The final cut
4 September 2006
Family lawyers were eagerly anticipating the House of Lords' decisions in Miller v Miller and McFarlane v McFarlane. The profession had hoped for clarification to a number of areas, in particular on how maintenance should be approached in cases where big City salaries were being divided and whether short marriages would be any different when allocating capital.
Unfortunately the opinions of the Lords has caused significantly more confusion than enlightenment due to real differences of substance between the two main opinions, delivered by Lord Nicholls and Baroness Hale. Practitioners have been frustrated that, just as the system had settled down after the upheavals of the White and Lambert cases, which changed fundamentally how the court approached finance on divorce, there has been another wholesale rearrangement of the guiding principles. There has never been a time when it has been more difficult to advise a client and at the moment there are more questions than answers.
Before Miller and McFarlane, if a spouse came to a marriage with wealth from their own family background, that was a potential reason for departure from equal division. In most cases it would lead to the non-inheriting party leaving the marriage with, say, 35-45 per cent of the capital rather than 50 per cent. Now the Lords have tried, somewhat ambiguously, to divide the family capital into matrimonial property and non-matrimonial property - inherited property that has not been pooled for family purposes being non-matrimonial - and suggest that matrimonial property only should be subject to division as long as needs can be met.
More controversially, there is the suggestion that the matrimonial home should always be matrimonial property, no matter how short the marriage, which of the parties owns the home or how the home was acquired.The application of this new rule is likely to have undesirable consequences.
In terms of inherited wealth, the key is to encourage people to keep their inheritances separate from the family pot as far as possible when they marry. Anything used for the family has potential to become matrimonial property, notwithstanding generations of previous ownership.
The Lords has made new law in the realm of maintenance by inviting an element of compensation into financial proceedings after divorce. Compensation - for loss of opportunities due to the marriage or childbearing/child rearing, or for no longer sharing in the continuing financial rewards earned by the breadwinner - is not overtly mentioned in the divorce statues. However, the law lords believe that compensation permeates the principles in an unstated way: since it was what led Julia McFarlane to her £250,000 per year for life, it appears to permeate the principles quite powerfully.
Some in the profession have predicted an increase in variation applications. Wives may have felt short-changed in the past and now want a compensatory payment to be made to them. Certainly the onus has been thrown back on the husband to show that the wife will be able to be independent should he want a clean break at any point in the future.
Businesses and careers
In an unexpected move, Baroness Hale suggested that if one party had built up a business by themself without the other, that business might not be matrimonial property. This is peculiar, as family law has worked on the basis of non-discrimination for nearly six years since White, carrying forward the principle that work inside and outside the home is of equal value. How does this new principle sit if the wife bears and raises the children and keeps the house while the husband works all hours building his business? Is the wife not entitled to share in the fruits of that business on divorce when, if her husband had earned his money as an employee, she would be entitled to do so? This cannot be right.
Lord Mance made the suggestion that the relevant date for the valuation of assets should be the date of the parties' separation. The accepted date of valuation has until now been the date of trial. If this suggestion is taken into practice the results will unfortunately be chaotic, necessitating valuation both at the date of separation and inevitably also at the date of trial, not to mention difficult arguments about what has happened to the money between those dates.
So what happens if both parties have kept their finances separate and run their own careers throughout their union? According to Baroness Hale they should simply be left with their own pots. This principle runs the risk of causing severe injustice and simply cannot be taken to override the requirements of statute to assess at divorce each party's needs, resources, capacities and abilities.
Already the High Court has had cause to interpret the words of the Lords twice. The first opportunity to do so came in the Rossi case, where judgment was handed down on 26 June. Interestingly, the judge hearing the case was Nicholas Mostyn QC, sitting as a deputy High Court judge. He was counsel for Mrs Miller in the earlier case and perhaps should have a better grasp on the decision of the Lords as he heard all the arguments that led to it.
In Rossi, where the elderly parties first started to cohabit in 1964 and married in 1968, but separated at the latest in the mid-1980s, the husband was claiming a share in the business which his wife, W, had operated with her son (from a previous relationship) for 20 years. The issue of post-separation accrual, and what is a non-matrimonial asset, takes up most of the judgment. Indeed, dismissing the husband's evidence completely, the judge found that the profit of the business was due entirely to the post-separation efforts of the wife and son, and that in the context of the long separation and the delay on the part of the husband in bringing proceedings he should not be entitled to any financial award.
The second case, Charman, has received more publicity than the first, predominantly because of the huge scale of the assets involved, which weighed in at more than £131m by the time of the trial. The wife in this case walked away from the High Court with an entitlement to £48m, or around 37 per cent. Departure from an equal division of assets was justified on the basis of the husband's exceptional business acumen (his 'stellar' contribution), showing clearly the survival of this doctrine post-Miller and McFarlane.
These new rules will take a while to bed down as uncertainty among practitioners grows. The case of Charman has highlighted discomfort with the notion of 'equality' in cases where the assets are huge, and in that case Mr Justice Coleridge went so far as to ruminate on whether there should be a 'tariff' system to assess a wife's entitlement . Everyone is watching the judges. With the spectre of a very public McCartney and Mills fight on the horizon, for some people the stakes are very high. n
Andrew Breakwell is a partner at Mills & Reeve