Ipswich: 01473 214481
Norwich: 01603 617351
Chelmsford: 01245 215660
Contact us

Matrimonial Finances

Factors which may lead to the settlement being other than 50:50
Matrimonial Finances Kate Miller
The Short Marriage

It has been acknowledged that a short marriage ‘will affect the quantum of the financial fruits of the partnership’. The length of a marriage is therefore a central consideration; the parties to a longer marriage are likely to have contributed more towards it. 

The average length of a marriage in England & Wales is 11 years - so a short marriage is generally one of up to five years - Pre-marital co-habitation is added on to calculate the overall length of relationship to be taken into account, following the case of GW v RW [2003] EWHC 611 (Fam)

White v White [2001] and “the yardstick of equality” did not lead to equal division in short marriage cases, the courts tended to put the parties back in the position they were in prior to the marriage with the favourite authority being Foster v Foster [2003] EWCA Civ 565 where the parties were returned to their positions before the marriage and the fruits of the marriage were divided equally. This resulted in W receiving around 60% of the assets as her pre-marital contribution had been far greater.

Miller v Miller [2006] UKHL 24 the court’s approach changed again. W received £5m after a 2¾ year childless marriage about 25% of H’s assets. Lord Nicholls: "in the case of a short marriage, fairness may well require that the claimant should not be entitled to a share of the other’s non-matrimonial property” - so the equality principle applies only to assets built up during the course of the marriage.

McCartney v McCartney [2008] EWHC 401 (Fam) - 5 years from engagement to separation in 2006 with a daughter born 2003. H’s assets at separation £387m, increase over the course of the marriage £41.5m. All of the increase related to non-business assets (the business assets having declined over the period by £20m). The judge excluded £20.1m which had been passive so calculated the matrimonial acquest at £21.41 - to which any doctrine of sharing might apply - half of which being £10.7m. The judge did not need to consider if this was liable to reduction due to H's stellar contribution because he was to find that W’s need, on a capitalised basis, amounted to £16.5m and therefore subsumed it. W already had property and cash from H of a little over £7.8m, which the judge found it reasonable for her to keep, bringing her total award to £24.3m.

Where a marriage has been short and there are no children, the court may expect the parties to leave the union with whatever they brought to the marriage with any matrimonial property being divided. However, the court will consider whether there have been sacrifices from either side, such as giving up on a career or a property, and will potentially include more generous provisions for that spouse upon divorce.


Conduct

One of the most difficult areas for our clients to understand - the court is not likely to award W more than 50% of the assets because H has been unfaithful, unkind or has otherwise behaved unreasonably…

The section provides “…if that conduct is such that it would in the opinion of the court be inequitable to disregard it”.  As Baroness Hale makes clear in Miller/McFarlane, for such conduct to bite it has to be "gross and obvious".  

S v S (Non-Matrimonial Property: Conduct) [2006] EWHC 2793 (Fam), Burton J said of conduct that ‘you knew it if you saw it’. His conclusions were that if it was so bad as to make your jaw drop or gasp then it was relevant but if it was only sufficient to make you gulp nervously it was not.

H v H (Financial Relief: Attempted Murder as Conduct) [2005] EWHC 2911 (Fam) - H had attacked W with a number of knives causing her significant and life-threatening injuries to her neck and face, in front of their children. It is recorded that it was a miracle that she was not killed. H was jailed for twelve years. W was diagnosed with PTSD and was unable to return to the family home or to her job as a police officer.

Coleridge J held that H’s conduct should not overbear all other factors. The courts response should not be punitive but the conduct should instead act as a magnifying factor on the other s 25 factors.

W's earning capacity had been significantly diminished as a direct result of the attack. H would not be in a position to provide maintenance for W or the children for many years.  During H's imprisonment W would be solely responsible for the children.  The judge also noted that there was a very real concern that the children had been emotionally affected by witnessing the attack and that the priority of the court was to ensure that they were re-housed in a secure property well removed from the FMH.  W was awarded the equity from FMH and the joint savings of £100k and H was left with £30k.

MAP v MFP [2015] EWHC 627 (Fam) - A 40 year marriage during which the parties accrued joint wealth in excess of £25m.

At trial, the judge found that H was undoubtedly the "driving force" behind the success of the company, although W's contribution to family life and the company which allowed H to be so successful was to be considered as having equal weight in the acquisition of the family fortune. However, W alleged that from 2007 H had been spending £6k a week on alcohol and cocaine and large sums of money on prostitution.  W argued that £1.5m should be added back into the matrimonial pot to represent H's spending on his ‘habits’.

The judge refused to add back the funds that H had spent as he was not satisfied that H had wantonly depleted the assets.  The judge found that H could not help himself and his spending was due to his 'flawed character.'  Thus "it would be wrong to allow the wife to take advantage of the husband's great abilities that enabled him to make such a success of the company while not taking the financial hit from his personality flaw that led to his cocaine addiction."

Previous cases had indicated that funds can be 'added back' where there has been "wanton dissipation of assets” :-

Martin v Martin [1976] Fam 335 - Cairns LJ said "A spouse cannot be allowed to fritter away the assets by extravagant living or reckless speculation and then to claim as great a share of what was left as he would have been entitled to if he had behaved reasonably."

Norris v Norris [2003] 1 FLR 1142 - Bennett J held that where assets have been depleted recklessly by a spouse, the other party should not be disadvantaged in the split of the assets.

Vaughan v Vaughan [2007] EWCA Civ 1085 - Wilson LJ said that the practice of adding assets back in to the matrimonial pot must be treated very cautiously and there must be "clear evidence of dissipation (in which there is a wanton element).”

Contribution

The “stellar contribution” argument is available only to very few people indeed. The argument goes that if a party has made a contribution to the couple’s wealth which is “unmatched by the other,” it would be unfair to ignore this and wrong to divide the assets equally – even if the money was all earned during the marriage and is therefore technically “matrimonial” wealth.

Cowan v Cowan [2001] EWCA Civ 679 - Thorpe LJ suggested that there would be very few cases where contribution would be so special that it could not be ignored

Sorrell v Sorrell [2005] EWHC 1717 (Fam) - Mr Justice Bennett awarding 60% of the assets to H recognised that the only reason for departure from the principle of equality was the husband's special contribution. Towards the end of his judgment, he noted what was said by Thorpe LJ in Lambert, namely that the size of the family fortune did not alone justify a conclusion of special contribution.

Charman v Charman [2007] EWCA Civ 503 - The split was roughly 63/37

Cooper-Hohn v Hohn [2014] EWHC 4122 (Fam) - Where the total assets were billions of US$.  Roberts J calculated that the assets available for distribution (much was out of reach in trusts) were £869m - of which W was awarded £330 being 36%
Roberts J held that W had made a "full" contribution to the marriage and noted that for a period she was caring for 4 children under the age of 5 whilst also in employment. The question was whether H had made "some further contribution, over and above that made by W, and unmatched by her in terms of their joint endeavours within the partnership which was their marriage" (see paragraph [278]). She did not seek to define what could be classified as a special contribution, but identified the following specific questions to answer in this case (at paragraph [282]):
"i. Can it properly be said that [the husband] is the generating force behind the fortune rather than the product itself?

ii. Does the scale of the wealth depend upon his innovative vision as well as on his ability to develop those visions?

iii. Has he generated truly vast wealth such that his business success can properly be viewed as exceptional?

iv. Does he have a special skill and effort which is special to him and which survives as a material consideration despite the partnership or pooling aspect of the marriage?

v. Would it, in all the circumstances, be inequitable for me to disregard that contribution?"
Roberts J answered all of the above questions in the affirmative.

Compare and contrast where H is a less wealthy millionaire, who will be forced to pay over half of his fortune, or to the even to less wealthy where H is sometimes left with far less than half.


Non-matrimonial property

What constitutes a non-matrimonial asset often the cause of considerable conflict.  Broadly, it is any item of value owned by the parties the source of which is outside the marriage.

This can mean something owned by one of the couple prior to the marriage or acquired after the couple separated. This could be a home, savings, business or other investments. It can also be an asset inherited or gifted to one of them individually either before, during or after the marriage.

In contrast matrimonial assets are usually viewed as those accrued during the course of the marriage. It is very difficult to persuade the court that the family home should not be considered a matrimonial asset.

Charman [2007] EWCA Civ 503 the court said “to the extent that their property is non-matrimonial, there is likely to be a better reason for departure from equality” - but that non-matrimonial property was still to be shared - So, the existence of non-matrimonial property could justify departure from equality, but not necessarily if this would result in unfairness to one party or the other.

More recently. Mostyn J has considered the issue in Jl v SL (No 1) [2014] EWHC 3658 (Fam) - an appeal from a DJ in the PRFD which Mostyn J dealt with (having allowed the appeal on two of the three grounds pleaded) by way of a retrial.  In relation to the issue of ‘non- matrimonial’ property the key points were:

Held W’s inheritance of £465k and H’s net share of sale proceeds of just over £586k were non-matrimonial assets.

In respect of the inheritance, the fact that there had been some mingling did not make the non-matrimonial source of the funds irrelevant.

In terms of the share sale proceeds, they were made over 20 months after the separation, from a job which H took 11 months after separation and in a completely different sector to the job in which he had worked during the marriage.

The matrimonial assets (ie not the inheritance or the shares) were divided equally.  The judge then assessed the parties’ needs, and found that no adjustments needed to be made, and therefore the inherited assets and assets acquired post-separation were not divided at all.  Further, Mostyn J held that no spousal maintenance was required as, using a Duxbury calculation, the wife was easily able to meet her needs from the income that could be generated from investing her capital.

In order to reach this finding, Mostyn J looked at the case law on non-matrimonial property and post-separation accrual.

Mostyn J stated that a key component of fairness is drawing the distinction between matrimonial and non-matrimonial property. In determining how to deal with matrimonial and non-matrimonial assets, he identified two schools of thought:

1 Adjust the percentage split from 50%; or

2 Identify the value of the non-matrimonial property and exclude that. The remaining matrimonial property is then divided 50:50, in accordance with the sharing principle.

Mostyn J favoured the second approach. He held that the first approach requires a judge to use their intuition, which makes it a ‘lawless science’.

This is somewhat of an over-simplification, as it is not always black and white whether an asset is matrimonial or non-matrimonial. For example, a non-matrimonial asset can change into a matrimonial asset during the marriage, if it has been treated by the couple as part of the economic life of the marriage. By way of example, the asset could be mingled, lived in by the family, enjoyed by the family, etc.

In assessing this, Mostyn J looked back at the earlier case of N v F (Financial Orders: Pre-Acquired Wealth) [2011] EWHC 586 (Fam). In this he set out that the process should be:

1 The court should first decide whether the existence of pre-marital property should be reflected at all. This depends on questions of duration and mingling.

2 If it does decide that reflection is fair and just, the court should then decide how much of the pre-marital property should be excluded. Should it be the actual historic sum? Or less, if there has been much mingling? Or more, to reflect a springboard and passive growth?

3 The remaining matrimonial property should then normally be divided equally.

4 The fairness of the award should then be tested by the overall percentage technique.

Mostyn J set out that despite this approach, mingling may nonetheless lead to an unequal division of the matrimonial property. For example, although the matrimonial home will normally be deemed matrimonial, an unequal division could be justified if the contributions to the purchase price had been unequal.

In a similar approach to his treatment of non-matrimonial property, Mostyn J criticised the practice of adjusting the overall percentage on an intuitive basis to reflect any assets acquired post-separation. Rather, the court should identify the matrimonial property, and then go on to determine how post-separation assets should be split.

Mostyn J again referred back to one of his earlier cases, Rossi v Rossi [2006] EWHC 1482 (Fam), to set out the principles which should be followed and paragraphs 24.1 to 24.7 of that judgment should be read in that regard. Broadly speaking, Mostyn J set out that assets which came about after separation due to the personal industry of one of the parties are non-matrimonial. Then, as with pre-acquired assets, the matrimonial property should be divided equally with the non-matrimonial property not being shared (subject to needs, of course). In deciding whether the post-separation accrual should be shared and, if so in what proportions, considerations will include whether the applicant has proceeded diligently with his/her claim and whether the personal making the post-separation accrual has treated the other party fairly during the proceedings.

Mostyn J also identified two different kinds of post-separation assets, the terminology having been created by Roberts J in Cooper-Hohn v Hohn [2014] EWHC 4122 (Fam):

1 Continuum cases – assets owned at the point of separation are matrimonial, but any growth in value post-separation can be divided unequally (except for passive growth); and

2 New venture cases – assets acquired post-separation are treated as non-matrimonial assets (and so divided unequally). 

Although Mostyn J endorsed the Rossi principles in this case, they must be treated with some caution, as he merely pays lip service to the criticisms enunciated by Charles J in H v H [2007] EWHC 459 (Fam), rather than dealing with Charles J’s critique.

Although Mostyn J provides a useful summary of his views on how to deal with pre-acquired, inherited and post-separation assets, he has been rather selective in the cases that he has considered, mainly drawing on his own prior cases.

Even if Mostyn J’s approach to the treatment of these assets is considered correct, which it broadly seems to be, he fails to provide much reasoning or analysis as to why he classifies the assets on the facts of this particular case in the way that he does. He provides some reasoning in relation to H’s share sale, but he provides no explanation as to why W’s inherited money should be treated as wholly non-matrimonial. He provides no reasoning as to why the mingling of these funds did not make them subject to sharing (even in unequal shares).

Still no guidance on the circumstances in which a mingled asset retains its non-matrimonial nature, so first instance judges will still be using their ‘intuition’ in this respect.

Other Authorities on ‘non-matrimonial’ property (in case your tribunal is NOT Mostyn J!):

GS v L [2011] EWHC 1759 (Fam), Eleanor King J held that, whilst the husband had brought substantial assets into the marriage, those assets were needed to satisfy the "immediate and long-term needs of the wife and the children”.(para 85)  It was not appropriate to begin an investigation as to whether or not they constituted matrimonial or non-matrimonial property.

B v B [2012] EWHC 314 (Fam), the court determined the extent to which it would be fair to include a husband's pre-marital wealth in the division of assets. The parties had been married for 15 years and there were no children. There was a 20 year age gap between the parties. The case came before Mr David Salter, sitting as a Deputy High court Judge, who stated that:
 
"In my judgment, it would be unfair not to exclude any of the husband's pre-marital wealth from the sharing principle. It underpinned the couple's future financial prosperity notwithstanding the wife's subsequent contributions. With some difficulty, I have concluded that a rounded figure of £820,000 should be excluded. The residual sum is sufficient to meet the wife's needs as identified at paragraph [90] and to do justice to the sharing principle."

He went on to say that:
 
"In summary, the wife's total capital needs in my judgment amount to £701,349. As Mostyn J observed in N v F, the assessment of need is not an insulated metric and the presence of pre-marital property may lead to a more conservative assessment of needs. In reaching my conclusion in relation to the wife's capital needs, I also have regard to the husband's pre-marital wealth.” (paras 85, 89)

Miller v Miller; McFarlane v McFarlane, [2006] UKHL 24 Baroness Hale said that: "the importance of the source of the [pre- matrimonial] assets will diminish over time". (para 148)  - This points not to the length of the marriage being a determining factor when looking at pre-acquired assets, but that the nature of the marriage may result in an intermingling of pre-acquired and marital assets with the end result being that the parties cease to consider the pre-acquired assets as a separate entity.  How the parties have enjoyed or used the pre-acquired assets will therefore be relevant to the particular circumstances of the case.

Contrast - K v L [2011] EWCA Civ 550 - the husband was awarded just 9% of the overall assets worth £57 million (the parties lived modestly, despite their wealth)

Against - Robson v Robson [2010] EWCA Civ 1171 - the wife received 33.33% of the assets of £22 million and H was required to sell some of his pre-acquired estate to meet the settlement. (a much more lavish lifestyle)

What both cases had in common, however, was the importance that was placed on how the parties had lived during their marriage and the effect this had on the importance of status of the pre-acquired wealth.


The ‘needs-based’ case

on 1st July the Family Justice Council released guidance on ‘Financial Needs’ on Divorce.  This follows the Law commission’s consultation on matrimonial property, needs and agreements which was published in February.  The guidance is said to be “a useful tool for the judiciary” which aims to clarify the meaning of “financial needs” on divorce, to provide a clear statement of the objective that financial orders in a needs-based case should strive to achieve, and to encourage consistency of approach.

The guidance sets out the Law Commission’s overall objective “to meet needs to enable a transition to independence to the extent that is possible in the circumstances” and then examines the justification for meeting needs through financial remedies. In summary it states that:
  • Marriage typically creates a relationship of interdependence.
  • The presence of children commonly creates dependance.
  • Decisions that one spouse should be ‘homemaker’ at the expense of developing earning capacity can create potentially long term dependence.
  • If resources permit, then it is generally right and fair that relationship generated needs should be met by the other party.
  • It further discusses what needs are and how they are measured.  By examining the case law the report gives the following guidance:
  • The main needs in most cases are for housing and present and future income (including in retirement).
  • The court will assess the level and duration of need as a question of fact. Taking into account and assessing the needs of both of the parties.
  • Need will be measured by assessing available financial resources.
  • To measure need, and the ability to meet it, both parties will be expected to present appropriately detailed budgets to the court.
  • The court will decide whether the needs can best be met by capital or income provision.
  • The term ‘reasonable requirements’ to describe needs is now not approved.
  • The term ‘needs (generously interpreted)’ has gained acceptance to assist determination in higher resource cases.
  • The court will strive to stretch finite resources and where resources are modest the children’s needs may predominate.  This will mean that where resources are modest, the children’s need for a home with their primary care may predominate but, if possible, the court will strive to stretch resources so as to provide a home for the children with each of the parents.
  • Need will be measured by assessing the standard of living during the relationship, generally the longer the relationship’s duration the more important this factor will be.  However a party may be expected to suffer some reduction in standard of living having regard to the overall objective of a transition to independence.
  • Needs may be met from non-matrimonial resources which meant that in a needs case the court should not focus on the marital acquest, but should instead consider all the available assets.
  • Before requiring payments to meet need the court will stand back and consider what portion of the payer’s resources should fairly go to the payee.
  • The court will consider the detrimental impact of requiring one party to remain on the mortgage of the other’s home for an indefinite period.
  • If the needs of the children require one party to sacrifice an entitlement to capital in favour of the primary carer then the court will consider reimbursement to the sacrificing party through a Mesher order. However, if the ‘sacrificing party’ will be able to replace the capital through anticipated future efforts, a Mesher may not be appropriate.  The fairness of a Mesher can also be undermined by the likely effects on the primary carer at the time the charge is triggered.

The report then goes on to tackle the issue of duration of provision of maintenance to meet needs and the transition to independence.

Throughout, the guidance refers to the leading case law and contains extracts of essential reading of the relevant judgments. Annex 2 to the guidance has a table of cases with short summaries and also contains annotated worked examples, taken from the LiP guidance Sorting out Finances on Divorce. Annex 3 briefly addresses the topic of pensions, referring to the orthodox approach encouraged by Martin-Dye v Martin-Dye [2006] 2 FLR 901, but noting that there are issues in cases of more modest means and that there is no consistent methodology when pension offsetting.  Annex 4 is a table giving practical examples of different types of need, ranging from the common place (for example, a main home) to the more unusual (for example, funding a hobby).

The Family Justice Council guidance can be found here:

https://www.judiciary.gov.uk/wp-content/uploads/2013/04/guidance-on-financial-needs-on-divorce-june-2016-2.pdf

And the Law Commission February report is here:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/286594/9781474100168.pdf

Kate Miller