Family law

The price of divorce
Miller v Miller and McFarlane v McFarlane

Miller was a short, childless marriage lasting only two years and nine months. The husband had an estimated wealth of £32 million. Mrs Miller was awarded £5 million by a High Court judge and Mr Miller appealed to the Court of Appeal. The first instance award was upheld and Mr Miller appealed again to the House of Lords. The Lords refused the appeal again - albeit with their decision being based on slightly different reasoning.

McFarlane solely considered a spouse's entitlement to income following divorce, the parties having already agreed an equal capital division. Mr McFarlane had a net annual income in excess of £750,000 and Mrs McFarlane argued that she should receive a share of this income, notwithstanding the fact it exceeded her needs. She successfully argued that to achieve fairness, equality and to compensate her for the fact that she gave up her lucrative career to take care of the parties' children, she had such an entitlement. The House of Lords agreed and reinstated the first instance decision that she should receive a joint lives order for periodical payments in the sum of £250,000.

In both cases, applications were made for the question of costs to be adjourned so that the parties may make written submissions within 14 days. The hearings took place between 30 January and 2 February and judgment was handed down on 24 May 2006.

The cases have been subject to a mass of publicity and have led to a great deal of public interest - not least, of course, from those individuals embarking on the process of divorce. It seems every man, woman and London cabbie is an authority on the law in this area and eagerly anxious to share their unsolicited expertise.

The Lords were unanimous in allowing Mrs McFarlane's appeal and in dismissing Mr Miller's. However, the judgments did not, as hoped, provide clear guidelines as to the way in which the court should exercise its discretion in dealing with claims that relate to short, childless marriages and division of income where needs have already been met out of capital.

In relation to general principles, Lord Nicholls, in his speech at paragraph 5, noted that the wide discretion afforded to the court under the Matrimonial Causes Act 1973, provides only limited guidance as to how the court should exercise its statutory power. He said: 'Primary consideration must be given to the welfare of any children of the family. The court must consider the feasibility of a "clean break". Beyond this, the courts are largely left to get on with it for themselves. The courts are told simply that they must have regard to all the circumstances of the case.'

Lady Hale, at paragraph 144, suggested that the ultimate objective is 'to give each party an equal start on the road to independent living'. In fact, this phrase would have caused little or no consternation if propounded as current law in 1973.

The Lords enunciated three principles, identified as justifying the redistribution of assets on divorce:

• The needs of the parties. At paragraph 138, Lady Hale says: 'The most common source of need is the presence of children, whose welfare is always the first consideration, or of other dependent relatives, such as elderly parents ... A further source of need may be the way in which the parties chose to run their life together ... Compromises often have to be made by one so that the other can get ahead ...The needs generated by such choices are a perfectly sound rationale for adjusting the parties' respective resources in compensation.'

• Compensations as a consequence of losses referable to disadvantage suffered as a result of the marriage - including the loss of opportunity to share in future high income. In paragraph 140, Lady Hale states: 'The best example is a wife, like Mrs McFarlane, who has given up what would very probably have been a lucrative and successful career.' Lord Nicholls, at paragraph 29, considered a convenient course might be for 'the court to consider first the requirements for compensation and then to give effect to the sharing entitlement. If this course is followed, provision for the parties` financial needs will be subsumed into the sharing entitlement. But there will be cases where this approach would not achieve a fair outcome overall. In some cases, provision for the financial needs may be more fairly assessed first along with compensation and the sharing entitlement applied only to the residue of the assets. Needless to say, it all depends upon the circumstances'.

On the subject of sharing the fruits of the matrimonial partnership, Lady Hale, at paragraph 144, notes: 'There can be no hard and fast rule about whether one starts with equal sharing and departs if need or compensation supply a reason to do so or whether one starts with need and compensation and shares the balance.'

• What is the matrimonial acquest? There was a divergence of opinion between Lady Hale and Lord Nicholls, at least in principle, as to the approach to be taken in determining what is matrimonial property. Lord Nicholls viewed non-matrimonial property as 'all property which the parties bring with them in to the marriage or acquire by inheritance or gift during the marriage (plus perhaps the income or fruits of that property), while matrimonial property is viewed as all other property'. He was willing to apply the yardstick of equality to the latter but not the former, particularly in short marriage cases. On the other hand, Lady Hale took a more limited view of matrimonial property and identified a difference between 'property acquired during the marriage, otherwise than by inheritance or gift, sometimes called the marital acquest but more usually the matrimonial property, and other property'. However, she went on to say that: 'The parties` matrimonial home, even if this was brought into the marriage at the outset by one of the parties, usually has a central place in any marriage. So it should normally be treated as matrimonial property for this purpose.' This principle applying whether the marriage is long or short in duration. Surely, however, this principle is not intended to be applied in cases where the matrimonial home is of significant value or an heirloom.

And what place for conduct? None, so far as the Lords were concerned, save in so far as it related to conduct that is both 'gross and obvious' Watchel v Watchel [1973] Fam 72 and such 'that it would be inequitable for the court to disregard' section 25 (g) of the Matrimonial Causes Act 1973. Lady Hale, at paragraph 145, said: 'This approach is not only just, it is also the only practicable one. It is simply not possible for any outsider to pick over the events of a marriage and decide who was the more to blame for what went wrong, save in the most obvious and gross cases. Yet in Miller v Miller, both Mr Justice Singer and the Court of Appeal took into account the parties conduct, even though it fell far short of this. In my view they were wrong to do so.' 
The contributions argument is a horse that has been out of the stable on a number of notable occasions since the yardstick of equality argument was run, and won, in White v White [2001] 1 AC 596. Exceptional contributions were considered in Cowan v Cowan [2001] EWCA Civ 679; [2002] Fam 97; G v G (Financial Provision: Equal Division) [2002] EWHC 1339 (Fam); [2002] 2 FLR 1143 and Lambert v Lambert [2002] EWCA Civ 1685; [2003] Fam 103. The last occasion it stretched its legs was in Sorrell v Sorrell [2006] 1 FLR 497, but to no notable avail. Baroness Hale, at paragraph 146, said: 'Section 25(2)(f) of the 1973 Act does not refer to the contributions which each has made to the parties accumulated wealth, but to the contributions they have made (and will continue to make) to the welfare of the family. Each should be seen as doing their best in their own sphere. Only if there is such a disparity in their respective contributions to the welfare of the family that it would be inequitable to disregard it, should this be taken into account in determining their shares.

It remains to be seen how the broad principles of these judgments will be applied. What is clear is that the courts will now need to give a greater weight to a 'compensatory' element when seeking to achieve fairness. What also seems apparent is, as a consequence of their Lordships decisions, there is likely to be increasing pressure on the judiciary and parliament to uphold and enforce pre-nuptial agreements.

By Gill Rivers, Charles Russell, London