Changes affecting financial settlements on divorce

Some of the principles that have long underpinned financial settlements on divorce have recently changed. Camilla Thornton summarises the recent developments.

The case of White v White, for which the House of Lords gave judgment on 26 October 2000 was widely reported. Less well known is the impact the judgment had on the existing law, particularly in relation to big money cases.

Historically the approach of the courts, where the available resources exceeded the financial needs of the parties, was to give the financially weaker spouse (usually the wife) a lump sum to meet her "reasonable requirements".
This meant a fund for housing and a capital sum to provide an income for life based on her life expectancy and the parties' standard of living. The remaining assets would pass to the other spouse. The anomaly which could arise was that the older the wife (and often the longer the marriage) the less she would receive.

Mr. and Mrs. White were married for 35 years and in their 60s. They owned two farms, one of which had come from Mr. White's father. They had adult children. They had joint assets of approximately £4.6 million of which Mrs. White owned £1.5 million and Mr. White £3.1 million.

At the first hearing, the judge awarded Mrs. White about £980,000, to purchase a house and have an income for the remainder of her life. The remaining assets, including £500,000, which belonged to Mrs. White, were given to Mr. White.

Mrs. White appealed successfully to the Court of Appeal who decided that she should retain her share of the joint assets - £1.5 million.

Both parties appealed unsuccessfully to the House of Lords. The law lords declared that the historical approach was unfair and discriminatory and that the outcome of a case should be "fair", should not "discriminate" between the money maker and the home maker and that although the starting point should not be 50/50, there should be an equal division of the assets unless there is "good reason".

The House of Lords' judgment caused a considerable amount of consternation. Did it mean that the assets of a marriage should always be divided equally? Initially that was the argument put forward by many wives. However, it has now become clear that the overriding objective is not equality, but instead fairness. Certainly, wives are generally receiving more than they would have done pre-White, although there have been very few cases where the assets have actually been divided equally.

Two important post-White cases are N v N and Cowan v Cowan.

Mr. and Mrs. N were aged 45 and 35. They had been married for 14 years and had three young children. The husband was the senior partner of a firm of accountants and also an entrepreneur. He owned two service companies: one he had set up in 1982 and the second in June 1997 after he and Mrs. N. had separated. Mrs. N's role was that of wife and mother, although it was accepted that she had been involved in the setting up of the first company in 1982.

The judge calculated the parties' assets at £2.6 million. They were mostly illiquid and tied up in Mr. N's companies. Nevertheless, the judge awarded the wife 40%, gave Mr. N two years to pay and made it clear that Mr. N would be expected to sell one of his companies if he could not raise the sum due.

Historically, the sale of a business to raise funds to pay a wife was prohibited as it would destroy the source of the husband's income. Therefore this judgment was a radical departure from the customary approach. However, Mr. N's income came from a number of sources and the sale of one of his companies would not have seriously undermined his income. It is unlikely that the judge would have made the same order had Mr. N only one company and thus source of income.

The second case of Cowan was nicknamed the "bin liner case" by the press as Mr. Cowan had made his fortune by developing the bin liner.

The parties were married for 35 years and had two children. Mrs. Cowan claimed 50% of the parties' assets of £11.5 million on the ground that she had played a vital role in the inception of the business. The Court of Appeal disagreed and awarded her 38%. In making its decision, the court recognised that the parties' wealth was the direct result of Mr. Cowan's entrepreneurial genius - he had made a "special" contribution - and that it would be fair to give him a larger share of the surplus, after meeting both parties' housing and income requirements.

This case leaves us with the difficult question of where the line is to be drawn between "special" and "ordinary" contributions and whether non-financial contributions can ever be deemed to be "special". Certainly, attempts to persuade the court to take into account anything other than truly exceptional efforts have failed.

And finally, does White apply to every case, even where the assets do not exceed the parties' financial needs? The answer must be yes - the outcome must be fair and not discriminate between the parties. However, although in big money divorces, the wives will almost certainly receive more than they would have done pre-White, in the vast majority of cases, a court will inevitably concentrate on meeting the housing and income needs of the parties.

Camilla Thornton is a Partner in Russell-Cooke's family department.

This article first appeared in Barker Poland's XL magazine.