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In Pursuit of a ‘Clean Break’ – When is Enough Simply Not Enough?

Andrew Fox and Sarah Dickinson of Jones Myers LLP consider clean breaks in big money ancillary relief cases in the light of D v D.
















Sarah E. Dickinson and Andrew P. Fox of Jones Myers LLP

The meaning of the term 'clean break' is quite clear: once the break has occurred neither party has any continuing financial claim on the other.

Statute makes provision for it 1, parties to proceedings, their legal representatives and the Courts strive to achieve it. Why? Because it enables the severing of financial ties thereby allowing parties to move on with their lives.

The modern approach to this matter was succinctly put by Lord Scarman in Minton v Minton 2 when he said,

"An object of the modern law is to encourage [the parties] to put the past behind them and to begin a new life which is not overshadowed by the relationship which has broken down."  3

This is a phrase that is often recited when a clean break is strived for. Notably it was referred to by Mr. McFarlane during the McFarlane v McFarlane  [2009] EWHC 891 (Fam) saga.

The statutory provisions are to be found in section 25(A) Matrimonial Causes Act 1973 ('MCA') which provides as follows:

"(1) Where on or after the grant of a decree of divorce or nullity of marriage the court decides to exercise its powers under section 23(1)(a), (b) or (c), 24, 24A or 24B above in favour of a party to the marriage, it shall be the duty of the court to consider whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable.

(2) Where the court decides in such a case to make a periodical payments … order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those payments to be made … only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party."

There are therefore, two categories of 'clean break': an immediate clean break provided for by section 25A(1) MCA and a delayed clean break provided for by section 25A(2) MCA. The Court is therefore required to 'consider' whether it would be 'appropriate' to exercise its powers in a certain way. However, there is no statutory guidance as to how the court's discretion should be applied. Of course, the discretion will always be applied in line with the overarching principle of 'fairness.'

This article addresses the issue of 'clean break' in light of the recent decision of Charles J in D v D [2010] EWHC 138 (Fam).

The Facts
The husband and wife began cohabiting in 1985 and married a year later. The parties separated in 2003, although the wife petitioned for divorce and commenced ancillary relief proceedings in 2006. 

The husband was a farmer and had inherited part of the business. During the marriage the farming business had grown and diversified into packaging and supply of vegetables with the help of a significant windfall from the sale of land under a compulsory purchase by the Highways Agency and a subsequent land sale for development purposes. In 1985 the turnover had been £350,000 and by 2009 that had increased to £6,840,000. In 2005, when the prospect of proceedings was known, the husband and his father had invested £3,000,000 (in large part the profit from the windfall) in a new processing plant. At the time of the ancillary relief hearing (and since purchase) this investment was a significant loss-making venture and had resulted in considerable income and capital losses and a dramatic reduction in the company's liquidity. The business was to have a gross asset base of about £11.92 million with a projected net profit for 2010 of £533,864. The parties projected 2010 salaries were £80,000 plus £10,000 pension contribution for the husband and £10,400 for the wife.

In essence, the Court was to reject clean break arguments (put forward on behalf of both parties) as the funds within the company could not sustain a lump sum payment that would be fair to the wife who, Charles J decided, should have an income of £80,000 to £90,000 per annum to match the standard of living at the time of separation.

Ultimately, the Court determined that the husband should retain day to day control of the business, concluding that the recent investment in the processing unit was likely to be successful in the longer term and the award should reflect that position.  Charles J went on to order that the wife should retain the matrimonial home, the husband should pay the wife a lump sum of £1.5m (funded by a dividend) and periodical payments of £44,000 per annum.

To a lay person it would seem to be anomalous that where there are such significant assets within the family that a clean break is not possible to enable the parties to be self sufficient. Of course, it comes down to issues of liquidity, affordability and fairness. A significant part of the judgment concerned these issues and the fairest means of extracting funds from within the company.

As Charles J himself mooted at [265]:

"Is a clean break a fair possibility?  It seems to me that this question has always been at the heart of this case."  

The Court was to be persuaded by arguments that the husband should, if reasonably possible, be permitted to continue farming through the company. The factors that were identified as supporting that argument were: the history, its treatment as an income producing asset, and the choices made by, and the basis upon which, the parties ran their lives together.  Furthermore, neither side pursued sale of shares or liquidation of the company as their primary case.

The Court accepted that the family farming business was a significant factor in determining that an award to the wife which would compel the husband to sell and cease farming would be unfair. This was one of the Judge's "magnetic factors" at [259] that he considered in determining the approach to the application of the sharing and needs principles.

Charles J determined that the final lump sum offer of the husband would not produce sufficient income for the wife to give her the level of income the parties had enjoyed at the end of the marriage. He felt a clean break on this basis would not meet the capital award the wife required and was based upon what the husband could raise through the company with a reasonable prospect of the company's survival. This offer would mean the wife would receive an award below the fair range and would not be "a fair" clean break at [279] . He stated that a clean break should not to be achieved at the price of fairness and must represent a result that in all the circumstances was fair at [169] . He felt that the husband's offer would not lead to that outcome..

The wife sought the former matrimonial home and (a greater) lump sum on a clean break basis. Charles J found she was seeking too high an award, in that the lump sum would produce an income level in excess of that enjoyed by the parties at the end of the marriage, and would not allow the company to continue to trade if such an award  was to be met.

The Judgment addressed the borrowing capacity and liquidity issues of the company and how the funds could be extracted by the husband, taking into account the costs of borrowing and taxation implications. It was these issues which determined the parties approach and also the Court's view as to the level of any award on a clean break basis.

Faced with this dilemma Charles J considered at [277] that the "crucial questions"  came down to whether the advantages of a clean break to the parties would lead to a result in which the wife would be limited to an award below, or at the bottom of, the fair range, or the husband would be required to take a very high risk to raise and distribute sufficient funds through the company to meet the award and for the company to still survive.

Consequently, he concluded this would be the case if a clean break was to be made and so would not be a "fair clean break" in all the circumstances. Charles J observed that:

"In my view the assessment of whether a clean break is fair is not confined to a consideration of capital values but should also have regard to the nature of the underlying assets and thus for example the difficulty in valuing them, the market for them and how they have been treated and thought of by the parties during their marriage."    

Accordingly, the Wife was awarded a lump sum (including the former matrimonial home) and periodical payments.

Charles J commented that there was no evidence before him that periodical payments were not affordable. Also, by making such an award, he believed this provided the opportunity for the loss making vegetable processing unit to become profitable and, applying the principles of fairness, would allow the wife to then share in its success by way of the periodical payments.

So, when is enough not enough for a clean break in big money cases? The answer is far from straightforward and will undoubtedly turn on the specific facts of each particular case. In D v D, clearly an asset base of £11.92m was considered to be insufficient! In this case the liquidity of assets and the judge's interpretation of the legal principles in striving for fairness, led to an ongoing financial obligation, notwithstanding the fact that both parties had actually strived to achieve a clean break.

Of course, in a climate of economic uncertainty the pursuit of the clean break might become even more elusive; only time will tell.

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1 Section 25(A) Matrimonial Causes Act 1973
2  [1979] AC 593
[1979] AC 593; at 608