“If […] a litigant flagrantly over-eggs the pudding and thus deprives the court of any sensible assistance, then he or she is likely to find that the court takes a robust view and drastically prunes the proposed budget.” This was Bennett J’s warning to family practitioners in McCartney v Mills McCartney [2008] about the approach the court will take towards an overinflated budget.

This article explores income needs in cases involving substantial assets (known as big money cases) and will focus on the factors a court takes into account when considering needs and investigating the importance, for family practitioners, of constructing a carefully considered budget and the consequences of failing to do so.

BD v FD

Bennett J’s warning did not stop the wife in the recent case of BD v FD [2016] producing a “wildly aspirational” budget of £500,000 per annum, excluding costs for the children, in the context of an average household annual expenditure of £250,000. The husband’s proposal was based on capitalised annual income of £150,000.

BD v FD involved an eleven year marriage with four young children. The husband was treated as having assets of £58 million (held in bare trust) but was beneficially interested in assets of £105 million (held in trusts in which he had a life interest). The husband’s wealth was inherited and dated from the 17th century. It was accepted by both parties that it was a ‘needs’ case and the issue in dispute was the assessment of the wife’s future financial needs. The wife’s budget was based on the new lifestyle which she had adopted to reflect her social circle and how she wanted to live. She attempted to justify it on the basis that:

  • he had unreasonably restricted the family’s expenditure during the marriage; and
  • there were new opportunities for holidays and social activities now that the children were older.

Needs

This begs the question – what are ‘needs’?

Unhelpfully, there is no definition of ‘needs’ in statute. Although Section 25(2)(b) of the Matrimonial Causes Act 1973 sets out that the court shall have regard to “the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future”, needs remain a very broad concept.

Baroness Hale’s well known dicta in Miller v Miller/ McFarlane v McFarlane [2006] sets out what family practitioners have come to see as familiar strands to the court’s discretion in making a financial award upon divorce, namely financial needs (generously interpreted), sharing, and compensation. Since this judgment, the court has been grappling with the words ‘generously interpreted’ which have from time to time received judicial criticism. Some help has been afforded by the Family Justice Council’s guidance on Financial Needs on Divorce (published in July 2016). However, the court will continue to rely on the very wide discretion afforded by statute.

Regardless as to whether needs are generously interpreted, every analysis of a party's needs begins with their budget or expenditure schedule. This document is often central to a case and requires the parties to set out a list of current and future expenditure on a monthly or annual basis.

Standard of living

The court cannot consider the parties’ needs, or indeed their budget, in isolation, but will consider all of the circumstances of the case, in particular by reference to the standard of living during the marriage and the availability of resources. In G v G [2012], Charles J said that "the lifestyle enjoyed during the marriage sets a level or benchmark that is relevant to the assessment of the independent lifestyles to be enjoyed by the parties.” However, Mostyn J reduced the influence of the standard of living enjoyed during the marriage, saying in SS v NS [2015] “it is a mistake to regard the marital standard of living as the lodestar. As time passes how the parties lived in the marriage becomes increasingly irrelevant.”

This principle was applied in BD v FD where the standard of living was the focus of much attention. The wife claimed that the husband dictated the standard of living, unreasonably limiting expenditure. However, Moylan J made it clear that, just because the husband could afford a better standard of living, a bigger award for the wife was not justified. Although the assessment of need is objective, the much weightier factor was the marital standard of living which, he concluded, was the benchmark but not the lodestar. He also stated that the level of needs would depend on the duration for which they could be met – the longer the period, the less likely needs would remain at the same standard of living enjoyed during the marriage.

Moylan J deployed Bennett J’s pruning treatment and assessed the wife’s realistic maintenance award at £175,000 per annum (a 67% reduction). Despite this reduction, the award still resulted in a capital fund of £5 million which remained, as Mostyn J put it in N v F [2011],“worlds away from 'needs' as most people would understand them to be, even needs 'generously interpreted'”.

Case law

A schedule of big money cases in which budgets have been ‘pruned’ appears at the end of this article, together with an analysis of the treatment of budgets in those cases. The court seems to be following Bennett J’s dicta in McCartney v Mills McCartney [2008] and, the more inflated the budget, the greater the likelihood of it being pruned back. As will become clear, it appears that the court’s pruning technique is either to identify individual items to be deducted or to make a single global reduction based on fairness. As Mostyn J said in SS v NS, “it is important that the court should clearly survey the wood as well as the trees”:

  • The most infamous big money case dealing with needs is McCartney v Mills McCartney [2008] where the wife’s needs were “a factor of magnetic importance”. Her budget totalled £3.25 million per annum and was stripped back to £600,000 per annum. Bennett J analysed her budget over 29 paragraphs identifying certain items, such as maintaining seven fully staffed properties (£645,0000), holiday expenditure (£499,000) and a private helicopter (£185,000), as illustrative of "how unreasonable (even generously interpreted)”her claim was. He then pruned each item of expenditure. At the end of the exercise, deductions totaled 81%.
  • The pruning in AR v AR [2011] was only 15%. The wife’s budget was reduced by Moylan J on the basis that specific items were clearly too high (car depreciation, petrol, clothes and, on an annual basis, holidays) but the bulk of the items were held to provide a fair estimate of future income needs.
  • In Z v A [2012] Coleridge J held that the standard of living was the “next most significant factor in the determination” (after the available assets). Reference was made to the parties’ “glittering lifestyle”, but counsel for the husband had been able to undermine almost every figure in the wife’s budget without any great difficulty. The husband claimed that the wife’s figures were invented bearing no relation to their lifestyle, high though the standard of living had been. Coleridge J accepted that the wife’s budget was wildly high and therefore of “little real assistance.” It was reduced by 47%.
  • In S v S [2014] it was held that the wife’s award should enable her to “continue not in the same way as before the marriage broke down, but to have a standard of life which bears a proper relation to that to which she has been accustomed and to that of the husband.” Bodey J assessed the wife’s needs at £100,000 per annum, the level they had been set by the husband during the marriage.
  • In Rapp v Sarre [2016] the wife’s budget was considered by the trial judge to be reasonable in light of the parties’ standard of living and the assets available, subject to a little trimming of items such as clothing and footwear, beauticians, entertainment, hobbies and holidays. The Court of Appeal held that need is a flexible concept and the trial judge was entitled to take account of the parties’ high standard of living during the marriage.
  • In BD v FD Moylan J did not itemise his reasons for pruning the wife’s budget; rather, the reduction appears to have been justified on the basis that “the starting point for the assessment of needs is the standard of living during the course of the marriage.” Unfortunately for her, and unusually, the wife’s proposed budget was vastly in excess of this starting point. Rather, it was based upon “the different lifestyle she has had in the past year and which she would want to enjoy in the future.” As noted above, it was pruned by 67%.
  • In Juffali v Juffali [2016] EWHC 1684 (Fam) was a claim for financial relief under Part III of the Matrimonial and Family Proceedings Act 1984. Roberts J stressed that this was a “needs driven” claim and identified that the wife’s budget of £6 million should be scrutinised carefully. Indeed, it was the subject of much discussion in the judgment. Roberts J took a holistic approach to the budget, rather than addressing each individual item (including nearly £600,000 per annum for private jet charters and expenditure on clothing and jewellery in excess of £1.02 million per annum). She found that the wife could not expect to replicate the standard of living enjoyed throughout the marriage and pruned her budget by 58% to £2.5 million with additional step downs over the subsequent years. She held that the award bore a sufficient correlation to the standard of living and warned that “budgets are highly subjective presentations where they are not anchored to evidence actual expenditure.”

Schedule of cases

Case Assets Average household expenditure during the marriage Budget Final maintenance award Decrease
McCartney v Mills McCartney [2008] £407.8 million No figure given but H's spending was over £4 million p/a £3.25 million p/a £600,000 p/a -81%
AR v AR (Treatment of inherited wealth) [2011] Between £20 million and £24 million £140,000 p/a £136,000 p/a £115,000 p/a -15%
Z v A [2012] £41 million No figure given £476,000 p/a plus £60,000 p/a for the child £250,000 p/a -47%
S v S [2014] £25 million No figure given but H's letter to Savills in 2006 set W's income need at £100,000 p/a £360,000 p/a £100,000 p/a -72%
Rapp v Sarre [2016] £13.5 million No figure given but the parties' spending during the year of separation totaled nearly £280,000 £280,000 p/a £160,000 p/a -42%
BD v FD [2016] £58 million £250,000 p/a £538,000 p/a plus £44,000 p/a for the children £175,000 p/a -67%
Juffali v Juffali [2016] W claimed £650 million. H claimed £22.8 million plus trust assets of £95.3 million No figure given - W alleged 2012 expenditure was £22 million £6 million - 20% reduction to £5 million between her 65th and 75th birthday. Further reduction to £3.8 million for the rest of her life £2.5 million p/a - 33% reduction in 2026 to £1.675 million. Further reductioon of 25% to £1,256,250 from W's 75th birthday -58%

Conclusion

Clearly each case is unique and dependent on its own facts and the court does not focus purely on income needs. Ultimately the highly discretionary nature of the assessment process means that there is real difficulty in extracting even very broad principles. Despite this, and although we are constantly reminded that “the assessment of need is elastic, fact specific and highly discretionary,”it is possible to draw some conclusions from recent case law and from an analysis of the schedule as follows:

  • The more inflated the original budget, the more likely the court is to “prune” it back more aggressively. Query, for example, whether the wife in BD v FD would have found herself at the level of £175,000 per annuum had she prepared her initial budget at a more realistic level;
  • The marital standard of living is key in these cases, but it is the benchmark and not the lodestar; and
  • The longer the period for which needs are being met, the less likely these should be sustained at the level of the marital standard of living.

Practice points

  • Careful advice regarding the relationship between the available resources, the marital standard of living and income provision will be required in every case;
  • Clients should be advised that an overinflated budget may result in the judge placing less weight on individual items of expenditure and replacing them with their own broad brush approach to needs;
  • Although some judges may take a broad brush approach, others will examine a carefully considered budget in detail. Therefore it is important for there to be evidence in support of current and future income needs; and
  • It is equally important to establish the pattern of historic family expenditure as a level against which the budget should be approached.

This article was published in New Law Journal in August 2016.