Judgments - Miller (Appellant) v. Miller (Respondent) and McFarlane (Appellant) v. McFarlane (Respondent)

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    134.  Hence, these three pointers do make it clear that a clean break is not to be achieved at the expense of a fair result. But the Act still leaves us without much help towards what the court should be trying to achieve by its reallocation of their resources and why it should be doing so. The great leap forward was achieved by this House in White v White [2001] 1 AC 596.

    135.  In hindsight, White v White should have been a simple case. There was a long marriage in which the couple had been partners in both senses of the term. Both were farmers. There were two farms. Both wanted to carry on farming. One solution might have been to give one farm to one and one to the other; at all events, the resources were such that each could have been enabled to farm independently. But by that time practice had become entrenched: in cases where there was enough to provide for both, the wife was entitled to her 'reasonable requirements', preferably capitalised, and the husband got the rest (see, eg, O'D v O'D [1976] Fam 83; Page v Page (1981) 2 FLR 198; Preston v Preston [1982] Fam 17). On separate property principles, this was deeply discriminatory. Where the parties had collaborated, not only in the enterprise of living together and bringing up their children, but also in the enterprise of making their living, as this couple had, why should only one of them be entitled to the surplus? In such a case, it is clear that the yardstick should be equal capital division, although factors such as the source of some of the assets might justify some adjustment.

    136.  Thus were the principles of fairness and non-discrimination and the 'yardstick of equality' established. But the House was careful to point out (see p 605f) that the yardstick of equality did not inevitably mean equality of result. It was a standard against which the outcome of the section 25 exercise was to be checked. In any event, except in those cases where the present assets can be divided and each can live independently at roughly the same standard of living, equality of outcome is difficult both to define and to achieve. Giving half the present assets to the breadwinner achieves a very different outcome from giving half the assets to the homemaker with children.

The rationale for redistribution

    137.  So how is the court to operate the principles of fairness, equality and non-discrimination in the less straightforward cases? As Lord Justice Ward has argued non-judicially ("Have the House of Lords abused Cinderella? Their Contribution to Divorce Law"), lecture at King's College, London, 23 November 2004, given that we have a separate property system, there has to be some sort of rationale for the redistribution of resources from one party to another. In my view there are at least three. Any or all of them might supply such a reason, although one must be careful to avoid double counting. The cardinal feature is that each is looking at factors which are linked to the parties' relationship, either causally or temporally, and not to extrinsic, unrelated factors, such as a disability arising after the marriage has ended.

    138.  The most common rationale is that the relationship has generated needs which it is right that the other party should meet. In the great majority of cases, the court is trying to ensure that each party and their children have enough to supply their needs, set at a level as close as possible to the standard of living which they enjoyed during the marriage (note that the House did not adopt a restrictive view of needs in White: see pp 608g to 609a). This is a perfectly sound rationale where the needs are the consequence of the parties' relationship, as they usually are. The most common source of need is the presence of children, whose welfare is always the first consideration, or of other dependent relatives, such as elderly parents. But another source of need is having had to look after children or other family members in the past. Many parents have seriously compromised their ability to attain self-sufficiency as a result of past family responsibilities. Even if they do their best to re-enter the employment market, it will often be at a lesser level than before, and they will hardly ever be able to make up what they have lost in pension entitlements. A further source of need may be the way in which the parties chose to run their life together. Even dual career families are difficult to manage with completely equal opportunity for both. Compromises often have to be made by one so that the other can get ahead. All couples throughout their lives together have to make choices about who will do what, sometimes forced upon them by circumstances such as redundancy or low pay, sometimes freely made in the interests of them both. The needs generated by such choices are a perfectly sound rationale for adjusting the parties' respective resources in compensation.

    139.  But while need is often a sound rationale, it should not be seen as a limiting principle if other rationales apply. This was the error into which the law had fallen before White. Need had become 'reasonable requirements' and thus more generous to the recipient, but it was still a limiting factor even where there was a substantial surplus of resources over needs: see Page v Page (1981) 2 FLR 198. Counsel would talk of the 'discipline of the budget' and suggestions that a wife's budget might properly contain a margin for savings and contingencies, or to pass on to her grandchildren, were greeted with disbelief.

    140.  A second rationale, which is closely related to need, is compensation for relationship-generated disadvantage. Indeed, some consider that provision for need is compensation for relationship-generated disadvantage. But the economic disadvantage generated by the relationship may go beyond need, however generously interpreted. The best example is a wife, like Mrs McFarlane, who has given up what would very probably have been a lucrative and successful career. If the other party, who has been the beneficiary of the choices made during the marriage, is a high earner with a substantial surplus over what is required to meet both parties' needs, then a premium above needs can reflect that relationship-generated disadvantage.

    141.  A third rationale is the sharing of the fruits of the matrimonial partnership. One reason given by the Law Commission for not adopting any one single model was that the flexibility of section 25 allowed practice to develop in response to changing perceptions of what might be fair. There is now a widespread perception that marriage is a partnership of equals. The Scottish Law Commission found that this translated into widespread support for a norm of equal sharing of the partnership assets when the marriage ended, whatever the source or legal ownership of those assets (Scot Law Com No 67, paras 3.66 to 3.68). A decade earlier, the English Law Commission had found widespread support for the automatic joint ownership of the matrimonial home, even during marriage (First Report on Family Property - A New Approach, 1973, Law Com No 52). Earlier still, the checklist of factors accompanying the new powers of property allocation in the Matrimonial Proceedings and Property Act 1970 had introduced the contributions which each party had made to the welfare of the family, including the contribution made by looking after the home and caring for the children. Thirty years later, the authors of Settling Up (see para 128 earlier, at p 56), found that "there appeared to be a relatively widespread assumption that an 'equal' or 50/50 division was the normal or appropriate thing to do", alongside a recognition of needs and entitlements (but their respondents' views on entitlements might not be quite the same as the lawyers', a point to which I shall return).

    142.  Of course, an equal partnership does not necessarily dictate an equal sharing of the assets. In particular, it may have to give way to the needs of one party or the children. Too strict an adherence to equal sharing and the clean break can lead to a rapid decrease in the primary carer's standard of living and a rapid increase in the breadwinner's. The breadwinner's unimpaired and unimpeded earning capacity is a powerful resource which can frequently repair any loss of capital after an unequal distribution: see, eg, the observations of Munby J in B v B (Mesher Order) [2002] EWHC 3106 (Fam); [2003] 2 FLR 285. Recognising this is one reason why English law has been so successful in retaining a home for the children.

    143.  But there are many cases in which the approach of roughly equal sharing of partnership assets with no continuing claims one against the other is nowadays entirely feasible and fair. One example is Foster v Foster [2003] EWCA Civ 565; [2003] 2 FLR 299, a comparatively short childless marriage, where each could earn their own living after divorce, but where capital assets had been built up by their joint efforts during the marriage. Although one party had earned more and thus contributed more in purely financial terms to the acquisition of those assets, both contributed what they could, and the fair result was to divide the product of their joint endeavours equally. Another example is Burgess v Burgess [1996] 2 FLR 34, a long marriage between a solicitor and a doctor, which had produced three children. Each party could earn their own living after divorce, but the home, contents and collections which they had accumulated during the marriage could be equally shared. Although one party might have better prospects than the other in future, once the marriage was at an end there was no reason for one to make further claims upon the other.

The ultimate objective?

    144.  Thus far, in common with my noble and learned friend, Lord Nicholls of Birkenhead, I have identified three principles which might guide the court in making an award: need (generously interpreted), compensation, and sharing. I agree that there cannot be a hard and fast rule about whether one starts with equal sharing and departs if need or compensation supply a reason to do so, or whether one starts with need and compensation and shares the balance. Much will depend upon how far future income is to be shared as well as current assets. In general, it can be assumed that the marital partnership does not stay alive for the purpose of sharing future resources unless this is justified by need or compensation. The ultimate objective is to give each party an equal start on the road to independent living.

Conduct and contributions

    145.  Is there any need to qualify these aims, considered in the light of all the circumstances and the factors listed in section 25(2)? Two which have emerged in later cases should, in my view, be firmly rejected: conduct and special contributions. Section 25(2)(g) is quite clear: the court has to have regard to the parties' conduct if it would be inequitable to disregard it. In the olden days, when all the assets were assumed to be the breadwinner's and he was making an allowance to enable his wife to live separately from him, the wife's conduct might reduce the allowance she would otherwise have needed or even extinguish it altogether. She had therefore to be 100% blameless in order to be sure of her conventional one-third share of his income. In theory, if she were 50% to blame, her share might be halved, although in practice the divorce courts were more flexible than that (but see, for example, the approach in Ackerman v Ackerman [1972] Fam 1, where a wife who was assessed as 25% to blame for the breakdown of the marriage was subject to a 25% discount from what she would otherwise have received). But once the assets are seen as a pool, and the couple as equal partners, then it is only equitable to take their conduct into account if one has been very much more to blame than the other: in the famous words of Ormrod J in Wachtel v Wachtel [1973] Fam 72, at p 80, the conduct had been 'both obvious and gross'. This approach is not only just, it is also the only practicable one. It is simply not possible for any outsider to pick over the events of a marriage and decide who was the more to blame for what went wrong, save in the most obvious and gross cases. Yet in Miller v Miller, both Singer J and the Court of Appeal took into account the parties' conduct, even though it fell far short of this. In my view they were wrong to do so.

    146.  In my view, the question of contributions should be approached in the much the same way as conduct. Following White v White [2001] 1 AC 596, the search was on for some reason to stop short of equal sharing, especially in 'big money' cases where the capital had largely been generated by the breadwinner's efforts and enterprise. There were references to exceptional or 'stellar' contributions: see Cowan v Cowan [2001] EWCA Civ 679; [2002] Fam 97. These, in the words of Coleridge J in G v G (Financial Provision: Equal Division) [2002] EWHC 1339 (Fam); [2002] 2 FLR 1143, at p 1154, opened a 'forensic Pandora's box'. As he pointed out, at p 1155:

    "[W]hat is 'contribution' but a species of conduct? . . . Both concepts are compendious descriptions of the way in which one party conducted him/herself towards the other and/or the family during the marriage. And both carry with them precisely the same undesirable consequences. First, they call for a detailed retrospective at the end of a broken marriage just at a time when parties should be looking forward, not back. . . . But then, the facts having been established, they each call for a value judgment of the worth of each side's behaviour and translation of that worth into actual money. But by what measure and using what criteria? . . . Is there such a concept as an exceptional/special domestic contribution or can only the wealth creator earn the bonus? . . . It is much the same as comparing apples with pears and the debate is about as sterile or useful."

A domestic goddess self-evidently makes a 'stellar' contribution, but that was not what these debates were about. Coleridge J's words were rightly influential in the later retreat from the concept of special contribution in Lambert v Lambert [2002] EWCA Civ 1685; [2003] Fam 103. It had already been made clear in White v White [2001] 1 AC 596 that domestic and financial contributions should be treated equally. Section 25(2)(f) of the 1973 Act does not refer to the contributions which each has made to the parties' accumulated wealth, but to the contributions they have made (and will continue to make) to the welfare of the family. Each should be seen as doing their best in their own sphere. Only if there is such a disparity in their respective contributions to the welfare of the family that it would be inequitable to disregard it should this be taken into account in determining their shares.

The source of the assets and the length of the marriage

    147.  Nevertheless, such debates are evidence of unease at the fairness of dividing equally great wealth which has either been brought into the marriage or generated by the business efforts and acumen of one party. It is principally in this context that there is also a perception that the size of the non-business partner's share should be linked to the length of the marriage: see, eg, Eekelaar, "Asset Distribution on Divorce - the Durational Element" (2001) 117 LQR 552; and "Asset Distribution on Divorce - Time and Property" [2003] Fam Law 828; and GW v RW (Financial Provision: Departure from Equality) [2003] 2 FLR 108.

    148.  The strength of these perceptions is such that it could be unwise for the law to ignore them completely. In White v White [2001] 1 AC 596, it was recognised that the source of the assets might be a reason for departing from the yardstick of equality (see p 610c-g). There, the reason was that property had been acquired from or with the help of the husband's father during the marriage, but the same would apply to property acquired before the marriage. In White, it was also recognised that the importance of the source of the assets will diminish over time (see p 611b). As the family's personal and financial inter-dependence grows, it becomes harder and harder to disentangle what came from where. But the fact that the family's wealth consists largely of a family business, such as a farm, may still be taken into account as a reason for departing from full equality: see P v P (Inherited Property) [2004] EWHC 1364 (Fam); [2005] 1 FLR 576. So too may be the nature of the assets, where these are businesses which will be crippled or lose much of their value, if disposed of prematurely in order to fund an equal division: see N v N (Financial Provision: Sale of Company) [2001] 2 FLR 69.

    149.  The question, therefore, is whether in the very big money cases, it is fair to take some account of the source and nature of the assets, in the same way that some account is taken of the source of those assets in inherited or family wealth. Is the 'matrimonial property' to consist of everything acquired during the marriage (which should probably include periods of pre-marital cohabitation and engagement) or might a distinction be drawn between 'family' and other assets? Family assets were described by Lord Denning in the landmark case of Wachtel v Wachtel [1973] Fam 72, at 90:

    "It refers to those things which are acquired by one or other or both of the parties, with the intention that there should be continuing provision for them and their children during their joint lives, and used for the benefit of the family as a whole."

    Prime examples of family assets of a capital nature were the family home and its contents, while the parties' earning capacities were assets of a revenue nature. But also included are other assets which were obviously acquired for the use and benefit of the whole family, such as holiday homes, caravans, furniture, insurance policies and other family savings. To this list should clearly be added family businesses or joint ventures in which they both work. It is easy to see such assets as the fruits of the marital partnership. It is also easy to see each party's efforts as making a real contribution to the acquisition of such assets. Hence it is not at all surprising that Mr and Mrs McFarlane agreed upon the division of their capital assets, which were mostly of this nature, without prejudice to how Mrs McFarlane's future income provision would be quantified.

    150.  More difficult are business or investment assets which have been generated solely or mainly by the efforts of one party. The other party has often made some contribution to the business, at least in its early days, and has continued with her agreed contribution to the welfare of the family (as did Mrs Cowan). But in these non-business-partnership, non-family asset cases, the bulk of the property has been generated by one party. Does this provide a reason for departing from the yardstick of equality? On the one hand is the view, already expressed, that commercial and domestic contributions are intrinsically incommensurable. It is easy to count the money or property which one has acquired. It is impossible to count the value which the other has added to their lives together. One is counted in money or money's worth. The other is counted in domestic comfort and happiness. If the law is to avoid discrimination between the gender roles, it should regard all the assets generated in either way during the marriage as family assets to be divided equally between them unless some other good reason is shown to do otherwise.

    151.  On the other hand is the view that this is unrealistic. We do not yet have a system of community of property, whether full or deferred. Even modest legislative steps towards this have been strenuously resisted. Ownership and contributions still feature in divorcing couples' own perceptions of a fair result, some drawing a distinction between the home and joint savings accounts, on the one hand, and pensions, individual savings and debts, on the other (Settling Up, para 128 earlier, chapter 5). Some of these are not family assets in the way that the home, its contents and the family savings are family assets. Their value may well be speculative or their possession risky. It is not suggested that the domestic partner should share in the risks or potential liabilities, a problem which bedevils many community of property regimes and can give domestic contributions a negative value. It simply cannot be demonstrated that the domestic contribution, important though it has been to the welfare and happiness of the family as a whole, has contributed to their acquisition. If the money maker had not had a wife to look after him, no doubt he would have found others to do it for him. Further, great wealth can be generated in a very short time, as the Miller case shows; but domestic contributions by their very nature take time to mature into contributions to the welfare of the family.

    152.  My lords, while I do not think that these arguments can be ignored, I think that they are irrelevant in the great majority of cases. In the very small number of cases where they might make a difference, of which Miller may be one, the answer is the same as that given in White v White [2001] 1 AC 596 in connection with pre-marital property, inheritance and gifts. The source of the assets may be taken into account but its importance will diminish over time. Put the other way round, the court is expressly required to take into account the duration of the marriage: section 25(2)(d). If the assets are not 'family assets', or not generated by the joint efforts of the parties, then the duration of the marriage may justify a departure from the yardstick of equality of division. As we are talking here of a departure from that yardstick, I would prefer to put this in terms of a reduction to reflect the period of time over which the domestic contribution has or will continue (see Bailey-Harris, "Comment on GW v RW (Financial Provision: Departure from Equality)" [2003] Fam Law 386, at p 388) rather than in terms of accrual over time (see Eekelaar, "Asset Distribution on Divorce - Time and Property" [2003] Fam Law 828). This avoids the complexities of devising a formula for such accruals.

    153.  This is simply to recognise that in a matrimonial property regime which still starts with the premise of separate property, there is still some scope for one party to acquire and retain separate property which is not automatically to be shared equally between them. The nature and the source of the property and the way the couple have run their lives may be taken into account in deciding how it should be shared. There may be other examples. Take, for example, a genuine dual career family where each party has worked throughout the marriage and certain assets have been pooled for the benefit of the family but others have not. There may be no relationship-generated needs or other disadvantages for which compensation is warranted. We can assume that the family assets, in the sense discussed earlier, should be divided equally. But it might well be fair to leave undisturbed whatever additional surplus each has accumulated during his or her working life. However, one should be careful not to take this approach too far. What seems fair and sensible at the outset of a relationship may seem much less fair and sensible when it ends. And there could well be a sense of injustice if a dual career spouse who had worked outside as well as inside the home throughout the marriage ended up less well off than one who had only or mainly worked inside the home.

Application in the McFarlane case

    154.  There is obviously a relationship between capital sharing and future income provision. If capital has been equally shared and is enough to provide for need and compensate for disadvantage, then there should be no continuing financial provision. In McFarlane, there has been an equal division of property, but this largely consisted of homes which can be characterised as family assets. This was not enough to provide for needs or compensate for disadvantage. The main family asset is the husband's very substantial earning power, generated over a lengthy marriage in which the couple deliberately chose that the wife should devote herself to home and family and the husband to work and career. The wife is undoubtedly entitled to generous income provision for herself and for the sake of their children, including sums which will enable her to provide for her own old age and insure the husband's life. She is also entitled to a share in the very large surplus, on the principles both of sharing the fruits of the matrimonial partnership and of compensation for the comparable position which she might have been in had she not compromised her own career for the sake of them all. The fact that she might have wanted to do this is neither here nor there. Most breadwinners want to go on breadwinning. The fact that they enjoy their work does not disentitle them to a proper share in the fruits of their labours.

    155.  She does, of course, have to consider what she will do in the future. The children will eventually take up much less of her time and energy. She could either return to work as a solicitor or retrain for other satisfying and gainful activity. She cannot therefore rely upon the present level of provision for the rest of her life. But the Court of Appeal was wrong to set a limit to it on the basis that she would save the whole surplus above her requirements with a view to providing for herself once the time limit was up. They were wrong to place the burden upon her of justifying continuing payments, especially now that they have set a high threshold for doing so: see Fleming v Fleming [2003] EWCA Civ 1841; [2004] 1 FLR 667. On any view she will continue to be entitled to some continuing compensation, even if the needs generated by the relationship diminish or eventually vanish (although that cannot be guaranteed, despite her best endeavours, given the length of time she has been out of the labour market and the difficulties of repairing her pension position). The burden should be upon the husband to justify a reduction. At that stage, the court will again have to consider whether a clean break is practicable, as it could be if the husband has generated enough capital to make it realistic.

    156.  Accordingly, I would allow Mrs McFarlane's appeal and restore the order of the District Judge.

Application in the Miller case

    157.  In Miller, the needs generated by the relationship are comparatively small. The wife will be able to re-establish herself in life within a relatively short time. But she was for some time the fiancée and then the wife of a very rich man. Much of that wealth accrued during the marriage. The New Star shares could not sensibly be valued, but that the husband stood to gain at least £6 million and probably a great deal more from them in the readily foreseeable future was undeniable. The company had been deliberately grown very quickly with a view to disposing of it advantageously in the relatively short term. Mrs Miller never sought to claim a half. The judge eschewed the yardstick of equality because the assets had not been generated by their joint efforts (cf Foster v Foster [2003] 2 FLR 299) but by the husband using his pre-marriage assets and expertise to generate substantial extra profits during the marriage. The judge quantified her claim without reference to the unfathomable value of the New Star shares acquired during the marriage, but in such a way as to give her a permanent income upon which she could live in the former matrimonial home albeit at a lower standard than she had been accustomed to during the marriage.

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