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The Miller’s Wife and the breadwinner: Lessons for lawyers in daily practice

David Hodson cuts through the hype to consider the practical realities for the family solicitor in the wake of the Law Lords decision in Miller v Miller : McFarlane v McFarlane

David Hodson

Introduction
The judgments handed down last Wednesday, 24th May, by the Law Lords in the conjoined appeals of Miller and McFarlane caused a storm of marketing, publicity and client alerts amongst some lawyers and frenzied anxiety about their implications amongst many other lawyers. Apart from those few dealing with very big money cases (distinguished now from mere "big money cases" by Baroness Hale at para 149), what should lawyers be saying in advice to their clients as a result of these cases?

Is it a "groundbreaking" decision, as was widely reported in the media? No. White was. Miller/McFarlane is not. It is "further judicial enunciation of [the] general principle" in White (para 8).

Will it affect tens of thousands of couples each year going through a divorce, as was also widely reported in the media? No. The specific applications of the principles will be limited in practice to a relatively small category of couples with significant wealth. Certainly a number of cases will be affected, but it is unlikely to be in the numbers proclaimed in the media or feared amongst family lawyers and their clients across the country these past few days.

Will it cause a reopening of a significant number of existing orders, as also reported in the media? Unlikely. If the general consensus was that White was not a Barder event, it seems unlikely that Miller/McFarlane, especially on the compensatory element of spousal maintenance, will result in the wholesale reopening or variation of existing orders.

Will it result in substantially higher divorce settlements across the board, outside of the very big money cases? Unlikely, although quantum of spousal maintenance orders and provision after short marriages may increase in some cases. Stay at home wives are certainly more protected than before.

Will it create more certainty and clarity? Undoubtedly so on some aspects of the law. But by some remarks and by some disagreements amongst themselves, the law lords have possibly created new areas of uncertainty although with scope to settle down quickly with the application of common sense by practising lawyers!

Many law firms across the country have produced client alerts and postings on their web sites. Undoubtedly, the House of Lords decision has been a valuable marketing opportunity. But some, like the 'ambulance chasing' quotes handed out on the day to eager tabloid media, have merely fuelled client expectations and (often by gender) inflamed client anxieties.

This article gives an initial review of the judgments directed to the sort of issues lawyers should be considering with clients outside the very big money cases. It does not seek to be a detailed critique of the law. It does not seek to take the place of some initial analyses of the judgments, of which the best so far is from Nicholas Mostyn QC, and available from his Chambers website at www.1hc.com. The article looks at the main areas of the judgment and where changes may be needed in the advice customarily given by family law solicitors in daily practice across the country.

The judgments
The decisions of the five judges were unanimous as to outcome in the two separate cases. Although illustrative of some of the principles, the specific outcomes can have a danger of obscuring wider principles and application. They are not covered in this article. They are more than extensively covered in the wider media.

The lead judgments were by Lord Nicholls of Birkenhead and Baroness Hale of Richmond. There were many similarities in certain aspects of their judgments, described by Lord Hope as "complimentary" with Lord Nicholls' speech being clear and simple and Lady Hale's giving an account of the development of the law and her opinion of the way the principles on which it is based should be applied in practice (para 101). Lord Hoffmann agreed with Baroness Hale. Lord Hope dealt with the position if the case had been decided in Scotland. Lord Mance drew attention to a number of differences he perceived between Lord Nicholls and Baroness Hale in a judgment which no doubt sets out his personal opinions but which will have the direct effect of encouraging litigation by the taking of points on his remarks.

Is it too simplistic and naïve to say that it is a pity that the five law lords could not have come up with one, consensual, unanimous, judgment to help the profession and have left their own individual concerns for separately written articles or talks? As advisers in daily practice with costs at stake in cases, we need certainty and clarity to help settle our clients' cases, not opportunities for litigation from disagreements between law lords.

Both Lord Nicholls and Baroness Hale emphasised the overriding requirement of producing a fair outcome. Whereas in White fairness had been described, like beauty, as seen in the eye of the beholder, fairness has now become an elusive concept, grounded in social and moral values and changing from one generation to another. It has broad, unspoken principles and can be the subject of development by general judicial practice. It is not appropriate to talk in terms of one party taking away from the other party or of one party giving to the other party but instead each being entitled to a fair share of available property. (paras 4-9).

Baroness Hale went so far as to describe the ultimate objective being to give each party an equal start on the road to independent living (144); an objective perhaps but a great distance from daily life and practice where very many men see their capital tied up for long years in the family home and very many women wearily await the sporadic child support or alimony cheque!

The bases for fair outcomes
There are three strands or rationales to considering the requirements of fairness in financial provision on divorce. These are, in summary, needs (paras 10 – 12 and 138-139), compensation (13 – 15 and 140) and sharing (16-20 and 141 – 143).

In most cases, the search for fairness largely begins and ends at needs. In most cases, the available assets are insufficient to provide adequately for the needs of two homes. The court has to stretch modest finite resources so far as possible to meet the parties' needs (para 12). Needs may be generously interpreted. For those cases where there is only enough to provide for needs, the other, more esoteric, strands of fairness are either irrelevant or of significantly less relevance than needs. For the majority of couples going through divorce and for many lawyers, the needs basis alone is the criterion.

It must therefore be recorded here that in recent years, the trend has been for only cases involving relatively substantial assets (or substantial costs: Piglowska!) to go to the higher courts for adjudication and ancillary clarification of principles. Yet cases where there are barely sufficient assets to meet needs are some of the most difficult, problematical and emotionally draining cases of all. Whilst there is a tidiness in the House of Lords stating a number of principles applicable in financial provision cases and then saying they will not really apply in needs cases, the reality is that those needs cases are probably in even greater need (pun intended) of guidance from the higher courts than are the big money cases which are the normal lucky recipients.

The House of Lords went on to say that a second strand of financial provision, now more recognised than before, is compensation. This is a term that reeks of the worst excesses of the US litigation process and sits uncomfortably, in some ways, in the marital arena. However the term was used in both lead judgments and will inevitably now become a standard head of claim here.

The intention of the compensation strand is to readdress actual or prospective significant economic disparity between the parties arising from the way they conducted their marriage (para 13). It arises even if there is self sufficiency, hence being in addition to needs. It is in the context, often, where one party has sacrificed their own career or income/capital earning for the benefit of the other spouse, the children or the family. Baroness Hale described it as compensation for "relationship - generated disadvantage" (140).

The third strand is sharing. Based on the concept of equality permeating marriage as understood today, Lord Nicholls described a husband and wife being now for all practical purposes equal partners in marriage. They commit themselves to sharing their lives, to living and working together and so when the partnership ends, each is entitled to an equal share of the assets of the partnership unless there is good reason to the contrary. The yardstick of equality is to be applied as an aid, not a rule (16). Baroness Hale referred to it as sharing the fruits of the matrimonial partnership. She said an equal partnership does not necessarily dictate an equal sharing of assets and there were many cases in which the approach of roughly equal sharing of partnership assets with no continuing claims was nowadays entirely feasible and fair (143).

There was interesting debate between the two lead judgments about whether lawyers should first work out needs and then decide on compensation and sharing, or work out a sharing of the assets and then consider the meeting of needs. Predictably, they said it all depended on the circumstances (28 – 29 and 144).

How does this impact on advice?
In the vast majority of cases, needs, especially needs generously interpreted, amply meets the totality of the available resources. Moreover, where provision of needs also compensates, for instance overcomes any disadvantage experienced in the employment market, then the second strand is also satisfied. It is where the asset base is in excess of needs and also compensates for sacrifices made in the marriage that the issue of sharing the fruits of the marital enterprise arises. It is in this area where the judgments become more complicated, primarily because conflicts arise between the lead judgments in the House of Lords. These concern primarily a categorisation of what sort of property should be shared and how and the effect of different lengths of marriage.

What is matrimonial property?
England does not have a community of property regime on divorce. In such regimes, commonly the assets occurring during the marriage and up to the point of separation are equally divided. However the House of Lords has taken us even closer than White to a community of property regime, at least in the cases above needs. They have done so by distinguishing several categories of property.

Matrimonial property (also referred to as matrimonial acquest) is property acquired during the marriage otherwise than by inheritance or gift. It is the financial product of the parties' common endeavour. The family home, even if brought into the marriage at the outset by one of the parties usually has a central place in a marriage and should be normally treated as a matrimonial property (22). Property acquired during periods of premarital cohabitation and engagement should also probably be included as matrimonial property (149). Lord Nicholls did not himself distinguish between matrimonial "family" assets and matrimonial "business and investment" assets.

Non-matrimonial property includes inheritances, gifts and property the parties bring into the marriage with them, i.e. pre marriage assets (23).

In principle, the entitlement of each party to a share of the matrimonial property is the same however long or short the marriage may have been (22). The House of Lords finally buried the short marriage law, already dying post-White, of putting the parties into the position as if not married or to overcome any prejudice by the short marriage. Now the matrimonial property of the short marriage is to be shared – the rationale of the Miller outcome itself. In some cases, this will make a big difference in outcome from the previous law even in some relatively modest cases. In other cases, the outcome may co-incidentally be the same as under the previous law, a curious example of fairness in action! This sharing may be irrespective of the absence of needs or compensation.

However for non-matrimonial property, the length of the marriage may be of relevance. In the case of a short marriage, fairness may require that the claimant is not entitled to a share of the non-matrimonial property and it may be a good reason for departing from equality (24). With a longer marriage, the contribution made by one of bringing in the non-marital property may diminish but this may depend on the case, the nature of the property and the circumstances (25).

Lord Nicholls' logical and careful exposition of the above will not cause difficulties for many lawyers, or perhaps for many clients.

Baroness Hale went further with the categories set out above by Lord Nicholls and did not fully endorse his view about matrimonial "business and investment" assets being included in the yardstick of equality. She said that in a very small number of cases, if the assets are not "family" assets or not generated by the joint efforts of the parties, then the duration of the marriage i.e. its shortness may justify a departure from the yardstick of equality (153). Family assets are presumably the assets used by the family such as homes, bank accounts, insurances etc. The reference to assets generated by joint efforts applies naturally where the parties are in business together but also e.g. where one has had some involvement in the past but not continuing, perhaps through home caring responsibilities, but the reference to these assets is not wholly clear. Lord Mance agreed that non-business partnership, non-family assets which are nevertheless matrimonial assets may not have the yardstick of equality applied with the same force in the case of short marriages (168).

These references and principles are fraught with uncertainties and problems. The only consolation for most lawyers is that it is specifically relevant in only a very small number of cases, with very big money accruing during the marriage itself which is a short marriage.

Baroness Hale seemed then to define a further category of property and property arrangement where it was not automatic that property would be shared. She felt the nature and source of property and the way a couple have run their lives may be taken into account in deciding how it should be shared. With a genuine dual career family where each had worked throughout the marriage and certain assets had been pooled for the benefit of the family but others had not, it might be fair to leave undisturbed whatever additional surplus each had accumulated during his or her working life. She emphasised that this was not for a needs or compensation basis case and that the approach should not be taken too far (153). Lord Mance had yet further, perhaps even stronger, views on the topic of maintaining on divorce the financially separate arrangements some couples chose for their marriage. He said dividing equally might be inconsistent with a proper respect for the other's personal autonomy and development, and even more so if the other were to claim a share of any profit made from them (170).

These are dangerous themes being introduced. Some clients and indeed some couples may well feel that their pattern of finances during the marriage does not produce fairness on divorce. The two are separate. In any event, if they are going to be bound by their pattern of financial arrangements during marriage, why cannot they also bind themselves by agreements as part of their personal autonomy?! This is a yet further inconsistency in this part of the judgment. Unlike the few very big money cases, there are many young dual career couples with separate and pooled finances. There is every potential for these remarks, unprompted by the cases under appeal, to be the source of much dispute in a number of cases, especially of young and middle-aged professionals. This aspect of the judgments should be looked at, applied and argued with great care because of the emotional impact it may have on a case. Nevertheless, the separate additional categorisations of property and financial arrangements, including as relating to short marriages, need consideration.

Valuations and the date of separation
The courts must still look at overall resources at the date of the final hearing, the time of the settlement. However in the case of sharing including the definition of matrimonial property, there was good cause to look at the date of separation. Whilst the two lead judgments did not deal with it, Lord Mance felt that where the focus is on assets acquired during the marriage, rather than on overall means, it was natural to look at the period until separation (174). Other case law indicates that account should be taken of the increases in assets from date of separation until trial based on indexation growth and normal market increases.

Many clients will find this fairer, especially when there have been long delays before the final settlement. It separates out the new developments in acquired assets post-separation. It also brings England yet closer to a community of property regime.

The consequence is that valuers will be required to value in some cases not just up to date but also for the date of separation. This will be easier for some assets than others. Expect mail shots from valuers very soon on these services!

Conduct
Perhaps the primary reason (apart from the figures themselves) why the Miller case had reached the House of Lords had been the reliance on conduct (his adultery and affair) by the High Court judge and the Court of Appeal. In case it may be thought that this was a mere temporary aberrance by a couple of judges having a bad day, it was pointed out by the House of Lords that this reliance on conduct went back to a Court of Appeal decision of G v G in 2001, reported in 2004, led by Thorpe LJ accompanied by the then President.

The general view across very many family lawyers was that this throwback to reliance on conduct was nothing short of scandalous. However if the higher courts told us this was the "new" law, lawyers had to advise their clients accordingly. The consequence inevitably has been that conduct has started to be raised yet again on the strength of these cases. The House of Lords had to act, and act quickly. Perhaps this was one reason why the Miller decision of the Court of Appeal of July 2004 appeared in the House of Lords only six months later.

The Law Lords were strong and unanimous. They said what any family lawyer in daily practice had understood. A spouse's affair in bringing an end to the marriage is not conduct which is inequitable to disregard and should not have any impact on the financial settlement. So back to where we were before Miller. Conduct was only to be raised if very exceptional. In most cases fairness does not require consideration of the parties' conduct (65). If it is inequitable to disregard, statute permits it to be taken into account.

At the same time, they dismissed notions of "legitimate entitlement", used by the High Court in Miller to justify the award on the basis that the wife could reasonably have expected a high standard of living from a long marriage if it had not been for the husband's affair. Whilst the court must look at standard of living, "hopes and expectations .... are not an appropriate basis on which to assess financial needs" (58). It was wrongly reintroducing the pre 1984 law of putting the parties into the position as if the marriage had not broken down.

The Law Lords took the opportunity to consider contribution at the same time. There was condemnation of what had, at least until Lambert, become a professional habit of long and detailed contribution arguments set out in either the form E or the "contribution affidavit". Now the Law Lords aligned contribution, particularly so-called "special contribution" to depart from equality, with conduct. Parties should not seek to promote a case of 'special contribution' unless the contribution was so marked that to disregard it would be inequitable. A good reason for departing from equality is not to be found in the minutiae of married life (67). Exceptional earnings would only point away from equality of division when it would be inequitable to do otherwise (68) according to Lord Nicholls. Baroness Hale seemed to differ slightly as she put the weight on contributions to the welfare of the family before a special contribution argument could succeed (148). However, as before, these will only arise when there have been exceptional levels of wealth created.

Clean breaks and spousal maintenance
The Law Lords naturally restated the legal, financial and psychological benefits of clean breaks and reviewed the history of their development and creation in statute. However, how did the clean break fit in with these strands of compensation and sharing? This was the essence of the McFarlane case. The district judge had given the wife a joint lives order. The High Court and Court of Appeal had limited it to five years, admittedly not with a section 28 bar but still with the obligation in law – and burden on the wife – to justify the continuation after five years. Yet the youngest child was only nine. As with the law on conduct, many lawyers in daily practice had thought the position clear, namely a dependent mother with primary care of a child should not have her maintenance end during the child's minority if the father is able to provide.

So what was the High Court and Court of Appeal doing? The fact that the wife's maintenance of £250,000 per annum consisted approximately of one half being her needs based on her budget and the other half based on strands of compensation and sharing could or should not lead to an expectation that this mother's spousal maintenance should end in five years. The House of Lords dismissing this five-year term was believed by most family law solicitors to be as certain as the House of Lords restoring the previously understood position on conduct. So it was. The district judge was vindicated and proven correct. It was for the husband to argue for a variation on any change in circumstances, not for the wife to have to justify an extension after an imposed term.

A periodical payments order may be made for the purpose of affording compensation .... as well as meeting financial needs (32). This would be the case where there was insufficient capital to bring about a capitalisation and in any event where one spouse is continuing to have a significant benefit from the contribution and sacrifice of the other spouse. A clean break (s25A(1) MCA) is not intended to bring about an unfair result (38) nor to arise (s25A(2)) when it would create undue hardship, as would be the case if it was imposed where compensation was due. If the claimant is owed compensation and capital assets are not available, it is difficult to see why the social desirability of a clean break should be sufficient reason for depriving the claimant of that compensation (39). By extension, there should not also be a term order. It should not on the recipient of the maintenance to have the burden of justifying an extension.

There may now be fewer clean break orders, certainly in cases where an element of the maintenance is more than pure needs e.g. compensation.

It is good practice in a case where maintenance includes an element above pure needs for the court to specify how much relates to needs and how much to either compensation or sharing. This may be relevant for several reasons. If there is a later variation application, the needs basis may be appropriate to be varied at a rate different from the compensation/sharing basis. A time may come when it is no longer appropriate for the compensation/sharing basis but the needs basis may remain. If there is later capitalisation, some elements may be more suitable for capitalisation than others, or at different rates. For any issues of enforcement across Europe, where there is a dramatic divide between the concept of maintenance and property division, it is quite likely that the continental European courts will give enforcement and recognition to the maintenance element alone.

How will Miller/McFarlane affect the majority of practitioners?
Conduct is back to where we believed it was, being exceptional, inequitable to disregard and rarely used. We can still feel confident in discouraging the majority of clients from seeking to raise it.

Contribution, especially where it is intended as a departure from equality, also needs to be very exceptional, perhaps so that it would be inequitable to disregard and probably directed to the welfare of the family.

Financial provision is still intended to produce a fair result. This fairness may mean giving an equal start to independent living where possible. The fairness will comprise three strands, based on needs, compensation and sharing. In many cases, needs alone will still be perforce the only criterion. These three strands apply just as much to periodical payments as to capital provision. Clean breaks, including term orders, should not be imposed where they would produce unfairness including inhibiting compensation.

The previous short marriage law of putting the parties in the position as if they had not married is clearly now bad law. There is, in many ways, no difference between short and long marriages as far as equality is concerned with regard to matrimonial property. However departing from equality may be easier and more appropriate the shorter the marriage and may depend on the nature of the property, distinguishing matrimonial property and non-matrimonial property. We will need more carefully than before to ask our clients about their level of assets at the start of the relationship and at the date of separation and about inheritances and gifts. For dual career families maintaining various levels of financial independence, particular reference should be made to the appropriate paragraphs of the judgment of Baroness Hale and Lord Mance about which there will be argument and some client dissatisfaction.

Surely it is now only a matter of time before pre-marriage agreements have statutory weight and in any event case law is moving to give them more force. So, many practitioners will find themselves advising clients to consider them and then drafting them. Resolving the content of pre marriage agreements requires a totally different dynamic and skill in negotiations than for relationship break downs, as Australian lawyers discovered when binding financial agreements were recently introduced. The SFLA/Resolution precedents remain probably the best on the market.

Postscript: Martin – Dye
David Coleman was a superb sports commentator but prone to getting over excited and making gaffs. During the 1968 Olympics, he cheered on David Hemery, a Briton who won the 400 metres hurdles, and famously said that it did not matter who came second or third – in fact, John Sherwood, also of Britain had come third! A triumph as important, in many ways, as that of the winner.

The day after Miller/McFarlane, the Court of Appeal handed down judgement in Martin - Dye. It gained media publicity because here was a wife having to pay out to a husband. But the real importance concerned pensions. The court ruled that the pension should not be treated as a capital asset but treated for the future income that it produced. The judgement can be found on the Family Law Week website.

David Salter is reported as saying on the Times online website: "This ruling is significant because it's the first time the Court of Appeal has handled a case where a pension was the central issue. But whilst acknowledging that pensions are an important and complicated issue, the Court of Appeal has missed an opportunity to provide detailed guidance on how such cases should be treated in the future. Today's ruling says pensions should be treated separately to other assets but does not provide guidance on how they should be valued in these kinds of disputes and how expert evidence should be introduced to deal with it."

Pensions are a fundamental asset in many cases. How they are treated has been a crucial and uncertain issue. This decision is of relevance for a considerable number of cases being decided daily across the country. David Salter highlights in his justified criticisms the Court of Appeal's failure yet again to give clear and methodical guidance to the family law profession in how the work should be undertaken.

Martin - Dye may have not had the headlines of Miller/McFarlane. However it may have a greater significance for many more practitioners and many more couples than some of the very big money issues decided last week by the House of Lords.

David Hodson is an English and Australian specialist family law solicitor and mediator and part time family court judge (DDJ) in London (PRFD). He can be contacted on dh@davidhodson.com

31 May 2006
© David Hodson