I have already discussed White v White in this series of posts about important cases. This set out the ‘sharing principle’, to which courts should have regard when deciding financial remedy applications after divorce. Further guidance in this area came from the House of Lords six years later in the conjoined appeals Miller v Miller and McFarlane v McFarlane.
There is an awful lot going on in these two cases, and a lot of ground covered by the House of Lords in its 182-paragraph judgment. To keep things simple, I will just concentrate here on the basic facts of the two cases and the most important statements of principle, as set out in the judgment of Lord Nicholls.
The two cases concerned the problem of how to achieve fairness in the division of property following divorce. Like White, they involved large amounts of money, but the circumstances in each case were quite different from White, raising different issues.
In Miller the parties had been married for less than three years and there were no children. The husband was a very high earner and had brought substantial wealth into the marriage. That wealth had increased considerably during the marriage and his total worth was approximately £32 million. On the other hand, the wife’s assets were worth substantially less than her legal costs. The judge at first instance concluded that a lump sum to the wife of £5 million was a fair outcome, and awarded her that sum. The husband appealed to the Court of Appeal, but that appeal was dismissed. The husband then appealed again, to the House of Lords.
In McFarlane the parties had been married for sixteen years and had three children. They had both had successful careers but before the birth of their second child they agreed that the wife should abandon her career and bring up the children on a day-by day-basis, and that they would concentrate on the husband’s career. The husband’s career flourished and by the time of the separation his gross annual income was nearly £1 million. When the case first went to court it was common ground that there was insufficient capital available for there to be a clean break between the parties. Accordingly, the district judge awarded the wife maintenance of £250,000 per annum, more than she needed to cover her outgoings, to reflect her needs, obligations and the contribution that she had made over the years of the marriage. The husband appealed and the High Court reduced the wife’s maintenance to £180,000. The wife then appealed to the Court of Appeal. The Court of Appeal restored the award of £250,000 per annum, but limited it to a period of five years. The wife appealed against this limit, to the House of Lords.
Giving the first judgment of the House of Lords Lord Nicholls discussed the requirements of fairness. The primary consideration, he said, was the welfare of the children of the marriage. Beyond that, there were three elements, or strands, to fairness:
1. The financial needs of the parties. He said: “fairness requires that the assets of the parties should be divided primarily so as to make provision for the parties’ housing and financial needs, taking into account a wide range of matters such as the parties’ ages, their future earning capacity, the family’s standard of living, and any disability of either party”. In most cases, he continued, the search for fairness ends there, as in most cases the available assets are insufficient to provide adequately for the needs of two homes.
2. Compensation for economic disadvantage caused by the way the parties conducted their marriage, for example where the wife has given up a career to look after the children.
3. Sharing – i.e. the principle set out in White. “This ‘equal sharing’ principle”, said Lord Nicholls, “derives from the basic concept of equality permeating a marriage as understood today. Marriage, it is often said, is a partnership of equals … This is now recognised widely, if not universally. The parties commit themselves to sharing their lives. They live and work together. When their partnership ends each is entitled to an equal share of the assets of the partnership, unless there is a good reason to the contrary. Fairness requires no less.”
So how did these principles apply to the two cases?
So far as Miller was concerned, needs and compensation were not important factors, but there were obviously good reasons to depart from equality in view of the substantial wealth the husband had brought into the marriage. However, the wife was entitled to a share, in particular because of the considerable increase in the value of the husband’s assets during the marriage. In the circumstances, Lord Nicholls thought that the figure of £5 million was appropriate. The other Law Lords (broadly) agreed, and therefore the husband’s appeal was dismissed.
As to McFarlane, the wife was entitled to a maintenance order in respect of her financial needs. However, this was also “a paradigm case for an award of compensation in respect of the significant future economic disparity, sustained by the wife, arising from the way the parties conducted their marriage.” The maintenance order should therefore include a compensation element. This, said Lord Nicholls, was the purpose of the maintenance figure being above the amount of the wife’s expenditure – not, as the Court of Appeal had said, simply to enable the wife to accumulate a capital reserve. In those circumstances, a five-year order was inappropriate and unlikely to achieve a fair outcome. The other Law Lords agreed, and accordingly the wife’s appeal was allowed.
The facts in both of these cases were somewhat unusual, as Lord Nicholls acknowledged. Nevertheless, the principles set out in Miller and McFarlane, like those in White, remain of great importance when considering financial remedy disputes, particularly when they involve large sums of money.