Marilyn writes: Among non-lawyers, there prevails a belief that marital assets are simply divided 50:50 in a divorce. However it is a mistake to assume that this is always the case. As Paul Read, a solicitor based in our London office explains, when the assets include a business, the final outcome can be rather different.
As family lawyers we have developed a White v White reflex action. It takes the form of a certain legal response to cases involving long marriages, brought about by the landmark case of White v White [2000].
This case changed the way surplus assets are divided upon the breakdown of a marriage after both parties needs have been met. It also gave us a great soundbite from Lord Nicholls:
“There is no place for discrimination between husband and wife and their respective roles.”
In practice, what this means is that there can be no distinction between a breadwinner and a homemaker when dividing up the couple’s assets. The parties are entitled to equal treatment. For long marriages, this has led to a general assumption that in most cases the assets will be divided equally. Cross-checked against the parties’ needs, a default starting point of 50:50 in more straightforward cases has evolved and seems eminently sensible.
However there are still a number of reasons why assets may not be divided equally after a marriage of, say, 25 years. A deviation from the principle of equality requires a reason such as stellar contribution, where one party has generated a vast fortune from his or her own unique skills and endeavours. A case in point would be Charman v Charman: the couple’s assets were assessed at £131 million. Mr Charman, a successful businessman, was ordered to pay his homemaker wife less than half of that (£48 million), because the court accepted that he had made a stellar contribution to the household finances.
Another common example would be where one party owned an asset before the marriage and that asset had never become mingled with the family finances. An inheritance, perhaps, which had remained in the sole hands of its recipient. In such circumstances, the party with the financial advantage would seek to retain more than 50 per cent of the assets and it is likely that if the other party’s needs have otherwise been met, there would be an unequal division. Few would argue with that.
These examples do remain very much the exception in long marriage cases, and 50:50 remains the division ratio of choice. But beware! If a business is involved, things may also not be as they first appear. This is particularly true if there is little prospect of a clean break, and there is going be continuing maintenance.
The fictional case of Frames v Frames
Take the fictional example of Mr Frames. Mr Frames is an optician, He has been married to Mrs Frames for 25 years. The couple decide to separate. They have a house, and a small cottage in Devon which they use at weekends. They also own a rental property, and a pension each.
Mr Frames is a partner in Frames & Co, which rents an area in a local shopping mall and also has an online presence. Mr Frames is 50 and earns around £80,000 net per year from his practice. Mrs Frames is 45 and earns around £14,000 net as a part time book-keeper.
Mrs Frames will require ongoing spousal maintenance. This is because her share of the assets will be enough to rehouse her, but it will not be enough to meet her income needs for the rest of her life or until she remarries. She estimates she will need a net sum of about £30,000-£35,000 per annum to live on. So she is hoping for about £15,000-£20,000 per annum from Mr Frames.
The couple’s assets are as follows:
- Matrimonial Home: £500,000
- Cottage in Devon: £250,000
- Rental Property: £150,000
- Mr Frames’ Pension: £50,000
- Mrs Frames’ Pension: £50,000
- Interest in Business: £250,000
- Total: £1,250,000
On a first brush it is easy to assume that the assets will be divided equally. Surely that would be a sensible starting point? Such a division would provide £625,000 each, and there could be an arrangement to pay £17,000 to Mrs Frames, who would promise to look for full-time work and a review in the future.
As with many things, however, the devil is in the detail. Upon further investigation it is shown that Frames & Co has no assets, owns no property and has no director’s loan to return. The business is a cash-generating entity and the only capital value that can be attributed to it is a valuation based on goodwill or some ratio of turnover. But it is still worth this valuation, isn’t it? Well, perhaps in a strict commercial sense… But should it be included in the assets which stand to be divided between Mr and Mrs Frames? No. It is likely that Mrs Frames will obtain no interest whatsoever in the business of Frames & Co.
The real-life case of V v V
In 2005, Mr Justice Coleridge delivered the judgment in the case of V v V (Financial Relief) 2005 2 FLR 697. By coincidence the husband in this case was an optician, and in similar circumstances to our fictional Mr Frames. The case was heard on appeal from the local county court. Mr Justice Coleridge had to deal with the capital value of the husband’s company, and the extent to which a capital sum representing the company’s value would be included in the capital division. The wife contended for its inclusion into the asset schedule.
Mr Justice Coleridge first considered the basis of the company’s valuation. He concluded that for the purpose of these proceedings, it had no value save for its use as a vehicle to produce income.
He considered that the wife would receive maintenance from the husband and that the husband would obtain the money to pay this maintenance from the company, or at least in part from the company.
Mr Justice Coleridge then said (emphasis mine):
“There can of course be no hard and fast rule in relation to the extent to which the capital value of businesses are or are not brought into account but where (as here) there is no real value except as an income stream, to include it in circumstances where there is no suggestion that there should be a clean break, runs the serious risk, in my judgment, of double-counting. I consider that the proper approach in a case of this kind is for the court to treat such business assets as primarily a secure income of the parties, from which there has to be a substantive and unlimited order for periodical payments.”
The “golden goose”
In the fictional case of Frames v Frames then, it appears that the business will remain with Mr Frames in its entirety. No account will be taken of its capital value, because Mrs Frames will continue to participate in its profits via her maintenance.
At first sight this may seem to be at odds with the principles of equality as pronounced in White v White. However the wife continues to benefit from the asset – but through income rather than capital. As a matter of pure logic, it is faultless.
I am interested to note that between White v White and V v V came a case called N v N in 2001, in which the self-same Mr Justice Coleridge ordered that the business should be sold. He stated:
“Those old taboos against selling the goose that lays the golden egg have been laid to rest…”
Clearly, this is not quite the case. The circumstances of our case do not require a sale of the goose, rather its preservation.
In practical terms the effect of V v V is clearly significant for anyone who, unwittingly, may believe that asset division is a matter of simple mathematics and dividing by two.
So in the case of Frames v Frames, Mrs Frames will not retain £625,000. Instead, Mrs Frames will retain £500,000 and Mr Frames will retain £750,000.
If she chooses, it is possible that Mrs Frames could negotiate for more capital, at which point the capital value of the business would be relevant. She would accept a clean break in return. She could also decide to increase her own earned income to support herself, freeing her from the threat of having her spousal support reduced if she cohabits or stopped automatically if she remarries.
Either way, Mr Frames has dramatically increased his own financial position.
Parties should be given an opportunity to present their cases, and should walk away with what they entered the relationship or marriage with.
That is the only system that treats men and women equitably and with equal respect, and does not rest on the sexist assumptions and gender discrimination.
The idea that one party should be blackmailed and have to fund the other for the rest of their time on the planet is ridiculous and criminal in the 21st century, and just promotes the unethical marriage-for-money attitude that prevails in our time (which of course is the perfect recipe for unhappiness and divorce)
No wonder the lawyers are so in love with the status quo and alimony and maintenance – all the things that are designed to keep women at home and men at work.
I totally agree, there should now be a push to completely overhaul the whole family law system. Its way too complex and so open to different interpretations.
Unfortunately the law makers have a vested interest in keeping things complex.
My response to Observer is:
What’s the point in allowing a party to present their case if you suggest the outcome should be they “walk away with what they entered the relationship or marriage with”. When assets grow the way they are to be divided on divorce is not straightforward. Every case has some unique factor, however small and each case therefore should be examined for the most appropariate solution.
I have no response to Steve, who determines the current system to be wrong and yet, other than suggesting it is simplified, offers nothing.
Paul’s suggestion that sometimes, a solution other than a 50:50 split of assets, where a business is involved is determined is of course, true. However, it’s not always a 45:55, or 40:60 split in the business ‘owner’s’ favour. I read with interest the very recent case of
R v R [2012] EWHC 2390 (Fam)
Here, the combined assets of £7million were divided so that the wife took c 58% of all assets, even though the husband had the majority shareholding in the family business – the main asset in this case.
Often the complication perceived by outsiders is down to the lack of clarity shown by one or both parties. Full and frank disclosure is not always given. All the Court really needs to make a judgement is to have all the facts. Those spouses who feel in sharing the family wealth on divorce, that they are losing what they have earned during the marriage, fail to value the non-financial contributions the other party will usually have made.
Presumably, the parties entered into the marriage as a partnership – odd how the creation of wealth, predominantly by one or other party, diminishes that partnership to nothing short of lip service.
I was advocate for Mrs V in the ‘frames’ case (and settled her notice of appeal). Your readers may also like to know that two of the bases for running the appeal were (a) to increase her periodical payments to a level nearer to the 50:50in White (she got 40% of joint income); and (b) to override the DJs order for immediate sale of the FMH. Coleridge J agreed that this was not permitted by MCA 1973 s 24A(1) – there must be time to sell. An order for sale cannot be free-standing but only contingent on other orders. Beware the present Mostyn J ‘mandatory’ drafts on this point: at present they are wrong.
The simplest of all would be to divide everything 50:50 where possible????? It seems everything is equal during marriage, however when separartion or divorce occurs very rarely is it 50:50…….Im sure there is a vested interest with the lawmakers in not going for equality
The yardstick of equality should indeed apply to all cases, but only if there is no pre-nup; if there is it should be conclusive. Ald Calderbank offering should be allowed.
In all cases subject to postponement to avoid hardship to minor children of both parties (not step-children) while they are minors – once they are of full age, that should be it.
This would put most family lawyers – and I used to be one – out of business; and so it should.
at my recent FDR the master stated that as myself and my husband had separate finances during our 19 year marriage (except joint account for mortgage, utility bills, food etc) then that would be how he sees division of savings on divorce. I was totally shocked and horrified. As i worked part time to facilitate raising our children, but contributed equally to the family bills, holidays etc, i was not able to make any savings. My husband on the other hand earns 4 times what i do, contributed equally to the family bills, so had lots of disposable income to save. this is grossly unfair, and i cannot take it to hearing as this is the masters FDR recommendations, so likely to be agreed on by the hearing judge. I feel totally screwed by both my husband (who has been busy hiding alot of his assets without any trace) and also by the legal system – whatever happened to the contribution by the wife to the family, child rearing etc being given equal consideration to financial contribution?
Dear L
The function of an FDR judge is to try and help the parties settle. The Judge is not giving an opinion on the merits of the case because he hasn’t heard it. He is suggesting how a case might settle.
The case will be decided principally on reasonable needs of the parties and all the factors of Section 25 Matrimonial Causes Act 1973 including the contributions financial and non financial of the parties.
If you haven’t yet had legal advice, this might be the time to take it.
Regards
Marilyn
Before we got married we both had a house, during the marriage we both sold our home to buy a family home where we have two small children. On buying the family home I invested £129,000 and my wife invested £65,000 then we got a mortgage for £65,000. After living in the house for just two years were getting divorced. As I put the majority of the money into the property can I expect a greater share as I’m also going for shared child responsibility of 50%?
Dear Marilyn,
I haven’t slept for 2 nights as my husband has just reneged on the consent order his solicitor drafted.
it was for a split of our assets (equity in house, savings and shares) of 67% in my favour.
the move from a 50/50 split due to our children living with me at a crucial time in their education, my salary being less than half his, me being out of the workplace for 10 years bringing up the children and enabling him to continue his career progression whilst mine has stopped, me not asking for spousal maintenance nor pension sharing. We are both 51 with a long marriage.
I have incurred expense and invested a huge amount of time in securing a mortgage on our home and was hoping this would all be finished after 18 months of negotiations, by September 1st. He states that I will have to stay in the house for the next 4 years whilst he pays the mortgage in lieu of child maintenance. The house is in his sole name, although i have a charge with Kand Registry. He states that the divorce will be postponed – we had the decree nisi in July 2014, with me divorcing him, at his behest, for unreasonable behaviour.
If I apply to court for closure on this nightmare will my offer be seen as reasonable do you think?
I am absolutely at my wits end.I am living in Limbo and our poor children are unsettled once again..
Many thanks if you are able to respond
In a nutshell, there is nothing to offer for my financial settlement to my stbx. All that there is, is the home where we lived which I had before I was married to my stbx and it was rented from a Company that I have a share in. There is no income as what we had was spent during the marriage and her mis-spending has debilitated me, and there is no pension, no savings, just what debt we both have in individual capacities. Will the Courts be able to make an Order to sell the Property even though I am not the only shareholder in it, for a divorce settlement? We both need a place to live and it would be more economical to sub-divide it and we both have leave to remain in a sub-divided house. There is a minor child which stays with her. The house is very large and can more than be made in two fair sized homes for both. I have been paying for the child since separation and will continue to do so. As the only asset is the home which is not mine wholly, what can the courts do?
I do not agree.
– Jerry
The law is totally unjust; a 50:50 in this scenario is TOTALLY unjust; Wife pre marriage on Income Support with 2 kids from a former partner. Husband before marriage has half the house paid by a mortgage and brings a sizeable lump sum with him when after marriage they move in together. The husband pays all the mrtgage payments and all the household bills. The husband helps bring up both her step children without a penny from CSA (as the former partner has gone to live in Germany) and then the couple have a child of their own. The wife then starts work (30 hours a week) and fails to contribute a penny to the Mortgage or Household bills. The husband is both emotionally and financially abused (withdrawals from the joint a/c whilst the wifes pay goes into her own untouchable bank account. The wife has an adulterous affair (the husband has been honourable and faithful throughout …mostly living off £20 per month. He puts another lump sum into the mortgage (from inheritance left solely to him) meanwhile the wife runs up a personal debt in her own name (shopping addiction) and lies about her personal indebtedness and of course the affair….then it comes to divorce where the wife seeks 50% of the property and 50% of her husbands pension – well Lord Nicholls (White v White) where do you see the justice in this ??? Time for another High Court case and a new precedant to be set I think – I am TOTALLY SICK OF BRITISH INJUSTICE!
I have been married for 10 years with two children 9 and 5, unfortunately my wife now feels she wants a separation. We live in a house worth approx £275000 with mortgage debt of approx £150000. ( I personally have invested all the capital into the family home £110,000 approx) I work full time with £900 per week net earnings and my wife works 10 hours per week and and earns £75 per week. I have pension funds with approx £380,000 transfer value. But I haven’t contributed into them for 7 years prior to getting married. I am 53 and would like this not to be affected, if possible, as I hope to exercise draw down and take an income from it in two years time. She is 41 and worked as a nursing assistant for nearly 20 years and not sure what the transfer value is?
She wants me to move out of the family home
Do you think I am likely to get 50% of the household equity, or do you think it’s likely she will get a lot more to try and keep mother and children in the marital home
Good morning and thanks for your message. We may be able to get you some advice from a solicitor. If you could let us know roughly which part of the country you live in, we will ask a solicitor from the nearest office to get in touch with some thoughts on your situation
Case law addressing the MCA S25(2) exceptions to a default White v White equal division is sadly lacking. This is particularly true in the provision of additional care and mobility needs for the old and disabled. It is all too tempting for a far younger wife to seek a divorce from a far older husband or a healthy spouse seeking a divorce from and equal division with a mentally disabled partner or heart attack victim – whose nursing, needs formerly undertaken by the spouse should be taken into account in the division under S25(2)(e). The actuarial argument that the younger or healthy spouse will live longer so deserves at least equality too often takes precedence in court over the additional burden of care, transport, therapies, and palliative needs of the older or disabled partner.