Financial Settlements in Divorce: Factors
The headline-grabbing decisions in a spate of ‘rich list’ divorce cases in 2007 confirmed that the House of Lords (now the Supreme Court) is emphasising that marriage is a partnership and that the relative contributions of the couple to the marriage will be relevant to the financial settlement terms as will the legitimate expectations of the couple. The judgments will be seized upon by divorcing spouses who sacrifice their own careers for those of their partner or who marry with the expectation of a well-to-do lifestyle only to have that prospect dashed. In delivering his judgment Lord Nicholls of Birkenhead stressed that marriages were partnerships of equals and that this principle is as relevant to short marriages as long ones.
In the first case (McFarlane v McFarlane), a wealthy accountant’s wife had given up her own successful career to help support his career and to be wife and mother of their three children. Nearly two decades later, the marriage broke down. The House of Lords heard the appeal against the decision of a lower court that the wife should receive a settlement of £250,000 a year for five years out of his income of £750,000. The Lords decided that Mrs McFarlane should receive that sum for life subject to possible future revision if circumstances change. This judgment confirms that for ‘stay at home’ spouses, the settlement will not be based on just an assessment of their needs, but also on their contribution to the wealth of the family. In addition, in this case, the Lords also took account of the loss to Mrs McFarlane caused by foregoing her career. In 2009, Mrs McFarlane obtained an increased payment based on her ex-husband’s income having risen.
In the second case (Miller v Miller), a brief (under 3 years) and childless marriage was followed by divorce. The lower court ruled that since the wife had a reasonable expectation of a wealthy lifestyle, she should be given a settlement of £5m from her husband’s fortune, reported as being between £15m and £30m. This ruling was upheld, at least in part because Mr Miller earned a great deal of money during the period of their marriage. In general, the courts will look somewhat differently on wealth brought into the marriage by each spouse as opposed to the wealth accumulated during the marriage.
The question of the actual conduct of the spouses during the marriage was regarded as being of no importance in these cases.
In his judgment, Lord Nicholls said that ‘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’. Non-matrimonial property is property brought into the marriage rather than acquired during it. He also emphasised that unless the misconduct by one spouse is ‘such that it would in the opinion of the court be inequitable to disregard it’, it cannot be a factor in the financial settlement. This should enable more divorce cases to avoid the courts and the negotiations to be conducted in a more conciliatory manner.
The courts are reserving the right to take account of all relevant circumstances in making their judgments. For example, in the largest divorce case in UK history, the Lords awarded the wife of an insurance magnate £48m of a family fortune of approximately £125m, virtually all of which was created during the marriage. Another case saw a division of assets which took account of the fact that pension assets are not immediately realisable, which would have left a divorced spouse with a large future pension entitlement ‘asset rich’ but ‘cash poor’.
For example, in the divorce of Heather Mills and Paul McCartney, the court took the view that Ms Mills’s contribution to the wealth of the McCartney family was slight and the resultant settlement Ms Mills received was accordingly based on the needs of herself and the couple’s daughter only.
In 2009, a husband whose wealth fell dramatically after reaching a settlement with his ex-wife went back to court to obtain a variation of the settlement – and failed. In another case, the wife of a husband who, a few months after their financial settlement was agreed, sold a company for far more than its valuation in his assets on divorce, sought a larger settlement on the ground that his assets were understated when negotiating their settlement. She also failed.
A lotto win, which a woman did not disclose to her husband, was largely discounted in the divorce settlement in a 2011 case.
More recently, the courts have been taking more and more notice of pre-nuptial agreements when dividing assets of divorcing couples. These are now well worth considering when there is substantial family wealth to protect. The Supreme Court case of Radmacher v Granatino confirmed that where a ‘pre-nup’ is agreed by two consenting adults without pressure being exerted and where there is the ability to take professional advice, then the courts will in general uphold the terms of the pre-nup unless there is a compelling reason (such as child welfare issues) to not do so.
The courts take a strong line if parties attempt to conceal assets. In decisions in late 2012 and early 2013, two men were jailed for failing to ‘come clean’ to the family court. In the first case, the man had made fraudulent claims regarding expenses incurred (reducing his disclosed income) and in the second had refused to provide information to the court about his assets.
Following a number of inconsistent decisions by the courts in 2013, the Government decided to legislate to make give validly created pre-nuptial agreements legal status. Decisions in 2014 make it clear that when a ‘clean break’ agreement is made on divorce, the courts are unwilling to reopen the settlement to give a ‘second bit of the cherry’ to either party save in the most exceptional circumstances, although more recent cases have shown that where the circumstances warrant revistign the arrangement, this can be done.
While marriage revokes an earlier will, divorce does not, so revisiting your will on divorce is always a sensible course of action.