Date 17 August 2006
On Wednesday 24th May 2006 Judgement was handed down by the House of Lords in the cases of Miller and McFarlane.
This article looks at the implications of this in Judgement.
Background
Determination of all financial cases in divorce are decided by reference to section 25 of The Matrimonial Causes Act. Judges decisions must take into account the factors listed in section 25. They are prefaced by the primary consideration being the welfare of any children of the family.
The Court must then have regard to the following:
- Income earning capacity, property and other financial resources of the parties.
- Their needs, obligations and responsibilities.
- Standard of living.
- Age and length of marriage.
- Any physical or mental disability.
- Contribution that each party has made or is likely to make to the welfare of the family.
- The conduct of each of the parties if that conduct is such that it would in the opinion of the Court be inequitable to disregard it.
- The value of any benefit that as result of the divorce a party would lose the chance of acquiring ( i.e. pension).
Until the ground breaking decision of White v White (2001) the Court had tended to look at the roles of the breadwinner and the homemaker very differently. Case law had developed whereby the homemaker (usually the wife) would have their reasonable requirements met and the husband would retain the balance of the assets.
However, in the case of White Lord Nicholls stated that the implicit objective of section 25 was to achieve a fair outcome. This may seem fairly obvious but he went on to explain that fairness means that there should be no discrimination between a husband and wife and their respective roles. It mattered not that one spouse had earned the money and the other had looked after the children. He went on to say that fairness generally implies equal division but not necessarily. A Court must look at SECTION 25 to assess whether circumstances should permit a departure from equality.
Notwithstanding this groundbreaking decision there were and some may say still are areas of uncertainty. The case of White involved a long marriage (over 20 years). What therefore is the position where there is a short marriage or indeed a medium length marriage? What about inheritance – are there circumstances where this can be excluded from the pot. What about maintenance? Was there a case for equality of income as well as capital. White was a case where there was sufficient capital to ensure that a clean break was achieved (a dismissal of all claims allowing each party to achieve future independence). What would be the case where one party earned significantly more than the other and one spouse could not support themselves without maintenance.
There has not surprisingly been a number of cases that have been dealt with by the higher courts since White. These cases have allowed some departure from equality, although rarely in long marriage cases and generally not on the grounds of greater financial contribution.
The legal profession has been looking for some further guidelines in relation to short marriages and spousal maintenance since White. This has now arrived with the Judgement in Miller and McFarlane. Whether too many principles can be taken from this Judgement will depend upon the interpretation placed upon this Judgement by Judges determining future cases. It may be that the Judgement asks more questions than it gives answers. Certainly the Daily Mail considers the case to be a “charter for gold diggers”. They have interpreted the Judgement as meaning that a wife “should always be compensated for any loss of earnings capacity sustained by getting married even if the marriage was short-lived”.
Miller and McFarlane
Although the House of Lords gave Judgement at the same time for both of these Appeals, they were two very different cases.
The Miller case was a short marriage case (2 ¾ years) with no children with assets of approximately £30 million (although it had been impossible to accurately value an element of Mr Miller’s company shares). Mrs Miller had been earning £85,000 per annum but she gave up her job when she married. Mrs Miller was awarded 5 million by the original trial Judge, this was upheld by Court of Appeal and the House of Lords who heard Mr Miller’s further appeal.
There seems to be two points of principal that emanated from the lower court Judgement in this case namely (i) the conduct of the husband (he had an affair) was a circumstance that the Court could take into account when determining the wife’s award (ii) by marrying a rich husband the wife had been given a legitimate expectation that she would in the future be living on a higher economic plane.
The House of Lords rejected both these arguments.So far as conduct was concerned the test remained unchanged that conduct has to be such that it was just and inequitable to disregard it and adultery fell far short of this hurdle.
Legitimate expectation was not something the Court should consider as the parties’ standard of living prior to separation was relevant (as it is a factor under section 25) but the Courts should not go further than that. However, having rejected these elements of the earlier Judgements the House of Lords concluded that the award of £5 million to Mrs Miller was reasonable principally because a significant element of Mr Miller’s wealth was generated during the course of the marriage.
In the case of McFarlane the parties had been married for 16 years and lived together for 2 years prior to that. They have three children, all under 18. The Judge at the original hearing awarded Mrs McFarlane periodical payments of £250,000 (for life) plus £60,000 child maintenance. The husband had effectively been ordered to pay one third of his net income plus child maintenance. It had been common ground that the parties assets should be divided equally. As those assets amounted to ‘only’ £3 million there was insufficient capital to achieve a clean break. The husband appealed against the order and a High Court Judge reduced the award to £130,000 per annum.
The Court of Appeal reinstated the original £250,000 but for a term of 5 years on the basis that Mrs McFarlane could set aside sufficient capital from her income to save to allow her to become independent in 5 years time. If this could not be achieved she was allowed to extend the order if she could show an appropriate need. The House of Lords considered that it was wrong to place the burden of such an application on to the wife and in fact it should be the husband who should have to justify a reduction in the future. The House of Lords therefore reinstated the first order imposed by the original trial Judge. In the Judgement both Lord Nicholls and Baroness Hale referred to the concept of compensation. This is the first time that the notion of compensation has ever been mooted when considering spousal maintenance. What Lord Nicholls said in this regard was as follows:
“This is not a case where the wife’s future success was a matter for speculation. Here the wife had a proven track record (she had been a City lawyer) when the parties agreed she should give up her job.” It was effectively for this economic sacrifice that she should be compensated on top of her normal reasonable requirement for maintenance.
There are a number of questions that are still open to interpretation, for example:
- Does the economically disadvantaged party have to have a fully developed career;
- Does this apply to all cases or only a case where income levels are high;
- Could or should a party be compensated from capital.
Conclusion
Three common principles emerge from the Judgment:
- Fairness requires that the assets of the parties should be divided primarily in order to make provision for the parties housing and financial needs.
- A party may require compensation to redeem any significant prospective economic disparity between the parties post divorce taking account of the manner in which they arranged their finances during the marriage e.g. one party giving up career to care for the children.
- A right to equal sharing based on the concept that a marriage is an equal partnership.
Overall it is extremely doubtful that these overarching principles have provided sufficient clarity to prevent future litigation and argument over financial settlement post divorce as cases will continue to be fact sensitive and this judgement remains open to interpretation.
If you would like further information or advice on any of the issues raised in this article, please contact Keith Docking at keith.docking@salaw.com or on 01727 798064.
© SA Law LLP 2006
SA Law LLP is regulated by the Law Society. Every care is taken in the preparation of this article. However, no responsibility can be accepted to any person who acts on the basis of information contained in it. You are recommended to obtain specific advice in respect of individual cases.