ABC v XYZ (Financial Remedies: Release from Undertakings and Variation of Periodical Payments Order)

This judgment follows a final hearing on 8 and 9 October 2025 in financial remedy proceedings involving two parties: ABC, the applicant and former husband and XYZ, the respondent and former wife. For the hearing, I was provided with a bundle running to 466 pages. I heard oral evidence from both parties, who were each represented by counsel, Mr Hynes for the applicant and Mr Reade for the respondent. Both counsel prepared a written note and made submissions.

At the outset, I feel driven to comment on the costs incurred by the parties in bringing this case to a final hearing. The initial application was issued on 17 December 2024. The life of these proceedings has, therefore, been less than 10 months. It is a relatively simple dispute, essentially about variation of a periodical payments order. Despite this, the parties have spent, or project to spend, a combined total of £175,287.10. I will return to the significance of this expenditure at the conclusion of this judgment.

The applicant is 61 years old and the respondent is 59 years old. They married in 1992 and separated in 2016, making it a marriage of some 24 years. The parties have two adult children, aged 24 and 28, who live independently. They were finally divorced on 16 December 2020. The parties were previously engaged in financial remedy proceedings, which concluded at a financial dispute resolution hearing before District Judge Peake on 13 October 2020 by way of a consent order.

The key provisions of the consent order were as follows:

By his application giving rise to these proceedings, the applicant seeks to be released from all his undertakings and for the court to vary the nominal periodical payments order. His open position is that the periodical payments order should be varied to a non-RPI linked payment of £1,000 per month on a joint lives basis. This is because F Limited, which provides his only source of income, has experienced a significant downturn in fortunes recently. The reality of the arrangement he has with F Limited is that discretionary dividend payments are, in fact, deducted in from his salary, bonuses and own dividends. F Limited’s drop in fortunes has led to a reduction in his income, such that he can no longer afford to guarantee the dividend payments to the respondent.

The application is opposed by the respondent. The respondent’s open position is that there should be no changes made to the 2020 order at all. It was, however, conceded on her behalf that, if the court were to release the applicant from the undertakings and vary the periodical payments order, such payments would not be liable to tax and her income needs would drop by around £753 a month (being the amount she currently pays in income tax on the dividend payments).

In summary, the applicant’s financial position is as follows:

In summary, the respondent’s financial position is as follows:

The applicant has re-married and lives in rented accommodation. The respondent is in a new relationship but is not cohabiting. She continues to live in the FMH, which is a five-bedroom house.

There are two aspects to the applicant’s application: release from undertakings and variation of a periodical payments order.

The court’s approach to release from undertakings was settled in Birch v Birch [2017] UKSC 53. The party seeking to be released from the undertaking must demonstrate that there has been a significant change of circumstances: “… unless there has been a significant change in circumstances since the undertaking was given, grounds for release from it seem hard to conceive” (per Lord Wilson at [11]).

In Birch, because the undertaking in issue was equivalent to an order for sale – an order which is amenable to variation – the Supreme Court held that the court’s inquiry had to be conducted in accordance with section 31(7) of the Matrimonial Causes Act 1973, which deals with variation of financial remedy orders (per Lord Wilson at [29]).

The court cannot vary an undertaking but can permit a party to be released from an undertaking on condition that they provide an alternative, more appropriate, undertaking in its place (see A v A [2018] EWHC 340 (Fam)).

Section 31(7) of the 1973 Act provides:

“(7)

In exercising the powers conferred by this section the court shall have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen, and the circumstances of the case shall include any change in any of the matters to which the court was required to have regard when making the order to which the application relates, and

(a)

in the case of a periodical payments or secured periodical payments order made on or after the making of a divorce or nullity of marriage order, the court shall consider whether in all the circumstances and after having regard to any such change it would be appropriate to vary the order so that payments under the order are required to be made or secured only for such further period as will in the opinion of the court be sufficient (in the light of any proposed exercise by the court, where the marriage has been dissolved, of its powers under subsection (7B) below) to enable the party in whose favour the order was made to adjust without undue hardship to the termination of those payments …”

The “matters to which the court was required to have regard” mentioned in section 31(7) are the factors set out in section 25(2) of the 1973 Act, which are set out below in the discussion section of this judgment.

In WK v GC [2023] EWFC 151, His Honour Judge Hess summarised the law on applications to vary an income-based order, as follows (at [29]):

“(i)

In varying or discharging an income related order the court may make a capital order such as a lump sum order, property adjustment order or a pension sharing order.

(ii)

This power should not be used to re-open capital claims as such and the court should restrict itself to considering whether there should be any notional variation in the level of periodical payments, whether the provision can and should be capitalised, and the mathematics of the capitalisation.

(iii)

In considering the notional variation of the level of periodical payments, the assessment is a needs-based assessment, and the burden is on the payee to justify the need for ongoing dependency and the continuation of financial provision in the context of the statutory question about adjusting without undue hardship.

(iv)

In deciding whether to take into account capital which the payee has at the time of the variation application, the court has a wide discretion as to whether to include such capital in the capitalisation amortisation figures. There is no definitive guideline on this save a duty to promote fairness and all results are possible from amortising all of the capital to amortising none of it to any point between those points.

(v)

The court can attach weight to comments made by the judge at the time of the original order.”

The following is a summary of the pertinent oral evidence given at the hearing.

The applicant explained the composition of his current pension entitlement, which is made up of the proceeds from the sale of a property in Wallasey, around £195,000 together with money already in his Bullion account, making around £332,000 in total.

The applicant was taken to the undertakings he gave in the 2020 consent order and he explained that they represented a continuation of a tax-saving arrangement put into place during the marriage, whereby the respondent would receive money in the form of discretionary dividend payments from F Limited, and thereby utilise her tax-free allowance and lower liability to income tax. The monies paid to the respondent would be deducted from the applicant’s salary by way of salary sacrifice.

It was put to the applicant that the figure of £50,000 per year, included in the undertakings, must have been chosen with reference to the respondent’s needs. He denied this and said that it was a simple continuation of the existing arrangement, which his then barrister had recommended preserving.

The applicant was taken to a table in the bundle setting out the respondent’s income needs. He accepted that there was nothing outlandish being claimed by the respondent and that, in fact, his monthly expenditure was similar.

The applicant said that he had agreed to joint lives provision in the undertakings because he believed his salary would continue to rise faster than inflation and he did not foresee the respondent’s dependency going away. He was, however, aware that he could come back to court to seek variation, if circumstances changed.

It was put to the applicant that there was a significant shortfall between his open position of a £1,000 per month periodical payments order and the respondent’s actual income needs. The applicant said he could not afford to sustain the current arrangement and that his levels of debt were accumulating.

The applicant was asked about the legal costs he had incurred (around £104,000 according to the latest form H) which he said had been funded by borrowing, including a loan from his father of around £75,000 (actually £74,060.57). He accepted that this loan had not been formalised in any way and was not legally binding, but he said he had always paid his father back when he had borrowed money.

The applicant said that the consequence of him not repaying his director’s loan to F Limited was the accumulation of interest. He said he would only be formally charged with repaying the loan if and when he leaves the business.

The applicant was taken to his credit card statements and it was put to him that they showed discretionary expenditure of £9,923 on things like entertainment and travel. The applicant did not deny this, but explained that he and his new wife had always chosen the cheapest options.

As to the financial position of F Limited, the applicant said in the year ending June 2025 it had made a loss of between £800,000 and £900,000. He said that the loss had been caused by cost increases on supply chains and that the firm had had to make a number of redundancies. He did not, however, dispute that the firm had since hired new employees to fill some of those roles.

The applicant said that his net salary was around £66,000, after tax and national insurance and not including any bonuses or dividend payments.

The respondent said that she has applied to renew her PIP but has not yet received a response. It was put to her that it was more likely than not that her PIP would be renewed, but she said she had no way of knowing that.

The respondent said that she was told by a mortgage advisor that, were her payments to change from dividend payments to payments under a periodical payments order, she would not be eligible for a new mortgage.

The respondent was taken to her monthly budget, and it was put to her that spending around £500 per month on entertainment and holidays was excessive, which she denied.

The respondent agreed that she is eligible for a single person’s council tax discount, worth around £50 per month.

It was put to the respondent that she was ‘overhoused’ in the FMH (it having five bedrooms and three reception rooms). She said it was her home, her safe place where she feels secure, and that it means a lot to her.

It was put to the respondent that she could make financial savings were she to downsize, of around £500 per month, but she countered that her emotional needs needed to be taken into consideration.

It was put to the respondent that she has liquid capital of around £65,000, which she could put towards supplementing her income. She said it was not fair for her to make that compromise when she believed her future was secure and it was the applicant who had not been able to look after his own finances.

The following is a summary of the parties’ written and oral submissions.

Mr Reade submitted that the court should be wary of interfering with an order that was made by consent and a mechanism of payment which was designed by the applicant. He submitted that the respondent has continuing need which required to be met by the continued payment of maintenance by the applicant.

Mr Reade submitted that the applicant had been less than full and frank in his disclosure on various matters, including his pension and inheritance positions. Mr Reade suggested that he had overinflated his own income requirements on paper, having accepted in evidence that his were similar to the respondent’s.

Mr Reade submitted that F Limited was a large enterprise with a healthy financial situation. He suggested that the last year had been a blip, when the company had invested in future performance. Mr Reade opposed the court making an order which overturns the respondent’s whole life based on one bad financial year for the applicant.

Mr Reade submitted that the respondent’s income needs could not be in issue based on the applicant’s own evidence and that the applicant’s open offer was not capable of meeting the worst view of her level of need.

Mr Reade noted that, when the consent order was made, the respondent was 54 years old and he is 59 years now, and thus the changes since do not support the applicant’s position. He also submitted that the notion of the respondent having an earning capacity had gone based on the applicant’s evidence.

Mr Reade submitted that it would not be fair to consider amortisation of the respondent’s capital when the applicant has not offered to use his capacity, such as selling his shares in F Limited or drawing on his own pension.

As to the outstanding question of PIP, Mr Reade submitted that the court could require the respondent to give credit for any PIP payments received, so as to give her protection if her PIP is not renewed. In that case, he said that the respondent would give suitable undertakings to cooperate with PIP assessments etc.

Mr Hynes submitted that the court must undertake a fresh section 25(2) 1973 Act analysis, irrespective of whether there has been a significant change in circumstances. In any case, he argued that there has been significant change in circumstances, based on the following: (i) the parties’ children are now adults, whereas they were still studying in 2020, (ii) the parties are older and closer to retirement, (iii) the applicant’s income is lower and is likely to remain so, (iv) the applicant is now in significant debt, (v) F Limited’s recent financial performance has been poor and (vi) the respondent’s financial position has improved, with increased income and capital and a lower mortgage.

Using all means available to her (downsizing, amortising capital, drawing on one of her pensions now and trimming her budget) Mr Hynes submitted that the respondent’s actual monthly need for maintenance was as low as £1,520.

Mr Hynes submitted that the method by which the respondent was paid maintenance (either through dividends or a periodical payments order) should not really matter to her. He submitted the applicant’s undertakings do not work anymore, as they have crippled the applicant financially and result in an overprovision for the respondent.

Mr Hynes submitted that the respondent’s needs had to be tempered by what the applicant can afford. He submitted that the respondent is over housed and, while moving house can be stressful, it goes no further than that.

Mr Hynes contrasted the applicant’s position with the respondent’s position. He submitted that the applicant’s housing needs are not sufficiently met, he has around £100,000 of hard debt to service and a net income, after payment of maintenance, of around £1,500 per month. This would, he said, revert to a net income of around £5,500 per month if the undertakings were discharged.

Mr Hynes referred to F Limited’s profit and loss account to the end of June 2025, which shows a loss before tax of £1,025,880 and a table showing the changes in dividend and bonus payments between 2021 and 2024, which shows a gradual decrease.

Mr Hynes said it was not unreasonable to expect the respondent to use her capital reserves whereas it was not fair to expect the applicant to use his only asset, his pension, to meet the respondent’s current needs.

As per Birch, consideration of whether the applicant should be released from his undertakings and, chiefly, whether there has been a significant change in circumstances, should be carried out through the prism of section 31(7) and, by extension, section 25(2) of the 1973 Act. It is therefore necessary to reconsider the factors under section 25(2) based on the parties’ current positions.

The section 25(2) factors are as follows.

The applicant’s sole source of income is F Limited and comprises salary, bonuses and discretionary dividend payments. Since implementation of the 2020 consent order, the applicant says his bonus and dividend payments have changed, from a peak of £79,500 (combined) in July 2022 to nothing in 2025. He says his net monthly income, less tax and money taken out to make payments to the respondent, is around £1,500 per month.

The applicant has no property and his only remaining financial resource is his pension. His earning capacity is directly linked to the performance of F Limited. What the applicant has not demonstrated, in my judgment, is that his and F Limited’s 2025 position is the new status quo. F Limited’s 2024 accounts show reasonable financial performance and resilience (Footnote: ³) and, indeed, in September 2024, bonus and dividend payments were made. (Footnote: ⁴) 2025 is the first year that they were not.

Mr Reade invited me to conclude that the applicant had failed to provide full and frank disclosure. There were certainly some discrepancies, where figures had been put into the agreed ES2 which were no longer sustainable, particularly in relation to the pension. He also overstated his needs on paper. When giving oral evidence, however, the applicant was very quick to make appropriate concessions on all of these matters. I did not conclude that he was attempting to positively mislead the court; rather this was a case of the parties’ financial positions changing – as is normal – during the course of proceedings and those changes not being fully appreciated until the day of the hearing. Indeed, there will have been instances – particularly in relation to pensions – where the respondent’s figures in the ES2 were out of date as well.

The respondent has two sources of income: dividend payments and PIP. Her entitlement to PIP is currently being re-assessed and it was suggested by the respondent that its continuation is not guaranteed. The respondent has provided a letter from her treating psychiatrist, Dr Thiagarajan, dated 22 April 2025, which explains that the respondent suffers from a recurrent depressive disorder, characterised by “ongoing low mood, anhedonia with loss of energy associated with negative confidence and self-esteem, along with disturbances in her sleep and appetite.” The respondent receives pharmacological treatment. Her depressive disorder is chronic and fluctuating, with a history of multiple relapses. The letter concludes:

“I last reviewed [XYZ] in my Outpatient Clinic on 7th April 2025. Unfortunately, on that occasion she was experiencing ongoing fluctuations in her mood and admitted to experiencing hopelessness and some suicidal ideation. This unfortunately is secondary to her ongoing psychosocial stress. Due to her recent significant deterioration in her mental health, based on my assessment, I am of the opinion that she currently remains unfit to work. I am of the opinion that this will change with the improvement in her mental health.”

In Mr Hynes’ note, it was suggested that improvement in the respondent’s mental health could somehow be tied to the conclusion of these proceedings. There is nothing in Dr Thiagarajan’s letter to indicate that the respondent’s mental health will improve once the proceedings have concluded and this suggestion was not really advanced in cross examination of the respondent by Mr Hynes or in oral submissions. I am satisfied, on a balance of probabilities, that, due to the respondent’s significant and chronic mental health condition, she has no current capacity for work and is unlikely to gain such capacity in the foreseeable future. For the same reasons, however, it seems to me likely that she will, for the foreseeable future, on a balance of probabilities, remain entitled to PIP. In addition to her income, the respondent has the FMH, savings and pensions.

It was suggested that the respondent should use her liquid capital, and/or draw down one of her pensions early, to supplement her income. It would not, in my judgment, be reasonable for a person in the respondent’s position, with no earning capacity of her own, and retirement on the horizon, to liquidate what little she has by way of capital. Further, the intention of the 2020 consent order was the respondent would have a pension in addition to maintenance payments. The court has no jurisdiction to vary a fully executed pension sharing order and it would not, in my judgment, be fair to the respondent to do so in such an indirect manner.

The parties’ income needs are similar. When giving evidence, the applicant estimated his own income needs to be in line with the respondent’s claimed needs. At their highest, the respondent’s monthly income requirements are £3,913.91, according to the schedule she has provided. Looking through the various items of expenditure claimed, there is nothing significantly extravagant. The respondent, however, accepts she is entitled to a single person’s council tax discount. Further, she can switch to water meter and I am satisfied that she can make further economies to reduce her monthly budget a little further, in particular in relation to discretionary spending and motoring costs. The quantum of a maintenance order is strictly limited to what the respondent needs. I am satisfied that that the respondent can meet her monthly income needs for around £3,500. Taking account of PIP, that leaves a shortfall of around £2,900 per month.

It was put to the respondent that she could downsize and thereby reduce her monthly mortgage payments and household costs. It is trite that the court cannot order the respondent to re-house at this stage; the time for consideration of that issue was in 2020 and the parties, in effect, agreed that the respondent should continue to live in the FMH. It is, of course, a matter for the respondent to choose where she lives. It would not, in my judgment, be fair to reduce the respondent’s monthly budget with a view to forcing her to downsize to decrease her costs, at this stage. Her remaining in the FMH was one of the key principles underlying the 2020 order and, it seems to me, this should not be interfered with unless absolutely necessary.

The respondent’s housing needs are met in the FMH. The applicant’s housing needs are also met, in rented accommodation. He may prefer to own a home; he may be able to do so if he raises some capital if and when his income is restored. Nonetheless, the fact remains that the applicant’s housing needs are met in suitable accommodation for now and for the foreseeable future.

The respondent does not have any obligations or responsibilities. The applicant owes money, principally to F Limited and his father. The director’s loan from F Limited does not have any fixed repayment date, rather it rolls over from year to year. It seems to me likely that, at whatever point the applicant steps down as a director of the company, he will be in a position to reach an accommodation for repayment of that loan. It is not a hard-edged debt that needs to be repaid imminently. Similarly, by the applicant’s own acceptance during his evidence, the loan from his father was not made subject to any hard-edged obligation to repay it. That leaves the applicant’s credit card debt which is currently, and on balance will continue to be, serviced by making minimum payments. As such, I am not satisfied that the applicant has any substantial financial obligations which will crystallise in the foreseeable future.

I have not been provided with any evidence to suggest that the parties enjoyed a lavish lifestyle during the marriage or that the way they live now significantly differs from it. Indeed, the applicant continues to spend significant sums on travel and entertainment, even if he has had to become thriftier in the way he goes about it.

The parties are almost five years older than when they finally divorced and, by extension, five years closer to the state retirement age.

I have considered the respondent’s mental health above when addressing her capacity to earn. I have not made aware of any physical or mental disability affecting the applicant.

The parties’ contributions during the marriage are firmly in the past and, indeed, must have been considered (as far as they were relevant) when the consent order was agreed in 2020. It seems to me it is not relevant to re-consider the parties’ contributions at this juncture and, indeed, neither party sought to do so.

Conduct has not been raised as an issue by either party.

This is not a factor of any relevance in the circumstances of this case.

Having analysed the case afresh through the prism of the section 25(2) factors, the order I will make is as follows:

I make this order for the following principal reasons:

At the beginning of this judgment, I commented on the parties’ costs. Their total spend is £175,287.10. To put that into context, this equates to 60 months, or five years’, worth of periodical payments at £2,900. This is a straightforward case which was eminently capable of settlement. Both parties adopted rigid and unrealistic open positions which, in my view, has presented a clear barrier to them reaching an agreement.