CATEGORISATION OF ASSETS
ON DIVORCE
– AND NEEDS!
David Hodson
Pre White
White
Post White
Miller
Charman
Post Charman case law
What is premarital contribution?
Reform proposals of Centre for Social Justice
Law Commission enquiry
David Hodson
The International Family Law Group LLP
Hudson House
8 Tavistock Street
Covent Garden
London WC2E 7PP
07973 890648
www.iflg.uk.com
© April 2013
(Statutory material: (c) Crown Copyright)
David Hodson acknowledges the assistance of Michael Allum and Katie Harris of The International Family Law Group LLP in these notes
ABOUT THE SPEAKER AND AUTHOR
David Hodson is a family law dispute resolution specialist. He is a English solicitor (1978 and accredited 1996), mediator (1997), family arbitrator (2002), Deputy District Judge at the Principal Registry of the Family Division, High Court, London (1995) and an Australian (NSW) solicitor (2003) and mediator. He deals with complex family law cases, often with an international element.
He is practising in London and Surrey, England and Sydney, Australia. He is a partner and co-founder of The International Family Law Group, www.iflg.uk.com.
He was joint founder in 1995 of probably the world’s first metropolitan practice to combine family lawyers, mediators and counsellors and with an emphasis on a conciliatory and holistic approach. It was subsequently copied in many practices across the world. He is past chairman of the resolution/Solicitors Family Law Association's Financial Provision Reform Committee, Training Committee and Good Practice Committee and founder member of its International Committee. He is a member of The President’s International Committee. He is past vice chair of the UK College of Family Mediators, the umbrella organisation for family mediation. He is a member of the Chartered Institute of Arbitrators. He is co-author of “Divorce Reform: a Guide for Lawyers and Mediators”, “The Business of Family Law” “Guide to International Family Law” and consulting editor of “Family Law in Europe”. He is an Accredited Specialist (with portfolios in Substantial Assets and International Cases), a Fellow of the International Academy of Matrimonial Lawyers, a past trustee of Marriage Resource and member of the Family Law Section of the Law Council of Australia and a member of the Lawyers Christian Fellowship. He is chair of the Family Law Reform Group of the Centre for Social Justice
He has written and spoken extensively on family law including many conferences abroad. Some papers and articles can be found at his web site below.
He is the author of “The International Family Law Practice”, (Jordans Feb 2012), probably the leading textbook on international family law, of which part of this is an extract. He was Family Law Commentator of the Year 2011 and nominated International Family Lawyer of the Year 2012
More details can be found at www.davidhodson.com. He can be contacted on .
The International Family Law Group LLP is a specialist law firm providing services to the international community as well as for purely national clients. iFLG has a special contract with the Legal Services Commission for child abduction work and is regularly instructed by the UK Government (Central Authority). It acts for international families, ex pats and others in respect of financial implications of relationship breakdown including forum shopping and international enforcement of orders. It receives instructions from foreign lawyers and, as accredited specialists, acts for clients of other law firms seeking their specialist experience.
iFLG is situated in Covent Garden near the Law Courts. Its mobile telephone accessible website includes valuable information, podcasts, a government approved child abduction questionnaire and formulae as a starting point for calculating fair financial settlements. It has emergency 24 hour contact arrangements. Contact at www.iflg.uk.com
PRE WHITE
Nothing explicit in S 25 MCA 1973
MCA introduced a completely discretionary approach with identical powers for both husband and wife
England in the early 1970s could have adopted a form of marital property with the starting point of equality. Specifically it did not. Indeed, one third was more in favour than one half. In practice, the objective became the reasonable requirements of the applicant: Preston (1982) Fam Law 17.
Court would take from both marital and non marital assets
More weight was given to non-matrimonial assets being separate but no sophisticated case law
Millionaire’s defence did not distinguish
1984 Act: clean breaks which specifically took from non-marital
Capitalisation and larger awards but still might leave husband with much far greater % of all assets even if reasonable requirements were dealt with
1990s unhappiness at outcomes but can’t get no satisfaction from Parliament
Conran (1997) 2 FLR 615. The wife received £6.2 million resulting in net worth of £10.5 million to recognise her needs and contribution to her husband's career at a time when he was worth about £80 million.
Careful consideration by Thorpe LJ in Dart [1996] 2 FLR 286 on background to development of this search for the fair outcome:
The statutory design [of s25] was to give the Judge exercising the power of equitable distribution the widest discretion to do fairness between the parties reflecting considerations and criteria laid out within the section. Parliament might have opted for a community of property system or some fraction approach. It opted instead for a wide judicial discretion that would produce a bespoke solution to fit the infinite variety of individual cases. The scheme of the Act must also be set in the wider perspective of history and of the general civil law. In this jurisdiction rights of property are not invaded or reduced by statutory powers save for specific and confined purposes. The purpose of this statute was to make fair financial arrangements on or after divorce in the absence of agreement between the former spouses. Beyond that the power was not introduced to re-organize proprietary rights within families.
After commencement on 1 January 1971 there was obvious curiosity and speculation amongst practitioners as to how this new power would be interpreted and utilized by the courts. In 1973 Lord Denning MR chose the case of Wachtel v Wachtel as a vehicle for the pronouncement of guidelines. He proposed a mathematical solution. If the applicant was to have periodical payments her capital share should be one-third. If she were not to have periodical payments then her capital share should be one-half.
Nearly 25 years later it seems curious that he should have proposed a mathematical application when the statute itself not only did not speak of fractions but had clearly preferred the alternative approach. But practitioners and Judges had been used to deciding the level of income support by reference to fractions prior to 1 January 1971. So the language of the Master of the Rolls was familiar if not innovative. Secondly the approach produced a manifestly fair result on the facts of that case which was not just a typical case but the essentially typical case of a middle-class family that had prospered through a long marriage in an inflationary era. Of course the decision was binding on this court and subsequent judgments have acknowledged its application in similarly typical cases.
But behind those deferential acknowledgements lies the reality that it has been consistently rejected as an authority of general application. The real interpreter of s25 and its predecessor was Ormrod, LJ who between 1976 and 1981 demonstrated in a series of judgments in this court how s 25 should be utilized by practitioners in negotiating or Judges in determining the fair result. This was one of his major contributions to the evolution of family law. … The judge must direct himself by reference to the section 25 criteria and not use fractions other than within the context of a broad analysis of outcome.
See also for example Peter Gibson LJ in Dart: But the statutory discretion, it seems to me, might have been differently interpreted by the courts to allow a more generous approach to the applicant in a big money case, so that the award was not in effect limited by the applicant's reasonable requirements. Paragraph 25 (2)(b) is but one of the paragraphs to which particular regard is to be had, and both parties' reasonable requirements must be taken into account. Other paragraphs refer to matters which have had nothing to do with the applicant's financial needs, for example, para (d) with its reference to the duration of the marriage and para (g) with its reference to conduct. And I come back again to the width of s 25(1). I entirely accept that in a big money case it is a relevant and important consideration whether the wealth of the respondent is largely attributable to his inheritance and whether the applicant contributed to that wealth. I also accept that once one goes beyond the reasonable requirements of the applicant, the exercise of discretion becomes more difficult to explain in a way that can ensure consistency of approach by the courts. Nevertheless, standing back and looking at the position overall, were I unconstrained by authority I would have to say that I regard an award of £9m to a good wife in a marriage of 14 years and a good mother to the respondent's children out of the respondent's resources of £400m as on the low side.
In conclusion, pre-White the issue of categorisation of assets had barely arisen because it was often irrelevant to the criteria being adopted namely the reasonable requirements of the applicant, invariably the wife including the wife with primary care of the children. Even in big money cases, there was a ceiling beyond which reasonable requirements could not go. The concept of reasonable requirements had served the profession well for a generation of lawyers. It had provided certainty and understanding of the process.
But was it fair and was it just? Was it fair on the applicant? Was it just for the respondent who had non-marital assets?
WHITE
(2000) 2 FLR 981, late October 2000
Gender discrimination
The profession had been going wrong for a generation
A starting point, check, yardstick of equality
If, in their different spheres, each [spouse] contributed equally to the family, then in principle it matters not which of them earned the money and built up the assets. There should be no bias in favour of the money-earner and against the home-maker and the child-carer. LJ Nicholls
In making an order, a judge would always be well advised to check his tentative views against the yardstick of equality of division. In perhaps the crux sentence, he said, as a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the parties and the court to focus on the need to ensure the absence of discrimination.
He was at pains to say this was not to introduce a presumption of equal division under another guise. Equality was a form of check. Only Parliament could introduce it as a presumption. However in society today, perhaps as distinct from 30 years ago, there is a greater awareness of the value of the non financial contribution to the welfare of the family. Standards of fairness can change.
Lord Nicholls added: "This distinction is a recognition of the view, widely but not universally held, that property owned by one spouse before the marriage, and inherited property whenever acquired, stand on a different footing from what may loosely be called matrimonial property. According to this view, on a breakdown of the marriage these two classes of property should not necessarily be treated in the same way.
Property acquired before marriage and inherited property acquired during marriage come from a source wholly external to the marriage. In fairness, where this property still exists, the spouse to whom it was given should be allowed to keep it. Conversely, the other spouse has a weaker claim to such property than he or she may have regarding matrimonial property.
Plainly, when present, this factor is one of the circumstances of the case. It represents a contribution made to the welfare of the family by one of the parties to the marriage. The judge should take it into account. He should decide how important it is in the particular case.
The nature and value of the property, and the time when and circumstances in which the property was acquired, are among the relevant matters to be considered. However, 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.”
POST WHITE
One immediate consequence of White was to explore how far the equality principle extended. What were its boundaries? Specifically what were the boundaries of contribution and boundaries of source of wealth?
Cowan (2001) 2 FLR 192, Court of Appeal, Thorpe, Walker, Manse LJJ. The Black Bin Bag Man.
Known as The Midas Touch case, it concerned how much weight in the equality equation should be given to creative flair and entrepreneurial genius which lies in one spouse alone.
Court got completely lost post White in stellar contribution or special contributions.