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Finance & Divorce Winter Update 2011

Joanna Grandfield, barrister with Mills & Reeve, reviews the latest key financial remedy cases.











Joanna Grandfield, Associate and Barrister, with Mills & Reeve LLP

The Winter Update considers lottery winnings, the effect on a CSA calculation of a failed reconciliation, the impact of a foreign pre-marital agreement and application of the sharing principle to non-matrimonial property.

S v AG (Financial Remedy:  Lottery Prize) [2011] EWHC 2637 (Fam) (Mostyn J) 14 October 2011

These proceedings involved a claim for financial relief made by the Husband in relation to assets that derived from the Wife's lottery winnings of £500,000.

The Husband and Wife, who were 55 and 51 respectively by the date of trial, married in 1984 and had two children who were adult by the time of the hearing.  Both Colombian, the family arrived in the UK in 1991.  The Husband worked as a caretaker/ janitor whilst the wife as a chambermaid/housekeeper. The marriage was an unhappy one from at least the late 1990s during which the Husband, a functioning alcoholic, subjected the wife to frequent bouts of abuse.
 
On 30 December 1999, the Wife entered into a written syndicate agreement for the National Lottery Big Draw 2000 with a friend, MEM.  The Wife then purchased a ticket for £2 from her own wages which scooped £1M.  A cheque was issued on 7 January 2000 made payable to MEM which was then paid into an account opened in the names of the Wife and MEM. 10 January 2000, £500,000 was paid into an account in the Wife's sole name. 

The following May the Wife purchased a house for £275,000 in her sole name, £25,000 on purchase costs and £90,000 on renovations.  The family then moved in.

The parties separated on 1 January 2004, after the police removed the Husband from the house following a serious incident of domestic violence. 

On 8 August 2006, the Husband issued divorce proceedings in England.  The Wife seemingly responded by mortgaging the property for £300,000 the same month before paying a similar sum to her friend MR, the second respondent, the following year. 

In September 2006 the Wife issued proceedings in Colombia.  Decree nisi was pronounced on 15 May 2007 but, on 16 August 2007, the family court in Colombia heard the Wife's application, held that the parties had not been living together for about the last four years and decreed a divorce.  An unexplained hiatus followed lasting almost three years, until the Husband applied for leave to apply for financial relief following an overseas divorce under s.12 and s.13 MFPA 1984 in April 2010.  Seemingly in response to this, the Wife  transferred two further sums of £170,508 and £80,260 to MR.  Leave was granted under s.13 MFPA 1984, the English divorce proceedings dismissed, MR was joined as second respondent and a freezing order against the monies that had been transferred to her was made.

The Wife subsequently remarried.  At the time of this hearing, W was still living in the property but now with her new husband.  She was still working as a housekeeper and her new husband was a maintenance supervisor.  Their combined net monthly income was approximately £2,200.  The adult children of the marriage also continued to live at home and contributed £200 each pcm to the household expenses.  The Judge held that the Wife had net capital worth £425,918 and in addition owned a property in Colombia.  The Husband meanwhile continued to work as a porter, earning £1,127 net pcm. 

The parties were in person at the final hearing albeit each had the assistance of a McKenzie friend.  There were two issues of fact in dispute:

1  Were, as the Wife submitted, the parties de facto separated in 1996, albeit under the same roof in the Santos v Santos [1972] sense from 1996?

The Judge rejected this argument.  The parties had continued to operate a joint household financially, shared a bedroom, went on at least two holidays together after 1996, had moved into the current property as a whole in 2000 and, the evidence before the Colombian family court had been that they had not separated until 2003; and

2  Did the Wife win £500,000 on the lottery, or was she participating in a charade to protect her friend MEM?  The Wife sought to argue that she had never actually won or even played the lottery and it was MEM who had won the £1million but had not wanted to disclose that win to anyone but had offered to loan the Wife money to enable her to buy her own home

It was agreed that the Husband was totally ignorant of the Wife's participation in playing the lottery and that purchase of the winning ticket came from her earnings.   The Judge found it impossible to accept that the wife did not actually win the £500,000. She had signed the syndicate agreement, the bank had acknowledged that the win had been by two syndicate members, the wife had used the money as her own and MEM, in a letter dated 9 March 2011 to the Husband's then solicitor, specifically confirmed that the Wife had been a co-winner. 

Following a useful recap of the principles of matrimonial and non-matrimonial property, as well as the concepts of needs and sharing, the Judge then gave some thoughts for consideration when dealing with lottery win claims:

• the view that a prize is a windfall can be an argument for it being either matrimonial or non-matrimonial;

• the price of the ticket is so inconsequential that it can be safely disregarded  - arguments that the £1 or £2 derives from joint matrimonial economy look very clever or subtle on the surface but are actually more likely to be misleading or flawed;

• why should a lottery prize received during marriage be regarded as any less non-matrimonial than an expected or unexpected inheritance?; and

• can a lottery prize be considered a product of joint endeavour?  It is easy to reach that conclusion when both spouses are in effect operating a syndicate with both being aware that tickets have been bought and have agreed tacitly or expressly that the winnings will be shared.  However, it is equally easy to see the prize as a receipt by one spouse alone if that spouse has unilaterally purchased the ticket with their own income and without the knowledge of the other.  In that case, could the prize be akin to an external donation and therefore non-matrimonial?

In considering how to resolve the instant case, the Judge turned first to needs. The Husband's housing needs were met in the Housing Association flat he rented and his present income needs were met though his employment.  However, he had an urgent need to make provision for his old age to supplement state pension income. A lump sum of £82,000 (on a Duxbury basis) would leave the Wife with a capital base of  £350,600, which was ample to provide for her and her new husband provided they downsized when they retired. 

Turning to the sharing principle, the judge found that the initial lottery prize was non-matrimonial money given the circumstances in which it had been played. However, when the Wife purchased what was to become the family home she converted that part of her non-matrimonial assets into matrimonial property.  Given that the source of the home was the Wife's non-matrimonial property and given the relatively short period in which the Husband actually lived there, the Judge could not see how it could be justified that the Husband should have an equal share of it.  Instead, the judge held that a sharing of 15% - 20% would be fair.  On the basis that the property after costs of sale (but ignoring the mortgage) was worth £480,150, the Husband was entitled to £72,000 - £96,000 and was awarded a lump sum of £85,000 on a clean break basis.  In making the award, the Judge emphasised that such cases would be highly fact-specific.

Brough v (1) Law (2) CMEC [2011] EWCA Civ 1183 (Pill LJ, Rimer LJ and Lewison LJ) 20 October 2011

This decision, an appeal by the Father against a decision of the Upper Tribunal (Administrative Appeals Chamber) concerning the interpretation of paragraph 16(1) (b) Schedule 1 Child Support Act 1991 involves consideration of the effect of a temporary reconciliation on a maintenance assessment.

The parties, who had one child, married but separated in 1999 after which a maintenance assessment was carried out on.  The parties' subsequently reconciled and cohabited for a short period, before separating again and finally divorcing.  In 2007, the Father initially succeeded in applying for the Secretary of State to cancel the maintenance assessment liability made in 2003, relying on the brief reconciliation back in 1999.  The amounts which had been paid were refunded to the Father.

The case fell within the "old scheme" for child support.  The Father argued that within the plain meaning of the relevant statutory provisions, he was no longer an "absent parent" during the period that the parties lived together, and therefore the maintenance assessment ceased to have effect.  However, a further provision of the rules required the parties to cohabit for a continuous period of 6 months in order for a maintenance assessment to cease to have effect. The issue was therefore how the apparently contradictory statutory provisions should be constructed.

Pill LJ, giving the lead judgment, considered the provisions in detail, concluding that it could not have been Parliament's intention for a maintenance assessment to cease to have effect following a brief period of reconciliation.  The appeal was therefore dismissed.

Z v Z [2011] EWHC 2878 (Fam) (Moor J) 3 November 2011
This case, the first reported decision since Radmacher v Granatino, involves consideration of the impact of a French pre-marital contract on an award in English proceedings.

The parties, who were French and in their early 50's, met in 1985 and began cohabiting on and off in 1990. By 1994 the relationship was stable and in February that year they purchased their only matrimonial home - an apartment in the 17th arrondissement in Paris - in joint names.   The sale proceeds from the wife's apartment contributed towards the acquisition costs whilst the Husband paid for the majority of the considerable refurbishment works which were required.  At the time of the hearing, the property was worth €1,685,775 and owned mortgage-free. 

On 27 June 1994, the couple entered into a marriage contract under the "separation de biens" regime (separation of assets) in accordance with French law.  In the separation de biens, the Wife surrendered any rights she had to share in the couple's shared assets.  Only the assets held in sole names would remain their own.  There was no mention of maintenance in the agreement.  The parties married a few weeks later in a civil ceremony and, in 1996, had a religious ceremony. 

During the course of the marriage, the parties had three children who were aged 14, 12 and 9. 

In June 2007, and whilst still living in Paris, the parties first discussed separating. The Husband, who was in an extra-marital relationship, was not certain whether he wanted the marriage to end whilst the Wife wanted it to continue.  French Avocats were instructed and draft separation agreements prepared and exchanged although no agreement was reached.

In August 2007, the family moved to London for the Husband's work and stayed in a serviced apartment courtesy of his employer.  Six months later, the couple commenced a three month separation which was "secret" in the sense that the children were not aware of it and which the Husband wanted to use to decide on the future of the marriage.  Before he left, the Husband signed a letter dated 4 February 2008 which included the following:

"As agreed, I confirm to you that if after three months of thinking time from today I decided not to return with you to the family home, I undertake at the time of our legal separation (if I take the initiative thereof), notwithstanding the separation [of property] under which we married, to pay to you, for you and the children, half of my total after-tax net earnings, past and future (apart from any compromise indemnities that would be paid to me if I was dismissed).  This sum payable over time might represent (in the present state of my estimates) of the order of 7 million euros.  €2m will be paid to you as a priority, €6m will be paid to me, €4m to you and the balance 50/50. 

As regards maintenance allowance, I also undertake to pay a minimum of 120K euros per annum (which should represent about 50% of my net salary) and up to 200K euros per annum (this depending on my bonus paid in cash), according to arrangements to be defined, and provided that my present remuneration is maintained. 

Before any possible legal separation, your standard of living will remain unchanged . . . "

It was clear that the Husband had been thinking about writing such a letter for some time and the Wife had seen a draft which she had made some minor amendments to. 

On 2 July 2008, the Husband told the children that their parents had separated and this marked the end of the marriage.  The Wife issued a divorce petition in England the following day and there followed a jurisdiction dispute (Z v Z [2010] 1 FLR 694) which was resolved in the Wife's favour. 

There was complete agreement as to the couple's capital position: assets totalled £15,088,419 of which the Husband's share was £13,802,930. Of the Wife's £1,285,488 over half comprised her one-half interest in the French home together with a 15% share in an investment property the couple had purchased together.  The remainder of her assets consisted almost entirely savings or French properties she had inherited during the marriage.  The Husband had also inherited a property during the marriage such that the inherited properties effectively balanced each other out and could be ignored for practical purposes.  In addition to his one-half share in the French home, the Husband's assets comprised an 85% interest in the investment property whilst the balance formed the fruits of his work at VCF, the private equity and venture capital business in which he was managing partner.  This was a complex mix of salary, bonus, carried interest schemes and co-investments. 

The husband's income ranged from €5,793,252 in 2007/2008 to €2,282,414 in 2010/2011.  He argued that he was coming to the end of his career and could not be expected to continue to earn at this rate in the future. 

The Wife's open position at trial was that it would be unjust to hold her to the separation de biens.   All the assets were earned during the marriage and there should be no departure from equality.  She conceded that there should be Wells v Wells [2002] sharing (i.e. should she get half the VCF shares she would take half the risk that their value would fall).  This boiled down to:

• £7.5million lump sum;

• £250,000 as compensation for loss of H's French state pension;

• a nominal maintenance order to protect her in the event that she had to pay out substantially in relation to any joint liabilities (there were potential tax liabilities in the region of £4million both in this jurisdiction and France);

• a school fees order; and

• child maintenance of £40,000 per year per child. 

The Wife also argued that the Husband had promised that he would not enforce the separation de biens agreement on a number of separate occasions.  Perhaps unsurprisingly, the Husband denied having said any such thing. 

The Husband countered that the separation de biens excluded sharing of the assets.  Relying on Radmacher v Granatino [2010], he argued that it was fair for the Wife to be held to that agreement.  Whilst conceding that the agreement did not exclude maintenance claims; he argued that "maintenance" should be interpreted widely and be dealt with on the basis of a pre-White v White [2001] assessment of the wife's, which he quantified as:

• £5.28million on a clean break basis;

• The Husband to accept sole liability for any tax that may arise;

• a school fees order; and

• child maintenance of £24,000 per year per child. 

Absent the separation de biens agreement, this case would undoubtedly have been a case for the equal division of assets.  The question Moor J had to grapple with was whether or not the agreement took the case out of "sharing". 

Before dealing substantively with the dispute, the Judge had to deal with the Husband's submission (relying on Otobo v Otobo [2003]) that the court should take into account what the Wife would have received in France had the proceedings taken place in that jurisdiction.   On that point, Moor J held:

"There is no doubt that in this jurisdiction, when dealing with an application for financial remedies in English divorce proceedings, the court will normally apply English law, irrespective of the domicile of the parties or any foreign connection (see paragraph 103 of Radmacher).  Nevertheless, paragraph 108 of Radmacher makes it clear that issues of foreign law are relevant to the intentions of the parties (e.g. whether or not they intended that the ante-nuptial agreement should be binding upon them).  It follows that it is relevant to the issue of fairness to know what the position would have been in France but not to reduce the award simply because W would have got less there."

Turning to the substantive issue of the separation de biens, there was no dispute that the agreement had been freely entered into by the couple and that both had had a full understanding of its implications (although there was some dispute over precisely why the agreement had been entered into – see [41 – 44]).  It would have been binding had the divorce proceeded in France. 

The Judge accepted that neither of the two notaries who witnessed the agreement had given formal advice to the couple and neither had there been any formal financial disclosure.  However, this did not matter as the Wife had known exactly what the agreement entailed and the couple had known about each other's financial position.  The burden on someone raising the argument that an agreement had been subsequently varied (either orally or in writing) was a heavy one.  Here, there was neither clear nor compelling evidence that there had been an oral agreement that the Husband would not rely on the agreement.  Rather, the evidence pointed the opposite way in that:

• when the parties bought their investment property, the agreement was specifically referred to in the purchase contract;

• the draft separation agreements in 2007 referred to the separation de biens –  there was no suggestion of a community of property regime applying instead; and

• throughout the marriage the parties had arranged their financial affairs in a way entirely consistent with the agreement – there had been no mingling of resources. 

The Judge then dealt with the letter dated 4 February 2008 and the arguments before him relating to contractual principles and Edgar (i.e. an earlier agreement which the court is otherwise inclined to uphold should only be treated as varied by a later agreement if the later agreement itself was one to which the parties would be held on Edgar principles).  The financial settlement set out in that letter was far more generous than the Wife could have ever have hoped for in the courts.  Taken at face value, the letter provided that the Husband should pay one-half of all his net earnings past and future to the Wife without time limit (other than redundancy payments) as well as maintenance of up to €200,000 per year.  The Judge considered that, insofar as the contract law points were concerned, it was not helpful to think in terms of pure contract law – the negotiations had been conducted when both spouses had been in emotional turmoil; indeed, the Judge was not convinced that one need to comply with the Edgar guidelines because the test in Radmacher is simple fairness [at 51].  In any event, the letter failed to satisfy Ormrod LJ's test since:

• neither party had taken legal advice on its contents; and

• the Husband had undoubtedly been under significant pressure when he had drafted it. 

It was not right to hold someone to anything offered in such circumstances in the absence of legal advice.  In particular, Moor J had sympathy with the Husband's argument that had this been a letter from the Wife agreeing to make no claims against him, the court would never have held her to such an offer.  

The separation de biens was consequently upheld.  However, the Judge highlighted that the position might have been different had the agreement been purporting to exclude W's maintenance claims in the widest sense.  The Wife's reasonable needs were quantified as:

• £3.25million housing fund

• £162,500 for stamp duty;

• £7,500 for costs of purchase;

• £80,000 for furnishing and refurbishment;

• £100,000 per year in spousal maintenance (i.e. a Duxbury fund of £2,283,126);

• a school fees order;

• £25,000 in child maintenance per year per child payable until completion of a first degree in tertiary education (with provision for a gap year) and on the basis that one-half continued to be paid to W when the children each entered tertiary education; and

• a contribution of £45,000 towards W's legal costs. 

Overall, this represented W receiving 40% of the total assets on the assumption that no tax was payable – far more than provided for under the agreement but less than an English court would have ordered had the separation de biens not existed. 

Insofar as payment was concerned, the Husband was given a choice:

• he could assume all liability for any tax debts, in which there would be a clean break; or

• the Wife could provide the Husband with an indemnity for one-half of any tax over £3million payable in relation to obligations relating to income / capital gains with W having a nominal maintenance order solely to cover the possibility of a shortfall. 

Additionally, directions were made that the lump sum should be paid to the Wife off-shore with the Wife undertaking not to bring it onshore until decree absolute in order to obviate any possible tax problems. The Husband indemnified the Wife in relation to any tax charged as a result of her bringing the money on shore after decree absolute

Finally, the Husband undertook to leave a sufficient sum to each of the children to meet any obligations to them under this order in his Will.

BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam) (Mostyn J) 27 October 2011
This is a useful case if no more than for the excellent summary of the treatment of trusts set out at the start of the judgment.  The case exemplifies the needs to look at trusts set up at least in part so as to undertake complex tax planning as a whole to identify if they are nuptial or not.

The parties, both Mauritian but whom had lived in England for many years, were both 65 and had married in 1980.  The Husband asserted that he was domiciled in Mauritius for income tax purposes but accepted that he was deemed domiciled in the UK for inheritance tax purposes by virtue of residing here for more than 17 of the last 20 years.  The Wife's domicile was a little less clear.  They had one child who was 25 by the time of the hearing. 

The former matrimonial home was "Green Farm", a substantial property in Kent set in 72 acres.  It was purchased in April 2000.  The family's wealth derived mainly from the Husband's former interest in a company called ABC Limited.  In 1990, the Husband and two fellow directors achieved a management buy-out of ABC Limited in which each of them acquired a 33.33% shareholding.  In 1994, an initial public offering of ABC Limited was proposed.  In anticipation of the flotation, the three shareholders made arrangements to mitigate tax on future capital gains which might accrue.  For the Husband the arrangement involved creating two Jersey trusts (Nos. 1 and 2) and a company incorporated in the British Virgin Islands – Giloch Investments Limited (later renamed Giloch Limited). 

The No.1 Trust was a discretionary trust for a class of beneficiaries comprising:

• The Husband as settlor;
• The Wife as his spouse;
• Their child (then aged 8);
• The Husband's siblings;
• Any employee of ABC Limited; and
• The Charities Aid Foundation. 

By the time of the proceedings, the trustees of No.1 Trust were HSBC in Jersey. 

In August 2000, by a deed made in exercise of the trustees' power of appointment, the whole of the capital of No.1 Trust was re-settled to provide the income to the Husband for life (with power to appoint capital to him) and, thereafter, to the Wife for life (with power to appoint capital to her) and thereafter their child, the Husband's siblings, siblings in law and the Charities Aid Foundation. 

In a letter of wishes dated 12 July 2006, the Husband stated that the trustees should look to the Husband as the principal beneficiary during his lifetime and then the Wife during her lifetime and thereafter their child should benefit from the remainder.

The purpose of the No.2 Trust was pure tax planning.  The Husband, Wife and child were all specifically excluded from the class of beneficiaries.  Instead, the beneficiaries were any grandchildren, remoter issue, the Charities Aid Foundation, siblings and siblings in law and employees of ABC. 

The structure of the two trusts together with Giloch Limited represented a "very clever piece of architecture" which had the effect of sheltering from tax capital gain made by Giloch Limited.  It is best explained by a note of a conference held with tax counsel in 1995:

"(i) Capital gains made in Giloch are attributed to the No 2 settlement by s.13 TCGA 1992.  However, no UK tax liability will arise on capital gains made by or attributed to the trustees because they are non-UK resident.  Also, no UK tax liability will arise on either the settlor or the beneficiaries because ss.86/87 TCGA 1992 cannot apply when the settlor is non-UK domiciled as is the case here. 

(ii) Capital gains made by the No 1 settlement are also not taxable by virtue of [H's] non-UK domicile status.

(iii) Capital gains made by both the No 1 and No 2 settlements could be distributed to the beneficiaries by way of capital appointments without giving rise to UK tax liabilities even if the sums were remitted to the UK."

Although ingenious and effective from a tax view point, the share structure caused considerable problems within the divorce especially when it came to analysing to which trust the value of Giloch Limited should be attributed. 

The couple separated on 14 May 2009 and divorce proceedings were issued that July.  At the First Appointment in January 2010, the trustees were joined to the proceedings.  Although declining to submit to the jurisdiction of the court, they nonetheless complied partially, but not fully, with certain orders for disclosure.  The trustees also helpfully confirmed at that time that they would provide whatever support they reasonably could to the parties. 

In 2009, the Husband gifted £140,030 in 4 tranches to the child of the family.  The Wife sought to add-back these sums.  There were also issues over the Husband's litigation conduct, including threatening to drag out the litigation for as long as possible (or, at least, being aware his advisors were making such threats to the Wife) and concealing a report prepared by a tax specialist (on the instructions of the trustees) which advised that all the value in Giloch Limited could be elevated in a tax-efficient way to No. 1 Trust and therefore made available to the parties.  In suppressing that report, the Husband had failed to complete his Form E truthfully and compounded that by attempting to argue that it was a privileged document in circumstances where privilege could not be claimed. 

In October 2011, the trustees wrote to the parties' solicitors stating that "it is quite improper for the parties to treat the assets of the trusts in the same manner as assets which they held personally, for the purposes of ancillary relief proceedings".  In that letter, the trustees made an offer to the Wife of:

• £700,000 by way of a loan to W for life for her to buy a home; and

• £500,000 outright "to enable her income requirements to be partially fulfilled going forwards".

At trial the overall trust assets (ignoring internal loans) comprised £4.31million, of which £1.87million (being the value of two houses) was within the jurisdiction.  In addition, the parties had approximately £1.3million worth of assets outside of the trust.  There was therefore a total of £5.91million.  There was no evidence as to whether any order dealing with the £2.44m held within the trust but outside of the jurisdiction would be enforced by the Jersey Court. 

Additionally, the Wife's evidence was that she did not want the Husband, who was in ill health, to have to sell Green Farm.  Judgment was therefore founded on the basis that he would continue to live at the property. 

The trial Judge concluded that the primary objective of the trust arrangement had been to avoid CGT; however, there was a clear, collateral understanding between the parties that the trust arrangement was established to benefit all of the members of the family, including their child, and for future generations. 

The No 1 Trust was unquestionably a post-nuptial settlement.  The parties and their child may have been excluded from benefiting from the No 2 Trust but the No.2 Trust was an integral component of the overall tax arrangement.  Referring to Parrington v Parrington [1951] and Furniss v Dawson [1984], the Judge had no hesitation in finding that the three entities "viewed as a whole" constituted a post-nuptial settlement capable of being varied:

"It would be absurd and arbitrary for me not to [view the three entities as a whole] . . . for the question of whether the value of Giloch ends up in the No 1 trust or the No 2 trust is just a question of the timing of a particular meeting.  If the trustees of the No 1 trust cause a directors' meeting of Giloch to be held which then votes all the assets of Giloch as a dividend in specie then all the value goes to No 1.  If the trustees of No 2 trust (who are the same as No 1 trust) cause a general meeting to be held and vote to wind up Giloch then all the value goes to No 2.  The result of the Wife's claims for a financial remedy surely cannot hang on the fortuity of which meeting comes first."

The case was to be decided using the principles of needs and sharing. All assets, including all the trust property, constituted matrimonial property and should n principle, be shared equally. However, the implementation of that equal sharing should reflect the clear arrangement made during the marriage, and assented to by the Wife, to set up a trust ultimately to benefit her child and future generations.

Dealing with the two ancillary issues of add back and litigation conduct, the Judge held:

1  the add back process is one of penalisation (given that no money is actually re-created) which should be applied very cautiously and only where the dissipation is demonstrably wanton.  A better route to reverse a transaction is to make a s.37 MCA application. In the current case, the Judge was not satisfied that the gifts to the child could be characterised in this way – the only suspicious element was the timing; the rest of the evidence pointed to the gifts being bona fide; and

2 H's litigation conduct would be likely to have adverse costs consequences.

The wife was awarded a total of £2.957million, was broken down as follows:

• a 50% pension share - £653,498

• variation of the trusts to provide:

o W to be irrevocably deleted as a beneficiary of No 1 Trust;

o £500,000 to be extracted and paid outright to W offshore - a Duxbury fund;

o £750,000 to be extracted and settled on W for life with remainder to C – for housing; and

o a charge on Green Farm in favour of the trustees of the new settlement above for 58.037% of the net proceeds of sale of Green Farm to be enforceable on the earliest of (i) H's death (ii) sale of the property (iii) further order; and

o a clean break

Those assets outside of the trust were divided equally whilst assets and liabilities referable to the business were shared equally on a Wells basis. 

The order would not be perfected until the stance of the trustees had been ascertained.  If the trustees signified that they would not co-operate with his award, the Judge stated that he would deal with the Wife's entitlement by way of offset against the assets.  This would mean that Green Farm would be sold, and that all or most of the pension would be awarded to the wife. 

AR v AR [2011] EWHC 2717 (Fam) (Moylan J) 11 August 2011
The parties met in 1981, began living together in or around 1984 and married six years later, in 1990.  At the time of the hearing, the Husband was 66 years and the Wife 54.  There was one child of the marriage who was by now 18.  The Husband, who had been married previously, had three other children.  Separation took place in late 2009 after 25 years of marriage. 

The source of the Husband's wealth of between £21million and £24million was a business purchased by his father shortly after the end of the Second World War which had been developed by the father and elder brother into a large and successful manufacturing company.  The company was floated in the 1950s and sold in the late 1980s.  The husband, who had received property and shares in the company had resources comprising the following by the time of trial: 

• T Farm, a property transferred to him by his father in 1976 and added to by the Husband with the purchase of additional land;

• land at K purchased by the Husband in about 1969;

• P Farm purchased by the Husband in 1993/1994 using the proceeds of shares inherited from or given to him by his father;

• a 25% interest in a family property company inherited by the Husband on the death of his father in 1992  which principally owned two farms and a fishing estate;

• a share portfolio purchased with inherited, gifted assets originally shares in the company created by H's father; and

• other more modest investments

The wife had struggled in recent years from depression and alcohol abuse and which went, in some way, to explain the manner in which her evidence was presented during the case. 

Throughout their relationship, the parties lived at T Farm house.  Although the valuer rather disparagingly described the house as "not particularly attractive", the whole farm estate was described as an extremely rare and a valuable property.  The Husband worked as a farmer whilst the Wife worked at two local hotels until 1988 but had not worked since.  In or around 2007, the Husband gave the Wife £1million together with a small investment property; these were her only resources. 

The Husband's average earned income through farming was £100,000 gross (but with significant fluctuations).  His annual gross investment income was about £300,000.  It was accepted that the Wife had no earning capacity. 

The parties enjoyed a good standard of living – the Husband put his income needs at £140,000 p.a. whilst the Wife asserted hers to be £136,000 p.a.  However, a feature of the Wife's evidence was her apparently fluctuating level of needs – both housing and income – and the presentation of her case came in for some criticism in this regard. 

The Wife argued that the sharing principle should apply; particularly given the Husband's inheritances had been used by the parties during the marriage.  Although the fact that the source (and therefore the bulk) of the wealth was non-matrimonial was an important factor, she submitted that the length of the marriage, the standard of living and the quality of her contribution were of much greater significance.  The Wife sought 30% of the assets or approximately £7million on the basis of sharing.  This was broken down as to £1.5million for housing and £3million as a Duxbury fund (or £140,000 per year) which therefore went beyond her asserted needs. 

The Husband submitted that, given the source of the wealth, the Wife's award should be determined on a needs and restricted to housing and Duxbury funds.  In particular, the sharing principle did not apply because the bulk of the wealth was non-matrimonial property.  Non-matrimonial assets were only to be invaded where needs required, or where one of the exceptions identified by Wilson LJ in K v L [2011] applied.  The Husband put the Wife's housing needs at £850,000 and a Duxbury sum at £1.52million (to produce an annual income of £75,000).  Taking account of the Wife's own resources, she therefore required a lump sum of £1.3million. 

In relation to the source of the wealth, the Judge considered the recent authorities, including Robson v Robson [2011] and K v L [2011].  He considered that the approach advocated by the Husband would be too overly rigid, and that fairness required a broader approach to the application of the sharing principle to non-matrimonial property.  Relying on cases such as G v G (Financial Provision: Equal Division) [2002], K v L [2011] and N v F [2011], the Judge found the sharing principle can apply to non-matrimonial property if such an approach is justified by the circumstances of the case.  Adopting the Husband's approach would risk re-imposing the ceiling identified as resulting in unfairness in White and Miller and McFarlane.  The question in this case was whether the application of the sharing principle would enhance the Wife's claim as submitted by her, or whether the award should be "limited to a generous assessment of needs" as per K v L [2011].   The facts of this case did not justify any additional or enhanced award above needs. 

The Judge held that the parties had enjoyed a very good standard of living and that each had contributed equally during the marriage.   Insofar as the Wife's housing needs were concerned, the average price of a property equivalent to the matrimonial home in a similar area was £900,000.  He added to this purchase costs and furnishing costs and set her housing fund at £1.1m. 

A reasonable annual income for W would be £115,000.  This would meet her regular needs.  The facts of the case, in particular the Wife's age and the length of the marriage, meant that Duxbury tables would not provide a sufficient capitalised figure. However, the court was not bound by the tables – rather the objective was fairness and not certainty.  A capitalised award of £3.2m was a proper reflection of all the circumstances of the case, giving the wife a total (including her own assets) of £4.3m.