Divorce – Who gets what and why
Each case will be decided on its merits, however, the following set out the general principals. Any reference to the Act is a reference to the Matrimonial Proceedings Act 2003.
The House of Lords’ decision in the case of White v White significantly changed the general principles on which ancillary relief cases are settled.
White v White  3 FCR 555,  1 All ER 1
Before 2000, awards in big-money cases were based largely on reasonable requirements. A party would receive such capital and income as was necessary to enable them to meet their reasonable needs. In cases where there was surplus income and capital after such needs had been met, one party could be left with a considerably greater share of the wealth. Significant time and costs were consequently spent arguing over what amounted to reasonable needs in a particular case and many were left with a sense of an unfair outcome.
The judgment in White made fairness the overriding objective in ancillary relief proceedings, judged against what the House of Lords called the yardstick of equality. This meant that in all future cases the aim was to achieve a fair outcome. To decide if a result was fair, consideration had to be given to the outcome on an equalisation of the resources.
The House of Lords’ intention was to put an end to discrimination between the breadwinner and homemaker in their respective roles. Claims were no longer to be limited by reasonable need.
The House of Lords in White did not introduce a presumption of an equal division of assets. The judgment indicated, however, that there would have to be a good reason for a court to depart from an equal division of capital.
Courts and practitioners alike struggled to interpret White, with effect that it became increasingly difficult to advise clients as to the likely outcome of an ancillary relief (a financial order) claim. In particular, White concerned a long marriage and it was unclear from the judgment how fairness should be achieved in the case of a short marriage. In addition, no guidance was given in the case as to application of the yardstick of equality to maintenance, particularly where one party’s income exceeded the joint income needs.
When the House of Lords gave its judgment in 2006 on the conjoined appeals of Miller v Miller and McFarlane v McFarlane it was hoped that this would provide the much-needed clarity as to the general principles that should be applied in ancillary relief (financial remedy) cases.
Miller v Miller; McFarlane v McFarlane  2 FCR 213
The House of Lords in Miller; McFarlane found there to be three strands to fairness:
Since this judgment, the courts have endeavoured to apply and clarify these principles and their application to ancillary relief (financial remedy) proceedings.
Post Miller and McFarlane the courts have on occasions cautioned against adding a ‘judicial gloss’ to the statutory provisions. The weight to be given to the factors to be taken into account by the court will depend on the particular facts and circumstances of each case-thereafter the consideration of need, compensation and sharing would usually guide the search for fairness.
Robson v Robson  3 FCR 625
Until the House of Lords’ decisions in Miller and McFarlane, the concept of compensation had not appeared in case law. It is therefore a very new concept, although most practitioners find that it has little or no day-to-day impact on their cases. It is a principle rarely engaged.
Miller v Miller; McFarlane v McFarlane  2 FCR 213
Mr and Mrs McFarlane agreed after the birth of their second child that Mrs McFarlane would give up her job as a solicitor with a leading London firm to look after the children and home. This enabled Mr McFarlane to pursue his career as a chartered accountant. At the time of the first instance hearing Mr McFarlane had an annual income of £753,000.
It was found that if Mrs McFarlane had not given up her job, she would have gone on to have a successful career as a solicitor. Any income she might now earn would be at a much lower level.
The House of Lords held that she had the right to be compensated for this relationship-generated disadvantage in addition to her right to have her income needs met.
Accordingly, Mrs McFarlane’s maintenance award was increased beyond her needs to include an element of compensation for this loss.
Following the decision in Miller and McFarlane, it became quite common for one party in ancillary relief (financial remedy) proceedings to argue that they had suffered a relationship generated disadvantage. A separate head of claim was in effect introduced under which one party would endeavour to isolate and quantify the level of income of earning capacity they had sacrificed.
Coleridge J in RP v RP attempted to warn against such an approach. He referred to the word compensation not appearing in statute and stated that it was neither possible nor desirable to break up ancillary relief (financial remedy) claims into heads of damages, stating that ‘it is a blind alley at the mouth of which a “no entry” sign should now be firmly placed’.
RP v RP  2 FCR 613
This was in contrast to Lauder v Lauder, in which Baron J accepted that the wife’s earning capacity was modest as a direct result of the marriage and that this disadvantage required compensation. She justified the level of periodical payments on the basis of compensation and generously interpreted reasonable needs.
Lauder v Lauder  3 FCR 468
In VB v JP, the President endorsed the warnings of Coleridge J in RP v RP on grounds of policy and practicality. He the set out guidance as to the approach to claims for compensation as follows:
VB v JP  2 FCR 682
Compensation is a feature of the concept of fairness, not a head of claim in its own right; it falls to be considered at the exit of the marriage in relation to the division/redistribution of the family assets
- in ordinary circumstances a party has no right or expectation of continuing economic parity unless needs or relationship-generated disadvantage so require
- where the matrimonial assets are sufficient for a clean break to be achieved, a party with ordinary career prospects is likely to have been compensated by an equal division of the assets, and consideration of how that career might have progressed is to be avoided
- in cases where a continuing award of periodic payments is necessary and a party has sacrificed their own earning capacity, compensation will rarely be amenable to consideration as a separate element capable of calculation with precision
- any element of compensation is best dealt with by a generous assessment of continuing needs unrestricted by budgetary considerations
In VB v JP, prior to the children being born the wife had been a personnel manager with prospect of rising to director level. The husband was a partner at a city law firm. The wife had an opportunity of promotion that would require a move of location. The husband refused to move as he did not want to jeopardise his own career. One year later their first child was born. After the birth of their second child the wife suggested that she return to work. The husband refused as it would limit her ability to support him.
The Court of Appeal found the wife’s budgetary needs to be £58,500 a year, which were generously interpreted to award her an annual sum of £65,000. This was intended to reflect the relationship-generated disadvantage she was found to have suffered in respect of her earning capacity.
It remains difficult in practice to pinpoint, quantify and apply this principle with any precision. It should be remembered that the House of Lords stressed that Mrs McFarlane was a paradigm case for the award of compensation for future economic disparity. It should be noted that the wife in McFarlane went on to apply for a variation of the periodical payments order whereupon Charles J held the application of the compensation principle must result in the wife in that case receiving from (and thus sharing with) the husband part of his income earned after the end of the marriage. In most other cases compensation is not likely to be a relevant factor.
Miller and McFarlane identified sharing as a further strand of fairness that echoed the approach in White. Marriage is a partnership of equals and when the partnership ends each party is entitled to an equal share of the assets unless there is a good reason to the contrary.
In Charman v Charman the Court of Appeal, further considered the sharing principle and stated that:
…it is clear that the court’s consideration of the sharing principle is no longer required to be postponed until the end of the statutory exercise… we take the sharing principle to mean that property should be shared in equal proportions unless there is good reason to depart from such proportions…
The Court of Appeal in Behzadi v Behzadi stated that in order to apply the sharing principle correctly the court must compile and articulate a balance sheet of the parties’ visible net assets, which should be incorporated into any judgment.
In L v L the judge made it clear that the sharing principle must be first applied to meet the parties’ needs.
The House of Lords in Miller and McFarlane had acknowledged that in the majority of cases fairness would be achieved by a division of the matrimonial resources to meet, as far as possible, the accommodations and income needs of the parties and their children.
Where there is no surplus after this exercise had been undertaken, fairness has been achieved.
The principle of needs is enshrined in the Act.
In the majority of ancillary relief (financial remedy) cases the application of the sharing principle will be determined solely by needs.
The House of Lords in the cases of Miller and McFarlane indicated that the principle of equality had two limbs:
- first, equality of outcome (which is arguably the fairness principle by another name): this does not necessarily require an equal sharing of the assets, but does require an equitable settlement of the case
- secondly, and closely linked to the sharing principle, each party is entitled to an equal share of the assets unless there are good reasons for one party to receive a greater share
This seemed to create a presumption of equality as the starting point in all cases. This was given further weight by the judgment in Charman, which held that equality was the starting point as opposed to the cross-check to fairness.
More recently, however, in the case of B v B the Court of Appeal denied the existence of an equal division as a starting point. Instead, it said that the yardstick of equality is a check against a provisional award. It should be applied to every outcome and departed from only to the extent that there is a good reason.
Applying the general principles
The case of Charman set out important guidance as to the application of the principles of need, compensation and sharing to ancillary relief (financial remedy) applications:
- need (generously interpreted), compensation and sharing must be considered in light of the resources in the case
- the yardstick of equality introduced in White has developed into the equal sharing principle or the sharing entitlement
The High Court in L v L gave the principles further interpretation:
- first, the assets and general financial position of the parties must be determined
- the assets should then be shared equally unless there are good reasons to depart
- consideration must then be given as to whether this meets the needs of the parties, generously interpreted
- if not, then a greater share of the resources must be awarded as necessary
- if the application of the sharing principle means that needs are exceeded, no adjustment is required
Compensation, sharing and equality in practice
When approaching settlement in an ancillary relief (a financial remedy) case, it is first necessary to identify the resources available to the parties now and in the future. The parties’ income, capital and pension need to be considered.
Practitioners should consider the effect of an application of the equal sharing principle on the assets of the parties and identify whether this will enable them to meet their accommodation and income needs with reference to the Act and the comments in Charman.
There may be dispute on the issue as to what are reasonable housing and income needs for each party. Needs are to be generously interpreted.
If both parties’ needs cannot be met from an equalisation of the assets, then a further adjustment of the capital position may make this possible. If not, periodical payments will be required.
If all of the parties’ resources are utilised in fulfilling the requirements of need then fairness will have been achieved.
If, however, there are surplus resources once all needs have been met then there can be consideration as to whether compensation is appropriate.
It should be remembered that Mrs McFarlane was the paradigm case of relationship-based disadvantage as emphasised by Charles J in the wife’s subsequent application for an upward variation of the periodical payments order. Unless a party’s position is similar to that of Mrs McFarlane, an argument based on compensation is unlikely to succeed. In most cases adequate compensation will have been provided by a share in the assets.
Although the general principles must be considered, the Act still remains the start and end point when considering the appropriate outcome in all cases.
These notes are meant only for guidance and having read them if further advice is required then please contact an advocate.