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N v F [2011] EWHC 586 Fam

Ancillary Relief: The treatment of pre-acquired wealth after a long marriage. Whether the assessment of a party’s needs can be informed by pre-marital property.

The parties were married for 16 years and had 2 children.  At the date of the marriage, the husband had assets worth £2.116m.  On divorce, the total assets, including the husband's pre-acquired wealth, amounted to £9.714m.  The central issue in the case was the way the pre-marital wealth should be treated. 

Mostyn J confirmed that the approach to pre-acquired wealth is fact specific and highly discretionary. The court had to balance unfettered discretion with the desirability of consistency and predictability of outcome.  Pre-marital contributions represent an unmatched contribution made by one spouse.  The longer the marriage, the more likely that contribution will fall to be shared between the parties.

There are two schools of thought as to how pre-marital property should be reflected in an award for ancillary relief: the first is simply to adjust the percentage from 50%; the second is to identify the scale of the non-matrimonial property to be excluded and thereafter divide the matrimonial property in accordance with the equal sharing principle. 

At para 14, Mostyn J set out the process to be followed.  This is the same approach as Wilson LJ adopted in Jones v Jones [2011] EWCA Civ 41:

• The court should first decide whether the existence of pre-marital property should be reflected at all. This depends on questions of duration and mingling.

• If it does decide that reflection is fair and just, the court should then decide how much of the pre-marital property should be excluded. Should it be the actual historic sum? Or less, if there has been much mingling? Or more, to reflect a springboard and passive growth?

• The remaining matrimonial property should then normally be divided equally.

• The fairness of the award should then be tested by the overall percentage technique.

The Judge went on to consider the extent to which the assessment of the wife's needs could be informed by pre-marital property.   He decided that needs cannot be assessed in isolation of factors which are key to the performance of the sharing principle, such as vast wealth, pre-nuptial contracts and pre-acquired wealth. 
In this case, it would be wrong for none of H's pre-marital wealth to be excluded from the sharing principle; the Judge excluded £1,000,000 from the pot and divided the remainder equally.  This left the wife with 44.7% of the total assets.  The Judge emphasised that the high percentage was due to the impact of the wife's needs; were it not for W's needs he would have excluded more, possibly the entirety of the husband's pre-marital wealth.   

Summary by Juliet Chapman of Lamb Building
________________________________

 

Neutral Citation Number: [2011] EWHC 586 (Fam)

Case No: FD09D05393
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 11/03/2011

Before:

MR JUSTICE MOSTYN
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Between :

N Petitioner
 
- and - 
 
F Respondent

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Tim Amos QC and Daniel Bentham (instructed by Payne Hicks Beach) for the Petitioner
Nigel Dyer QC and Victoria Domenge (instructed by Mishcon de Reya) for the Respondent

Hearing dates: 7-10 March 2011
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Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.


.............................
MR JUSTICE MOSTYN


This judgment is being handed down in private on 11 March 2011.  It consists of 54 paragraphs and has been signed and dated by the judge

The Judge hereby gives leave for it to be reported.

The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them may be identified by name or location. In particular the anonymity of the children and the adult members of their family must be strictly preserved. If reported, it shall be the duty of the Law Reporters to anonymise this judgment.

 
Mr Justice Mostyn: 
The central issue
1. This case gives rise to the vexed question of how the court should, when exercising its powers to award ancillary relief, reflect, if at all, the property that the husband ("H") bought to the marriage back in 1993.

2. This is a not very big money case. It is agreed that the assets in this case amount to about £9.714m in value. It is not disputed by the wife ("W") that when they married H was a rich man. In her evidence she told me:

I thought he was pretty rich. He used to say he was very rich. His uncle called him a yuppie. He would say "I am much richer than a yuppie; it is insulting to call me a yuppie".

The evidence demonstrates that H had assets worth £2.116m at the time of the marriage in 1993. Merely to adjust by inflation would up-rate that figure to £3.4m today. If one were to allow for a measure of passive growth using, say the FTSE100 index, or 3.75% compound interest, then the figure becomes £4.2m.

3. H does not ask that all of the value of his pre-marital property be reflected in the result, let alone all of the value of that property up-rated by growth.  His proposal is that W should receive £4.17m out of the £9.714m, or 43%. This would leave H with £5.544m, or £1.374m more than W. Thus it can be seen that H seeks reflection of 65 pence in the pound of his actual pre-marital property, or 33 pence in the pound of the up-rated value. H says that his proposal meets the justice of the case, and that the sum of £4.17m will meet W's reasonable needs.

4. W says that there should be no departure from equality. First and foremost she says that half of £9.714m, or £4.857m is in fact barely enough to meet her reasonable needs. But, in addition, she says it would be unjust and unfair for H's pre-marital property to be given reflection because:

i) It was introduced a long time ago since when it has been converted into and merged with matrimonial property. This mingling means that it is not just evidentially difficult to establish the scale of such pre-marital property; but it also signifies, in effect, an agreement by H to share it with W.

ii) H has "alienated" certain sums during the marriage.

iii)  H has since 2007 eschewed the exploitation of a substantial earning capacity in the financial sector in favour of a lowlier paid job as a schoolmaster. By contrast W, notwithstanding that she is a qualified clinical psychologist, with a doctorate, has no meaningful earning capacity.

iv) H has conducted the litigation "tactically" (which I take to mean "unfairly") and has caused unnecessary costs to be incurred.

5. As can be seen, the parties are £687,000 apart. Not very surprisingly, the combined costs of the parties amount to £652,000. It seems to be an iron law of ancillary relief proceedings that the final difference between the parties is approximately equal to the costs that they have spent.

The Law
6. There has been a deal of jurisprudence emanating from the higher appellate courts on the subject of pre-marital or non-matrimonial property. The House of Lords has spoken on the subject in White v White [2001] 1 AC 596 and in Miller & McFarlane [2006] 1 FLR 1186. The Court of Appeal has given guidance in a number of cases including Charman No 4 [2007] 1 FLR 1246, and more recently in Robson v Robson [2010] EWCA Civ 1171 and in Jones v Jones [2011] EWCA Civ 41, [2011] 1 FCR 242. The Court of Final Appeal of Hong Kong (where the statute is almost identically framed) has recently given guidance in the heard-together appeals of LKW v DD (FACV 16/2008) and WLK v TMC (FACV 21/2009). There have been a number of first instance decisions, including one of my own (FZ v SZ [2011] 1 FLR 64).

7. The first point to be derived is that the treatment of pre-marital property is highly fact specific and very discretionary. In White, Lord Nicholls stated:

[Pre-marital property] represents a contribution made to the welfare of the family by one of the parties to the marriage. The judge should take it into account. He should decide how important it is in the particular case. The nature and value of the property, and the time when and circumstances in which the property was acquired, are among the relevant matters to be considered. However, in the ordinary course, this factor can be expected to carry little weight, if any, in a case where the claimant's financial needs cannot be met without recourse to this property. 

Similarly in Robson, Hughes LJ stated at para 96:

That the origin of assets in inheritance is a relevant factor for the court in no sense means that the approach to inherited assets ought always to be the same. What is fair will depend on all the circumstances; those cannot exhaustively be stated but will often include the nature of the assets, the time of inheritance, the use made of them by the parties and the needs of the parties at the time of trial.

In similar vein, Ribeiro PJ stated in LKW v DD at para 91:

…there is no hard and fast rule as to whether such property should be excluded.  It is very much a matter within the judge's discretion to be exercised taking account of all the circumstances of the particular case.

8. That said, the discretion must be exercised consistently and predictably. As Deane J stated in the High Court of Australia in Mallett v Mallett (1984) 156 CLR 605 at p 641:

It is plainly important that, conformably with the ideal of justice in the individual case, there be general consistency from one case to another of underlying notions of what is just and appropriate in particular circumstances. Otherwise, the law would, in truth, be but the "lawless science" of "a codeless myriad of precedent" and "a wilderness of single instances" of which Lord Tennyson wrote in his poem "Aylmers Field" 

Similarly in DD v LKW  Ribeiro PJ stated:

49.  While recognizing that some uncertainty is inescapable, it is nevertheless desirable that the appellate courts should attempt to provide guidance with a view to encouraging consistency and predictability. As Lord Nicholls pointed out in Miller/McFarlane [at para 6]:

"...an important aspect of fairness is that like cases should be treated alike. So, per force, if there is to be an acceptable degree of consistency of decision from one case to the next, the courts must themselves articulate, if only in the broadest fashion, what are the applicable if unspoken principles guiding the court's approach."

Baroness Hale added that consistency and predictability should be promoted in order "to enable and encourage the parties to negotiate their own solutions as quickly and cheaply as possible".[para 122]

50.  However, as Ormrod LJ observed, (Martin v Martin [1978] Fam 12) the courts' pronouncements on a provision like section 7 "can never be better than guidelines".  This is because, as Gibbs CJ explained (Mallett v Mallett at 609), the courts "cannot put fetters on the discretionary power which the Parliament has left largely unfettered."  Dealing with the natural tension existing between the need for flexibility on the one hand and the desire for consistency on the other, Brennan J stated:

"The only compromise between idiosyncrasy in the exercise of the discretion and an impermissible limitation of the scope of the discretion is to be found in the development of guidelines from which a judge may depart when it is just and equitable to do so -- guidelines which are not rules of universal application, but which are generally productive of just and equitable orders." (Norbis v Norbis (1986) 161 CLR 513 at 538)

51.  As his Honour pointed out, Lord Denning MR addressed the problem of guiding the exercise of an unfettered judicial discretion in Ward v James [1966] 1 QB 273 at 295 in the following terms:

"The cases all show that, when a statute gives discretion, the courts must not fetter it by rigid rules from which a judge is never at liberty to depart. Nevertheless, the courts can lay down the considerations which should be borne in mind in exercising the discretion, and point out those considerations which should be ignored. This will normally determine the way in which the discretion is exercised, and thus ensure some measure of uniformity of decision. From time to time the considerations may change as public policy changes, and so the pattern of decision may change: this is all part of the evolutionary process."

The late Lord Bingham of Cornhill put it this way in his book "The Rule of Law" (Allen Lane, 2010) at page 51:

The job of the judges is to apply the law, not to indulge their personal preferences. There are areas in which they are required to exercise a discretion, but such discretions are much more closely constrained than is always acknowledged.

9. The reason that pre-marital property should be taken into account is, as is explained by Lord Nicholls in White, because it represents a contribution made by one party unmatched by an equivalent contribution by the other. But the longer the marriage goes on the easier it is to say that by virtue of the mingling of that property with the product of the parties' marital endeavours the supplier of that property has, in effect, agreed to share it with his spouse. Thus Lord Cooke in White stated:

In the present case, bearing in mind that it was a marriage of more than 30 years, that there were three children and that the wife was an active partner in the farming business as well as meeting the responsibilities of wife and mother, the only plausible reason for departing from equality can be the financial help given by the husband's father. I agree, however, that the significance of this is diminished because over a long marriage the parties jointly made the most of that help and because it was apparently intended at least partly for the benefit of both. As Lord Simon of Glaisdale said, in delivering the judgment of the Privy Council in a case under the former New Zealand legislation Dorothy Haldane v George Christopher Haldane [1977] AC 673, 697:

'Initially a gift or bequest to one spouse only is likely to fall outside the Act, because the other spouse will have made no contribution to it. But as time goes on, and depending on the nature of the property in question, the other spouse may well have made a direct or indirect contribution to its retention.'

Similarly in Miller Lord Nicholls stated:

[24]   In the case of a short marriage, fairness may well require that the claimant should not be entitled to a share of the other's non-matrimonial property. The source of the asset may be a good reason for departing from equality. This reflects the instinctive feeling that parties will generally have less call upon each other on the breakdown of a short marriage.

[25]   With longer marriages the position is not so straightforward. Non-matrimonial property represents a contribution made to the marriage by one of the parties. Sometimes, as the years pass, the weight fairly to be attributed to this contribution will diminish, sometimes it will not. After many years of marriage the continuing weight to be attributed to modest savings introduced by one party at the outset of the marriage may well be different from the weight attributable to a valuable heirloom intended to be retained in specie. Some of the matters to be taken into account in this regard were mentioned in the above citation from the White case. To this non-exhaustive list should be added, as a relevant matter, the way the parties organised their financial affairs.

And Baroness Hale stated under the heading "The source of the assets and the length of the marriage" at para 148:

In White, it was also recognised that the importance of the source of the assets will diminish over time (see  611B and 995 respectively). As the family's personal and financial inter-dependence grows, it becomes harder and harder to disentangle what came from where.

Similarly in LKW v DD Ribeiro PJ stated at para 96 that "an important factor which comes into play is the duration of the marriage".

10. Where it is decided that the existence of pre-marital property should be reflected, there are two schools of thought as to how its expression should be worked out. The first is the technique of simply adjusting the percentage from 50%. This technique finds its clearest expression in Charman No 4 at para 66 where the President stated:

To what property does the sharing principle apply? The answer might well have been that it applies only to matrimonial property, namely the property of the parties generated during the marriage otherwise than by external donation; and the consequence would have been that non-matrimonial property would have fallen for redistribution by reference only to one of the two other principles of need and compensation to which we refer in para [68], below. Such an answer might better have reflected the origins of the principle in the parties' contributions to the welfare of the family; and it would have been more consonant with the references of Baroness Hale of Richmond in Miller at paras [141] and [143] to 'sharing … the fruits of the matrimonial partnership' and to 'the approach of roughly equal sharing of partnership assets'. We consider, however, the answer to be that, subject to the exceptions identified in Miller to which we turn in paras [83]–[86], below, the principle applies to all the parties' property but, to the extent that their property is non-matrimonial, there is likely to be better reason for departure from equality. It is clear that both in White, at 605F–G and 989 respectively, and in Miller, at paras [24] and [26], Lord Nicholls of Birkenhead approached the matter in that way; and there was no express suggestion in Miller, even on the part of Baroness Hale of Richmond, that in White the House had set too widely the general application of what was then a yardstick.

An example of the application of this technique is C v C [2009] 1 FLR 8 where Moylan J decreed a 60/40 division of the property stating:

[94]   I have come to the clear conclusion that the wealth owned by the husband prior to the marriage and prior to 1984 was substantial and justifies a departure from equality. None of the other features in the case merits separate consideration. It would be unhelpful to suggest that the assessment of the extent to which such departure is justified can be calculated by reference to any formula or clear mathematics. It would also be unhelpful to suggest that it must be justified in this way, as that would result in the dangers highlighted by Lord Nicholls of Birkenhead at para [26] of his speech.

[95]   The essence is that, by the time the parties met, the husband was aged 40. He had been in the property business for over 10 years, had set up two companies in 1980 which, by 1984 and more so by 1988, were well established and successful, with a substantial asset base. This is not a case, as suggested by Mr Mostyn, of modest savings, but one of substantial wealth. Taking all these factors into account, in my judgment, I would be achieving fairness if I awarded the wife 40% of the current wealth, dividing the pension assets and the other assets separately in the same proportion.

11. The alternative technique is to identify the scale of the non-matrimonial property to be excluded, leaving the matrimonial property alone to be divided in accordance with the equal sharing principle. This has recently been vividly deployed by the Court of Appeal in the recent case of Jones v Jones. Wilson LJ stated:

33. My view is that, in applying the sharing principle to this case, we should in the first instance adopt the approach commended to the judge by Miss Stone. We should therefore effect a division of the total assets of £25million into the part reflective of non-matrimonial assets and that reflective of matrimonial assets. But in doing so we should remember that, as Lord Nicholls stressed in Miller/McFarlane at [26], we are unlikely to need, still less to achieve, a precise division. The remaining step to be taken pursuant to Miss Stone's approach will be easy partly because in this case there is no ground for sharing the non-matrimonial assets other than 100% to the contributor and 0% to the other and partly because, by contrast, there is no ground for sharing the matrimonial assets other than equally.

34. My view however is that we should test the result suggested by the adoption of Miss Stone's approach against application of Mr Pointer's approach, namely by identifying, for allocation to the wife, such lesser percentage than 50% of the total assets as seems to make fair overall allowance for the husband's introduction of his company into the marriage.

35. Criticism can easily be levelled at both approaches. In different ways they are both highly arbitrary. Application of the sharing principle is inherently arbitrary; such is, I suggest, a fact which we should accept and by which we should cease to be disconcerted. Mr Pointer's approach seems particularly by-and-large. But is the greater apparent specificity of Miss Stone's approach an illusion? Powerful voices are raised against the accuracy of the types of valuation which her approach often requires. For example in H v. H [2008] EWHC 935 (Fam), [2008] 2 FLR 2092, Moylan J, at [5], described valuations of private companies as particularly fragile and suggested that their ostensible accuracy was no more than a chimera and that their purpose was to assist the court "in testing the fairness of the proposed outcome". We may infer that Moylan J would have preferred in the first instance to adopt Mr Pointer's approach and, at most, only to test the suggested result against application of Miss Stone's approach. The exercises, on the one hand, of adopting A and of testing against B and, on the other, of adopting B and of testing against A may indeed have subtly different consequences. At all events in this case, particularly in circumstances in which a central valuation mandated by it has been crystallised by sale, I prefer in the first instance to adopt Miss Stone's approach. 

In that case the pre-marital property was, by adjustment of an agreed accountants' valuation to reflect what was described as a "springboard" and the application of passive growth referable to the FTSE All Share Oil and Gas Producers Index, calculated to be £9m. That was subtracted from the total assets of £25m leaving £16m of matrimonial property, which was divided equally. The award was tested, secondarily, by the overall percentage technique. Wilson LJ stated at para 52:

As I have observed, the question-mark to be set against the above calculation is properly recognised by a resolution to test its suggested award to the wife of £8m by the application of Mr Pointer's approach. The sum of £8m represents 32% of £25m. My view of overall fairness to both parties, developed at an early stage and not displaced in the course of protracted subsequent reflection, is that an award of 40% to the wife, for which Mr Pointer contends, would be unfair to the husband and that the bracket fair to both would be between 30% and 36%. So the suggested award, albeit not precisely in the middle of the bracket, survives the test.

12. The decision of S v S (Non-Matrimonial Property: Conduct) [2007] 1 FLR 1496 is a hybrid of the two approaches. There Burton J identified those pieces of pre-marital property that still existed in specie. They were excluded from the matrimonial property. He accepted that the matrimonial property included some assets that had their source and or derivation in pre-marital property. Thus he divided the marital property unequally – 60/40 – to reflect that.

13. I myself attempted to reconcile the approaches in FZ v SZ and Others (Ancillary Relief: Conduct: Valuations) [2011] 1 FLR 64.  I stated that:

[143]   Some argue that this dictum stipulates that the two-stage process should be telescoped into one. I find it difficult to accept that this is what the Court of Appeal intended. A telescoped approach runs the risk of insufficient logical rigour being applied to the identification and treatment of the two very different categories. It runs the risk of palm-tree justice being applied. It is so easy to say – 'well there is a good deal of non-matrimonial property here so I will reduce the claimant's share to 40%', but that approach simply does not tell anyone what weight is being given to that factor. There is also the point that para [66] of Charman by its terms requires an identification and quantification of the non-matrimonial property in order to inform the percentage share. What is the point of all this work if it is then to put to one side in favour of a percentage based on 'feel'?

[144]   I, therefore, decline to accept that the Court of Appeal intended to abrogate the two-stage approach used by Burton J and in other cases. Certainly, the overall percentage share must be undertaken as a final check, for the yardstick of equality applies to all the assets and is there to guard against inadvertent discrimination as Lord Nicholls of Birkenhead memorably pointed out in White.

[145]   I have found above that the total non-Zendan property amounts to £18,147,310. H's pre-marital property amounts to £2,182,111. The matrimonial property is, therefore, £15,965,199. On the facts of this case there is no good reason why this should not be equally shared in accordance with well established principle. Thus W will receive net exit funds of £7,982,600. ….
   …
[147]   The award to W of £7,982,600 represents 44% of the non-Zendan assets which I judge to be fair having regard to the scale of H's pre-marital property. 

I did not allow any up-rating of the husband's pre-marital property for the reasons explained in para 91 where I stated

[91]   I find that H brought into the marriage assets worth £2,182,111, as per Appendix 8 of Miss Bangay's skeleton. H has produced no evidence that on top of this he had £800,000 or any other sum in an X Bank savings account. I do not adjust this sum of £2,182,111 to reflect the effect of inflation over the last 10 years, for two reasons. First, in that period the FTSE 100 has in fact gone down. It is debatable whether that sum if invested would now be worth more than £2.182m. Second, given the degree of merger that has taken place over the period of the marriage I take the view that any investment return on these moneys should be regarded as matrimonial rather than non-matrimonial property.

14. I adhere to my view that the two step approach is the right one, generally speaking. It is precisely what Wilson LJ did in Jones. It seems to me that the process should be as follows:

i) Whether the existence of pre-marital property should be reflected at all. This depends on questions of duration and mingling.

ii) If it does decide that reflection is fair and just, the court should then decide how much of the pre-marital property should be excluded. Should it be the actual historic sum? Or less, if there has been much mingling? Or more, to reflect a springboard and passive growth, as happened in Jones?

iii) The remaining matrimonial property should then normally be divided equally.

iv) The fairness of the award should then be tested by the overall percentage technique.

15. Of course all of this is subject to the question of need. As Lord Nicholls said in White "however, in the ordinary course, this factor can be expected to carry little weight, if any, in a case where the claimant's financial needs cannot be met without recourse to this property".  In LKW v DD Ribeiro PJ stated:

D2 The exercise often stops at "needs"
54.  The second point is that in most cases, discussion of the guidelines is superfluous.  Usually, the available assets are insufficient to cater for the needs of both parties after termination of the marriage so that the exercise does not progress beyond consideration of their needs.  As Lord Nicholls put it in Miller/McFarlane:

"In most cases the search for fairness largely begins and ends at this stage. In most cases the available assets are insufficient to provide adequately for the needs of two homes. The court seeks to stretch modest finite resources so far as possible to meet the parties' needs."[62]

55.  It is therefore only in cases where surplus assets remain to be distributed after seeing to the parties' needs that the guidelines may require consideration.  The disposal of simple cases should not be pointlessly complicated by inappropriate attempts to apply such guidelines.

16. An interesting question is whether the assessment of "needs" can be affected by factors other than the scale of the available resources and the marital standard of living. Specifically, can the assessment of need be informed by the fact that there is present in the case a deal of pre-marital property? Mr Dyer QC says certainly so; Mr Amos QC strongly disagrees.

17. Just as there are "inheritances and inheritances" there are needs and needs. In McCartney [2008] 1 FLR 1508 the wife's award was calibrated solely by reference to her "needs" in the sum of £24.3m. This is of course worlds away from "needs" as most people would understand them to be, even needs "generously interpreted". However, the needs in that case were assessed only by reference to the vast scale of the husband's resources, and the marital standard of living. But there have been instances of needs being informed by factors other than these. In the pre-White era when needs, or rather, reasonable requirements, was the ruling criterion, active business contribution by the wife in Gojkovic v Gojkovic [1990] 1 FLR 140 enhanced her need beyond the conventional house plus Duxbury metric to meeting her ambition to run a hotel. In M v M (Prenuptial Agreement) [2002] 1 FLR 654 Connell J pared the wife's needs down because she had signed a pre-nuptial agreement (see para 44). This is what Baron J did in Granatino at first instance ([2009] 1 FLR 1478). In the Supreme Court ([2010] 2 FLR 1900) Lord Phillips addressed the question of need thus:

Need
[118]   Baron J had held that the ante-nuptial agreement was 'manifestly unfair' in that it made no provision for the possibility that the husband might be reduced to circumstances of real need. Wilson LJ at para [144] appears to have thought that there was nothing unfair about this and, inferentially, that had the husband been in a situation of real need the agreement would nonetheless have been good reason for the court to decline to alleviate this by an order of ancillary relief. We would not go so far as this.

[119]   We stated at para [73] above that the question of the fairness of the agreement can often be subsumed in the question of whether it would operate unfairly in the circumstances prevailing at the breakdown of the marriage, and this is such a case. Had the husband been incapacitated in the course of the marriage, so that he was incapable of earning his living, this might well have justified, in the interests of fairness, not holding him to the full rigours of the ante-nuptial agreement. But this was far from the case. On the evidence he is extremely able, and has added to his qualifications by pursuing a D Phil in biotechnology. Furthermore, the generous relief given to cater for the needs of the two daughters will indirectly provide in large measure for the needs of the husband, until the younger daughter reaches the age of 22. Finally, the Court of Appeal did not upset the judge's order that the wife should fund the discharge of debts of £700,000 owed by the husband, only a small part of which she had challenged.

[120]   In these circumstances we consider that the Court of Appeal was correct to conclude that the needs of the husband were not a factor that rendered it unfair to hold him to the terms of the ante-nuptial agreement, subject to making provision for the needs of the children of the family.

18. Thus the husband's needs were cut right down to a level that would have been inconceivable had there been no pre-nuptial agreement. One of the reasons that public policy demanded such rigour to be imposed on the husband was that the pre-nuptial agreement was intended to preserve the wife's non-matrimonial property, as explained by Lord Phillips thus:

Non-matrimonial property
[79]   Often parties to a marriage will be motivated in concluding a nuptial agreement by a wish to make provision for existing property owned by one or other, or property that one or other anticipates receiving from a third party. The House of Lords in White v White and Miller v Miller drew a distinction between such property and matrimonial property accumulated in the course of the marriage. That distinction is particularly significant where the parties make express agreement as to the disposal of such property in the event of the termination of the marriage. There is nothing inherently unfair in such an agreement and there may be good objective justification for it, such as obligations towards existing family members. As Rix LJ put it at para [73]:

'… if the parties to a prospective marriage have something important to agree with one another, then it is often much better, and more honest, for that agreement to be made at the outset, before the marriage, rather than left to become a source of disappointment or acrimony within marriage.'

19. So if an agreement to preserve non-matrimonial property can have the effect of assessing need more conservatively (indeed in Granatino far more conservatively) than would have been the case absent that factor, why cannot the presence of pre-marital property simpliciter not have an equivalent or similar effect? I accept of course that in Jones at para 31 Wilson LJ has stated that:

…in applying the principles of need and of sharing, the court is engaged in two separate exercises, which require it to refer to different considerations (Charman, cited above, at [70] and [72]); and that the suggestion that the result of the assessment under the need principle can be introduced into the assessment under the sharing principle in order to identify the extent of departure from equality is inconsistent with the guidance given in Miller/McFarlane, as recognised in Charman at [73] and as noted by the judge himself at [410], that in principle the higher assessment should found the award. 

I do not take this passage to suggest that assessment of need is an insulated metric uninformed by factors that are centrally key to the performance of the sharing  principle, for the reasons I have stated above.

Narrative
20. I have taken the historical narrative largely from the background section of the skeleton argument of Mr Dyer QC. It seems to me to tell the tale accurately and neutrally.

21. The parties are both American. H is 58 and W is 46. They met in New York and married in September 1993 when H was 41 and W was 29. There had been a period of pre-marriage cohabitation, but this was interrupted by a 9 month period of separation (when W vacated H's flat) and the breaking off of the engagement. I am satisfied that their cohabitation did not move seamlessly into marriage, and I do not extend the span of the marriage de facto by reference to the pre-marital relationship.

22. The marriage broke down in 2009, W first instructing solicitors in October of that year. This was therefore a marriage that lasted 16 years.  There are two children aged 15 and 8 both of whom are privately educated. W began divorce proceedings in November 2009. H vacated the final matrimonial home in July 2010. He sees the children regularly.

23. In 1979 H joined a well-known global investment bank. From his remuneration over the course of the next 14 years significant financial resources were built up. By the time of the marriage in 1993 H had acquired two properties in Massachusetts, funds invested in the bank he worked for, cash, and shares in two telecom companies (A Inc.and its subsidiary B Corp).  These shares originated in a successful venture that H made to set up a company to bid for new rural mobile telephone franchises in the USA. At a US Government auction in 1989 they won a franchise which was sold on to A Inc and in that way H acquired the shares in A Inc and B Corp.

24. H also asserted that he had other assets at marriage but these were not evidenced by any documentation and I therefore ignore them. If a party is going to assert the existence of pre-marital assets then it is incumbent on him to prove the same by clear documentary evidence.

25. The pre-marital assets may be tabulated as follows. In each instance I have deducted latent US CGT where appropriate.

 

US$

 

A property in Lexington

270,302

 

A property in Boston

548,131

 

Profit share plan

590,448

 

Brokerage account

437,805

 

26,279 A Inc shares *

1,116,174

 

9,302 B Corp shares **

273,769

 

 

3,236,629

 

converted  to £ at Sept 1993 FX rate (0.6538)

2,116,108

 

 

 

 

* ignoring 3,000 shares later transferred to a family foundation

** ignoring 2,100 shares later transferred to a family foundation







26. In 1997 H left his previous job and with others started up a Scandinavian brokerage firm/investment bank.

27. In their early years together W studied psychology and obtained a Masters and a PHD in this subject.  Before coming to London W had a private practice in New York as a qualified licensed clinical psychologist. If she had remained there she estimates that she would have been able to earn $40,000 - $60,000 pa. W has not earned any sums since the move to London in 2004.

28. The only property that has been owned during the marriage by the parties is a holiday home in Connecticut. In 1998 they bought a plot and had the house built when they were living in New York.  It was completed shortly before the move to London. The property has been let since they left and they have had an arrangement with the tenants that allows them to use it when they return to the US during the summer vacations. The income more or less covers the expenses.  This property is valued at $2.2m and it has a mortgage of $1.06m. Its equity is worth £536,000. W very much wishes to keep the property. H does not object as such but maintains that on the facts of this case it is not a reasonable need for W to have a separate holiday home.

29. In September 2004 the family moved to London when H came over to set up a London office of the Scandinavian bank.

30. On arrival here the family moved into a rented home. This is a fine 3,000 square foot, four bedroom property, which is worth around £5m. The bank paid the rent until March 2007. The rent is presently around £12,000 per month.

31. H earned very well as a banker. The graph of his earnings marched steadily upwards culminating in pay of over $1.5m for 2007.

32. In March 2007 H left banking with little regret after 28 years. He had been suffering from a bad back as well as general ennui. Later that year H started work as a teacher, initially part-time, latterly full-time. He now earns £52,000 gross, a far cry from his earnings as a banker.  He says he has never been happier. W does not criticise H for leaving his banking job. It had a highly beneficial economic consequence for the family. H was able as a result of leaving immediately to sell half his shares in the bank at the top of the market, the global economic collapse not having by then occurred. Since then the share price has plunged. Had H stayed at the bank it is likely that today this family would have a rather smaller capital base than it actually does.

33. W does however criticise H for not taking up alternative employment in the financial sector. I will deal with this argument later.

34. During the marriage the parties enjoyed a high standard of living. As is often the case H says that he was uncomfortable with the level of W's spending. The high spending did not reduce after H left banking in 2007, and when perforce the parties would have been drawing down on their capital. In July 2009 H drew up a statement of the family's source and application of funds. This showed family expenditure of $800,000 with income to put towards it (including investment income) of only $350,000. Plainly since 2007 the family has been running a large deficit. Both parties accept that after this case is over they will have to retrench significantly.

The assets 
35. The assets are almost exactly agreed. They can be tabulated as follows:
 

JOINT ASSETS

£

Connecticut property

536,000

Natwest accounts

500

Other assets (cheques)

140,000

Chattels (not included in total)

22,000

subtotal (rounded)

677,000

 

 

H  SOLE ASSETS

 

Lexington property

293,000

Sole accounts

23,000

Investments

7,384,000

Liabilities

(380,000)

Unpaid costs

(118,000)

 

7,202,000

 

 

W SOLE ASSETS

 

Sole accounts & liabilities

(108,000)

Unpaid costs

(171,000)

 

(279,000)

 

 

PENSIONS

2,114,000

 

 

TOTAL ASSETS AND PENSIONS

9,714,000




It is from these funds, coupled with H's earnings and whatever else they can earn in the future, that the parties must house and support themselves and their children. 

Conclusions 
36. I have stated above in para 4 that, quite apart from the question of need, W resists any departure from equality on four grounds. I intend now to deal with the second and third, namely that H has unjustifiably "alienated" funds and that he has deliberately eschewed a substantial earning capacity. As to the fourth, I say immediately that I do not consider that H has conducted the litigation unfairly, although there has been a deal of forensic game playing by both sides, as I will explain later.

37. The allegedly alienated funds amount to £296,000, an insignificant sum in the context of the case. Of this £197,000 is in their "son's account", which was opened a long time ago in 1999. Since then regular contributions were made to it which were recorded on the parties' joint US tax return.  It is now agreed that the funds will be used to meet their son's school fees and US university fees (it being overwhelmingly likely that he will go to university in the USA). Much (far too much) criticism was made of H for not mentioning this fund in his Form E and for suggesting that the school fees should be divided equally. H's reason for not mentioning it was that he thought at the time that the fund was earmarked for university fees. As a default this was trivial but it was used as a forensic weapon with which to assail H in order to try to paint a picture of him as an unfair litigator.

38. The second element is a mere £98,000 which H placed into a charitable family foundation in December 2007. This was in the context of this family having always made tax deductible charitable donations.

39. Quite apart from the fact that these sums are de minimis in the context of the case I roundly reject W's criticisms. In this country we have separate property. If a party disposes of assets with the intention of defeating the other party's claim then such a transaction can be reversed under s37 MCA 1973. Similarly, where there is "clear evidence of dissipation (in which there is a wanton element)" then the dissipated sums can be added back or re-attributed (see Vaughan v Vaughan [2008] 1 FLR 1108 at para 14). But short of this a party can do what he wants with his money. What is not acceptable is a faint criticism falling short of either of these standards. If a party seeks a set-aside or a re-attribution then she must nail her colours to the mast.

40. W's second criticism only emerged in her s25 affidavit dated 7 February 2011, one month before the commencement of this case. The affidavits were in fact supposed to be exchanged, by virtue of an order of the court, on 7 January 2011, but the parties made a private agreement to extend the time for doing so. Given that the court has a duty proactively to manage these cases I doubt that it is proper for parties to alter court fixed time limits without reference to the court. The consequence of the delay was that H only saw W's case about his allegedly eschewed earning capacity very late in the day. He did not bother to meet that case in writing before he stepped into the witness box, where he convincingly demonstrated that all of W's allegations were either misunderstood, or were hopelessly stale, or were insubstantial.  

41. Again, there is a deal of forensic game playing going on here. W advanced her case far too late. H should have exposed her errors much sooner. The whole exercise was undignified and costs-consumptive.

42. I reject W's case in this regard for a number of reasons. First, if it is alleged that a party is not exploiting an earning capacity, then it is incumbent to prove that by clear evidence rather than by anecdotal scraps. I would have expected evidence from an employment consultant demonstrating that H did indeed have and has a substantial earning capacity in the financial sector since 2007. One can speculate why such evidence was not forthcoming. Maybe H's age and the arrival of the global financial crisis had something to do with it. Second, Mr Amos QC asserted that if I were to find against W on this ground that would not in fact affect her claim to a 50% entitlement under the sharing (as opposed to the needs) principle. It was no more than a reinforcement to his central argument. I wondered therefore why it was being advanced at all. Third, the evidence relied on by W was, as I have said, no more than anecdotal scraps, which H convincingly demonstrated were either misunderstood, or were hopelessly stale, or were insubstantial. Fourth, even if W had been able to show that H had indeed eschewed a high earning capacity I find it impossible to criticise him for moving into another more happy and fulfilling field at the age of 55, even if rather lower paid. By ordinary standards H is well paid as a school-master. I do not attribute to him any higher earning capacity than that which he presently earns, and I certainly do not criticise him at all for having failed to earn more since leaving banking in 2007. Equally, I do not attribute any earning capacity to W for the purposes of my calculations. It may be just possible for each to earn more (for example by H doing some kind of financial consultancy work in the school holidays) but if they do then the income derived must be regarded as a bonus.

43. Having dealt with these aspects of W's case, I now turn to my conclusion as to how the assets should be divided. My first conclusion is that a sum of £240,000 should be taken off the top to constitute a fund for the daughter's education. The parties are agreed that such a sum will likely cover all or most of her education to the end of her first degree. It would put her on an equal footing with their son, and makes very good sense where there are only finite sums in hand. This leaves £9,474,000 as the divisible amount.

44. I conclude that it would be wrong and unfair for none of H's pre-marital wealth to be excluded from the sharing principle. It was the bedrock on which this marriage was founded. As against that are the undoubted facts that the marriage was long and the monies were well and truly mingled with marital funds, signifying an acceptance by H that to a great extent the monies, or at least their growth or earnings,  would be shared with (or to use the words of the marriage service "endowed on") W. I have concluded that £1,000,000 should be excluded. This satisfies the justice of the sharing principle, and as I will show below, the residual sum will meet W's needs. Any greater excluded sum would not permit W's needs to be reasonably met. But for this factor, I would have excluded more. If W's needs suddenly had come to be met or had disappeared by virtue of an unexpected event, such as a windfall, remarriage to a rich man, or death (as happened in Smith v Smith (Smith And Others Intervening) [1991] 2 FLR 432) then I would have excluded £2.116m being the actual value of H's pre-marital wealth, for the same reasons as I stated in FZ v SZ.

45. The actual percentage that W receives of the divisible whole is 44.7%. It is as high as this because of the impact of needs. Had I excluded £2.116m then W would have received 39% of the divisible whole. This is the "pure" percentage. In Jones the overall percentage granted to the wife was 32% after a 12 year childless marriage (see para 52). I am therefore satisfied that my pure percentage is fair.

46. The division may be tabulated as follows:

Total assets

9,714,000

Daughter's fund

(240,000)

Divisible whole

9,474,000

Excluded sum

(1,000,000)

 

8,474,000

50% to W

4,237,000

% of divisible whole

44.7%

Sum to H

5,237,000

% of divisible whole

55.3%



W's needs
47. It has not been easy to assess W's needs as her only statement of needs in her Form E is completely unrealistic. Her housing capital need was stated to be £4,947,411. Her budget, excluding child expenses, was stated to be £176,000, but this did not include medical insurance of £11,250, giving an adjusted budget of £187,000. This would require a Duxbury fund (excluding the datum of UK state pension) of £4,734,355. Thus W's claimed needs were £9,681,766, rather more than the totality of the assets possessed by the parties. W never put forward an alternative needs case tailored to her claim for half of the assets. Her case had an unreal air about it.  I have therefore had to do my best in the absence of any helpful evidence from W.

48. H produced housing particulars late in the day. They were so late that W did not have the chance to inspect any of them. This is most unsatisfactory and it is baffling given the massive expenditure on costs why such a casual approach to an important feature of the case should be adopted. That said, W accepts that she will have to cut her coat according to her cloth. Having considered the matter carefully I agree with Mr Dyer QC that based on his particulars an all-in housing fund of £1.75m is appropriate. This would enable a very comfortable and reasonable home to be bought in either W10 or W6, but probably not in W11 or W2, where prices per square foot are appreciably higher. 

49. W very much wants to have transferred to her the Connecticut holiday property, subject to its mortgage. That is not opposed, but I agree with Mr Dyer than on the facts of this case, given the scale of the resources, its retention by W is not a reasonable need. Of course, what she does with it is her choice. If she chooses to keep it and to buy a cheaper property in London, or to live at a lower income rate then that is a matter for her.

50. After deducting a housing fund of £1.75m W will have a Duxbury fund of £2.487m. Again, ignoring the datum of the state pension, as this will not be available to these US parties, she will from that fund have an annual income of £104,000. In my judgment she can live comfortably on that. The historic rate of expenditure, which has included W spending over £50,000 annually in cash withdrawals alone, is simply not sustainable for the future.

Child Maintenance
51.  H's net income as a school-master is about £36,000. He will receive from the divisible assets £5.237m. If his housing need is also set at £1.75m then he will have a Duxbury fund of £3.487m, which will supply an annual income of £184,000. His annual income will therefore be £220,000.

52. Given the amount of time that the children spend with him (more than 104 nights a year) I consider that a fair rate of child support is the adjusted percentage applicable under the Child Support Act 1991 namely 5/7ths of 20% or 14.286%. This gives rise to a liability of £31,429 or £15,714 per child which I round to £15,750.

53. With the child support W's household income will amount to just over £135,000. Having paid the child support H will have a residual unearned income of just over £152,000, plus his earnings, which will be finite in duration. The respective standards of living will not be greatly disparate.

54. My actual disposition is therefore as follows

i) £240,000 will be paid by H into a joint account of the parties to be used solely for the education of the parties' daughter.
ii) The Connecticut property will be transferred to W subject to the mortgage with a net value of £536,000.
iii) W will receive pension transfers (which will need a mirroring QDRO in the USA) totalling £945,431.
iv) W will receive a lump sum of £3,034,569, from which she will pay her personal unpaid costs and liabilities of  £279,000.
v) In this way W will receive property, pensions and cash, which after payment of her debts will amount to £4,237,000.
vi) There will be a clean break between the parties, in life and death.
vii) H will, from 1 April 2011, pay child support of £1,313 per child per month in advance, index linked. When a child is in tertiary education the sum is to reduce to half of the current figure as a contribution to his/her bed and board when with W. Their maintenance support when at university will be agreed between the parents at that time.