February 2007

Divorce - Financial Settlements

Recent years has seen a number of well documented cases in family law hit the headlines for differing reasons. We have heard of the case of Mr. & Ms Charman where the wife was awarded £48,000,000 of total assets of just over £131,000,000.

At the end of May 2006 the House of Lords gave judgment on the appeals of Mr. & Mrs. Miller and Mr. & Mrs. Macfarlane which made headlines in respect of the financial settlement of a divorce and the new criteria to follow in deciding how to divide the assets and income.

Two years ago, the newspapers reported the case of Mr. & Mrs. Parlour in entertaining style for their readers.

In the case of Charman the parties had been married 27 years when they separated. When they married they had no assets and all their wealth of £131,000,000 was generated during their marriage. They had two sons. During the divorce, the wife accepted that the husband had an exceptional talent and for this reason rather than seeking fifty percent of the assets she sought 45% to reflect this. The husband sought a wider disparity with him having the majority of the assets as without his talent there would no be this wealth. The judge awarded her 37% which amounted to £48,000,000. Just short of half of the total assets were held in off-shore trusts in Bermuda and as he was the beneficiary of these trust they were seen as matrimonial assets therefore were taken into account.

Mr. & Mrs. Miller’s marriage was short and there were no children. Before the parties were married she earned £85,000 p.a. He was a very successful fund manager. Shortly before the marriage he received £20,000,000 in respect of a business deal and in preparation of the marriage bought a house for £1,800,000. He then moved firms and acquired a significant number of shares in the new firm. She gave up her job to furnish the home and another property in France. In the time that they were married the shares increased dramatically in value. He then left her for another woman who he later married. The judge awarded her the home (now worth £2,300,000) and a further lump sum of £2,700,000 of the £35,000,000 accrued assets.

Certain principles have come out of these cases which we as lawyers have to follow when advising clients.

The ultimate aim in each case is fairness and to give each party an equal start on the road to independent living. First consideration is the welfare of the children but there are three other principles that should be looked at in each case to achieve this aim and these are needs, compensation and sharing.

In many cases fairness is limited to meeting the party's needs as the available assets are insufficient to purchase adequately for two homes. In such cases the court tries to ensure that each have enough to supply the needs and set as close as possible to the standard of living that they have been used to.

In cases where there is a surplus of assets and income over needs the court considers compensation and sharing. Compensation is to address any significant perspective economic disparity between the parties arising from the way they conducted their marriage for example the wife ceased work to have children, and it therefore follows she should not be disadvantaged by a loss of career for having done so. Marriage is a partnership of equals and therefore when the partnership ends each is entitled to an equal share of the assets of the partnership unless there is good reason not to.

A party's conduct in the marriage is in all cases to be disregarded unless the conduct is gross and obvious and it would be wrong to disregard it.

Inheritances and gifts are taken into account in cases where the needs of the parties are not likely to be met without them being taken into account. In cases where there is a surplus of income and assets over needs and the inheritances or gifts received can be separated then it may well be that they are not taken into account as matrimonial assets.

As to one party being the major wealth accumulator such as in the cases of Miller and Charman "special contribution" can be used by the husband and wife to obtain more of the assets only where the contribution is so marked that to disregard it would be wrong. This is difficult to prove as each party should be seen as doing their best in their own sphere.

The overall aim in all cases is fairness which of course is subjective and this is why there has been and will be continued litigation in this field of law. There is no formula or science in calculating who should have what and each case is different on its facts. Many men may well feel hard done by such as Mr. Charman who the newspapers alleged was very unhappy with his wife receiving so much money and most of the liquid assets available and Mr. Miller as well who was only married for a very short period but his wife received £5,000,000.

At the present time pre-nuptial agreements are not binding and are only evidence of the parties intentions of how their assets should be distributed should they divorce in the future but the way the law is developing it may well be that pre-nuptial agreements hold greater sway and the writer believes that at some point in the future pre-nuptial agreements may well gain greater weight and even statutory authority. Mr. Miller may well have reduced the payments he has had to make if he had entered into a pre nuptial agreement.

Should you require further information on divorce and financial settlements, please contact the office.