July 7, 2017 Admin

Divorce In Court – Sharp v Sharp

Sharp v Sharp [2017] EWCA Civ 408

Court of Appeal, 13 June 2017, McFarlane, McCombe and David Richards LJJ

The wife was a trader in the wholesale fuel trade. The husband was employed for many years by an international company involved with IT, and then took voluntary redundancy shortly before the separation. Their salaries were similar during the marriage, but the wife received, in addition to her salary, large discretionary bonuses (£10.5 million during the central 5 years of the relationship).

Before the couple met the husband was living in a mortgaged flat; when this was eventually sold it realised £11,000 in equity. The couple began living together in rented accommodation at the end of 2007, became engaged to marry in August 2008 and then married in June 2009. In anticipation of that marriage, they bought a property (SD) in joint names and then made improvements to it; both the purchase and the improvements were paid for by £1.02 million provided by the wife. Damage done to the property in 2009 meant that further sums had to be spent on repairs. In 2012 the couple purchased another property, this time for £2 million, and again spent considerable sums on works; again the money was provided entirely by the wife, but the property was put into joint names. The couple moved into this new property in 2013, and then put SD on the market, but it did not sell.

Not long after the move to the new property, there were significant difficulties with the marriage. The husband had begun an affair before the move but when the wife challenged him about this, he denied it, and continued to do so for an extended period. The wife filed a divorce petition in December 2013. However, they did not physically separate until July 2014, at which point the husband moved back to SD and the wife remained in the new property. The husband eventually admitted the affair only within the court proceedings, and made a number of admissions about his new relationship for the first time only at the final hearing.

For some time the wife attempted to pursue allegations that the husband’s conduct was such that it would be inequitable to disregard it, and to challenge the nature and extent of the husband’s contributions to the marriage. She sought very extensive financial disclosure by the husband, and by his new partner. At preliminary hearings the wife was permitted to pursue allegations that the husband had misused or misappropriated funds given to him by the wife for the purposes of refurbishment, including spending those funds to further his relationship with his new partner, however, she was also told that she would have an uphill struggle in establishing such claims in court.

The wife attempted to add considerably to the trial bundle after the contents had been agreed, and went on to ask the court to admit three new witness statements relating (i) to the degree of the husband’s involvement in the works to the house, (ii) a third party account of the breakdown of the relationship; and (iii) his support, or otherwise, for the wife in preparation of packed lunches for her.

The wife’s Form E disclosed overall assets of about £6.7 million, including her pensions, with a value of about £800,000. The husband’s pension had a value of about £140,000. SD had been valued at £1.1 million and the new property at £1.5 million (in respect of each property, less than had been spent by the couple). The wife initially sought the transfer of both properties to her, in return for a £400,000 payment to the husband, but by the hearing was offering the husband SD, plus £130,000 to cover his outstanding legal costs liabilities. The wife’s position was that nothing should be done to reflect the disparity in their pensions. The husband was seeking £3 million, including SD, plus the transfer of 23.8% of the wife’s pensions. This represented the amount identified by a pensions expert instructed by the husband as the amount required to achieve equality of benefit between the couple in relation to the increase in their respective pensions over the span of the marriage. In fact the pensions expert had recommended offsetting the pension, and that “a cash payment of £210,856 to H . . .would be a fair equivalent value.”

The husband had undergone some retraining, and was trying to establish himself as a freelance instructor/consultant in IT. He said he was earning about £5,000-£7,500 each month, but had no long-term secure assignments. Changes in the wife’s industry meant that she was no longer likely to receive large bonuses, of the sort she had received to date.

The wife’s costs were in the region of £200,000, and the husband’s were just over £180,000. After all the financial information had been exchanged, the wife identified £136,000 as ‘missing money’; this was further reduced during the hearing to something in the region of £100,000, or 1.5% of the total assets.

The judge at first instance excluded the first matrimonial home (now worth about £1.067 million) from the ‘matrimonial pot’, on the basis that the first home had been acquired by the wife before the marriage, together with other pre-acquired assets to the value of about £350,000. The judge assessed the total matrimonial assets, including the second matrimonial home, as £5.45 million and awarded the husband £2.725 million, precisely half, explaining that he did not believe that separate finances should necessarily lead to ‘not sharing’ assets; given the developments in the law on prenuptial settlements since White v White. He concluded that, in effect parties subscribed to the sharing regime when they married unless they chose to opt out (or attempt to do so) with a prenup, relying on the ‘patent lack of enthusiasm’ of the Court of Appeal in Charman v Charman for the concept of unilateral assets. The judge made a finding that in any event no sufficiently clear and consistent pattern of separate finances had been established in this case.

The wife appealed.

The Court of Appeal allowed the wife’s appeal.

The task of identifying the principles to be distilled from White and, more particularly, from Miller was complicated by the number of speeches, the breadth of coverage of the key topics and the need to discern the basis for the actual decision of the House of Lords on the facts of the Miller case. Applying Work v Gray, in this field, ‘provided the guidance is authoritative’ it should be followed without undue consideration of the distinction between that which formed part of the reasoning behind the decision, and that which did not, in order to be loyal to the spirit, as much as the letter, of such guidance. In undertaking that exercise, however, it was nevertheless necessary to differentiate between the guidance given by the various members of the Judicial Committee where there was a difference between them. In order to determine which of two differing opinions was the ‘authoritative’ guidance, the basic principle based on identifying the majority view must surely still apply. Where, therefore, the lone opinion of Lord Nicholls on a matter was in conflict with that of the three members of the House who were in agreement on that matter, the opinion of the majority must be the authoritative view. Insofar as the judgment of this court in Charman had been interpreted as expressing a preference for the opinion of Lord Nicholls on such matters, such an interpretation was erroneous.

The inclusive approach to authoritative obiter statements encouraged by Work v Gray was an adjunct to the ordinary principle of precedent that where a line of reasoning was part of the justification for the House of Lords’ actual decision, it must be taken as binding and followed by this court. Insofar as the actual decision in Miller established the basis for a relaxation of the equal sharing principle in a short marriage where unilateral assets had been received by one partner, then there could be no argument that such an approach might apply, on the facts, in other cases.

In Miller both Lord Nicholls and Baroness Hale had identified fairness, equality and non- discrimination as principles and both drew out the same three ‘strands’ of ‘needs’, ‘compensation’ and ‘sharing’, which Lord Nicholls described as the ‘equal sharing’ principle. Both considered that predictability of outcome and a consistent approach to similar cases before the court were central aspects of ‘fairness’.

If the equal sharing principle of 50/50 allocation was now applied by courts and practitioners, in cases which were not pre-determined by ‘needs’, to all relevant assets in every marriage, without exception, from the moment the couple left the church or the Register Office, this would seem to be a very significant and wholly unjustified development from the approach so carefully described by Lord Nicholls in Miller. An automatic or blind application of a 50/50 split in every case could only be an impermissible judicial gloss on the statute, which expressly required the court to consider all the circumstances of the case.

In terms of the distinction between the approach taken by Lord Nicholls and that by Baroness Hale relating to the categorisation of the source of assets owned by the individual spouses, this case was, a ‘non-business partnership, non-family asset case’ where the bulk (indeed effectively all) of the property had been generated by the wife. The wife’s bonuses were not ‘family assets’ as categorised by Baroness Hale and, in contrast to Foster, they had not been generated by the joint efforts of the parties (Foster being a case which was held to be ‘all about contribution’). It was hard to justify holding that this case was not one where ‘there is still some scope for one party to acquire and retain separate property which is not automatically to be shared equally between them’ (Baroness Hale para 153). By Baroness Hale’s analysis at paragraph 152 the court was obliged to take account of the duration of the marriage with a view to considering reducing the husband’s share to reflect the period of his domestic contribution. Further, in a case where, in contrast to the more traditional ‘bread-winner’ / ‘home-maker’ model, each partner worked full time for most of the marriage, and where there were no children, it must be necessary for the court also to evaluate the extent, if any, by which the husband’s domestic contribution exceeded that of the wife. Each of their Lordships’ and Ladyship’s speeches attempted to delineate an approach, within the broad principles, which was, to a degree, subtle and flexible; if, as the speeches of the majority contemplated, some grounds for departure from the equal sharing principle might lie in the littoral zone along its outer edges, these would require careful, fact-specific, evaluation and could not be fairly determined by the blind application of an arithmetic formula.

Baroness Hale’s analysis recognised that, in the absence of a blanket principle of shared matrimonial property, there must be some circumstances where a party would retain sole ownership of assets acquired and retained during the marriage. Given that the wife in Miller had made a domestic contribution and had not received 50% of the matrimonial assets, it did not follow that a home-maker would enjoy equal sharing in such cases in a manner which would unfairly contrast with a spouse who had pursued a career. Lord Mance expressly agreed with the views expressed by Baroness Hale to the effect that the duration of the marriage could not be discounted. In any event, and of particular importance in the context of this appeal, he also agreed that how the parties had organised their finances was relevant.

The inescapable conclusion from an analysis of the speeches in Miller, in terms of the possibility of some alteration from, rather than a strict application of, the equal sharing principle in relation to short, childless marriages, where both spouses had largely been in full-time employment and where only some of their finances had been pooled, was that fairness might require a reduction from a full 50% share or the exclusion of some property from the 50% calculation. Of the five members of the Judicial Committee, only Lord Nicholls suggested a contrary view and even on his analysis the potential for some form of relaxation could be seen.

In contrast to the position in Charman, this court now had to confront the short marriage ‘dual career’ issue directly on the facts of the present case. Whilst affording due respect to the observations made by the experienced court in Charman, this court was obliged to go back to the speeches in Miller; the authoritative guidance in relation to short marriage, dual-career cases was to be found in the speeches of the majority and not, where it differed, in that of Lord Nicholls.

Whilst much of what was said in this regard in Miller (for example relating to dual-careers) was probably obiter, the conclusive point to be taken from Miller, however, arose from the actual determination of the House of Lords on the Miller appeal itself, where all five of their Lordships agreed that Mrs Miller should receive substantially less than 50% of the value of the New Star shares. The existence of a basis for departing from a strict application of equal sharing, albeit in a small number of cases and on the unusual facts of that case, was thereby established as a matter of law.

In the court’s view, the majority plainly determined the appeal by affording substantial weight both to the shortness of the marriage and to the very significant unilateral gain in the husband’s finances. The similarities between the factual structure in Miller and that in the present appeal were plain, albeit that the figures in the present case might justify the label ‘Miller-lite’. The wife had received bonuses way beyond the level of her previous earnings purely as a result of her employment and (in contrast to Foster) without any contribution, either domestic or business, from the husband. Both cases involved short marriages. An additional factor in the present case, not present in Miller, was that the couple both worked throughout the marriage, save for the final year, so that any difference between their respective contributions to the welfare of the family in the home front would have been much less distinct than that in Miller.

The distinction between the treatment of short marriages in paragraph 152 and the (obiter) discussion about dual career marriages in paragraph 153 in Miller had been recognised by this court in Charman at paragraph 83 and that distinction was carried forward in paragraphs 85 and 86. At paragraph 85 the court addressed the issue of short marriages and accepted the majority view expressed by Baroness Hale at paragraph 152 of Miller, while at paragraph 86 they addressed the obiter example of dual career marriages. It was clearly unnecessary for them to do so, because Charman was not a dual career marriage. What was said at paragraph 86 was therefore obiter comment on Baroness Hale’s obiter comment on dual career marriages. The court appeared to have been concerned that recognition of unilateral assets as falling outside the sharing principle in a long (or more than short) marriage could well produce an unfair result. For that reason, they wanted the notion of different treatment of unilateral assets in such marriages to be “closely confined”. That issue, which did not arise on the facts of the present case, remained a matter for debate on another day. On that analysis of the key passages in the judgment in Charman, there was no impediment, in terms of possible conflict, for this court now to contemplate a departure from the equal sharing principle in the case of a dual career marriage which was short, and where the couple had kept their finances separate.

If the husband’s submission that, following Charman, the profession and judges at first instance had read Charman as requiring the courts to apply the equal sharing principle to unilateral assets even in a short marriage case (assuming needs are met) was right, that approach was plainly contrary to the decision in Miller and was not justified by anything that was said in Charman.

It had not been open to the judge below to hold that, save where parties expressly chose to opt out (or attempt to do so) of the sharing concept to which couples subscribed when they marry by making a pre-nuptial agreement, the speeches of Baroness Hale and Lord Mance, in so far as they contemplated unilateral finances in a short marriage, dual career, case, were not consistent with the principles developed since the decision in White. The obiter observations of the Court of Appeal in Charman at paragraph 86, expressing a preference for the lone opinion of Lord Nicholls, should not have been taken as a determinative statement of the law. There was no ground in the judgment in Charman for holding that any exception was to be confined only to those cases where the parties had established a formal pre-nuptial agreement. It was plain from counsel’s description of the path taken by the profession and the family courts post-Charman, that Sir Peter Singer’s analysis in the present case was on all fours with that approach and, as such, was in no manner to be singled out for bespoke criticism. On the contrary, the judgment demonstrated a careful, considered and wise application of that very approach. Even on the basis of the tentative foresight offered in Charman as to a movement towards more frequent reliance upon the distribution of finances in accordance with the apparent agreement of the parties, the judge’s holding that the sharing principle must apply unless the parties have entered into a pre-nuptial agreement was unsustainable and not supported by any authority. It followed that the finding at paragraph 50 that the conduct of the parties in relation to separate finances fell short of supporting a finding akin to a pre-nuptial agreement must fall away as no longer being relevant. On the facts of this case, the manner in which the couple arranged their finances was more than sufficient to establish that the wife maintained her capital separately in a manner compatible with that described by Baroness Hale in Miller.

This case was, therefore, one of the ‘very small number of cases’ (Baroness Hale, para 152) where the factors that the court had identified justified departure from the equal sharing principle. The combination of potentially relevant factors (short marriage, no children, dual incomes and separate finances) was sufficient to justify a departure from the equal sharing principle in order to achieve overall fairness between these parties. As the award given to Mrs Miller showed, the factors in play in this regard were not to be taken as water-tight, black and white, elements when the overall task was to achieve a fair outcome. In calculating the husband’s award, and in view of the fact that the wife’s liquid capital was not to be treated as part of the matrimonial assets for equal sharing, it was not appropriate to take account of the husband’s concession regarding the first property, purchased prior to the marriage. Both properties were matrimonial homes and, as such, properly fell to be divided equally between the parties. In addition to retaining one half of the capital value of the two properties (£1.3M), the husband should receive an additional award to reflect a combination of the following three factors: (a) the standard of living enjoyed during the marriage; (b) the need for a modest capital fund in order to live in the property that he was to retain; and (c) some share in the assets held by the wife. The court would assess the value of that additional award in this case at £700,000 making a total award of £2M, made up of the first matrimonial home which was to be transferred to him (value £1.1M) plus a lump sum payment of £900,000.