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McFarlane v McFarlane [2004] UKHL 24


Financial relief – Divorce – Principles to be applied by court – Conduct – Contributions – Assets – Clean break – Departing from yardstick of equality

Financial relief – Divorce – Short childless marriage – Principles to apply – Evidence as to causes of breakdown of marriage – ‘Legitimate expectation’ of wife as to standard of living post-marriage

Financial relief – Periodical payments – Capital element – Clean break – Substantial future surplus of income over expenditure – Whether periodical payments could include an element of capital – Joint lives or term order

[2006] UKHL 24

House of Lords

Lord Nicholls of Birkenhead, Lord Hoffmann, Lord Hope of Craighead, Baroness Hale of Richmond and Lord Mance 24 May 2006

The case of Miller concerned a short childless marriage, of less than 3 years duration; at the time of the marriage the husband was an exceptionally successful fund manager, earning about £1m a year, the wife earned £85,000 a year. The husband purchased the matrimonial property for £1.8m, and, subsequently, bought a second property, in joint names, in the South of France. During the course of the marriage the husband moved firms, taking a huge reduction in basic salary, but acquiring a significant number of shares in the new firm, which subsequently proved extremely valuable; the wife gave up her job to concentrate on furnishing the matrimonial home and the property in the South of France. The marriage ended when the husband left the wife for another woman, whom he subsequently married. In the ancillary relief proceedings the judge awarded the wife £5m, taking the view that the husband could not rely on the short duration of the marriage because he was to blame for the breakdown, and that the wife had a legitimate expectation that she would live at a higher standard of affluence on marriage. The Court of Appeal, although critical of the lack of detail in the judgment, dismissed the husband’s appeal, holding that the judge had been entitled to take into account the husband’s responsibility for the breakdown of the marriage, and to take into account as the ‘key element’ the wife’s legitimate expectation of living to a higher standard. The case of McFarlane concerned a husband and wife with three children, whose marriage had lasted effectively for 16 years. Both husband and wife were qualified professionals, and until shortly before the birth of their second child earned similar sums of money. Thereafter, the wife remained at home to care for the children, while the husband continued his professional career, with a salary increasing considerably year on year. The family had insufficient capital to achieve a clean break, but the husband now earned substantially more than would be needed to meet his own and the wife’s budgeted household expenditure. The district judge made a periodical payment order of £250,000 a year to the wife (one third of the husband’s current net income), against an estimated income requirement of £128,000, on the basis that fairness required that the wife should have a share of future earnings which had been made possible by her past contribution to the husband’s career. The periodical payment was reduced on appeal to the Family Division to £180,000, but the Court of Appeal allowed the wife’s appeal in part, restoring the award to £250,000 a year but limiting the term to 5 years. The court held that in exceptional cases, and on the basis of term rather than joint lives orders, periodical payments could be used by the recipient to accumulate capital.

Held – dismissing the husband’s appeal in Miller; allowing the wife’s appeal in McFarlane, restoring the order of the district judge –

(1) Under the English system, the redistribution of resources from one party to another following divorce was justified on the basis of: (1) the needs (generously interpreted) generated by the relationship between the parties; (2) compensation for relationship-generated disadvantage; and (3) the sharing of the fruits of the matrimonial partnership. These three principles, each of which looked at factors linked to the parties’ relationship, rather than to extrinsic, unrelated factors, could guide the court in making an award; any or all of them might justify redistribution of resources, although the court must be careful to avoid double counting. Which of the three would be considered first would depend upon the circumstances of the case. In general it could be assumed that the marital partnership did not stay alive for the purpose of sharing future resources unless this was justified by need or compensation. The ultimate objective was to give each party an equal start on the road to independent living (see paras [10], [13], [15], [16], [29], [137] [138], [140], [141], [144]). (2) The court was to have regard to the parties’ conduct only if it would be inequitable to disregard it. Where there was no conduct which it would be inequitable to disregard, the court should not seek to weigh the parties’ respective conduct or attitudes in an attempt to assess responsibility for the breakdown of the marriage, or to attribute ‘legitimacy’ or ‘reasonableness’ to the wish of one party to continue the marriage against the wishes of the other. The lower courts had been wrong to take into account the husband’s alleged responsibility for the breakdown of the marriage in Miller under the guise of having regard to all the circumstances of the case, given that it was conduct which fell far short of ‘conduct which it would be inequitable to disregard’ (see paras [63], [64], [65], [145], [164]). (3) The question of contributions should be approached in much the same way as conduct. Special contribution is to be regarded as a factor leading to a departure from equality of division only in wholly exceptional circumstances when it would be inequitable to disregard it (see paras [66]–[68], [146]). Per Baroness Hale of Richmond: the contributions to be taken into account were contributions made and to be made to the ‘welfare of the family’, not contributions to accumulated wealth. Only if there was 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 (see para [146]). (4) A periodical payments order could be made to afford compensation as well as to meet financial needs. If capital had been equally shared and was enough to provide for need and compensate for disadvantage, there should be no continuing financial provision. A clean break was not to be achieved at the expense of a fair result; if a claimant was owed compensation, and capital assets were not available, the social desirability of a clean break would not be sufficient reason for depriving the claimant of that compensation. There was no reason to limit periodical payments to a fixed term in the interests solely of achieving a clean break. Given the high threshold which now applied to extending the term of a periodical payments order it was not appropriate to make an order intended to compensate the wife whose continuation the wife would have to justify, it should be for the husband to justify a reduction, at which stage the court could consider whether a clean break had become a realistic option (see paras [32], [39], [97], [134], [154], [155]).

(5) While the standard of living enjoyed by the parties was to be taken into account, as one of the matters included on the statutory checklist, hopes and expectations were not an appropriate basis on which to assess financial needs. Claims for expectation losses did not fit comfortably with the notion that either party was free to end the marriage (see para [58]).

(6) In Miller the needs generated by the relationship were comparatively small, as was the need for compensation, but the wife was entitled to some share in the assets, including the considerable increase in the husband’s wealth during the marriage. Had the yardstick of equality been applied to all the assets which accrued during the marriage, the wife would have got more; there were, however, reasons to depart from the yardstick of equality, either on the basis that the substantial growth was attributable to contacts and capacities the husband brought to the marriage, or on the basis that the assets were business assets generated solely by the husband during a short marriage (see paras [69], [73], [158]).

(7) McFarlane was a paradigm case for an award of compensation in respect of the significant future economic disparity sustained by the wife, arising from the way the parties conducted their marriage. Equal division of the capital was not enough to provide for needs or compensate for disadvantage but unusually the husband’s very substantial earning power was far in excess of the family’s financial needs after separation. The wife, having given up her own highly-paid career for the family, was not only entitled to generous income provision, including sums which would enable her to provide for her own old age and insure the husband’s life, she was also entitled to a share in the very large surplus, on the principles both of sharing and of compensation. The Court of Appeal had been wrong to set a 5-year time limit on the order, on the basis that the wife would save the whole surplus above her requirements and that she would have the burden of justifying continuing payments at the end of the order, especially given the high threshold. The burden should be on the husband to justify a reduction, at which stage the court could consider whether a clean break was practicable, which would depend on the amount of capital generated by the husband (see paras [90], [91], [92], [93], [154], [155]).

Per Baroness Hale of Richmond, Lord Hoffman agreeing: in a matrimonial property regime which started, as the English system did, with the premise of separate property, there remained some scope for one party to acquire and retain separate property which was not automatically to be shared equally between them. If assets were not ‘family assets’ that is not generated by the joint efforts of the parties, then the duration of the marriage might justify a departure from the yardstick of equality of division (in terms of a reduction to reflect the period of time over which the domestic contribution had or would continue, rather than in terms of accrual over time). The nature and source of the property and the way the couple had run their lives might be taken into account in deciding how it should be shared. However, these arguments would be irrelevant in the great majority of cases, and should not be taken too far (see paras [150], [152], [153]).

Per Lord Nicholls of Birkenhead: in relation to matrimonial property, ie the matrimonial home and property acquired during the marriage otherwise than by inheritance or gift, the equal sharing principle applied as much to short marriages as to long marriages, being no less a partnership of equals. However, in relation to non-matrimonial property, ie property which the parties brought with them into the marriage or acquired by inheritance or gift during the marriage, following a short marriage, fairness might well require that the claimant should not be entitled to an equal share. In a longer marriage non-matrimonial property represented a contribution made to the marriage by one of the parties whose weight would, in some circumstances, diminish, in others not. In all cases the nature and source of the parties’ property were, as circumstances of the case, matters to be taken into account when determining the requirements of fairness, but the courts should be exceedingly slow to introduce or re-introduce a distinction between ‘family’ assets and ‘business or investment’ assets. Exceptional earnings were a contribution to marriage which could justify departure from equality of division only when it would be inequitable to proceed otherwise. Where it became necessary to distinguish matrimonial property from non-matrimonial property, the court might do so with the degree of particularity or generality appropriate in the case (see paras [17], [19], [20]–[25], [55], [68]).

Per Lord Mance: the duration of the marriage could not be discounted as a relevant factor, nor could the financial arrangements of the parties during the marriage. Once needs and compensation had been addressed, divorce itself would not justify the court disturbing principles by which the parties had chosen to live their lives while married. An established earning capacity, or very valuable acquired expertise and acumen would, if viewed as ‘assets’ brought into a marriage, not be easily or reliably measurable or comparable with other qualities. To the extent that the focus was on assets acquired during the marriage, rather than overall assets, it was natural to look at the period until separation (see paras [169], [170], [172], [174]).

Per Lord Hope: the Scottish system for financial settlement on divorce discriminated against women who had chosen motherhood over a career in the interests of the family and ought to be reconsidered as soon as possible. Compensation for significant future economic disparity arising from the way in which the parties had conducted the marriage was impossible under the Scottish system, which would have required the wife to adjust to a lower standard of living over 3 years or less. Instead of an absolute maximum period of 3 years for periodical allowances, the court should have a discretion to provide such allowances for a longer period where, in exceptional circumstances and applying the overriding criterion of fairness, the judge found that one party to the marriage whose contribution to the marriage had resulted in a reduction of his or her earning capacity ought to be compensated out of the other party’s future income because the capital needed to provide such compensation was not available (see paras [117], [121]).

Statutory provisions considered

Matrimonial Causes Act 1866, s 1

Matrimonial Proceedings and Property Act 1970

Matrimonial Causes Act 1973, ss 23, 24(A)(B), 25, 25A, 25B, 28(1), 31(7), (7B), Part II

Divorce (Scotland) Act 1976, s 5(2)

Divorce Jurisdiction, Court Fees and Legal Aid (Scotland) Act 1983, s 1

Matrimonial and Family Proceedings Act 1984

Family Law (Scotland) Act 1985, ss 8(2), 9(1), 10(3)(b), 11(4)(e), 13(2)(a)

Pensions Act 1995

Family Law Act 1996, s 66

Welfare Reform and Pensions Act 1999

Family Law (Scotland) Act 2006, s 16

Cases referred to in judgment

Ackerman v Ackerman [1972] Fam 225 [1972] 2 WLR 1253, [1972] 2 All ER 420, CA

Attar v Attar (No 2) [1985] FLR 653, FD

B v B (Mesher Order) [2002] EWHC 3106 (Fam), [2003] 2 FLR 285, FD

Burgess v Burgess [1996] 2 FLR 34, CA

Cornick v Cornick (No 3) [2001] 2 FLR 1240, FD

Cowan v Cowan [2001] EWCA Civ 679, [2002] Fam 97, [2001] 3 WLR 684, [2001] 2 FLR 192, CA

Dipper v Dipper [1981] Fam 31, [1980] 3 WLR 626, (1980) 1 FLR 286, [1980] 2 All ER 722, CA

Fleming v Fleming [2003] EWCA Civ 1841, [2004] 1 FLR 667, [2003] All ER (D) 215 (Nov), CA

Foster v Foster [2003] EWCA Civ 565, [2003] 2 FLR 299, CA

G v G (Financial Provision: Equal Division) [2002] EWHC 1339 (Fam), [2002] 2 FLR 1143, FD

G v G (Financial Provision: Separation Agreement) [2004] 1 FLR 1011, CA

GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam), [2003] 2 FLR 108, FD

H v H (Financial Provision: Short Marriage) (1981) 2 FLR 392, FD

Hedges v Hedges [1991] 1 FLR 196, CA

Jacques v Jacques (1997) SC (HL) 20, HL

Lambert v Lambert [2002] EWCA Civ 1685, [2003] Fam 103, [2003] 2 WLR 631, [2003] 1 FLR 139, [2003] 4 All ER 342, CA

Latter v Latter (1990) SLT 805, Ct of Sess

Leslie v Leslie [1911] P 203, PDAD

Little v Little (1990) SLT 785, Ct of Sess (1st Div)

McFarlane v McFarlane; Parlour v Parlour [2004] EWCA Civ 872, [2005] Fam 171, [2004] 3 WLR 1480, [2004] 2 FLR 893, [2004] 2 All ER 921, CA

Miller v Miller [2005] EWCA Civ 984, [2006] 1 FLR 151, [2005] All ER (D) 467 (Jul), CA

Minton v Minton [1979] AC 593, [1979] 2 WLR 31, (1978) FLR Rep 461, [1979] 1 All ER 79, HL

M v M (Financial Relief: Substantial Earning Capacity) [2004] EWHC 688 (Fam), [2004] 2 FLR 236, FD

N v N (Financial Provision: Sale of Company) [2001] 2 FLR 69, CA

O’D v O’D [1976] Fam 83, [1975] 3 WLR 308, (1975) FLR Rep 512, [1975] 2 All ER 993, CA

P v P (Inherited Property) [2004] EWHC 1364 (Fam), [2005] 1 FLR 576, FD

Page v Page (1981) 2 FLR 198, CA

Parlour v Parlour; McFarlane v McFarlane; [2004] EWCA (Civ) 872, [2005] Fam 171, [2004] 3 WLR 1481, [2004] 2 FLR 893, [2004] 3 All ER 921, CA

Preston v Preston [1982] Fam 17, [1981] 3 WLR 619, (1981) 2 FLR 331, [1982] 1 All ER 41, CA

R v R (Rape: Marital Exemption) [1992] 1 AC 599, [1991] 3 WLR 767, [1992] 1 FLR 217, [1991] 4 All ER 481, HL; affirming [1991] 2 WLR 1065, [1991] 2 All ER 257, CA; affirming [1991] 1 All ER 747, Leicester CCt

Robertson v Robertson (1983) 4 FLR 387, FD

S v S [1977] Fam 127, [1976] 3 WLR 775, [1977] 1 All ER 56, CA

SRJ v DWJ (Financial Provision) [1999] 2 FLR 176, CA

Wachtel v Wachtel [1973] Fam 72, [1973] 2 WLR 366, [1973] 1 All ER 829, CA

Wallis v Wallis (1992) SC 455, Ct of Sess (1st Div)

Wallis v Wallis (1993) SC (HL) 49, HL(S)

White v White [2001] 1 AC 596, [2000] 3 WLR 1571, [2000] 2 FLR 981, [2001] 1 All ER 1, HL

Wilson v Wilson (1999) SLT 249, OH

James Turner QC and Philip Marshall for the appellant Miller

Barry Singleton QC and Deepak Nagpal for the appellant McFarlane

Nicholas Mostyn QC, Tim Bishop and Rebecca Bailey-Harris for the respondent Miller

Jeremy Posnansky QC and Stephen Trowell for the respondent McFarlane

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