Following on from the cases of Miller and McFarlane, the Courts rely upon the 3 principles of needs, sharing and compensation when deciding upon the allocation of financial assets in divorce cases. Each principle is considered in every case but in the majority of cases it will be the needs of the parties which will be the driving factor determining how the financial pot is shared between the parties.
What do needs mean in practice?
A Court must take into account the reasonable needs of the parties and how they can be met from the available capital of the marriage. The most obvious needs are for a home and an income stream. At an early stage of the divorce process the needs of the parties must be assessed and this is done in the context of the assets of the marriage. In some cases the assets of the marriage are such that the needs of the parties can be met by those assets being split equally between the parties. In other cases it may be that the primary carer of any minor children will need a bigger slice of the cake in order to meet additional needs e.g. for housing.
The concept of reasonable needs is viewed in the context of the lifestyle the parties have enjoyed during the marriage. The Court will take into account the standard of living the parties enjoyed during the marriage and whether that standard can be maintained post divorce. It can be the case that standards enjoyed during the marriage may have to change. One may find in the post divorce apocalyptic dawn that one has to drink Cava instead of Bollinger.
A major point to make and one which can be difficult for clients to grasp is that, if a case goes to Court, the District Judge will have very wide discretion to decide how the assets of a marriage should be divided. You may get different opinions from different Judges. The old joke ‘a good lawyer knows the law, a great lawyer knows the judge’ is true to some extent as you can gauge from previous experiences how Judges will deal with cases. This may all sound a bit arbitrary but, although there is no set formula, there are guidelines that the Court has to take into account. These include for example the age of the parties, the length of the marriage, the contributions that each has made to the marriage (including any future contributions) and the earning capacity or lack of it.
The foremost consideration is the welfare of any minor children and the Court will want to ensure that any division of the assets makes reasonable provision for the primary carer to look after the children and to have sufficient income to do so.
What does sharing mean?
Following on from Miller and MacFarlane, the Court has stated that sharing should not only mean sharing the capital assets of the marriage. The House of Lords referred to sharing ‘the fruits of matrimonial endeavours’. A couple commit themselves to the marriage and as a result should be treated as equal partners in the marriage and thus, when the marriage ends, the fruits of that marriage should be shared.
So what assets can be shared?
All of the assets of the marriage are taken into account whatever their provenance i.e. whether they were acquired pre-marriage or post separation. Everything in the first instance goes into the melting pot. If it is feasible to ring-fence inheritances or pre-owned assets then they can be left to one side. If, however, the needs of the other spouse would be severely compromised by simply having a share of the matrimonial assets and their needs would not be reasonably met, then the other assets have to come off the bench and go into the mix. This was the situation in the case of YvY (2012) where Mrs Justice Baron awarded the wife a lump sum of £8,738,000. The award represented 32.5% of the net assets of the marriage and left the husband with £18 million. It did, however, invade the husband’s inherited wealth which formed the bulk of the family assets. The Judge acknowledged that the assets were non-matrimonial but that in “… the ordinary course, this factor can be expected to carry little weight, if any, in a case where the claimant’s financial needs cannot be met without recourse to this property”.
I have dealt with a number of cases where discretionary trusts feature. It is important to be aware that a beneficial entitlement to a discretionary trust will not simply be ignored. Disclosure has to be made of the Trusts in question and any Letters of Wishes. Questions can be put to the Trustees concerning releasing funds and the Court can give ‘judicial encouragement’ to the Trustees to release money to the beneficiary where needs dictate. It is a resource that is available and cannot be ignored even if the funds are not necessarily readily available.
As mentioned, the principle of sharing does not stop with capital but extends to income. There is a case to argue that income resulting from work carried on during the marriage should continue to be shared if the needs of the parties are similar. Income is shared generally through spousal maintenance. This can often be a thorny issue especially if one party wants a clean break. The Court has to consider in each case whether a clean break is appropriate. If not, then spousal maintenance will be payable either on a joint lives basis or under a term order.
What does compensation mean?
The Court recognises that one spouse (usually the wife) may have given up a career to care for children or to support her husband in his career. She has therefore placed herself in a relationship-generated disadvantage in relation to her earning capacity. Even if the wife under the needs heading has had her needs met by the Court settlement, she will still be at a disadvantage in earning an income in the future and the question may arise as to whether she should benefit from any future surplus income the husband may generate. The Court in the McFarlane case said that, as an equal division of the capital did not meet the reasonable needs of the wife, she should benefit from the future earnings of the husband and she was awarded a joint lives maintenance order to meet her future needs and to compensate her for her own loss of income.
It is important to remember that each case turns on its own facts and no case will have the same outcome as another. Clients will bring to the table their own stories, fears, concerns and expectations. So if you have any queries, please get in touch.