sum premised on the basis that they would have received periodical payments for the rest of their life, therefore nevertheless continues to receive monthly payments via the investment to which they would otherwise not have been entitled.
The New Approach
As a result of these problems, the self-appointed Duxbury Working Party have suggested changes to the Duxbury model. Whilst assumptions based on rates of return etc are retained, the Working Party suggest that the calculations should no longer default to the life expectancy of the recipient (although there will be cases where it may be appropriate). Instead, the tables should enable the court to capitalise an income stream for a term less than whole life – thus mirroring a term periodical payments order.
The rationale for this change is that joint lives periodical payments are now largely a thing of the past – a rare creature indeed. The modern emphasis is on achieving financial independence and the use of term periodical payments orders to enable the transition to such independence. It follows, therefore, that a capital fund based on the underlying assumption of whole life maintenance is largely obsolete.
As a consequence, given that the new tables are (a) not based on an assumption of whole life maintenance, and (b) state retirement ages are now the same for men as for women; it is no longer necessary nor appropriate to have separate tables for male and female recipients (with differing actuarial life expectancies).
The new tables will enable the courts, for the first time, to capitalise an income stream taking into account factors including, but not limited to, the anticipated financial independence of the payee, and the expected working life of the payer, amongst other factors. If implemented, it would not be hyperbole to categorise the new tables as a revolutionary, rather than evolutionary, change of approach.
The final report of the Duxbury Working Party will be published on 15 November 2024 – watch this space!
Daniele Scanio
October 2024
[1] Section 28(1), Matrimonial Causes Act 1973.
Daniele Scanio is a current Family Finance Law pupil at 18 St John Street Chambers, under the supervision of Stephen Murray. For more information on Daniele and the members of the Family Department at 18 St John Street, please contact Senior Clerk Camille Scott or a member of the clerking team on 0161 278 8263 or email family@18sjs.com.