Finance column: Let’s assume like its ‘92

Back in 1992, the Cold War had not long since ended, compact discs surpassed cassette tapes as the preferred medium for recorded music, the average house price in the UK was about £50,000 and the average salary was about £15,000.

Google would not be launched for another six years, Facebook was still 12 years away, and Twitter, now X, was 14 years distant.

Yet, assumptions made 34 years ago continue to be applied to settlements for clients going through divorce today.

The Duxbury calculation is used to determine the size of lump sum payments necessary to facilitate a clean break financially following divorce or dissolution of a civil partnership, in lieu of ongoing regular maintenance.

The calculation is built on assumptions – of inflation at 3%, a 3.75% annual investment growth and 3% income yield, net of fees – made in 1992 and unchanged since.

In 2024 a working party of barristers and solicitors, including Sir Nicholas Mostyn, the presiding judge in the case that set the precedent for the Duxbury calculation’s use, was set up to determine whether these assumptions remain equitable. Reporting that November, the panel found they were.

Other areas of Duxbury were refreshed, notably with the panel recommending that the calculation should no longer default to the life expectancy of the recipient.

Its aim was to end a longstanding inequity whereby, in some cases, those receiving a Duxbury lump sum were essentially enjoying financial support for much longer than they could have expected to receive ongoing regular maintenance.

Fees for investment management and ongoing financial advice were the one area where the panel struggled to reach agreement. Under Duxbury, they are charged at 1% of the value of lump sums up to £1m, and 0.5% for bigger settlements.

The lone finance expert on the panel argued that fee assumptions within Duxbury are out of kilter with the typical charges to manage similar pots of money elsewhere, of about 1.5% to 2%, but was outvoted.

A review of Duxbury after so long was much needed, and to be applauded. But more can and should be done.

Solicitors continue to refer to Duxbury tables, published in hard copy in At a Glance in June each year, which still use assumptions from 1992. An online calculator is available and better, but could go further still.

The world in which we live changes constantly. Economic conditions and the global markets in which investments are made are ever in flux and subject to the vagaries of geopolitics.

In 2024 Russia’s war in Ukraine and the conflict in the Middle East were sources of huge political instability, but were unforeseeable.

Latterly, President Trump’s swingeing tariffs on US imports may prove deflationary, not inflationary, as higher prices prompt Americans to consume less.

Against that ever-shifting backdrop, forecasting inflation rates, economic performance and investment returns is an inexact science, looking even a year ahead. Just ask Rachel Reeves.

To base calculations on assumptions made more than three decades ago looks unnecessarily anachronistic at best, and at worst somewhat arbitrary.

Now Duxbury has been refreshed once, it should be updated annually to ensure calculations reflect the world clients find themselves in today.

Not to do so would be a missed opportunity that they and the legal profession can ill afford.

Helen Howcroft, divorce and finances expert at wealth manager Atomos

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