Maybe Compensation Isn’t What You Think

It is obvious that compensation is all about loss caused by career sacrifice. It is a rare claim because it is seldom worth pursuing: the loss must be sufficiently large for the claim to be proportionate, and there must be a sufficient career track record to minimise the ‘What if?’ speculation inherent in proving and valuing the loss. Overall, it’s a poor fit with the usual financial remedies discretion.

Right … ?

What if the problem isn’t the concept itself but the way it has been interpreted by the lower courts? What if our loss-based understanding of compensation is a category error that doesn’t actually have any basis at all in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24 itself? What if the axiom that a career sacrifice is a prerequisite for compensation is not supported by the speeches?

In this article, I argue that the compensation principle set out in the Miller; McFarlane speeches is simply the logical next step in ending the discrimination between different but equal contributions. Compensation is a vehicle to alleviate post-divorce disparity in order to ‘give both spouses an equal start on the road to independent living’.[[1]] As sharing alleviates capital disparity, compensation should alleviate income disparity.

This article[[2]] provides an overview of my argument and analysis, which is fully explored in an article in Child and Family Law Quarterly.[[3]]

What compensation is actually for

Miller; McFarlane builds on White

Compensation should be viewed in the context of the overall development of financial remedies law. Briefly: before White v White [2000] UKHL 54, we had the discriminatory reasonable requirements approach. White introduced the non-discrimination principle, proscribing discrimination between caring and money-making contributions. The new yardstick of equality effectively introduced formally equal division of capital as the starting point.

Miller; McFarlane sought both to consolidate and to build on White. The needs principle recognises that needs is the dominant factor in the majority of cases. The sharing principle consolidates the yardstick of equality, conceptualising marriage as an interdependent partnership of equals.[[4]] The compensation principle should have tackled the remaining discrimination: on income.

While the marriage subsists, the spouses’ interdependent contributions secure the family’s welfare. When it ends, equal division of capital frequently does not suffice to achieve a fair outcome because ‘50% plus substantial earning power is self-evidently better than 50% and no earning power’.[[5]] Without further adjustment, the spouse who made more of the caring contributions may be left to bear the brunt of the economic consequences of interdependence.

Miller; McFarlane therefore sought to build on the formally equal division of capital under the yardstick with substantive equality of post-divorce outcomes, by alleviating post-divorce disparity in earning capacity through the vehicle of compensation. The goal of substantive equality is apparent in Lady Hale’s ‘ultimate objective’ of giving ‘each party an equal start on the road to independent living’.[[6]]

This is an issue of gender discrimination because the stark fact is that the wife is still more likely to provide more of the caring contributions in the marriage and to suffer worse post-divorce outcomes. This is the pattern in every reported case in which compensation is argued. To reflect this, I use ‘wife’ to describe the lesser-moneyed spouse and ‘husband’ to describe the moneyed spouse.

What Miller; McFarlane actually said

Compensation should alleviate disparity in the parties’ post-divorce positions, not recompense for loss caused by career sacrifice. Lord Nicholls is very clear: compensation is ‘aimed at redressing any significant prospective economic disparity between the parties arising from the way they conducted their marriage’.[[7]] He repeatedly says that compensation redresses post-divorce disparity in outcomes, and that this disparity arises from the division of the spouses’ roles,[[8]] but this message has been completely lost.

Lady Hale uses different language to express the same essence: compensation is for ‘relationship-generated disadvantage’.[[9]] Taking the word ‘disadvantage’ in isolation, one might think it offers support for the loss-based understanding of compensation for which it has become the shorthand. The wife’s disadvantage is taken to be compared to her own position if she had not made a career sacrifice. But there are indications throughout Lady Hale’s speech that, like Lord Nicholls, she is highlighting the disparity revealed by comparing the wife’s outcomes with the husband’s.

Lady Hale is explicit that ‘an equal partnership does not necessarily dictate an equal sharing of the assets’.[[10]] Needs is the most common reason to depart from equality, but not the only reason. She points out that an equal share with a clean break can cause rapid divergence in the parties’ post-divorce standard of living if there is an earning capacity disparity, and the importance of the husband’s ability in such cases to recover his capital position after an unequal division.[[11]]

She points explicitly to earning capacity disparity when she says:

‘… except in those cases where the present assets can be divided and each can live independently at roughly the same standard of living, equality of outcome is difficult both to define and to achieve. Giving half the present assets to the breadwinner achieves a very different outcome from giving half the assets to the homemaker with children.’[[12]]

The idea that the reason for Mrs McFarlane’s enhanced award was her career sacrifice has been super-imposed after the fact. The career sacrifice was just one part of her full – and ongoing – caring contribution that supported the husband’s career. As District Judge Redgrave explained at first instance, the ‘spadework’ put in over the course of a long marriage with interdependent contributions meant that the ‘greatest fruits’ of the husband’s career became available later in the marriage and after separation.[[13]] It would be unfair to deprive the wife of her fair share of those fruits just as they ripened.

It is a common scenario that the wife compromises her earning capacity for the benefit of the family. The House of Lords created the label ‘compensation’ simply to make the District Judge’s reasoning easy to replicate[[14]] so that alleviating the ensuing income disparity could routinely weigh in the discretionary balance.

Both Lord Nicholls and Lady Hale are clear that compensation and needs overlap,[[15]] and that compensation forms part of a flexible balance with needs and sharing.[[16]]

The clean break

Compensation is often taken to undermine the clean break because Mrs McFarlane was compensated via periodical payments. However, this was simply because there was insufficient capital for a clean break, combined with a large surplus of income.

Both Lord Nicholls and Lady Hale are clear that needs and compensation should take place via capital if possible, but that the clean break should not be at the expense of a fair outcome.[[17]] Therefore, if there is insufficient capital, needs and compensation – that is alleviating the earning capacity disparity – should take place via income. Matrimonial Causes Act 1973, s 25A encourages the capital option rather than discourages the income option. However, the lower courts continue to take s 25A as discouraging the income option, with the clean break taken to be an objective in its own right, even at the expense of giving the parties an equal start on the road to independent living.

Two versions of compensation

The version of compensation that exists in practice shares only its name with the principle actually found in the Miller; McFarlane speeches, to the extent that it is misleading to call them both ‘compensation’. The House of Lords designed what I call ‘holistic compensation’ as part of a flexible balance with needs, sharing and the section 25 factors.

The version in practice bears no resemblance to holistic compensation. Instead, compensation has been siloed as a discrete loss to be assessed separately and added on, a version I call ‘discrete compensation’.

How it went wrong

The loss assumption

Discrete compensation is based on the foundational misunderstanding that compensation is for the specific loss caused by career sacrifice. This misunderstanding is so ubiquitous that it does not require any justification. It underpins the entire compensation case law without ever even being stated clearly, let alone demonstrated through citation. Ultimately, the loss-based understanding is an assumption about what Miller; McFarlane says, not an interpretation, so we can call it the ‘loss assumption’.

One might think the loss assumption has some basis in the speech of Lord Nicholls because he uses the word ‘loss’ several times. However, in context, he is clearly not using the word in its tortious sense:

(1) He refers to the wife’s potential ‘double loss’[[18]] in leaving the marriage with both a diminished earning capacity and no right to share in the husband’s income. In context, he is giving an example where the disparity in earning capacity that compensation seeks to address will be starkest.

(2) In the same paragraph, he mentions the ‘disproportionate financial loss’ that women may still suffer because of their ‘traditional’ caring role in marriage.[[19]] Here, he draws attention to the gendered nature of the issue rather than suggesting that the courts should seek to compensate that loss in a tortious sense. In any event, the loss he mentions is caused by the caring role, not career sacrifice.

(3) He distinguishes a compensation claim from a needs claim as being ‘loss-related’ rather than ‘needs-related’. This is in the specific context of a future variation of Mrs McFarlane’s periodical payments, making it clear that, unlike her needs claim, the claim for compensation ‘is not directly affected by the use she makes of her resources’.[[20]]

That is 100% of the uses of the word ‘loss’ in Miller; McFarlane relating to compensation. There is simply no doctrinal basis for the loss assumption.

In financial remedies cases, the broad-brush discretion is usually exercised by weighing competing considerations in an overall balance. The loss assumption sets compensation at odds with the usual approach by treating it as a separate damages claim being made within the broader claim for financial provision.[[21]] This inevitably gives rise to serious case-management issues around proving and quantifying the claim, inflating both costs and complexity. But these concerns are misconceived because they arise from the misunderstanding that compensation is discrete.

RP v RP sets the tone

The die was cast in the first reported compensation case, which focused not on understanding and operationalising the principle, but on the perceived case-management issues. RP v RP [2006] EWHC 3409 (Fam) was a perfect test case for holistic compensation. The wife had given up a ‘serious career’[[22]] to have children and support the husband’s career. Coleridge J assessed the husband’s earning capacity to be ten times the wife’s. The parties had approximately £3m total capital and both wanted a clean break. Pre-Miller; McFarlane, a departure from equality would have obviously been necessary to meet the wife’s needs. It should have been straightforward to weigh holistic compensation in the balance to push that division further in the wife’s favour.

Instead, the whole case is framed by the loss assumption. It is so obvious that compensation is for loss that this does not even need to be stated. It is shocking how little analysis there is of compensation. Coleridge J provides a cursory examination before concluding that compensation is ‘not new’, but just ‘highlighting … an underlying principle’ that obligations arise from the parties’ equal but different contributions.[[23]] Remarkably, this first interpretation of the new principle contains zero citations of Miller; McFarlane (or indeed any other case).

Rather than the compensation principle itself, Coleridge J focuses on the case-management consequences of the quasi-tortious discrete version that both he and the advocates assume it to be. He is rightly concerned that there is ‘creeping in from some quarters a new methodology or approach akin to a damages claim’, including the prospect of expert evidence being called to establish the extent a wife’s loss.[[24]] He notes that ‘it is simply not possible (and highly undesirable and costly) to conduct, additionally, a speculative “what if ..?” exercise to reconstruct the parties marriage on a different basis’.[[25]] Famously, he declares that such an approach is ‘a blind alley at the mouth of which a “no entry” sign should now be firmly planted’.[[26]]

There is obviously no place for a tortious methodology in financial remedies. What is missing is redirection from the discrete tortious approach back to the holistic compensation found in the words of Miller; McFarlane. The no entry sign has been taken to relate to the compensation principle itself, save in highly exceptional circumstances.

The valuation trap

The biggest practical issue with discrete compensation is quantifying the loss. Valuation is a trap that judges fall into because the loss assumption sets up compensation as something to be separately valued and added on to the wife’s needs or sharing award.

This quantification is assumed to require comparing the wife’s actual earning capacity with her potential earning capacity if different career decisions had been made – an ‘alternate universe’ approach. Of course, this requires exactly the sort of speculative exercise that Coleridge J warned against. It is an impossible task that has no place in the statutory discretion, where independent valuation is usually confined to ascertaining the resources available for distribution.[[27]] Notably, this task was not attempted in McFarlane itself. The wife’s career sacrifice was simply treated as part of her overall contribution, with no attempt to assess how her career might have progressed in an alternate universe, or to value any loss.

The lower courts resolved this illusory problem by treating compensation as inherently flawed, and restricting it to exceptional circumstances.

The McFarlane baseline

As already explained, the central feature of McFarlane was the interdependence of the wife’s caring contribution and the husband’s financial contribution in the spadework for the husband’s career, which created the earning capacity disparity. Nevertheless, the wife’s enhanced level of periodical payments is ubiquitously taken to be because she sacrificed a high-level career, and had the track record to prove it. The most exceptional feature of McFarlane is the baseline against which all wives are measured and found wanting.

A substantial track record makes discrete compensation more palatable because it helps to mitigate the speculative nature of the alternative universe valuation. Being on track for a large salary helps to make it proportionate to go to the expense of proving and quantifying the loss. Making Mrs McFarlane the baseline alleviates these case-management concerns by confining claims to exceptional circumstances.

Early cases effectively barred wives with ‘ordinary career prospects’[[28]] from claiming compensation by suggesting that they were adequately compensated by an equal division of capital or a generous assessment of needs.[[29]] This merely pays lip service to the wife’s disadvantage, making no attempt to share the consequences of interdependence more fairly. Even paying lip service did not last long, with compensation quickly relegated to exceptional circumstances.

The facts of McFarlane were a double-edged sword for the House of Lords. The wife’s exceptional career sacrifice left no doubt that it would be unfair to confine her to her needs, making it a perfect vehicle to introduce compensation. However, that exceptional career sacrifice obscured the broad applicability of the compensation principle as part of the overall balance, facilitating its relegation to a niche concept for wives who can prove they would have made it rich on their own.

The false equivalence with a damages claim

Issues caused by the false equivalence between compensation and a damages claim pervade the compensation case law. Several points arise in addition to the central concerns around valuation and proof:

• Heads of claim: discrete compensation creates a separate head of claim, attempting to build up an award by aggregation.
• Looking backwards: discrete compensation inevitably drags the focus backwards to the choices made during the marriage and the wife’s professional track record, and away from the parties’ post-divorce future.
• Ignoring the husband’s ability to pay: the defendant in a damages claim must pay what it awarded, in contrast to the financial remedies approach of balancing competing claims to a finite pot.

These are all legitimate objections to discrete compensation, and they are all irrelevant to the holistic version. Holistic compensation does not require counterfactual alternate universe valuation, just the routine establishment of the parties’ contributions and earning capacities. It does not require proof of track record. It is not a separate head of claim. It looks forwards to a post-divorce future, not backwards to the wife’s career sacrifice. It does not ignore the husband’s ability to pay.

Holistic compensation draws attention to the economic consequences of unpaid caring contributions within an interdependent partnership of equals, so that they weigh in the overall balance as a matter of course. Lady Hale provided the objective in balancing the parties’ competing interests: the equal start on the road to independent living.

Rather than redirecting practice to holistic compensation, the lower courts shut down the whole idea of compensation because of its perceived failure to fit with the discretion.

Waggott v Waggott

The Court of Appeal did not engage with arguments relating to compensation until Waggott v Waggott [2018] EWCA Civ 727, by which time the misunderstandings were completely embedded. There was no question of the wife making a discrete compensation claim, so she tried to reframe the concept by arguing that compensation applies to an advantage to the husband separately to any disadvantage to the wife.[[30]] This argument was rejected, with the court confirming that compensation applies only to disadvantage.

Not only did Waggott complete the embedding of the loss assumption, it took compensation even further away from Miller; McFarlane. Moylan LJ held that the wife can only claim compensation if she can prove that her earning capacity in the alternate universe would have generated greater resources than she would receive under either a needs or a sharing award.[[31]] This guidance completely precludes an equal start on the road to independent living by making the wife bear the economic consequences of her caring contributions from her own resources in all but the most exceptional cases, in order to protect the husband’s earning capacity and the clean break.

Where does this leave us?

Judges routinely cite the central principles of ‘needs, sharing and compensation’, but the mention of compensation is mere habit because it has been almost completely subsumed into the other two principles, explicitly applied only in truly exceptional cases. Something has obviously gone wrong when a flagship principle is never applied.

Wives are told that they were right not to raise compensation in exactly the sort of cases where it should have been used to alleviate the earning capacity disparity.[[32]] Some of the wife’s worse post-divorce outcomes may be dealt with via a generous assessment of needs, but using the language of needs greatly limits the adjustment, and makes it more susceptible to variation. Even this use of needs is being curtailed.[[33]] A sharing award likely means an equal share with a clean break, unless there is a reason to depart from equality, with such reasons – needs apart – always favouring the moneyed spouse.

Gender discrimination is thriving in financial remedies law.

Conclusion

How plausible is it that the House of Lords either forgot how the discretion works, or intended to reconfigure it for the sake of a few exceptional wives in well-off families? And that they used one of their rare opportunities to develop the law for that purpose?

Maybe it is more plausible to interpret Miller; McFarlane as I have set out, with a holistic compensation that fits within the usual flexible approach, completing the work of eradicating gender discrimination started in White.

The dissonance between the holistic and discrete versions of compensation is so jarring that it seems scarcely credible that judges could have got it so wrong. How could this have happened? I suggest that the case law reflects what Sharon Thompson has called ‘the intransigent, near-instinctive notion that the property always belongs to the person who directly earned it’.[[34]] From this perspective, a formally equal division of capital requires the husband to give up some of what he earned in pursuit of fairness, an approach that ‘resonates with moral and philosophical values’ and ‘banishes discrimination’.[[35]] On this view, the husband’s income is solely the result of his efforts, so a clean break is the obvious corollary to equal sharing. A further change to address income disparity resulting from interdependence to provide substantive equality of outcome is literally unthinkable, especially given the lack of diversity in those providing the interpretations.

Against that intransigent background notion, judges may have instinctively adopted the most familiar definition of the word ‘compensation’: recovery for loss, as in tort law. The loss assumption arose from the word, leading judges to see only what they expected to see in Miller; McFarlane, the words ‘loss’ and ‘disadvantage’, and Mrs McFarlane’s undeniable loss.

But to compensate can also mean to counterbalance an undesirable state of affairs, which requires no departure from the usual broad-brush discretion. In appropriate cases, the earning capacity disparity can be counterbalanced by giving the wife a larger share of capital and/or periodical payments, to give the parties an equal start on the road to independent living.

The Law Commission’s recent Scoping Report[[36]] has renewed focus on reform of financial remedies. If one of the codification options is pursued, the distorted interpretation of compensation may well become enshrined in statute. Miller; McFarlane remains the authority on compensation and it is time to get back to what it actually said.

[[1]]: At [144].

[[2]]: This work was supported by the Economic and Social Research Council (grant numbers 2271988, UKRI2523).

[[3]]: Lucy Crompton, ‘We need to talk about Miller; McFarlane: why we’ve got compensation all wrong’, (2026) 38 CFLQ 101. In my forthcoming book, I analyse all citations of Miller; McFarlane in the compensation case law, demonstrating that the current understanding of compensation cannot be traced back to Miller; McFarlane. See Lucy Crompton, Gender, Care and Financial Remedies on Divorce: An Untold Story of Invisible Work (Hart Publishing, forthcoming 2027).

[[4]]: At [16] and [141].

[[5]]: Joanna Miles, ‘Charman v Charman (No 4) – making sense of need, compensation and equal sharing after Miller/McFarlane’, (2008) 20 CFLQ 378 and 391.

[[6]]: At [144].

[[7]]: At [13].

[[8]]: See also [39] and [93] and Lord Hope at [114], [116] and [117].

[[9]]: At [140].

[[10]]: At [142].

[[11]]: At [142].

[[12]]: At [136] (emphasis added).

[[13]]: At [85].

[[14]]: At [94].

[[15]]: At [15] and [138]–[140].

[[16]]: At [28]–[29] and [144].

[[17]]: At [38] and [134].

[[18]]: At [13].

[[19]]: At [13].

[[20]]: At [99].

[[21]]: Very occasionally, compensation may influence the outcome indirectly, but it always requires the wife to prove that she sacrificed an established high-level career. See AT v BT [2023] EWHC 3531 (Fam).

[[22]]: At [56].

[[23]]: At [59].

[[24]]: At [61].

[[25]]: At [64].

[[26]]: At [62].

[[27]]: I note the concerning parallels with the current approach to treating domestic abuse as conduct that it would be inequitable to disregard, which is, of course, a similarly gendered issue. See https://financialremediesjournal.com/the-problem-with-conduct/ and https://financialremediesjournal.com/principles-vs-resources-conduct-and-the-law-commission-scoping-report/

[[28]]: CR v CR [2007] EWHC 3334 (Fam) at [92].

[[29]]: VB v JP [2008] EWHC 112 (Fam).

[[30]]: The wife made other unsuccessful arguments that I do not have space to discuss here.

[[31]]: At [139].

[[32]]: See, for example, W v H (Divorce: Financial Remedies) [2020] EWFC B10 (a judgment of HHJ Hess sitting in the Family Court).

[[33]]: See Augousti v Matharu [2023] EWHC 1900 (Fam) and Sharon Thompson’s analysis: ‘Is there a need to limit needs in financial remedy cases?’, (2024) 36 CFLQ 111.

[[34]]: Sharon Thompson, ‘Is there a need to limit needs in financial remedy cases?’, (2024) 36 CFLQ 111 at 114.

[[35]]: JL v SL [2015] EWHC 360 (Fam) at [18] per Mostyn J.

[[36]]: https://lawcom.gov.uk/publication/financial-remedies-scoping-report-and-summary

This is an article from the forthcoming Financial Remedies Journal 2026 Issue 2.