Is Duxbury Dead?

The Spring 2025 issue of this journal led off with the eagerly awaited, 21-page Final Report of the Duxbury Working Party ([2025] 1 FRJ 3). As one would expect from its distinguished authors, the report is engaging, well written and skilfully argued, albeit that for reasons I shall advance hereafter its conclusion – that we need to go on using the Duxbury model – is wrong.

Credit where credit is due, however. The Working Party’s concession, that the Duxbury tables should no longer be based on whole-of-life factors, is a huge step forward and one that I predict will radically alter the way we practise in financial remedy cases, especially those involving big money.

I’m going to preface this article with two basic rules of common sense that apply to the whole gamut of commerce and should govern our thinking when dealing with family finances:

(1) a bird in the hand is worth two in the bush; and

(2) higher returns come at the cost of higher risk, also known as the ‘risk-return trade-off’.

Let me explain.

• A bird in the hand: that is, it is often worth taking what you can while you can, rather than waiting in hope of a bigger reward. According to this universal principle, people will happily discount a future income stream into a present lump sum. Jam today or jam tomorrow? This illustrates the time value of money.
• Higher returns = higher risk: a defect of the standard Duxbury model is that it favours younger recipients. A wife in her 40s, with long years of life ahead, will scoop a much bigger award than a wife in her 70s who, ironically, is in need of far greater security. This is known as the ‘Duxbury paradox’. It is the exact opposite of what we should expect from a well-tooled capitalisation program. The risks and returns are mismatched, thus skewing the results.

Before proceeding, let me take a quick tour of the relevant history.

History

The Duxbury model was born at a time when big money was starting to flow into London, consequent on the deregulation of the Stock Exchange in 1986. The City’s prestige as a financial hub was growing rapidly. Into this mix Parliament (by inserting MCA 1973, ss 25A and 31A) gifted new powers to family judges to commute maintenance for capital. Hardly surprising, therefore, that the accountancy profession (in the person of Tim Lawrence FCA) should come up with a new gizmo enabling them to do so. It quickly caught on, and was soon commercialised in the pages of At a Glance and in Capitalise software.

However, the assumptions underlying maintenance were very different from what we know today, as the Working Party (hereafter WP) acknowledges. Then, divorce affected only a minority of the population, and it was still believed that marriage was for life, creating lifelong dependency. So it made sense to have whole of life provision. The contrast with today, where women’s earning power is vastly improved, and marriage is (at least in law) a contract terminable at will, could hardly be more stark. But a second point is that, among judges, there was a trajectory towards higher awards for wives, anticipating the White and Miller watershed. That is why Ackner LJ in Duxbury (1987) could characterise W’s cohabitation as ‘irrelevant’; because indeed the object was to give her more, not less.

Now that White sharing has become the norm, it is no longer necessary to resort to expedients like Duxbury to justify a transfer of capital from A to B. Rather, spousal maintenance, if required at all, can be judged on its own merits; and it will be a rare case where it extends beyond 5 years. Moreover (and here I fully agree with the WP), any capitalisation must be on the basis of an exact commercial equivalent. Otherwise you are simply robbing Peter to pay Paula.

Relevant law

• There is no room for discrimination between husbands and wives (White). Thus I agree with the WP that it is no longer appropriate to have separate tables for male and female recipients.
• The purpose of maintenance is solely to meet needs: SS v NS [2014] EWHC 4183 (Fam). Taken with the injunction in s 25(2)(a) to rebuild earning capacity, this means that orders will seldom, if ever, be varied upwards by the court above and beyond CPI inflation; thus relegating decisions like Hvorostovsky v Hvorostovsky [2009] EWCA Civ 791 to the scrapheap of history.
• A husband is not an insurer for his wife, nor vice versa: North v North [2007] EWCA Civ 760; A v M [2021] EWFC 89 at [58] per Mostyn J.
• Nominal orders are rarely, if ever, enlarged: AJC v PJP [2021] EWFC B25, DDJ Hodson; A v M. Hence they have no real value in commercial terms.

Is Duxbury fit for purpose?

If we accept the WP’s view (at para 43) that the object of Duxbury is to substitute a lump sum for a stream of periodical payments with all the variability and uncertainty that come with such a stream; and that otherwise the order should be financially neutral for both parties; then we need to square up to the abject failure of the model to do what it is supposed to do.

One chestnut in this area is the recipient’s prospects of remarriage and cohabitation, which are and always have been stubbornly ignored by the courts. Instinctively we know this is wrong; yet the WP continues to defend the practice, saying for example at paras 62–63 (emphasis added):

‘More sophisticated modelling tools, such as Capitalise, can factor in a variety of other circumstances … those considerations must plainly exclude entirely subjective criteria such as re-marriageability …’

It is difficult to see why prospects of remarriage should be seen as ‘entirely subjective’ when relevant statistics exist. For example, data extrapolated from ONS Series FM2 No 34, table 4.17 suggest that a high proportion of wives aged 30 and over at marriage have been previously divorced (see Table 1).

Table 1: Prospects of remarriage

While this does not tell us how long people wait before getting married again, it indicates that the present practice of ignoring marriage prospects is not only counter-intuitive but plain wrong. The result, inevitably, is that a Duxbury lump sum over-compensates the payee by a significant margin.

When you factor in other eventualities ignored by the model (prospects of cohabitation, the payer losing his job, etc), it is readily apparent that the Duxbury model, as an exercise in neutrality, is not fit for purpose.

The real rate of return (or RRR)

After a long trawl through the reasons why, and conceding that its report has no legal status, the WP opines that the current built-in discount rate of 3.75% is the best that can be devised, and accordingly (subject to one major proviso to which I shall return) recommends its retention.

This is unsatisfactory from a number of standpoints. First, it is highly subjective. For instance, it is built around the idea of an investment portfolio containing 60% equities and 40% bonds (or perhaps 50% of each). Whilst a 60/40 weighting may appeal to, say, a middle-aged investor with a modest appetite for risk, younger recipients are likely to take more chances in hope of higher returns, and thus to go for 80/20 or even 100% equities; while an older recipient, in search of security, is likely to do precisely the opposite. Secondly, and linked to the first point, Duxbury imposes a ‘one size fits all’ solution, instead of allowing people to think for themselves.

Going back to first principle, Duxbury is about translating a future income stream into a present lump sum, such that the one equates to the other. Many people would prefer a cash sum now to an uncertain, ongoing income stream. How far they are prepared to forgo the one for the other determines the rate of discount, expressed in annual terms. You don’t need Capitalise or At a Glance to calculate this. Instead, there is a simple formula to be found in any Excel or Google spreadsheet, viz PV(rate, term, payments), where ‘PV’ = ‘Present Value’, ‘rate’ = the chosen discount rate, ‘term’ = the duration of the order, and ‘payments’ = the quantum of the maintenance order.

Applying this formula to, say, a periodical payment of £30,000 pa over a 10-year period at a discount rate of 4% pa, it can be seen in seconds that the capital required is precisely £243,326.87, or £243k to the nearest thousand. Moreover, a table such as that laid out in Appendix 5 to the WP Report, producing a range of lump sums for a variety of situations, can be produced by an experienced spreadsheet user in less than 30 minutes. What is the point, then, of a published table or piece of commercial software that does the same thing?

Nor is it a problem for Excel to calculate the present value of a series of cash flows that change over time. For example, suppose the court imposes a ‘step-down’ order for a wife, starting at £30,000 pa for the first 5 years, then £20,000 for the next 5, then £10,000 for the last 5. Here the equivalent lump sum, at 4% pa discount, is found in an instant by the NPV (‘Net Present Value’) formula, that is to say, NPV(rate, value1, value2 …). The answer is £248,645.95. Clearly, using this formula will enable you to devise bespoke solutions at minimal effort and zero cost.

Allowance for management charges?

Perhaps in a gesture to those of its number, or its consultees, who believe that Duxbury awards are too low, the WP proposes that allowance should be now made within the model for the incidence of portfolio management charges, at the rate of 1% of the fund up to £1m and 0.5% thereafter.

With respect, this is wrong in principle, for a number of reasons. First, maintenance recipients in higher income brackets will generally include an allowance for financial advice within their budget. Secondly, the reason you employ a manager is to boost investment returns. The cost of doing so should therefore justify itself. Thirdly, it is up to the recipient how they invest the money: they may (for instance) choose to buy a larger residence, which will incur zero management charges and may prove a handy, tax-free investment. Or they may choose to invest in tracker funds through a platform that charges only 0.7%; and so on. Again, anyone in receipt of a large lump sum should utilise their ‘earning capacity’ to acquire knowledge and experience of investing.

The problem with making an allowance within the model for management charges is that it dramatically increases the payout, and therefore the dependency of the recipient, contrary to the whole thrust of the legislation. So much is admitted by the WP. For example, at para 174 it says (emphasis added):

‘Reworking the calculation at paragraph 146 above by allowing an additional deduction for management charges increases the initial fund required to £789,484 (an increase of c, £207,000 or +35.5%)’

Query why there should be any increase at all, and why the payer should be the one who has to pick up the tabs.

Pension

Similar comments apply to the WP’s idea (contrary to the position hitherto) of excluding the receipt of state pension from the Duxbury calculation. Of course, if the object is merely to capitalise a short-term order between now and retirement, then pension is irrelevant. Otherwise every source of income needs to be taken into account; although I agree it can be done at a later stage of the calculation (if the court remembers to do so).

Taxation

It is not understood why, under Duxbury as conceived, the payer should have to compensate the recipient for the incidence of tax. How people arrange their tax affairs is a matter for them. As it is, the model contains too many moving parts and is therefore prone to error (as the WP freely admits). It is also highly subjective in that it supposes the recipient will invest in a certain way, to produce a mixture of income, capital gains and ‘churn’, and be taxed accordingly. It is vulnerable, moreover, to changes in fiscal policy at government level. Lastly, because the calculation is complex, the model has to rely on an iterative process that starts (and ends?) with guesswork.

In the real world, where discounting is commonplace, it is hard to imagine anyone operating in this way. For example, commercial properties are valued as a function of yield; businesses on a multiple of pre-tax profits (EBITDA); patents on the likely earnings from royalties; and so on. In none of these instances is the tax status of the parties of any relevance.

Personal injury awards are different because here the objective is to compensate the victim, pound for pound, for the loss of future earnings after tax. The tortfeasor becomes an insurer for the victim; and indeed, most PI claims are handled by insurance companies. That is not how family courts work.

Table 2: DCF and ‘New’ Duxbury compared

Table 2 shows how a DCF calculation, carried out on an Excel spreadsheet, compares with the WP’s proposed model at Appendix 5 of the Report. For ease of comparison I adopt (but dissent from) its recommendation that management charges be deducted from the RRR. The net discount rate therefore, for illustrative purposes only, is 2.75%. That aside, it can be seen that the differences between one model and the other – to do with tax treatment – are purely marginal until one gets into higher numbers; and so can safely be ignored.

What rate of discount?

I have no grouse with keeping the standard rate at 3.75% as such (although 4% would be simpler), so long as it is recognised that people have widely differing appetites for risk at different ages. A 40-year old wife, for example, may be far more adventurous with her portfolio than a 70-year old hoping to live quietly for the remainder of her years. Factors such as these suggest that courts should be able to choose from a menu of discount rates – say from 2% to 12% – in order to reflect the personal characteristics of the applicant, including age and disability if any. Relevant also is the rate of return on capital that the couple have been used to generating in the past. I return to the proposition that higher returns = higher risk. Why should the wife of an entrepreneur, who has enjoyed double digit returns for many years, be shielded from risk for the rest of her life by the adoption of an artificially low discount rate? And vice versa, if H is the maintenance dependant.

Conclusion

(1) There is nothing in the Duxbury iterative model that cannot be achieved more simply and cheaply by the use of standard spreadsheet functions like PV and NPV.

(2) Except (perhaps) in the case of payees past retirement age, the temptation to hone the rate of discount down to 2.75% or some other figure should be resisted. People should be expected to work their capital, not to be cosseted in cotton wool for the rest of their lives.

(3) Factors such as the impact of tax on the recipient, and the components of an investment portfolio, should be ignored as essentially subjective and not corresponding to the real world of business deals. Swapping income for capital is a straightforward commercial transaction, running on well-known lines.

(4) In the last analysis, the question is not how to safeguard the payee from risk, but ‘What lump sum would he or she accept in lieu of ongoing periodical payments?’ Seen like that, many of the complexities of the Duxbury model fall away and it becomes an exercise in rudimentary arithmetic.

(5) It is time to recognise that Duxbury is dead and needs to be given a decent burial.