“Tabling” the assets to mutual advantage

Divorce|January 9th 2008

“His wife demanded half of his future income and bonuses. Could he ever achieve closure?”

When assets in a medium-term, “big money” marriage are divided, it can be a difficult case to call. If the capital exceeds the reasonable needs of both husband and wife, how should the surplus be allocated?

One client of mine, aged 48, had just sold his business for a net sum of £8 million. He had inheritances from various family members, totalling £1 million. His pension, which he had no plans to draw down, was worth £1 million on top. A “golden handcuffs” clause in his contract required him to continue to work for the company for the next 5 years on an annual income of £200,000; with bonuses, he expected this to double. He and his wife owned a house worth £2 million, free of mortgage.

Unfortunately, his private life hadn’t been quite so successful. His first wife had left him and gone to live in Australia. Then he fell in love with a married woman who came to work as his PA. Within six months the PA had divorced her husband, and had married my client. Nine years later, this marriage was over too. Now she was demanding half of everything my client had and half his future income – including his bonuses. Was she right?

The length of a marriage can often affect the level of settlement, depending on when the assets of the marriage have been earned. In law, a “short” marriage is up to 5 or 6 years. A “medium” marriage is between 6 and fourteen years’ duration. Thereafter a marriage is regarded as a “long” one.

Since the complicated decision of the House of Lords in the case of Miller and McFarlane and the more explanatory Court of Appeal decision in ‘Charman Number 4’, the courts must now apply the principle of “sharing” the financial fruits of the marriage between the parties.

How is that done? It isn’t easy. And given that many marriages, like my client’s, tend to break down as “medium-term marriages” the question of how much must be paid in each case is often a tough one to answer. This is because an analysis is required not only to ascertain the family’s net worth, but also to assess how and when that worth was acquired.   If it is determined that the assets are “matrimonial”, they should be shared between the parties; if they are “non-matrimonial”, they could be excluded.

The applicable law for any financial settlement is set out in sections 22-25 of the Matrimonial Causes Act 1973, and explains the orders the court can make. The factors on which a court will base its decision are explained in section 25.

First I told him my client that this was going to be a “clean break” settlement; there was certainly sufficient capital to meet all his wife’s claims for the rest of her life. He had no need to worry about paying her any maintenance in the future. That was a real concern to him. I also thought his pension would probably remain untouched. He started to relax!

The difference between this husband and many other wealthy spouses was that he was well off before the marriage took place. He had earned £8 million from the sale of his business, but estimated that the business was worth at least £3 million at today’s values, prior to the marriage. He also had his inheritances. We could argue that this capital was “non matrimonial” and therefore should not be shared in the same way as the marital assets.

The remaining assets were regarded as “matrimonial”, being acquired during the marriage and available for sharing between the parties. The “matrimonial assets” totalled about £7 million and the “non-matrimonial” assets were about £4 million. This totalled £11 million – and I excluded his pension completely.

Once it has decided what is and what is not “matrimonial”, the court applies two tests. First, they divide the marital assets by two; then they consider whether it should all be equally shared.

In a recent case, which had striking similarities to my client’s, Deputy High Court Judge Richard Anelay QC shared a couple’s capital by roughly 58%-42%. However, this couple had had two children during their marriage. In the case of my client’s marriage, both husband and wife were childless. I thought a fair division would be nearer 65% to the husband. This would give the wife 35% – around £3.8million. I couldn’t predict with any certainty what the court would do.

Would my suggested split be sufficient to cover the wife’s reasonable needs, in accordance with the criteria set out in section 25 of the Matrimonial Causes Act 1973? We had to consider her income needs and other capital needs such as housing and furnishings.

My client estimated his 40-year-old wife’s annual net income requirement at around £60,000. I advised him to expect an argument about the figure, once car replacement and depreciations, holidays, housing maintenance and upkeep were factored in.

Then I advised him about the “Duxbury Tables“, by which we could compute the capital payment he could make to her to cover her income requirements for the rest of her life.

The Duxbury Tables are not based on an annuity payment. They assume a certain amount of money would be invested and part would be spent, to produce the net of tax income figure per annum. In this case, the Duxbury Tables suggested that a sum in the region of £1.4 million – £1.8 million would meet a lifetime income requirement of between £60,000 and £75,000 per annum.

To that sum, I added another £1.4 million: enough for a new house, and other capital requirements. The grand total averaged out at £3 million, less than the sharing figure had produced.

Thus by cross-checking against her reasonable needs within the context of her marriage, the wife would receive more than she needed. That would not reduce the amount of the award – but if her needs produced a higher figure, the court would award her a greater amount.

If this method was followed, the husband was set to retain the larger part of his capital, plus his pension and continuing income. The wife of 9 years would receive some £3million at least, including a sum to be spent on rehousing. On that basis the husband was happy and instructed me to negotiate. Both husband and wife were fully aware they were paying their own legal fees which would keep rising. Both were keen to settle. Eventually we settled at £3.5 million.

The current form of judicial reasoning is tortuously complicated, or so it seems to me, but nevertheless appears to be the present state of play in financial awards. The law does even specify this method of asset sharing. It is growing up through novel, complex jurisprudence at the highest levels and so makes advising any client caught up in this scenario, who wants straight answers to straight questions from the outset, as simple as predicting a lottery winner.

The founder of Stowe Family Law, Marilyn Stowe is one of Britain’s best known divorce lawyers. She retired from Stowe Family Law in 2017.

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