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The recent House of Lords decisions in the cases of Miller and McFarlane have generated an enormous amount of interest and speculation from the red top tabloids to the specialist legal press. The marital affairs of the wealthy always make good copy but in these cases the House of Lords was being asked to consider issues of fundamental importance in resolving financial issues arising from the breakdown of a marriage.
The manner in which the Law Lords approached the issues highlights the advantages and disadvantages of the discretionary approach to the resolution of these financial issues in the English courts. The relevant legislation, Section 25 of the Matrimonial Causes Act 1973, is drafted broadly and sets out in general terms the criteria which the courts need to bear in mind in making decisions. The very broad wording of the Section gives considerable room for judicial discretion and argument, through case law, as to how that discretion should be applied. The obvious advantage of such a discretionary approach, as opposed to the more restrictive approach adopted in some other jurisdictions, is that a solution can be tailored to the particular circumstances of an individual case. The disadvantage is that individuals lack certainty as to how their affairs may be ordered if their marriage breaks down. The difficulty of achieving any degree of certainty in this area is perhaps evidenced by the fact that the House of Lords did not speak with one voice on this occasion. With one exception, the Law Lords all had something substantive to say beyond mere agreement and there were significant differences in analysis and approach between certain of the judgements. The way forward, therefore, in certain areas, remains unclear.
Any analysis of the impact of these cases on divorce settlements must start with the recognition that these cases were exceptional. If they had not been the parties could not have afforded to take them to the House of Lords. These were families of considerable wealth; in the case of the McFarlanes the wealth was income based and in the case of the Millers the wealth was of a capital nature. In the vast majority of divorces the financial arrangements are determined by the parties’ needs for housing and support. There is little left over whether by way of capital or income for distribution on any other basis. However, when there is, issues which are difficult not only legally, but also socially and ethically, arise.
There is no doubt that over recent years the concept of fairness has taken central stage in the courts exposition of how these matters should be resolved. Fairness is, interestingly, not a word that is mentioned in the relevant legislation. It is, however, perhaps the possibility of achieving fairness that constitutes the rationale behind the discretionary approach. As Lord Nicholls explicitly recognises in his judgement fairness is an elusive concept. He states:
‘Ultimately it is grounded in social and moral values. These values, or attitudes, can be stated. But they cannot be justified or refuted by any objective process of logical reasoning. Moreover they change from one generation to the next’.
The reaction to these judgements perhaps shows that even this underestimates the difficulties. There would not seem to be a social consensus as to the extent to which the relationship of marriage should fairly give rise to a redistribution of wealth whether by way of capital or income on its breakdown. The Law Commission recently published a consultation document suggesting that the courts should have powers to redistribute assets and income on the breakdown of co-habitations. One can imagine that the difficulties in arriving at a social consensus as to what is fair in this area will be even more acute.
What then can be distilled from these judgements?
There was agreement to firmly batten down the hatches on any suggestion that the courts should, except in the most gross and obvious cases, investigate the conduct of the parties when deciding on the financial award to be made. There has been a real concern that the judgements of the lower courts in the case of Miller could have led to the bones of marriages being picked over in the judicial process in an attempt to establish who was at fault for the breakdown of the relationship. Such issues were probably never amenable to judicial decision and the shutting of that particular Pandora’s box should help to ensure that many difficult and painful issues will never need to see the light of day in front of a court.
The landmark case of White v White, the last major foray by the House of Lords into the area of matrimonial finance, clarified that as far as the division of capital was concerned the parties’ needs were not the only criteria for redistributing assets. The case of McFarlane clarifies that the same principle applies to a continuing income stream. Underpinning these decisions is an approach which treats marriage as a partnership to which parties may make contributions of a very different nature. There should be no discrimination in the way the differing types of contributions are treated. In particular the contribution of one party as the primary carer of the children should be given no less weight then the generation of income and assets.
Marriage is a relationship during the course of which assets may be generated but which may also generate needs advantages and disadvantages for either or both parties. Baroness Hale identified the ‘ultimate objective’ of the courts’ approach as being ‘to give each party an equal start on the road to independent living’. When applying this principle to Mrs McFarlane’s case the court agreed that her continuing maintenance should be determined not only by her needs but also by the fact that fairness demanded that she should be compensated for giving up her own career as a high flying solicitor to look after the family. As a result she is to receive £250,000 per annum on an ongoing basis.
In considering whether an award of maintenance should be in excess of a person’s needs the court made it clear that it was not only compensatory principles that might apply but also the principle that the fruits of a marriage should be shared. However, no real guidance was given as to how that principle might be applied in practice. It was quite clear that an issue of compensation arose in relation to the McFarlane case. What, however, if Mrs McFarlane had had no real career pre-marriage to speak of? To what extent should a general principle of sharing give rise to a claim above the meeting of essential needs, albeit needs generously interpreted in the light of a high income on the part of the payer. That remains a matter for debate and further decision.
Underlying the judgement in these cases is an acceptance that, where there is a surplus of assets over and above those required to meet the needs to the parties, then the source of the assets can be of some relevance. The phrase ‘the yardstick of equality’ was coined in the earlier House of Lords case of White v White. Whilst there was no presumption in law that there should be equal division a check against the yardstick of equality was an aid to the court in assessing whether a fair result was being achieved and is avoiding acting on a discriminatory basis. It is accepted in all the judgements in the recent cases that the source of assets available at the break up of a marriage may be relevant in deciding whether the court should, in the interests of fairness, divide those assets unequally.
A distinction appears to be developing between ‘matrimonial property’ and ‘non-matrimonial property’. The clearest example of non-matrimonial property is property brought into the marriage at its inception or property received by one party by way of gift or inheritance. However, there is an apparent difference between Lady Hale’s judgement and Lord Nicholls judgement as to whether there may be assets which are accrued during the course of the marriage which may in Lady Hale’s words be ‘non-business partnership, non-family assets which should therefore, particularly in the case of a short marriage justify a departure from the yardstick of equality’. She cites the situation of a genuine dual-career family where each party has worked throughout the marriage and where certain assets had been pooled for the benefit of the family but others not. One might query how this concept is going to be compatible with the principle that one should not discriminate between different types of contribution to the marital partnership.
As always in these cases principles which might seem clear in the light of the cases in which they are decided become more complex when one considers alternative scenarios. For instance, is the continuing income stream from a musician’s catalogue in respect of work composed and recorded prior to the marriage to be considered as matrimonial or non-matrimonial property? Or again, it is suggested that the matrimonial home could always be regarded as matrimonial property and therefore is more likely to be covered by the yardstick of equal division. However, would this be a just result in a situation where parties who marry somewhat later in life, each having a property of their own, decide to live in one property and rent out the other?
Standing back from all the legal complexities and technicalities of these judgements one thing is perhaps clear. Over recent years the drift of the decisions of the courts has been in favour of the receiving party. These decisions, despite the caveats and qualifications, continue that trend. There is little doubt that, for the wealthy, divorce has become a far more expensive business than it was a decade ago.
Finally, these judgements may well lead to a substantial increase in the number of pre-nuptial agreements. These, whilst not legally binding can carry weight with the court in the event of a marriage breakdown. At the very least they serve to define those assets which each party brought to the marriage. However, their impact is likely to go further than this in that they set out the basis on which the parties wish to order their own financial affairs and is this not a factor which in any consideration of fairness ought to be given weight by the courts?
Howard Stacey
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