Readers of this blog will know that in any financial divorce settlement, the court must ensure that so far as possible, within the context of their finances, both parties’ “reasonable needs” must be met. Basic reasonable needs include provision for housing, furniture, a car and a budget for income requirements. It follows that the greater the parties’ wealth, the greater their needs will be.
In meeting the needs of each party, the court will apply the various relevant factors of section 25 of the Matrimonial Causes Act 1973, which are as follows:
(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;
(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
(c) the standard of living enjoyed by the family before the breakdown of the marriage;
(d) the age of each party to the marriage and the duration of the marriage;
(e) any physical or mental disability of either of the parties to the marriage;
(f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
(g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;
(h) in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit. . . which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.
That’s the theory… but what happens in practice? How does a court carry out the exercise of meeting the reasonable needs of the parties?
A reader of this blog, Julianna, recently wrote to me for advice about her partner. His former wife was pursuing a financial settlement, even though the former wife had already received the lion’s share of the parties’ capital, which was about £27,000. Julianna wanted to know whether her partner’s ex could, aged 50 and following a long marriage, still expect to receive ongoing maintenance and a share of the husband’s pension. Their incomes were very different. The former wife was earning around £10,000 per annum – possibly with some additional income besides, which was not being declared to the taxman, but the existence of which could not be proven. She was also in receipt of certain state benefits. The husband, on the other hand, was earning about £52,000 before tax and had a good pension.
The answer I gave probably wasn’t the one that Julianna wanted to hear: I told her that if these facts were taken at face value, then the former wife was almost certainly entitled to pursue her claims. Of course, the court would take into account assets she had already received and “add them back” if it felt she had squandered them. But the court would want to ensure that the wife’s reasonable needs were met, probably without a cut-off date, given her apparently low income, her age and the length of the marriage. It seemed to me a strong possibility that maintenance might continue up to pension age, and that the pension would then be shared between them. Even in a case where there isn’t a great deal of capital or income, the court will still consider the ongoing needs of both parties and share income and capital between them to try and meet each of their needs.
“When does enough become enough?” asked Julianna. The answer, probably, is never. In my reply to Julianna, I suggested that she might wish to consider her own position too. Given that she wasn’t yet living with this man, did she still want to do so, if his own finances were taken up maintaining his former wife? It’s an issue that arises quite frequently. If she did still want to move in with him, I suggested that she should take legal advice, not least because the husband’s ongoing claims might not necessarily end on his death. His estate could also be subject to a claim, unless he insured his liabilities with a suitable life insurance policy.
The requirement to deal with the reasonable needs of the parties also applies to larger cases too, where the assets are very substantial. In those cases however, there can usually be a “one-off” lump sum payment of capital to cover reasonable needs. Thereafter, what happens to the surplus once needs have been met?
In White v White, the House of Lords held that there should be an equality of division where the assets were purely matrimonial, i.e. they had been acquired by the parties endeavours during the marriage. It found that no distinction should be made between the parties, even if one stayed at home and did not work. But what happens to the rest of the assets, for example those acquired before the start of the marriage? Should these be shared too? In lesser value cases, where there is no surplus, the distinction is irrelevant as needs trump assets, regardless of where they come from.
In my last post concerning the case of Z v Z we saw how limited wriggle room in the prenuptial agreement had permitted Mr Justice Moor to ensure that the wife’s reasonable needs were met. The agreement excluded future sharing of capital, but had not excluded income-based settlements. Therefore, Mr Justice Moor was able to provide both a housing and a capitalised income fund for the wife. So she left the marriage after a long legal battle, but with her reasonable needs met.
During the case reference was made to “sharing” the assets, which had all been accrued during the marriage. On that basis, they were classed as “matrimonial” assets and as Mr Justice Moor made clear, would have been divided equally between them had there not been a valid prenuptial agreement in force.
What happens where there are both matrimonial assets and non-matrimonial assets – such as inherited, gifted or pre-owned assets?
Increasingly, reported cases are very much highlighting the distinction a court may make between matrimonial assets and non-matrimonial assets. As such, where there is a distinction – particularly where the assets have been kept separate and not “mingled” with matrimonial assets – the court will firstly share the matrimonial assets. Then it will stand back and cross-check whether the outcome looks acceptable by reference to the entirety of the assets, both matrimonial and non-matrimonial. Where there are hardly any matrimonial assets at all, the court will most likely provide only for the reasonable needs of the other party – albeit they will be “generously assessed.”
These calculations by the court can produce some interesting results for spouses.
Consider the recent case of AR v AR  EWHC 2717. Following a 25-year marriage there was an estimated total of between £21 and £24 million in assets, and all but £1million were in the husband’s name. The source of the wealth was the husband’s family business, bought by his father shortly after the Second World War. The court rejected the argument for sharing, but said that the application of a strict Duxbury award was too low. The wife’s budget requirements of £115,000 per annum produced a Duxbury calculation of £2.5 million, but this was eventually increased to £3.2 million, so that she could have additional security during her lifetime. Her housing needs were assessed at £1.1 million and the total therefore was some £4.3 million, with the husband retaining the balance of £20million, or thereabouts.
In another recent case, Grubb v Grubb  EWCA Civ 976, the assets amounted to circa £10 million. In this case the wife left the marriage with a similar sum. Her needs had been assessed and the rest of the money was retained by the husband because it was non-matrimonial.
Similarly, the Court of Appeal held in the case of K v L  EWCA Civ 550, that the husband’s needs could be fully met for the sum of circa £5 million. The wife’s inheritance, worth some £57 million, remained with her.
The principle of needs trumping assets also applies in larger cases. In J v J  EWHC 1010 (Fam) the court awarded the wife 46% of the assets in order to meet her needs. Could her needs have been met at a lower figure? The judge, Mr Justice Moylan, said he would have done so to take into account the non-matrimonial assets.
Reasonable needs are just that and sharing takes place when needs have been met. If the assets are mainly or all non-matrimonial, and needs have been met, the rest of those assets will remain with the party who owns them.
The exception to all of the above in big money cases might be assets where the source was originally non-matrimonial but have become “mingled.” They cannot be easily distinguished from the matrimonial assets. In these cases, the party who seeks to share might have more chance of success with those assets.