A joyful judgement -“fairness” and the division of assets in matrimonial proceedings

In 1997 (bear with me), whilst heavily pregnant with my first child, I wrote a letter to my opponent in a financial remedy case, or ancillary relief as it was then known, in which I maintained their client’s position was “unfair”. The response that came back was that “fairness has nothing whatsoever to do with it”. I still remember being in the post room (before emails) feeling furious – and more than a little patronised.  Move on a few years to 2000 (still no emails) and along came Mrs White, and my long-awaited vindication. Financial remedy outcomes, including the future reliability of pre and post nuptial agreements are, these days, all about fairness.

Alas, fairness, much like beauty, is all too often in the eye of the beholder. And “needs”, another absolute doctrine of family law, are “elastic”. As King Lear famously railed “O, reason not the need” – for which read “give me what I am entitled to”. Such is the lot of us family lawyers – forever trying to advise on an entirely subjective objective in a wildly discretionary area of law. Painting by numbers it is not.

Every so often there is a judgment in a case, the financial circumstances of which may bear little resemblance to one’s own everyday case load, which gladdens the heart, and which sets out the key basics for the benefit of family practitioners and lay clients alike. You can still ask three different solicitors or barristers the same question and get different answers but, bar the occasional curveball, the net effect ought not to be entirely disparate.

For me, Mr Justice Mostyn’s relevant principles on a maintenance application in SS v NS (spousal maintenance) (2014) EWHC 4183 (FAM) was one such case: crisp, clean and on a single page of A4. But that was, of course, a good while back. I still cite it – it is more recent than Jarndyce v Jarndyce in Bleak House and I still cite that too to the client whose case looks like it will never end, and whose costs are becoming unwieldy.

And earlier this year we had Mr Justice Peel distil the very essence of the main principles applied in the division of assets in financial remedy proceedings – the application of spousal maintenance excepted; Mostyn J remains in the top spot on that particular topic. In fact, his far-reaching judgement extended to pre and post nuptial agreements, lifetime gifts from family members and inheritance.

Such is the joy of this judgement that one can simply quote it – it needs no distilling – and we would all, no matter how senior or junior, do well to learn it, if not by heart, or indeed at all as in the old days, but to recall it at the touch of a keyboard.

For those of you who are not already familiar with the judgement then do go on to read the entirety of paragraphs 21 to 24 inclusive but for now I merely recite as follows:

The judgement

Peel J in WC v HC [2022] EWFC 22, paragraph 21

“The general law which I apply is as follows:

i) As a matter of practice, the court will usually embark on a two-stage exercise, (i) computation and (ii) distribution; Charman v Charman [2007] EWCA Civ 503.

ii) The objective of the court is to achieve an outcome which ought to be “as fair as possible in all the circumstances”; per Lord Nicholls at 983H in White v White [2000] 2 FLR 981.

iii) There is no place for discrimination between husband and wife and their respective roles; White v White at 989C.

iv) In an evaluation of fairness, the court is required to have regard to the s25 criteria, first consideration being given to any child of the family.

v) S25A is a powerful encouragement towards a clean break, as explained by Baroness Hale at [133] of Miller v Miller; McFarlane v McFarlane [2006] 1 FLR 1186.

vi) The three essential principles at play are needs, compensation and sharing; Miller; McFarlane.

vii) In practice, compensation is a very rare creature indeed. Since Miller; McFarlane it has only been applied in one first instance reported case at a final hearing of financial remedies, a decision of Moor J in RC v JC [2020] EWHC 466 (although there are one or two examples of its use on variation applications).

viii) Where the result suggested by the needs principle is an award greater than the result suggested by the sharing principle, the former shall in principle prevail; Charman v Charman.

ix) In the vast majority of cases the enquiry will begin and end with the parties’ needs. It is only in those cases where there is a surplus of assets over needs that the sharing principle is engaged.

x) Pursuant to the sharing principle, (i) the parties ordinarily are entitled to an equal division of the marital assets and (ii) non-marital assets are ordinarily to be retained by the party to whom they belong absent good reason to the contrary; Scatliffe v Scatliffe [2017] 2 FLR 933 at [25]. In practice, needs will generally be the only justification for a spouse pursuing a claim against non-marital assets. As was famously pointed out by Wilson LJ in K v L [2011] 2 FLR 980 at [22] there was at that time no reported case in which the applicant had secured an award against non-matrimonial assets in excess of her needs. As far as I am aware, that holds true to this day.

xi) The evaluation by the court of the demarcation between marital and non-martial assets is not always easy. It must be carried out with the degree of particularity or generality appropriate in each case; Hart v Hart [2018] 1 FLR 1283. Usually, non-marital wealth has one or more of 3 origins, namely (i) property brought into the marriage by one or other party, (ii) property generated by one or other party after separation (for example by significant earnings) and/or (iii) inheritances or gifts received by one or other party. Difficult questions can arise as to whether and to what extent property which starts out as non-marital acquires a marital character requiring it to be divided under the sharing principle. It will all depend on the circumstances, and the court will look at when the property was acquired, how it has been used, whether it has been mingled with the family finances and what the parties intended.

xii) Needs are an elastic concept. They cannot be looked at in isolation. In Charman (supra) at [70] the court said:

“The principle of need requires consideration of the financial needs, obligations and responsibilities of the parties (s.25(2)(b); of the standard of living enjoyed by the family before the breakdown of the marriage (s.25(2)(c); of the age of each party (half of s.25(2)(d); and of any physical or mental disability of either of them (s.25(2)(e)”.

xiii) The Family Justice Council in its Guidance on Financial Needs has stated that:

“In an appropriate case, typically a long marriage, and subject to sufficient financial resources being available, courts have taken the view that the lifestyle (i.e “standard of living”) the couple had together should be reflected, as far as possible, in the sort of level of income and housing each should have as a single person afterwards. So too it is generally accepted that it is not appropriate for the divorce to entail a sudden and dramatic disparity in the parties’ lifestyle.”

xiv) In Miller/McFarlane Baroness Hale referred to setting needs “at a level as close as possible to the standard of living which they enjoyed during the marriage”. A number of other cases have endorsed the utility of setting the standard of living as a benchmark which is relevant to the assessment of needs: for example, G v G [2012] 2 FLR 48 and BD v FD [2017] 1 FLR 1420.

xv) That said, standard of living is not an immutable guide. Each case is fact-specific. As Mostyn J said in FF v KF [2017] EWHC 1093 at [18];

“The main drivers in the discretionary exercise are the scale of the payer’s wealth, the length of the marriage, the applicant’s age and health, and the standard of living, although the latter factor cannot be allowed to dominate the exercise”.

xvi) I would add that the source of the wealth is also relevant to needs. If it is substantially non-marital, then in my judgment it would be unfair not to weigh that factor in the balance. Mostyn J made a similar observation in N v F [2011] 2 FLR 533 at [17-19].”

I fear it won’t make any of my more contentious cases give me less grief but meantime, Mr Justice Peel, thank you and season’s greetings.