Split decisions

Big money divorce cases are in the spotlight as two appeals await rulings from the House of Lords. Both cases raise serious issues for family law practitioners, says Alison Bull

Hopefully, none of The Lawyer’s loyal readers will ever find themselves in the midst of messy divorce proceedings. But for anyone in a marriage, this week’s Private Client and Family Special Report makes crucial reading, as you may want to rethink even the most insignificant of arguments.

The House of Lords’ decisions on the conjoined appeals in big salary divorce cases Miller v Miller (2005) and MacFarlane v MacFarlane (2004) are expected before Easter. It is hoped the decisions will provide some clarity as to the proper approach to short marriage or big money cases.

As well as examining the implications of these high-profile divorce cases, this Special Report also reviews changes to the laws that guide Scottish trustees on managing investment risks, which are due to come into force in April.

Family lawyers await the latest instalment from the House of Lords in the saga of big money divorce cases. The decision on the conjoined appeals in Miller v Miller 2005 and McFarlane v McFarlane 2004 are expected before Easter.

The facts in Miller

Mr and Mrs Miller were married for just under three years when they separated. They did not live together before their marriage and did not have any children. When the parties met, Mr Miller was an exceptionally successful fund manager and Mrs Miller worked in the pharmaceutical industry. She gave up a subsequent job shortly after they married. At the time, Mr Miller’s income could potentially exceed £1m. Mrs Miller earned £85,000. The extent of Mr Miller’s assets, and whether his shares should be considered a product of marriage, were in dispute. In the High Court Mrs Miller was awarded £5m, comprising the matrimonial home valued at £2.3m and a lump sum of £2.7m (roughly 34 per cent of the assets acquired during the marriage). Mr Justice Singer did not rule on the value of the shares or the extent of the assets.

The grounds of appeal asserted unsuccessfully on behalf of Mr Miller were:

  • that Mr Miller’s adultery should not have stopped him relying on the short duration of the marriage;
  • that Mrs Miller should have been prevented from relying on Mr Miller’s conduct in light of her declaration at an earlier hearing that she would not do so;
  • that the principle that an award after a short marriage should be sufficient “to enable the wife to get back on her feet again” should have been followed; and
  • that Mrs Miller did not have a legitimate expectation of a higher standard of living on a long-term basis as a result of the marriage.
  • The only point that the court thought arguable was the latter one, but it found the judge’s award was sufficiently (if obliquely) explained and was not plainly excessive such as could justify interference. Lord Justice Thorpe found that the award lay at the top of the permissible bracket and was higher than he would have awarded. He emphasised that the circumstances of the case were highly unusual.

    Areas of concern for practitioners

    The decision in Miller has caused two main areas of concern among the profession. First, that conduct is raising its ugly head again: good news for private investigators, litigious practitioners and the counselling profession; not good news for the parties and their children, and those family law practitioners, mediators and collaborative lawyers who would prefer to focus on finding effective, forward-looking solutions for divorcing couples rather than raking over the past.

    Second, we still have no guidance as to the proper approach to short marriage, big money cases, where the financial gains are the product of one party’s endeavours. The old restitutionary principle has gone (although this is nothing new) and it has not been replaced other than with the vague suggestion that we might look at what the parties brought to the marriage, and (more worryingly) at what expectations they may have had as a result of the marriage.

    The decision has also emphasised the potential importance of pre-marital agreements; perhaps the case would not have been contested at all had there been some advance consideration of the appropriate level of financial provision to be made in the event of the marriage breaking down. Given the divorce statistics, it is not surprising that pre-marital agreements are often now regarded as a sensible element of financial planning rather than as being cynical and unromantic.

    The facts in McFarlane

    Mr and Mrs McFarlane had been married for more than 16 years at the time of their separation, with two years pre-marriage cohabitation. They have three children. Mr McFarlane is a partner with Deloittes with a net income at the time of the hearing of £753,000. Mrs McFarlane is a qualified solicitor who ceased working outside the home after the birth of their second child. The family capital of around £3m was to be divided equally. The issue in the case was about spousal maintenance. A joint lives order was agreed. School fees and child maintenance (fixed by the district judge at £20,000 per child per annum) were to be paid. The district judge awarded Mrs McFarlane maintenance of £250,000 per annum (33.18 per cent of Mr McFarlane’s net income). Her budget was £128,000. On appeal to the High Court, Mr Justice Bennett exercised his discretion afresh and reduced the award to £180,000 per annum.

    Thorpe LJ in the Court of Appeal emphasised the court’s duty to exercise its powers to achieve a clean break as soon as was just and reasonable. Any capital accrued from an excess of maintenance over and above needs should be directed towards achieving a clean break. Both parties should have some control over the surplus while it accumulates. The potential injustice of there being a surplus on account of a future liability for maintenance that might not materialise (for example, because the maintenance would cease on remarriage) was countered by the order being short term. Since this was a second appeal, and because there was no error of principle by the district judge, the order of £250,000 per annum was reinstated. The term was, however, restricted to five years. Thorpe LJ’s view was that, in five years, a clean break might be possible, taking into account Mr McFarlane’s ability to raise capital by remortgage, the surplus of maintenance and Mrs McFarlane’s earning capacity, with the youngest child by then being at secondary school.

    Areas of concern for practitioners

    The approach taken by the Court of Appeal in McFarlane has rather side stepped what was thought to be an issue of how to address the situation where one party has a high income that exceeds the parties’ needs and was generated during a long marriage to which the other party contributed equally. There are several ways of analysing this issue:

  • the surplus should be applied towards achieving a future clean break and controlled by both parties (as per Thorpe LJ in McFarlane);
  • it would be discriminatory to divide the income stream other than with a check against a yardstick of equality, after taking account of the other discretionary factors, and on a joint lives basis (extending the principle in White to cases where the income-producing asset – here Mr McFarlane’s earning capacity – is independent of the asset base of the parties);
  • income is not capital available for division and it should be applied to meet the parties’ needs alone (along the lines of Mr McFarlane’s argument); and
  • as above, but with an additional award of maintenance exceeding needs to somehow weigh in the balance the other relevant discretionary factors (apparently the approach of the district judge and Bennett J in McFarlane, albeit with different results).
  • Family law practitioners hope the House of Lords’ decisions will provide some clarity to the issues outlined above.

    Alison Bull is a legal director within Addleshaw Goddard‘s family law group