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One in the eye for the entitlement generation

The Court of Appeal’s decision in Sharp is a modern view on family finance, explains Simon Bruce

9 August 2017

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According to reports, Chelsea owner Roman Abramovich’s forthcoming split from his third wife, Dasha Zhukova, could be one of the biggest divorce cases ever in London. The public and press often perceives that, in most cases, there is a 50/50 split following divorce. That is of course nonsense; there is not.

For starters, most cases are decided by needs, not by equal division. Most divorcing families need a roof over the heads of their children, and income to pay the daily, weekly, and monthly bills. Their needs are the beginning and end of the case.

In a tiny minority of cases, the wealth in a marriage exceeds the family’s needs. It’s in that context that we think about how to divide that part of their assets that exceeds their needs.

England lagged behind the rest of the world until the 2000 case of White, which abolished financial discrimination between wife and husband in the “traditional”, archaic roles as bread-maker and bread-winner. The Supreme Court in that case, and the subsequent 2006 combined cases of Miller and McFarlane, said the aim was to produce “fairness”.

Fair enough, but what does “fairness” mean, and how is it to be determined? Answer: by reference to needs, compensation and equal sharing.

As we have seen, the criterion of needs is obvious. The criterion of compensation (mostly, to date, of wives who gave up their careers to look after the family) has been, in the view of this writer, shamefully neglected/effaced and is over-ripe for correction. Watch this space.

And so we come to so-called “big money” cases where the assets exceed needs, to sharing – or as the Supreme Court suggested in Miller – equal sharing. But equal sharing of what, and in which kinds of case?

The best guide to the sharing of assets has just been provided by Lord Justice McFarlane, in this case of Sharp. There, the wife and husband had a short, childless marriage. Both worked. The overall assets exceeded £6m. The wife contributed the lion’s share of the assets, having earned bonuses of in excess of £10m during the marriage. The wife gave the husband Aston Martins. The marriage ended with the husband’s clandestine affair.

The High Court judge awarded the husband £2.725m, that is, half of the assets (minus one of the homes purchased with the wife’s money and some other pre-marital cash); the Court of Appeal corrected the award, giving him an overall £2m out of the £6.9m available.

The Court of Appeal’s judgment is going to be the reference point for family finance lawyers until the Brexit-laden government devotes time to family law reform, or until the Supreme Court takes another appeal to clarify the law.

So what are the lessons learned from Sharp?

• There is no invariable rule of 50/50 splits in divorce case. It all depends.

• English family law has been so seduced by the siren call of anti-discrimination that it has for the last 11 years doggedly pursued equal sharing even when it was not permissible to do so. Fairness has been sacrificed on the altar of certainty.

• The majority views of the Supreme Court judges in Miller allow diversions from equality where appropriate.

• Short, childless marriages are obviously cases where a 50/50 division may be inappropriate.

• The way in which a couple have lived, how they have agreed to hold and share property during the marriage, and how to spend money, is really significant. A couple may have had a pre-marital or post-marital agreement – and as per Katrin Radmacher’s Supreme Court case, that agreement may determine the outcome. Even if there is no pre-nup, “the nature and the source of the property and the way the couple have run their lives may be taken into account” – Lady Hale, who is shortly to become the new president of the Supreme Court, in Miller. Put another way, “once needs and compensation had been addressed, the misfortune of divorce would not of itself… be justification for the court to disturb principles by which the parties had chosen to live their lives when married” – Lord Mance, in Miller.

• On the one hand, lawyers will continue to be criticised if they allow their clients, on divorce, to rummage in the attics of the other spouse’s behaviour. It’s instinctively unattractive to do so, and is retrospective and negative. On the other hand, proving a pattern of behaviour that shows the couple agreeing that the bread-winner keeps and not shares their earnings/bonuses may save that husband or wife millions in a divorce.

• Property which the couple have inherited, or have acquired before the marriage, so-called “non-matrimonial property”, is not subject to the so-called principle of equal division.

• Property which is generated during the marriage may be earned by only one of the couple. It will be unilateral. It will not necessarily be split 50/50 on divorce. It all depends.

• The special contribution of an absolute genius survives, just, as a factor that might enable the genius to keep up to 66.66 per cent of the overall wealth, but this writer doubts that the special contribution doctrine would survive a trip to the Supreme Court.

• Mere bad behaviour, and adultery, don’t make a penny of difference to the financial outcome. Adultery is not a crime in England, as it is in Virginia, USA.

• Compensation emerges out of the dissolving clouds of equal sharing as a principle that may be strongly argued in our future family cases. But is the compensation principle itself discriminatory?

• England is still an island. We still have our system of separate property. We have not become a community of property system by default. England is still the divorce capital of the world.

Opening the floodgates?

The Court of Appeal judges in Sharp were obviously keen not to step on bigger toes, and they tried to make it sound as if their guidance was simply on the fringe of cases outside the norm. But in the real world of day-to-day family law work, where most cases go to mediation, arbitration, or round-table settlement, and where cases are resolved confidentially, Sharp reminds us that 50/50 is a yardstick, it is not a rule. One size does not fit all.

It’s perfectly understandable that the Supreme Court has, in absence of further family law legislation from pusillanimous governments from 1973 onwards, created new law principles for policy reasons. It was a valiant and publicly acceptable attempt to refresh our country’s stale family law.

The floodgates have now been opened. In families, as in life, there is an infinite variety of circumstances. The pendulum is swinging back. In football parlance, the game has only just started.

Image credit: Roman Abramovich © Brian Minkoff/London Pixels

Simon Bruce is a partner at Farrer & Co

Categorised in:

Divorce