McFarlane v McFarlane: A Divorce Seesaw

Ivana Trump said, famously: “Don’t get mad. Get everything!” It appears that Julia McFarlane, the former wife of high-flying accountant Kenneth McFarlane, has taken these words to heart.

The judgment in the latest instalment of the never-ending divorce saga that is McFarlane  v McFarlane, (2009 EWHC 891) landed on my desk yesterday morning. A judgment from Mr. Justice Charles, it is characteristically lengthy. Thirty-five pages in length, it takes a long time to read . It takes even longer to consider the meaning and impact, this judgment being his Lordship’s interpretation of what the House of Lords may have had in mind (but never expressly stated) by a “deferred clean break”, payable at some stage in the future, by Mr McFarlane to his former wife.

I was in two minds whether to write about the latest twist; after all, what relevance does any of it have to those of us who live relatively modestly in the real world? However, this case has wider implications. It reminds me of a seesaw. On one end: the stay-at-home wife and her children. On the other: the working wife and her children. In the middle, sliding from one end to the other: the husband. Does English family law substantially favour the stay-at-home wife, at the working wife’s expense? Does it curtail a second wife’s freedom to leave her job and become a stay-at-home mum?

Let me explain.

The McFarlanes litigated themselves all the way to the House of Lords in their original divorce. They split their capital roughly 50:50. Both came away with about £1.7 million. Both purchased substantial properties for more than £2.5milllion apiece.

In Europe the wife’s claims would have ended there. In England and Wales, however, Mrs McFarlane’s income needs still had to be met – and at the time there was insufficient capital to provide a clean break divorce. (NB. If any case shows how important it can be for a husband to try and obtain a clean break settlement in his divorce, it is this one!)

The divorce was dragged through four courts, yielding various decisions about the ongoing maintenance to which Mrs McFarlane was entitled. Her actual needs were estimated at £150,000 – £180,000 per annum. However the final arbiter, the House of Lords held that, as she had given up her career as a solicitor to care for the couple’s three children, she should receive more in recognition of her lost earning capacity. The House of Lords confirmed a higher award of £250,000 per annum, substantially in excess of her needs – with no cut-off point.

The words “relationship-generated disadvantage” became a buzz-phrase, until Mr Justice Coleridge pointed out that the phrase did not actually exist in statute. This prompted the President of the Family Division to issue a clarification in which he made it clear that in big money cases, the issue of “relationship-generated disadvantage” would arise simply as a strand or element of fairness. Precisely!

Mr McFarlane has remarried, to a partner at his accountancy firm. They have a son, who is now three years of age. Mr McFarlane’s career has continued to flourish. In 2007, one year after the House of Lords’ judgment, his former wife issued an application to the court for increased maintenance for the children, who are now aged between 13 and 20. She subsequently applied for an increase for herself and capitalisation of her maintenance claims. Last week the judgment was handed down…

The court has a duty to consider if a clean break is possible; if so it can, if it wishes, order payment over a term of years after which a clean break will occur. That is what Mr Justice Charles did, but he made an order to fund an eight-year, deferred clean break, all payable out of the former husband’s post-divorce income – to which his second wife contributes, and his first wife does not.

From 25 June 2007 (when Mrs McFarlane issued her original application for an increase), Mr McFarlane must now pay his former wife:

40% of his net income up to £750,000

20% of his net income up to £1 million

10% of his net income thereafter, until 31 May 2015 when maintenance stops and Mr McFarlane retires.

The judge calculated that this would give Mrs. McFarlane an unearned tax free income just shy of £350,000. As he backdated the award by two years, there will be the differentials to pay for those two years as well. In eight years’ time she could have received around £2.5 million.

What a whopping award! It makes you wonder why Mr McFarlane doesn’t just throw in the towel and live off his second wife’s income. It also makes you wonder how hard it is to earn this kind of money – and if this is sufficiently appreciated by the court. It certainly doesn’t grow on trees if all those professionals I represent or see on trains and planes, sweating profusely, banging on laptops, e-mailing and making non-stop mobile calls on a 24/7 basis are anything to go by!

From now on, the first Mrs McFarlane must have one of the highest unearned, tax-free incomes in the country. It amounts to £200,000 more than her needs as found by the Court.

So I ask myself the question: is the carve-up of Mr McFarlane’s income truly representative of “fairness”? Is this what the House of Lords intended? I ask this because in the same case, the High Court and the Court of Appeal were far less generous to Julia McFarlane. I must say, I find it hard to see why there should have been an adjustment in the current payments.  The wife’s compensation claim is one strand in the element of fairness.

Turning back to the seesaw: we must not forget the very substantial contribution of the second wife to Mr McFarlane’s post-divorce income, running the home and – as the judge acknowledged – taking on the brunt of the couple’s childcare while holding down her top-flight job as a senior partner at Deloitte.

I am certain that many first wives will rejoice at the huge financial success of one of their number. No doubt there is considerable sympathy for a wife who has been abandoned with children, and relatively little sympathy for the second wife. But several years ago the first Mrs McFarlane came out of the marriage very well, financially. She has now done even better, long after the divorce. One may feel that by now, she could – and should – be providing far more appropriately for her own future, off her own bat.

Second wives are frequently castigated by the first family, and are frequently left to bear the brunt of the marital breakdown alone. The husband sits helplessly in the middle of the seesaw. Second wives have complained to me that their husbands never overcome the guilt of leaving their first wives. Instead, these men allow themselves to be turned into tireless “dogsbodies”, to try and demonstrate to the world that they are nice guys after all. Meanwhile, first wives complain that these men are under the thumbs of their second wives and do not pay as much as they should to them and their children.

In many cases, the second family’s standard of living slips. The pressure to keep earning, to keep two families living well on one income means that a second wife can have no choice but to keep working. Her desire to stay at home and look after children can be thwarted by the large monthly payout to the other household. The resulting bitterness, pressures and remonstrations – “why is she doing nothing with her life, when I’m working like this to keep them in luxury?” – can destabilise even the strongest second marriages.

I wouldn’t dream of denying Mrs McFarlane her fair share. However from a personal perspective as a working wife and mother, who has always contributed to the family budget, overall I believe that Julia McFarlane’s latest award is excessive. I also believe that it pays scant regard to the impact of this award, in a number of ways, upon Mr McFarlane and his second family.