The Duxbury assumption is not the whole answer

For many family lawyers, Duxbury calculations are part of the divorce landscape. They provide an accepted framework for capitalising spousal maintenance and remain an essential tool in negotiations.

Yet there is a risk in treating the calculation as the destination rather than the starting point.

The clients most likely to receive a Duxbury-based capital award are often those least equipped to implement the assumptions that sit behind it. That gap between legal convention and financial reality can have significant consequences, particularly for high net worth families where the settlement must support decades of future living.

Much has already been written about the Duxbury Working Party’s decision to retain its long-standing assumptions. The more interesting question is what those assumptions require of the person receiving the settlement.

The expected long-term return is only one part of the equation. Once income withdrawals, inflation, investment costs and taxation are considered, the recipient may need a portfolio capable of producing returns that imply a materially higher level of investment risk than many would naturally accept.

The value of investments, and the income from them, can go up and down and investors may not get back all they have invested.

That matters because the typical recipient of a capitalised maintenance award is rarely an experienced investor.

Many are financially sophisticated in everyday life. They have managed households, family budgets, education decisions and significant domestic responsibilities. But they may have had little direct involvement with investment markets or portfolio management. Their priority is usually security, not maximising returns.

That creates an uncomfortable mismatch.

The profile of many recipients of spousal maintenance, capitalised or not, will be familiar to family lawyers.

Often, they have sacrificed career progression to support the family, allowing the other party to develop earnings and accumulate wealth. Their settlement is intended to replace income that may never realistically be rebuilt through employment.

Equally important, this part of the settlement is rarely discretionary capital.

It is expected to fund the new household budget, everyday expenditure and financial security over many years. Their capacity for loss is therefore different from that of a conventional private investor.

For these clients, volatility is not merely uncomfortable. It can threaten the steady, long-term income the settlement is intended to provide. Risk should therefore be reduced where possible, as significant losses soon after settlement (which are more likely in a higher-risk portfolio) can permanently reduce the income the capital can sustain.

Early financial planning can make a meaningful difference, especially during early settlement negotiations. A Duxbury figure may indicate the capital theoretically required, but not how a client should organise their finances after divorce. Financial planning tests whether a proposed or final settlement can meet the recipient’s needs, taking account of their expenditure, household budget, tax position and attitude towards investment risk. It can also show how much flexibility remains if markets disappoint or circumstances change.

The starting point is future need, not historic household spending. Divorce may require the same resources to support two households. This increase to living costs could lead to a shortfall. Clients may also face one-off expenses, from professional fees and property works to healthcare or additional support for children.

Spending also changes over time. Housing, family support, travel, retirement and later-life care may create distinct phases. Modelling these separately, and comparing different scenarios, provides a more realistic view than a standardised capitalisation calculation alone.

The composition of the settlement matters too. Two settlements of equal value may produce different outcomes depending on the balance of cash, pensions, property and investments. Advice on which assets to use, and when, can materially affect how long the capital lasts.

Cashflow modelling can test the settlement against weaker markets, higher spending, inflation and greater longevity. Before settlement, it can identify shortfalls and inform negotiations over the wider estate. Afterwards, it can turn the calculation into a practical, sustainable plan for the client who will rely on it.

Modelling cannot provide certainty. It can, however, expose the assumptions, show where they may need to be challenged and assess whether the settlement has a sufficient margin of safety.

The greatest value is often created before terms are agreed. Early financial analysis can establish realistic negotiating parameters and show where adjustments to the proposed division of assets may be justified.

Presented clearly, the findings give lawyers practical conclusions they can use in discussions with the other side, while helping clients understand the consequences of different outcomes. This can keep negotiations focused on what the settlement must achieve in practice.

Concise reporting and close collaboration with the wider professional team can also reduce pressure on lawyers and clients. The result is financial advice that supports the legal strategy, rather than adding another layer of complexity.

Once terms are agreed, the recipient needs an implementation plan. This may mean retaining enough cash for immediate needs, professional fees and contingencies, as well as ring-fencing funds for a property purchase or other near-term commitments. Taking bespoke advice on investing the balance to provide a long-term income may also form part of this plan. Advice may also be required on pensions, tax-efficient investment structures, protection and the establishment of a sustainable withdrawal strategy. Tax treatment depends on individual circumstances and is subject to change.

For someone who has not previously managed the family’s investments, the transition should not be underestimated. Financial planning can provide structure and help the client understand which assets are intended for current spending, which provide contingency reserves and which are invested for future income. That clarity can guard against short-term spending decisions driven either by an apparent increase in available wealth or by uncertainty about what the capital must fund.

From an investment management perspective, the key consideration is not whether the returns implied by the Duxbury assumptions are theoretically achievable. Over sufficiently long periods, they may well be. The more important question is the level of investment risk required to pursue those returns and whether that risk is appropriate for the individual receiving the settlement. However, please bear in mind all investments carry varying degrees of risk and the investor may not receive back the original amount contributed.

Using Evelyn Partners' long-term planning assumptions as a guide, achieving the real (after inflation) growth rate implied by Duxbury would broadly align with the expected return of one of our higher-risk investment strategies. Such a portfolio would typically have around 75% invested in equities.¹

While equities have historically delivered attractive long-term returns, they have also experienced periods of considerable volatility. During the most stressed market conditions of the past two decades, higher risk portfolios of this nature would have experienced drawdowns of up to -28.6%.¹

Investment strategy should therefore begin not with a target return, but with the client's objectives, tolerance to risk, time horizon and capacity for loss.

For many recipients of a capitalised maintenance award, they may have a lower tolerance to risk than these higher risk portfolios require and, as mentioned previously, this is not surplus capital intended to maximise long-term wealth. It is expected to support future living costs, often alongside significant lifestyle changes and a degree of financial uncertainty.

A diversified portfolio can help balance these competing demands, combining growth assets with investments that may provide greater resilience during periods of market stress. For clients investing independently for the first time, a phased investment approach from cash, or reinvestment of assets transferred into their name, may also allow confidence to develop before assuming greater investment risk.

The sequence of returns matters as much as the average return achieved. Significant market falls in the early years after settlement, particularly when withdrawals are being made, can have a lasting effect on the sustainability of capital. Separating shorter-term expenditure, such as a property purchase or other known liabilities, from longer-term investments can help reduce that risk.

When investment managers are involved before settlement terms are finalised, they can also help ensure that the assumptions underpinning a proposed settlement are capable of being implemented in practice. The objective is not simply to pursue a headline return, but to create an investment strategy that supports the client's long-term financial stability, their personal risk appetite and complements the wider financial plan.

Even a well-constructed plan needs to evolve. Investment returns, inflation, legislation changes, tax rules and expenditure could differ from the original assumptions, while employment, relationships, health and family responsibilities may also change. Supportive ongoing communication and regular reviews allow withdrawals and investment strategy to be consistently analysed and adjusted before relatively small differences become more significant problems later in life.

This is particularly important where a settlement is intended to provide income and financial security for several decades. A sound plan will still need to evolve, but long-term analysis, ideally before settlement, can give clients a clearer view of their future and the confidence to make informed decisions. It can also show lawyers which financial outcomes need to be protected in negotiations. After settlement, it sets realistic spending parameters. The same team can then review and adapt the plan as circumstances change.

Duxbury remains an invaluable legal tool, but no standardised calculation can fully reflect an individual’s circumstances, objectives or personal relationship with investment risk.

Family lawyers who involve financial planners and investment managers early are not seeking to replace an established legal framework. They are testing whether the proposed settlement can provide lasting financial security for the person who will rely on it. Clear financial analysis can then help shape negotiations before terms are agreed.

Speak to your usual Evelyn Partners contact for more information.

Source:

¹ Morningstar Direct and Evelyn Partners. Data as at 31 December 2025