There has been a run of cases in the courts recently where wealthy parties who have been separated for many, many years have finally decided to initiate divorce proceedings and divide their wealth. These cases have raised fundamental questions about what constitutes family wealth and where the interests of one party in the financial success of the other should end even though the marriage technically subsists. This article aims to set out the current state of the law where there has been a significant upward shift in the fortunes of one party between separation and divorce.
First, a reminder of some basic principles to set the scene. When the court is called upon to consider the division of finances on divorce, its first consideration is the welfare of any children. Thereafter, there is a statutory checklist of matters to be taken into consideration:
- the needs and resources of the parties;
- their ages;
- the duration of the marriage
- the standard of living; and
- the contributions made, etc.
The court will assess the division of assets along the lines of what it considers fair in its discretion and then will measure it against the “yardstick of equality” as a final check. In most cases, where there is not enough money to go round, the parties’ needs are the most important factor. However, the law tends to be made on the “big money” cases. Where there is enough to go around, the excess is more likely to be fought over. Further, a current area of significant discussion is the distinction between matrimonial and non-matrimonial property (further considered by Peter Baughan in this issue). The law is developing so that the yardsick of equality applies forcefully to the former, and less consistently to the latter, so that characterisation of an asset as “nonmatrimonial property” may be a big step towards keeping it safe.
Where delay between separation and divorce is short
The discussion started in earnest in 2004, with the case of M v M (Financial relief: substantial earning capacity). In this case the parties had been separated for only two years, but their assets had risen by 43 per cent – to about £5.5 million – in that time due to the husband’s hard work. The court held that, because the parties had been financially linked throughout that time and had made an equal contribution to the marriage, the wife should be entitled to share in the accrual.
Subsequently, and by way of contrast, Lord Mance in the House of Lords in the case of Miller (2006) looked at the huge uplift in value in the husband’s shares since the parties’ separation and decided that the wife should have no claim on that, as it had been down to the husband’s independent efforts, and the assets should thus be assessed at the date of separation.
There were no children in the Miller case and therefore the wife was making no continuing contribution to the marriage. It is entirely possible that there would have been a different outcome if there had been children.
Where significant time has passed
In the case of Rossi (2006), the court was faced with a marriage that lasted 20 years but ended in the mid-1980s, when the parties began living in different countries. The wife did well in a business venture subsequently and the husband issued his application for financial relief in 2004, more than twenty years after their effective separation. The court dismissed the husband’s claims against the wife and laid down the following guidance in relation to assets accrued after separation:
- Assets are to be valued at the date of trial.
- Those assets acquired by one party after separation by virtue of personal industry, rather than by use of a pre-existing asset, may be considered non-matrimonial property.
- Where the asset is a bonus or suchlike, if it relates to a time when the parties were cohabiting then it cannot be non-matrimonial. In fact, a bonus should not readily be called non-matrimonial unless it relates to a period commencing more than 12 months after separation.
- When considering whether a non-matrimonial post-separation accrual should be shared and in what proportions, the court will look at things such as whether the applicant has diligently proceeded with their claim, whether he/she has been treated fairly during the period of separation and whether the money-maker has the prospect of making further gains.
Subsequently in the case of S v S (Ancillary relief after lengthy separation) (2006), the court approved what had been said in Rossi. In that case, the wife had delayed her ancillary relief claims for seven years and the husband’s shares had increased massively in value due to his own hard work during that time. The court said that the wife should not be entitled to share in whatever liquidity would at some point be released from his shareholding and made the point that it was less fair, year on year, that she should do so.
There was slight dissent against the Rossi principles in the case of H v H (2007). The Court of Appeal in the case of Charman last year side-stepped the issue, saying that it did not have enough bearing upon the outcome of the appeal to be dealt with in detail, although it endorsed the opinion that the sharing principle might apply with less urgency to non-matrimonial assets. Since then, another High Court judgment by yet another different judge has shown that the line cannot be so clearly drawn between matrimonial and non-matrimonial property in the context of assets acquired since separation. In P v P (2007), Mr Justice Moylan was very clear that post-separation accrual is a matter for the discretion of the judge, and that it can simply be illustrative of an imbalance in earning capacity, something which is specifically set out for consideration in section 25 of the Matrimonial Causes Act. It seems tolerably clear that the line is less easily drawn the shorter the period between separation and the determination of financial proceedings.
The Court of Appeal has indicated that it would be willing to review the issue if an appropriate case comes before it. Until then, we’ll just have to keep watching to see how the law develops.