McFarlane v McFarlane & Miller v Miller

McFarlane v McFarlane and Miller v Miller: An Overview

Two extremely important family law judgments, McFarlane -v- McFarlane and Miller –v- Miller were handed down by the House of Lords on 24th May 2006. This article aims to analyse the decisions in both cases and the implications, if any, for future family cases.

The Position Pre McFarlane/Miller

The McFarlane and the Miller cases were the first examination of family law in the House of Lords since the case of White in 2000. The White case emphasised that there should be no discrimination against a wife’s contribution in bringing up the children and the husband’s contribution through employment. It further made clear the principle that a Judge has to attempt, in matrimonial cases, to achieve fairness, and that fairness should be measured against the “yardstick of equality” – acknowledging that equality need not always lead to an equal division of the assets. In cases where there were insufficient capital assets to meet both parties needs fairness might dictate an unequal division of capital because of differences in earning and/or needs of the children to be adequately rehoused etc.

McFarlane –v- McFarlane : The Facts

The husband and wife were both aged 44 at the time of the Court of Appeal hearing. There were three children aged 16, 13 and 8, all living with the wife. The wife had had a promising career as a city solicitor but, the parties had agreed that she would give this up when she was pregnant with their second child. The husband was an accountant with a net income of approximately £580,000 per annum in the year of separation and £750,000 per annum at the time of the trial. The wife had no income. It had been a 16 year marriage with 2 years cohabitation before marriage. The assets of £3 million were insufficient to achieve a clean break and had been divided more or less equally at trial. Mrs McFarlane’s income needs (for herself excluding the children) were assessed at £128,000 per annum. The Judge ordered child maintenance totalling £60,000 per annum and maintenance for Mrs McFarlane at £250,000 per annum during their joint lives. Mr McFarlane appealed to the High Court where the award was reduced from £250,000 per annum to £180,000 per annum on a joint life basis. Mrs McFarlane appealed to the Court of Appeal who reinstated the £250,000 per annum award but limited it to 5 years on the basis that Mrs McFarlane could apply to extend the term before it expired if she was unable to become self sufficient in that time. Mrs McFarlane then appealed to the House of Lords who reinstated the original trial Judge’s decision, namely £250,000 per annum on a joint lives basis.

Miller –v- Miller : The Facts

Mr Miller was, at the time of the marriage, a successful fund manager with substantial income and assets. Mrs Miller was earning £85,000 per annum but, but mutual consent, gave up her job on marriage and relocated from Cambridge to London. The parties had had a relationship for 4 years prior to the marriage and had been engaged for one year but had never cohabited. The parties were married in July 2000 and separated in April 2003 after Mr Miller admitted having an affair. There were no children, Mrs Miller having had a miscarriage during the marriage. Mr Miller was aged 41 and Mrs Miller was aged 36 at the time of separation. The husband had an income of £1 million per annum at the time of separation and there were assets of approximately £30 million. There was disagreement as to how much of this capital had been acquired during the marriage but it was agreed that a substantial proportion of the wealth had been acquired during that time. The proceedings took place in the High Court and the Judge awarded Mrs Miller £5 million, indicating that it would be unfair to ignore Mr Miller’s affair which had bought about the demise of the marriage and that the wife had a “legitimate expectation” of a higher standard of living to that which she had enjoyed prior to the marriage. Mr Miller appealed to the Court of Appeal on the basis that the award was excessive given the shortness of the marriage. His Appeal was unsuccessful and he appealed to the House of Lords. The House of Lords confirmed the £5 million award to Mrs Miller albeit rejecting the argument that Mr Miller’s conduct should impact upon the financial award. 

 

A number of important principles emerge from the Judgments namely:-

Conduct

The House of Lords reconfirmed that conduct could only have an impact on an ancillary relief application if it were “obvious and gross”.

Contributions

Special contributions made by one party will only be taken into account in exceptional circumstances.

“Legitimate Expectations”

Ancillary relief awards should not be based on a “legitimate expectation” of a reasonable standard of living.

Guiding Principles

The Law Lords laid down 3 guiding principles when assessing ancillary relief awards namely

• Needs
• Compensation
• Sharing the fruits of the matrimonial partnership

Needs

Lord Nicholls, in the leading Judgment, made it clear that the search for fairness will usually “begin and end” with needs since in most cases all available capital will be exhausted in meeting the needs of two homes.

There is an emphasis in the Judgement on “relationship generated needs/disadvantage” i.e. needs created by the marriage and choices made within it, for example, the wife sacrificing her earning capacity to bring up children for which a spouse has a responsibility. This was contrasted with needs not created by the marriage for example age or disability (for which a spouse may not be responsible).

In cases where there is excess capital then both the compensation element and sharing element will need to be considered when assessing capital claims. The Lords differed slightly in their approach to how and in what order the different strands might be applied. Lord Nicholls suggested that after needs are met any excess might be divided by first considering whether compensation was relevant and then applying the sharing principle. He noted however that the starting point will depend upon the circumstances of each particular case. This was echoed by Baroness Hale who indicated that there cannot be a “hard and fast rule” about where to start.

Compensation

Compensation should be applied to redress any significant prospective economic discrepancies between the parties arising from the way they conducted their marriage. Therefore wives who had given up promising careers to raise children can expect to be compensated from any excess of assets after needs have been met. As needs and compensation often overlap in practice, care must be taken to avoid any double counting.

Sharing

The third factor to be applied is the principle that on the dissolution of a marriage each party is entitled to an equal share of the assets from the partnership, unless there is a good reason to the contrary.

It is clear from the Judgment that needs, compensation and sharing all apply to capital distribution. It remains the case that needs will continue to drive most income claims but where needs are met and there is excess income this can be used to provide a compensatory element to the spouse who has suffered relationship–generated disadvantage. The extent to which sharing might impact upon income claims is less clear, Lord Nicholls makes no express mention of it but Baroness Hale refers to compensation and sharing when dealing with income claims

The Distinction between Long and Short Marriages and Family/Business Assets

Lord Nicholls indicated that the right to share should apply equally to long or short marriages and to all assets, whether family, business or investment assets but not necessarily to non matrimonial property that is property brought into a marriage or acquired in the course of the marriage by, for example, inheritance or gift.

Baroness Hale differed, arguing that a distinction could be drawn between family assets and business assets other than those created in partnership and that the existence of such business assets might justify a departure from the yardstick of equality in short, big money marriages.

Lord Mance agreed that the yardstick of equality may not apply “with the same force” in short marriages and to the sharing of non-family, non-business partnership assets and indicated that in his view, assets acquired post-separation should be excluded from the “matrimonial pot”.

Autonomous Families

A distinction was also drawn between genuinely dual income, autonomous families where the parties may have no obligation to each other on divorce, even though they hold differing amounts of assets and have different earning capacities.

Clean Break –v- Term Orders

Finally the issue of imposing a clean break was considered by Lord Nicholls who concluded that whilst it may be appropriate to place a term on an Order for periodical payments designed to meet that parties financial needs, it is not apt when applied to periodical payments designed to furnish compensation in respect of future economic disparity arising from the way in which the parties conducted their marriage. In such cases, if sufficient capital assets are not available, the social desirability of a clean break should not be sufficient reason to deprive the claimant of compensation.

Implications for Future Cases

How might the decisions of McFarlane and Miller impact upon Orders made in subsequent cases? For the majority of cases the impact is likely to be minimal. Unless there are significant assets most cases will continue to be decided predominantly on the needs of the parties and, in particular, the needs of the children. For the small minority of cases where there is surplus assets after needs have been met then, for those spouses (usually women) who have suffered “relationship-generated disadvantage” there will now be an element of compensation and “sharing the fruits of the matrimonial partnership” to their ancillary relief claim which may lead to a more substantial claim then one simply based on needs.

The decision may leave some “high net worth” men to think twice about marrying or at least to consider using a pre-nuptial agreement. Whilst still not legally binding, recent cases have attached weight to the existence of a pre-nuptial agreement as one of the circumstances of the case which the Court can consider when exercising its discretion on how to divide the matrimonial assets and therefore their use may become more widespread.

The decisions also signal a move away from term Orders in favour of joint lives Orders.