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January 24, 2018 Articles

A Modern View on Family Finance—One in the Eye for the Entitlement Generation

By Simon Bruce

The public perceives that in most cases there is a 50/50 split following divorce. That is, of course, nonsense; there is not. The United Kingdom (UK) Court of Appeal’s decision in Sharp v. Sharp ([2017] EWCA Civ 408) demonstrates a different approach to dividing the assets following English divorces.

For starters, most cases are decided by needs, not by equal division. Most divorcing families need a roof over the heads of their children and income to pay the daily/weekly/monthly bills. Their needs are the beginning and the end of the case. In a tiny minority of cases, the wealth in a marriage exceeds the family’s needs. It’s in that context that we think about how to divide that part of their assets that exceeds their needs.

England lagged behind the rest of the world until the 2000 case of White, which abolished financial discrimination between wife and husband in the “traditional”/archaic roles as bread maker and breadwinner. The UK Supreme Court in that case, and the subsequent 2006 combined cases of Miller and McFarlane, said that the aim was to produce “fairness.”

Fair enough, but what does “fairness” mean and how is it to be determined? Answer: by reference to needs, compensation, and equal sharing.

As we have seen, the criterion of needs is obvious. The criterion of compensation (mostly, to date, of wives who gave up their careers to look after the family) has been, in the view of the writer, shamefully neglected or effaced and is overripe for correction. Watch this space.

And so we come, in so-called “big money” cases in which the assets exceed needs, to sharing or—as the UK Supreme Court suggested in Miller—equal sharing. But equal sharing of what? And in which kinds of case?

The best guide to the sharing of assets has just been provided by Lord Justice McFarlane, in this case of Sharp. There, the wife and husband had a short, childless marriage. Both worked. The overall assets exceeded £6 million. The wife contributed the lion’s share of the assets, having earned bonuses of in excess of £10 million during the marriage. The wife gave the husband Aston Martins. The marriage ended with the husband’s clandestine affair. The High Court judge awarded the husband £2.725 million—that is, half of the assets (minus one of the homes purchased with the wife’s money and some other premarital cash); the Court of Appeal corrected the award, giving him an overall £2 million out of the £6.9 million available.

The UK Court of Appeal’s judgment in Sharp is going to be the reference point for family finance lawyers until the Brexit-laden government devotes time to family law reform or until the UK Supreme Court takes another appeal to clarify the law.

So what are the lessons learned from Sharp?

  • There is no invariable rule of 50/50 splits in divorce cases. It all depends.
  • English family law has been so seduced by the siren call of antidiscrimination that it has for the last 11 years doggedly pursued equal sharing even when it was not permissible to do so. Fairness has been sacrificed on the altar of certainty.
  • The majority views of the UK Supreme Court judges in Miller allow diversions from equality where appropriate.
  • Short, childless marriages are obviously cases in which a 50/50 division may be inappropriate.
  • The way in which a couple have lived and how they have agreed to hold and share property during the marriage and to spend money is really significant.
  • A couple may have had a premarital or post-marital agreement—and as per the Radmacher Supreme Court case, that agreement may determine the outcome.
  • Even if there is no prenuptial agreement, “the nature and the source of the property and the way the couple have run their lives may be taken into account”—according to Lady Hale, who is shortly to become the new president of the Supreme Court, in Miller.
  • Put another way, “once needs and compensation had been addressed, the misfortune of divorce would not of itself . . . be justification for the court to disturb principles by which the parties had chosen to live their lives when married”—according to Lord Mance, in Miller.
  • On the one hand, lawyers will continue to be criticized if they allow their clients, on divorce, to rummage in the attics of the other spouse’s behavior. It’s instinctively unattractive to do so, and it is retrospective and negative. On the other hand, proving a pattern of behavior that shows the couple agreeing that the breadwinner keeps and not shares her or his earnings and bonuses may save that breadwinner millions in a divorce.
  • Property that the couple have inherited, or have acquired before the marriage, so-called “non-matrimonial property,” is not subject to the so-called principle of equal division.
  • Property that is generated during the marriage may be earned by only one of the couple. It will be unilateral. It will not necessarily be split 50/50 on divorce. It all depends.
  • The special contribution of an absolute genius survives, just, as a factor that might enable the genius to keep up to 66.66% of the overall wealth, but the writer doubts that the special contribution doctrine would survive a trip to the Supreme Court.
  • Mere bad behavior and adultery don’t make a penny of difference to the financial outcome. Adultery is not a crime in England, as it is in Virginia or South Carolina.
  • Compensation emerges out of the dissolving clouds of equal sharing as a principle that may be strongly argued in our future family cases. But is the compensation principle itself discriminatory?!
  • England is still an island. We still have our system of separate property. We have not become a community-of-property system by default. England is still the divorce capital of the world.

The UK Court of Appeal judges in Sharp were obviously keen not to step on bigger toes, and they tried to make it sound as if their guidance was simply on the fringe of cases outside the norm. But in the real world of day-to-day family law work, where most cases go to mediation, arbitration, or roundtable settlement, and where cases are resolved confidentially, Sharp reminds us that 50/50 is a yardstick, that it is not a rule. One size does not fit all.

It’s perfectly understandable that the UK Supreme Court has, in absence of further family law legislation from pusillanimous governments from 1973 onward, created new family law principles for policy reasons. It was a valiant and publicly acceptable attempt to refresh our country’s stale family law.

The floodgates have now been opened. In families, as in life, there is an infinite variety of circumstances. The pendulum is swinging back. In football parlance, the game has only just started.

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