Articles

Equal Sharing: A Judicial Gloss too far?

Release Date:	01 May 2008
Author:	Sandra Davis
Original Publication:	Family Law

Benjamin Franklin’s comment that life’s only certainties are death and taxes reveals a poignant universal truth of the kind often found in such throwaway lines. Life, Franklin suggests, is Governed not by fairness but by a combination of generally unpredictable events. In White v White [2001] 1 AC 596, [2000] 2 FLR 981, and later, in the conjoined appeals in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, [2006] 1 FLR 1186, the Law Lords sought to impose a little predictability on the chaos of life’s myriad eventualities. The judicial gloss of reasonable requirements, which had imposed an artificial ceiling on a wife’s claims, was jettisoned in favour of a yardstick, later a principle, of equality. Equity, said the House of Lords, both means and requires equality.

This solution promised to banish discrimination in the context of matrimonial finance and to promote greater certainty of outcome for divorcing couples. But these promises have been broken precisely because the principle of equal division is no less a judicial gloss on the statutory provisions contained in s 25 of the Matrimonial Causes Act 1973 than reasonable requirements had been. Two facts uphold this view. First, when the Government last consulted in 1998 on matrimonial finance, it canvassed views on proposed reform of the law to provide, among other things, for an equal division of assets on divorce. It follows that, from the Government’s perspective at least, the provisions of s 25 do not lend themselves to a presumption of equality of division of assets on divorce. Indeed, in their response to the Government’s consultation, the judges of the Family Division were unanimous in opposing ‘any introduction of equality in the division of assets as a governing principle even subject to departures’ (see [1999] Fam Law 29).

Secondly, their Lordships’ speeches in White and in Miller; McFarlane have provoked, rather than silenced, calls for reform. This time, however, it is the Court of Appeal that baulks against the decisions of the House of Lords rather than the other way round. The principal opposition to the Law Lords’ ‘one-size-fits-all’ remedy is that it has failed to deliver the predictability that it promised. In most cases, the parties’ competing needs for limited resources necessitate a departure from the principle of equal division. At the other end of the spectrum, the generation of stellar wealth is also suggestive of a departure from equality (Charman v Charman (No 4) [2007] EWCA Civ 503, [2007] 1 FLR 1246). In instances, judicial discretion, and therefore uncertainty, reigns. Despite this criticism, there can be no doubting that the concept of reasonable requirements had caused gender-based discrimination which operated to the detriment of the homemaker in favour of the breadwinner. However, the relationship dynamic that gave rise to that discrimination has far less resonance for twenty-first century families than it had for previous generations. Spouses’ roles are now far less clearly delineated than they were in the past. Homemakers are often also breadwinners. Unfortunately, even in those cases where the family’s resources allow for equality of division, the equal sharing principle can create unfairness no less insidious than that which flowed from the application of reasonable requirements in the determination of a wife’s claims. When they rejected reasonable requirements and recast matrimonial finance principles, the Law Lords failed to recognise the societal shift which has seen an increase in the prevalence of the working wife. Consequently, the equal division principle created its own discriminatory effect; one that operates to the detriment of working wives in favour of homemakers.

McFARLANE

In McFarlane, Mrs McFarlane had had a promising career as a city solicitor. During her second pregnancy, 13 years prior to their divorce, she and Mr McFarlane agreed that she would give up her career to become a full-time mother. Following the breakdown of their marriage, their assets were divided equally in accordance with the Law Lords’ guidance in White. The issue that the couple litigated to the House of Lords was the quantum and term of the maintenance to be paid by Mr McFarlane to Mrs McFarlane out of his annual net income of £750,000. The House of Lords upheld the first instance decision that Mrs McFarlane should receive maintenance of £250,000 per annum until she died or remarried. Justifying an award that exceeded Mrs McFarlane’s needs (generously applied), the House of Lords said she was entitled to compensation to redress the significant prospective economic discrepancies that arose because of the way the parties had conducted their marriage. Mrs McFarlane’s entitlement arose because, having given up work to care for the family, the potential fruits of her career had been lost forever.

What if Mrs McFarlane had not given up her career, but rather had pursued it and enjoyed its fruits? Presumably her income would have generated additional capital wealth for the benefit of the family that would become available for division on the couple’s divorce. To avoid gender-based discrimination, the equal sharing principle would have been applied to the additional capital generated by Mrs McFarlane in much the same way as it was to the capital generated by Mr McFarlane’s efforts. In percentage terms, therefore, she would have received the same capital redistribution whether or not she worked. Clearly, therefore, the imposition of an arbitrary tariff of 50% to avoid gender discrimination, itself discriminates against working wives in favour of non-working wives. This deficiency cannot be corrected.

Awarding working wives a share of surplus capital in excess of 50% to reflect their additional contribution surely discriminates against husbands: and the Law Lords prohibit, as discriminatory, discounting a non-working wife’s share to reflect her lesser contribution. Yet s 25(2)(f) of the Matrimonial Causes Act 1973 requires the court to ‘consider 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’.

The consequence of the principle of equal sharing is that generally it precludes the court from measuring different individuals’ differing contributions to their marriages. The principle of equal sharing therefore subverts the statutory exercise. Tied as they were to the avoidance of gender-based discrimination, the Law Lords were also keen to ensure that Mrs McFarlane was able to share in the surplus income her husband generated. To achieve this, judicial justification was needed for an award of maintenance to Mrs McFarlane that exceeded her actual requirements. The novel solution the Law Lords found was to compensate Mrs McFarlane for the economic loss she suffered which arose from the choices she and Mr McFarlane had made during their marriage. That is to say, Mrs McFarlane was entitled to compensation for having given up her career. Had Mrs McFarlane chosen to follow her career path, she would not have suffered any relationship-engendered disadvantage. Consequently, she would have been denied the opportunity of seeking the remedy of a compensatory award available to a wife who has never worked or who has given up her career.

As a result of the decision in McFarlane, courts do not reward the additional contribution of the working wife. Rather, a working wife suffers the relative detriment of being compelled to work until her retirement. By contrast, the non-working wife is rewarded for not working (and therefore contributing less than the working wife) with a maintenance award including a compensatory element. Worse still, the element of compensation operates as a disincentive against the non-working recipient entering the employment market. It therefore offends against the statutory duty under s 25(A)(1) of the Matrimonial Causes Act 1973 to create a clean break. That the House of Lords’ decision means a working applicant wife should be advised to give up her day job or else be precluded from deploying a ‘relationship-engendered disadvantage’ argument is perverse; and it follows that the compensatory model for the fair sharing of income further discriminates against working wives. Furthermore, the rebuttable nature of the equal sharing principle also discriminates against working wives vis-à-vis non-working wives.

CHARMAN

In Charman, the Court of Appeal approved a first instance decision to depart from the equality principle in order to reflect Mr Charman’s special, unmatched, contribution in having generated capital resources of about £131 million during the course of the marriage. The Court of Appeal upheld the application of a discount of 13.5% to Mrs Charman’s notional half share of the assets, leaving her with £48 million. Assets worth £8 million were already held in her sole name and therefore Mr Charman was ordered to transfer to his former wife 32.5% of the remaining £123 million held by (or found to be a resource available to) him. Although the judges declined to identify a threshold below which special contributions could not be successfully argued, the Court of Appeal tacitly accepted the submissions of Martin Pointer QC and Barry Singleton QC for the respective parties that a special contribution required the generation of at least £30–50 million. Once found, the Court of Appeal ruled, a special contribution would justify a departure from the equality principle of up to one-sixth.

Assume that, rather than taking her unpaid position as a magistrate, Mrs Charman had chosen to juggle homemaking with running a business, which by the time of the divorce, was worth £10 million. It seems from the judgment of the Court of Appeal that the creation of £10 million is insufficient a contribution to cross the threshold and be treated as ‘special’. Consequently, no discount would have been applied to Mr Charman’s notional half share in the value of Mrs Charman’s hypothetical business. Adding in the value of this hypothetical business, the Charman’s capital resources would have totalled £141 million. Adding the half share in the business to her actual award sees Mrs Charman’s global award increase to £53 million. On this analysis, she holds £18 million of the assets (£8 million plus £10 million being the value of the hypothetical business), so she would require £35 million from the remaining £123 million held by (or on behalf of) her former husband to provide her with £53 million. This £35 million balancing payment equates to 28.45% of Mr Charman’s resources; a percentage a shade over 4% less than the lesser contributing Mrs Charman actually received.

CONCLUSION

Clearly, while the rule of law can militate against life’s unpredictability, that does not necessarily mean that the law’s application is necessarily fair. As Lord Nicholls of Birkenhead observed, fairness, like beauty, is in the eye of the beholder. Our matrimonial finance laws are a mess because their architects are no longer parliamentarians but the Law Lords. Like many judicial fictions, the principle of equal division offends against natural justice. This is not an academic debate. Increasingly we live in a society in which dual wage earning is the norm. Unfortunately, as things stand, when the ‘paradigm’ working wife finds her way to the Court of Appeal or above, she will find the Law Lord’s current judicial gloss neither a substitute nor a remedy for these failings; and certainly not conducive to a fair outcome. And, as can be seen, the panacea is not a further judicial gloss on the statute. Instead, a fresh consultation is required so that the law relating to matrimonial finance properly reflects the society it serves.

Copyright Jordan Publishing Ltd