Duxbury Calculations in Financial Relief Proceedings

In the world of family law, ensuring that a fair financial settlement is reached upon divorce is paramount. Duxbury calculations are commonly used when it comes to financial relief proceedings where large asset pots are involved. They are used to determine the capital lump sum payment needed to meet a maintenance payment requirement for the remainder of a recipient’s life.

Named after the case of Duxbury v Duxbury [1987], the calculations are vital for determining how much capital is required to provide a spouse with a lifelong income.

Sarah Evans, Head of Coodes’ Family team, explores the importance of Duxbury calculations and their use in financial relief proceedings.

What are Duxbury calculations?

Duxbury calculations are a method used in divorce cases to estimate the lump sum payment needed to provide one party with an income stream for the rest of their life. This lump sum is calculated based on a combination of factors. These include life expectancy, the desired annual income, and the assumed return on investment of the lump sum over time.

Where a lump sum is paid instead of ongoing maintenance, this means a financial clean break between the parties can be achieved at the earliest opportunity. The Duxbury method is predominantly used in these cases as, instead of ongoing maintenance, the spouse receives a one-time lump sum. When invested, this money should provide them with a sufficient income for the rest of their life.

Why are they important?

Duxbury calculations serve several key purposes in financial relief proceedings. Firstly, they ensure fairness, in that the recipient of the financial settlement receives an appropriate sum to reflect their needs over their expected lifetime. When the Duxbury calculation is not used, there can be disputes or inaccuracies in estimating the capital required for a sustainable income.

Secondly, in many cases, both parties seek a “clean break” divorce. This means there are no ongoing financial ties, such as regular spousal maintenance payments. A Duxbury calculation enables this clean break by calculating the lump sum required to replace regular maintenance payments.

Finally, Duxbury calculations are important because both parties can plan their financial future with more certainty. The paying party will know just how much they are required to pay and get a clean break financially. On the other hand, the recipient can be confident that the lump sum will support their lifestyle needs.

The factors involved in Duxbury calculations

To perform a Duxbury calculation, several key variables are considered. These include:

1. Life expectancy: A fundamental part of the calculation is the recipient’s life expectancy, as it determines how long the lump sum must last. Life expectancy is typically based on tables that take into account the recipient’s age, gender, and other relevant factors.

2. Annual income requirement: This is the amount of annual income that the recipient needs or expects to maintain their lifestyle. It’s often based on previous lifestyle, income, or existing maintenance agreements.

3. Investment return: The Duxbury calculation assumes that the lump sum will be invested to generate returns over time. Standard Duxbury tables often take a conservative rate of return, typically around 3.75% per year. This is to account for investment growth while also protecting against inflation and market volatility.

4. Tax considerations: The Duxbury calculation also factors in the taxes that the recipient would be liable to pay on their income. This ensures that the lump sum provides enough post-tax income to meet their needs.

How Duxbury calculations are used in financial relief proceedings

In the context of financial relief proceedings, Duxbury calculations are used to replace the need for ongoing spousal maintenance. This is typically in cases where both parties prefer a lump sum payment over continued financial support.

The process will typically begin with an assessment of the recipient’s needs including their expected living expenses and lifestyle requirements. This will help determine the appropriate level of income required.

In many cases, lawyers and financial experts will use Duxbury tables, which are pre-calculated tables designed to simplify the process. These tables allow practitioners to look up the required lump sum based on factors such as the recipient’s age, income needs, and expected investment returns.

Once the appropriate factors are considered, the Duxbury calculation will determine the total lump sum needed to ensure the recipient has sufficient income throughout their lifetime. This sum should provide enough capital for the recipient to invest and withdraw an annual income to match their needs.

If the parties agree on the lump sum amount, it can be presented to the court for approval. In contentious cases, the court may make its determination using the Duxbury method to arrive at a fair settlement.

Limitations and criticisms

While Duxbury calculations are widely used in financial relief proceedings and have garnered significant judicial praise, they are not without criticism. For example, the assumed rate of return, typically 3.75%, may not reflect real-world investment conditions, especially during periods of economic uncertainty or low interest rates.

While the calculation tries to account for inflation, changes in the economy can erode the value of the lump sum over time, potentially leaving the recipient with less income than expected.

Furthermore, predicting life expectancy is inherently uncertain. Recipients living longer than expected may find their sum does not last. In addition, the recipient’s financial needs may change over time, for example, via unexpected healthcare costs. However, the Duxbury calculation does not account for these potential changes. 

Divorce and separation cases

Duxbury calculations play a pivotal role in financial relief proceedings, offering a structured and cost-effective method for determining how much capital is required to provide lifelong income for a spouse. While they offer a clear framework for calculating settlements, they are not without limitations. Understanding the nuances of Duxbury calculations ensures that both parties in a divorce or financial relief proceeding can make informed decisions about their financial futures.

Whether you are going through a divorce or advising someone in financial relief proceedings, a solid grasp of Duxbury calculations can be crucial in securing a fair and equitable settlement. At Coodes, our Family Team are experts at delivering personal support to those going through divorce and separation cases, including the use of Duxbury calculations. We understand that this can be an emotionally charged situation, so we offer our advice to help the process move as smoothly as possible.

For further guidance, contact Sarah Evans, Head of the Family team, at Coodes via email or by calling 01579 324 010.