UK: For Richer And For Poorer-Marriage: A Costly Exercise

Last Updated: 26 June 2008
Article by James Carroll

Originally Published In IBA´s Young Lawyers´ Committee Newsletter, September 2007

Thinking of marrying? Think again, or at least think (and plan) carefully. It's not only the wedding itself that can be one of life's most costly events, but rather the divorce that may follow. The financial impact of a decision to marry (or indeed to divorce) is often far greater on those who categorise themselves as (or ever likely to be) high net worth'. This is particularly so with regard to those whose lives have the added complexity of crossing international borders. As a lawyer, and one whose practice is, by virtue of your membership of the International Bar Association, likely to encompass some international' element this at risk' category may well include you.

The decision to say 'I do' should not to be taken lightly. This not only applies to the question asked at the altar, but also to the questions asked in the boardroom. To say 'I do' to the offer of a new foreign position or posting could radically change your status and how you and your partner could expect to be treated if your relationship subsequently falters. Equally, the effect of an international relocation on your partner, and their career, could again be fundamental to any later decision as to what should happen in the event that the relationship goes awry. To put it succinctly; the success of your career could be your greatest threat to financial security in the event that your relationship breaks down.

UK developments

The UK has in the last decade seen fundamental changes to the application of financial remedies and awards available on divorce. As recently as the late 1990s, in cases where assets and income exceeded needs, the financially weaker party could at most expect to receive sufficient assets to meet their reasonable needs' and the remaining surplus was to be retained by the financially stronger party (most commonly, although not exclusively, the husband). This resulted in a number of decisions in which the seemingly vast wealth of a married couple was distributed not only unequally, but most would consider, unfairly. While not an insubstantial sum, Mrs Terrance Conran is unlikely to have felt sufficiently valued when awarded the sum of £10.5 million from the family's £80 million fortune following a marriage spanning some 30 years with three children.

Things have now fundamentally altered. This process started from the perceived unfairness levied to a farming wife, and business partner in the farm, Mr White, who while not of insubstantial means, was certainly not ultra high net worth. Somewhat surprisingly given the far-reaching social and economic consequences of matrimonial legislation, the case of Mr and Mrs White was the first since the introduction in 1973 of the Act governing this area of law, to be heard by the highest appellant court in England, the House of Lords.

Divorce landscape transformed

Change had come at last. Rather than the hitherto-applied reasonable needs' test, the House of Lords introduced the concept of applying the yardstick of equality'. This means that all decisions of the court following the exercise of its discretion and the application of certain statutory criteria is measured against the outcome had the court divided the assets equally between the parties. Equality is not a strict equal division however. While somewhat convoluted, complex and open to interpretation, what is clear is that the result of this is a greater move towards sharing of property and the financial profits generated by or during the subsistence of the marriage, regardless of whether the contribution to the marriage is financial or otherwise.

The impact of this has transformed the divorce landscape in the England and Wales, and has resulted in a proliferation of litigation as to how the yardstick of equality' should be applied to any particular circumstances. Mrs McFarlane, for example, successfully proposed to the House of Lords that she should be entitled to a share in the surplus income generated by her husband given that she had, by agreement, abandoned her successful career as a City lawyer to devote herself to her family full-time. She argued that by doing so it was appropriate that Mr McFarlane continued to share with her the profits of their joint labours. It is notable however that even then the income awarded to Mrs McFarlane of £250.000 per annum for life was far from an equal share of the £750,000 per annum generated by Mr McFarlane.

These decisions are not restricted to those whose marriages are of substantial duration. Mr Miller, for example, a fund manager, was sufficiently aggrieved to (unsuccessfully) appeal to the House of Lords on the basis of an award of £5million to Mrs Miller for a childless marriage of less than three years' duration.

Neither is it sufficient to try to remove monies offshore or sever your ties with England and Wales. Mr Charman, for example, a multi-millionaire insurance magnet and a tax exile based in Bermuda, has recently been ordered to pay to his long-standing wife £48million of the family's wealth estimated at approximately £130 million. Mr Charman is particularly aggrieved by what he considers the injustice of this given that a large part of the family wealth, which he generated, is held in an offshore trust based in Bermuda. Mr Charman considered that the £20 million that he had previously offered to Mrs Charman was more than anyone would ever need. As such, he (as many others before him) is now attempting to appeal to the House of Lords, although the general consensus is that he (as many others before him) is unlikely to be successful.

Future developments?

So where does that leave us? Unsurprisingly, the views on the developments outlined above depend on who one represents. They are either considered progressive, fair and justifiable (if asking the financial weaker party who benefits from them, or alternatively, as unfair, extreme and excessive (if ones asks the paying party).

It also means that in the space of a few years, London has gained the reputation (to apply a gender bias) of being the wives' court', to be avoided if you wish to protect your assets - and to be hankered after if you wish to secure a generous settlement. This in turn has led to further proliferation of litigation on an international scale. The task of any matrimonial lawyer faced with a client who may have only just made the decision to terminate their marriage may involve at the outset currying' around the world to ascertain in what jurisdictions can proceedings be issued, and more pertinently and urgently, what jurisdiction is most financially appealing for your client. The situation is almost farcical. The central London courts have taken to time stamping' divorce petitions as it may be possible to secure jurisdiction (and hence potentially many millions) on the basis of being first in time by a few seconds.

This situation results from that fact that there is no universal consensus as to what is a fair financial outcome on divorce. It may be that a simple move from one US state to another renders the pre-nuptial agreement you entered into void, that a move across the border from the England or Wales to Scotland could mean that you forgo your entitlement or obligation to pay alimony on a long-term basis, or that a relocation from London to Canada would result in the court applying a formulaic rather than discretionary assessment to any award.

It is unlikely that these fundamental consequences are considered when entertaining such moves. However, it is not unknown for an unscrupulous party to engineer, in advance of a separation a move to a particular jurisdiction in order to secure or prevent a more favourable award when proceedings are initiated. Indeed, even in situations where one country applies the law of another country most relevant to the parties before it (known as applicable law'), this does not prevent litigation from ensuing. A recent case before the Court of Appeal in London heard that Mr and Mrs Moore had spent a combined sum of £1.5million on legal fees out of a pot of £135million, arguing whether their divorce should proceed in London (applying English law) or Spain (which, given that applicable law is used, would also apply English law). The obvious inference is that both parties considered that even in circumstances where the same law was to be applied, they could secure a more or less generous outcome due to the leanings of the particular court seised. It is not uncommon (at least in the courts of England and Wales) to incur legal costs of several hundred thousand to determine the appropriate financial award on divorce. However, it is clear that while the current state of international flux prevails, it may be worthwhile even spending several hundred thousands of pounds or even millions in determining the preliminary issue of jurisdiction. It is a peculiar state of affairs when such costs are proportionate to the potential outcomes depending upon which party you are representing and which jurisdiction you are seeking to invoke.

Non-marital relationships

The situation is even more uncertain when considering the law in relation to non-marital relationships. These may take the guise of the traditional cohabiting couple who opt not to, or are unable to marry, or various forms of civil union presented as an alternative to marriage. In the latter category, these are most commonly specific legal institutions created to allow same-sex couples to obtain rights and responsibilities as a result of their relationship. Whilst the law on an international playing field is incoherent in relation to marriage, it is in a state of chaos when considering alternative family arrangements. Ms Wilkinson and Ms Kitzinger, for example, are a Canadian same-sex married couple. On their move to the UK, and despite a challenge to the UK government through the UK courts, they are no longer considered to be married but rather automatically adopted the legal status of being civil partners (the UK form of civil union akin - but not identical - to marriage, open only to same-sex couples). This is not what they intended when the married under Canadian law. Not only is there no international norm on whether same-sex couples are afforded any rights, even in the countries which have regulated for such there is no consensus as to what a civil union' is, and what the consequences of the breakdown of the relationship are. Whilst it has taken centuries to create and build legal precedent for marriage and divorce, formal legal alternatives to marriage are at most a little over a decade old, and we are just beginning to see the ramifications of such.

The situation is just as uncertain for couples who choose not to enter into a legally recognised relationship. In one country, the relationship may not be recognised at all, in others the rights and responsibilities may depend upon the application of archaic notions of property law, and yet in others it may be that rights can be gained or lost automatically depending on the length or a relationship and whether or not parties have opted in or opted out to the legal protection afforded to them.

It is unlikely that this situation will change for the foreseeable future. While there are calls to harmonise international family law, this is a nigh on impossible task. This has yet to be achieved in the US where family law is by and large applied on a state by state basis. It has also not been achieved in the EU despite considerable efforts in this regard under the Convention know as Brussels II Bis. Therefore, it is unrealistic to expect that at any reasonable point in the future there will be any degree of certainly prevailing on an international scale.

Self-regulation alternatives?

Interestingly, as international family law has many varied and uncertain outcomes, people are increasingly endeavouring to determinate and regulate such matters for themselves. This has taken the form of self-regulation at the outset of the relationship by parties entering into various forms of legal agreements (be they pre-nuptial, pre-consortial or proprietorial) to specify what they intend to happen in the event of relationship breakdown. Alternatively, in the event that the relationship does breakdown, people are increasingly shunning the courts and the costly uncertainties that they offer and opting instead to pursue a compromise in a non-adversarial format. In fact, one of the few areas of international family law that has some degree of consistent approach and application is that of alternative dispute resolution.

The upshot of this is that there is no consensus at all to the legal ramifications of a particular type of relationship. It is essential therefore to understand how the law applies to your situation and how any proposed change in your personal circumstances would impact on you and your rights and obligations; lest you find yourself in an unintended position that could have far-reaching legal and financial consequences.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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