Lords’ divorce settlement rulings leave room for debate

In what represents the biggest change to divorce law since the decision of the House of Lords in White v White in October 2000, the Lords gave judgment last week in two very different cases, Alan and Melissa Miller – a short marriage of less than three years, but with a large amount of capital to be divided up – and Kenneth and Julia McFarlane – where the husband was a high-earning accountant and the wife gave up her high-earning career to be the homemaker.

In both cases the wives were victorious. Alan Miller’s appeal was dismissed and Melissa Miller retained her award of £5m, while Julia McFarlane won her appeal and received an income of £250,000 per year for life (unless she remarries) in addition to her share of the £3m capital that had already been divided equally.

Both are ‘big money’ cases. Kenneth McFarlane earns £750,000 net per year and Alan Miller had assets of £17.5m, plus the value of his shares in company New Star valued at between £12m and £18m. However, the judgment is expected to have a far-reaching effect on the way financial assets are divided in all divorces, not just the big money cases.

The Law Lords made it clear that they view marriage as a partnership of equals and that the principle of fairness enunciated in White is of universal application, however long or short the marriage is. No longer can it be argued that in a short, childless marriage a husband simply has to restore the wife to the position she was in before the marriage. In giving judgment, Lord Justice Nicholls made it clear that a wife’s entitlement does not just accrue over time.

The Law Lords also confirmed the principle first enunciated in White – that there is to be no discrimination between the breadwinner and the homemaker.

So what is fairness? The Lords built on the guidance given in White. To achieve fairness the Law Lords identified three main strands to which the court has to give consideration: financial needs, compensation and equal sharing, unless there is a good reason to the contrary.

The concept of equal sharing of surplus wealth will be largely irrelevant to smaller money cases, as the available assets will be inadequate for the needs of two separate households. However, the concept of compensation could have wider application and could lead to more cases of husbands paying maintenance to wives, and of a greater amount.

There is also likely to be further debate on what assets will form part of the pot for division. On this point, the Law Lords expressed different views on whether assets that were not generated by the parties’ joint efforts, such as a business or investments, should be kept by one party if there are more than enough assets to meet both parties’ needs.

Another difficult point for lawyers is the new concept of compensation, where, after addressing the parties’ needs, compensation is to be awarded to redress any future economic disparity between the parties arising from the way they have arranged their affairs, such as career sacrifice. It is unclear whether this should apply only in those cases where a wife has given up her career, or where income exceeds needs, or whether it should apply in all cases irrespective of whether the wife has given up an earning capacity.

The judgment is a complicated one that is likely to lead to further test cases, as the Law Lords have chosen flexibility over greater certainty.