Stellar contributions in divorce settlements – time for a rethink?

The situation regarding asset division in divorce has been the same for nearly 15 years now, ever since the leading case in matrimonial finance, White-v-White, first made waves. In that, the House of Lords made it clear that where the reasonable needs of the parties have been met, the starting point for distribution of the surplus assets should be 50/50. All property is available to be shared in a divorce, and an award should thereafter be judged against “the yardstick of equality.” No distinction furthermore should be made between a homemaker and the breadwinner.

Their Lordships went on to state this did not mean an automatic 50/50 division in every case, as there would be cases in which that would be inappropriate, if a fair and just outcome is to be achieved. Thus ‘non-matrimonial’ assets, such as inheritances, gifts, pre-acquired property or property earned after the marriage is over, might be ring-fenced from equal division or in fact, from any division at all. Indeed, in the case of the White itself, the overall split was 60/40 in the husband’s favour. This recognised a substantial gift of capital by the husband’s family to the couple on the occasion of their marriage.

The sharing principle is still good law today – all property which belongs to both parties, whether it is matrimonial or non-matrimonial, is available for sharing in a divorce settlement in such proportions as the court considers just to produce a fair outcome. In many cases nowadays, in order to achieve such an outcome, the assets are indeed split 50/50, but in others the division is unequal because reasonable need requires more of the assets to be given to one party. In some cases a spouse can transfer all of his or her available capital, such as a half interest in a house to the other spouse, in order to meet the reasonable needs of the other spouse and children. He or she might be left with income and perhaps pension intact or that may be shared with the spouse too. Meeting reasonable needs can hit a poorer spouse hard, with little opportunity to rebuild their capital.

There are also a growing number of divorce cases involving larger sums where non-matrimonial assets are ring-fenced from division because reasonable needs can be met without recourse to those other assets. A family may understandably not want their hard-earned wealth, which may have been passed down the generations, to end up in the pocket of a divorced ex son- or daughter-in-law. And that seems fair enough – the principles laid out in White –v-White still hold good in such instances.

But there is another situation in which assets might not be divided equally, one which has nothing to do with meeting reasonable need and keeping a family properly housed or with the division of matrimonial versus non-matrimonial assets. It may in fact, come as a shock to some: and this is the “stellar contribution” argument which is available only to very few people indeed. If a party has made a contribution to the couple’s wealth which is “unmatched by the other,” it would be unfair, the argument goes, to ignore this and wrong to divide the assets equally in such cases – even if the money was all earned during the marriage and is therefore technically “matrimonial” wealth.

Again, I stress that it is not an easy argument to make. A millionaire worth £50 million is unlikely to succeed. A solicitor who has built up a substantial law firm in London (and no, I don’t mean me!) found out he could not use the argument either.

The Court of Appeal, in the 2001 case of Cowan-v-Cowan, posed this question: is there evidence that the spouse (usually the husband) was exercising some special skill and effort which is special only to him (or her)? And if so, was it ‘of such a quality or nature that his rights to the fruits of that inherent quality survive as a material consideration despite the partnership or pooling aspect of marriage’?

Or, in plain English, will the courts consider the enormous wealth earned by one party during the marriage to be a “stellar contribution” which is unmatched by their partner, and thus consider it right to depart from equal division of the assets? Having done so in the case of Sir Martin Sorrell, (where the split was 60/40), the Family Court did so again in the case of Charman-v-Charman, where the split was roughly 63/37 and again more recently in the billion dollar case of Cooper-Hohn-v-Hohn, where the split was in the same region, leaving all three husbands hugely wealthier than their spouses. And of course, all were able to rebuild the sums they paid out within a relatively short time. Compare and contrast to less wealthy millionaire husbands, who are forced to pay over half of their fortune or to even to less wealthy men who are of course, sometimes obliged to pay over far more than half. They are all left feeling the blow. But not the richest men of all.

Is this right?

So what principles apply to the determination of a stellar contribution? Perhaps objectively, it’s not too difficult to determine. But how is the “departure” from 50/50 calculated? That is far from easy, as Judges have acknowledged, but the principle which comes out from it is startling.

The judgment in the Hohn case was published last week. The Honourable Mrs Justice Roberts cited the 2006 divorce case known as Miller v Miller:

[89] There has been an interesting collateral discussion as to whether, if a party makes a special contribution by the generation of wealth, as a result of which the proportions of its division with the other party under the sharing principle will be unequal, the extent to which the proportions are unequal should depend upon the size of the wealth. The greater the wealth generated by one party, submits [counsel] Mr Singleton, the lower should be the proportion awarded to the other. [Counsel] Mr Pointer disagrees. He submits that in any event the principle will yield to the maker of the special contribution more than half of the wealth; that the greater the wealth, the greater will be the amount thus yielded; and that fairness requires no further adjustment in favour of its generator. In principle we agree with Mr Singleton. If such a contribution is special, it follows that it is unmatched; and the greater the wealth, the greater is the extent to which it is unmatched and to which it calls for an unmatched, or unequal, division under the sharing principle.

So, the vastly richer the husband, the more he can expect to keep?

The wife in the Hohn case, (also represented by Mr Pointer QC), argued that she had done everything in the marriage that she possibly could have done, in relation to running their charitable foundation until it became too large, as well as raising their family. What more would she have been expected to do? But that wasn’t the point. The court held that the husband’s contribution was so great, so unmatched, that it would be unfair for a 50/50 split as she sought. In fact, she could not even expect the 40 per cent of the assets that Sir Martin Sorrell paid his ex wife. The latter, incidentally, hosted a dinner at his New York home last week for the Duke and Duchess of Cambridge.

Sir Christopher Hohn argued instead for 25 per cent. And in her judgement, awarding what seems to be a pragmatic mid-point compromise between 25 per cent and 50 per cent, Mrs Justice Roberts justified a departure from equality on the basis of the husband’s significant post separation accrual (additional wealth earned), as well as his stellar contribution during the marriage.

Whilst this is all perhaps euphemistically termed “good law,” I would take issue with the basic principles of the ‘stellar’ contribution argument. I agree with Martin Pointer QC, Counsel for the wife, who argued the stellar contribution argument is outmoded. I would go further: it is distasteful and distressing for any wife who has put her all into a marriage for a court to find that her contributions did not in the end, equal her husband’s in monetary value. I believe it is inappropriate to make such a distinction in the 21^st Century, no matter the couple’s net worth or the total value of their matrimonial property. Yes, we are discussing very substantial sums, but we are going to see more of them in the future and shouldn’t shy away from making huge awards to wives based on the same principles we exercise for others.

I believe above all, that marriage in law should be recognised as a partnership of equals, irrespective of their parties’ individual characteristics and abilities. It is marriage which should have the greater value in the eyes of the law, not eye-watering sums of money.