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When cash cows come home

Last week, we looked at the decision in the divorce case T v T and highlighted the way in which this case confirmed the almost universally held practice among divorce lawyers and judges in the UK for the financial settlement to be based on attempting to answer the (financially) disadvantaged needs rather than compensating them for the value of any benefits they lose the chance of acquiring on getting divorced.

But then along comes a divorce case in the name of White v White. The initial decision, by a district judge, was twice appealed until it finally reached the House of Lords.

This case, decided in the Lords on October 26, has caused a shift in the viewpoint of some legal experts. As noted last week, it had stea dily become the norm that an individual&#39s pension rights are only likely to be attacked if the court considers that the spouse is likely to be in need of continued financial support from the pension scheme member after retirement.

The salient points of the White v White case

Martin White and Pamela White had married in 1961, aged 26 and 24, and had two children, now aged 29 and 30. The marriage broke down in 1994 and the decree nisi was awarded in December 1995. Throughout the marriage, they had run a successful dairy farm business, both having come from farming families.

They originally contributed in cash or kind about £2,000 each and a year after marriage purchased another farm for which they had to borrow £21,000 on mortgage, with Mr White&#39s father granting them an interest-free loan of £11,000 plus £3,000 for working capital.

They owned the land and the business jointly and in 1974 the father released his loan. In 1996, that business was worth £3.5m. The couple also farmed another farm which Mr White&#39s father had bought in 1971 and later gifted to his three sons equ ally, so Mrs White did not have a share of that business and Mr White&#39s share was worth £1.25m.

In the original divorce settlement judgment, Mr Justice Holman decided that Mrs White reasonably required £980,000 and that, by keeping her sole assets, she would only need to have £800,000 paid to her by her former husband.

The judge&#39s reasoning was that neither of the couple could earn outside farming. Although Mrs White wanted to have sufficient capital to buy her own farm, this was not reasonable in that it would have necessitated breaking up the existing business, so he decided in relation to needs rather than desires. Mrs White appealed. Her argument was founded on the grounds of compensation (broa dly, section 25(2)(h) of MCA73) as well as the suggestion that she needed more money to maintain the lifestyle to which she had become accustomed (subsections (a) and (b), prim arily), and start up her own business.

The Court of Appeal took into account the contributions made by the two partners and aimed more for fairness and Mrs White&#39s contribution to the family as also a wife and mother and thus increased her payment from the original £800,000 to £1.5m.

Mr White appealed to the Lords for restoration of Mr Justice Holman&#39s original settlement and Mrs White cross-appealed, seeking half of the total assets.

Now, few people would suggest that the income from £1.5m could not be enough to satisfy her (financial) needs and Mrs White&#39s appeal could only hope to succeed on the claim of compensation. The fact that she has already succeeded in more or less doubling her award so far, under appeal, has attracted tremendous attention to her ultimate right of appeal to the Lords, and there was always the possibility that she might lose some or all the gain made at the earlier appeal.

The Lords found against Mr White in that it did not reverse the Court of Appeal settlement but neither did it increase Mrs White&#39s compensation to more than the £1.5m awarded to her in the appeal court.

Analysing the judgment

The House of Lords agreed that the available assets exceeded by a comfortable margin the amounts required by either of the couple for their financial needs in terms of provision of a home and income.

It also noted the equality of the contributions by each of them during their years of marriage and also noted that without the initial loan from Mr White&#39s father they would not have been able to acquire the farm in the first place.

The view was taken that, alth ough there is wide discretion gran ted under the provisions of section 25 of the MCA 1973, before a judge took any decision which meant that one party rec eived a bigger share than the other, he would be well advised to check that view against the yardstick of equal shares.

As a general guide, equality should be dep arted from only if and to the extent that there are good reasons for doing so. The Lords also considered the joint efforts by the couple, his directly in the business and hers indirectly in the home, and asked why should the wife be expected to be restricted to the court&#39s assessment of her reasonable requirements and the husband left with a much bigger share? In cases where the assets exceeded the financial needs of both, why should the surplus belong solely to the husband? The Lords advised that there could be good reasons why this might be so but absence of a financial reason for money was not such a reason. It considered that if this was the case, then it was indirect discrimination as the claimant spouse was usually the wife.

The Lords considered that the case in question was an excellent casebook example of the unsatisfactory results that can arise from the “reasonable requirements” viewpoint taken by Justice Holman.

This decision means that Mrs White was confined to just her financial needs while Mr White kept the rest of the resources. The Lords considered that the initial cash contribution made by Mr White&#39s father many years earlier had little weight to the argument. It therefore decided that Justice Holman was incorrect in his viewpoint and that the Court of Appeal had every right to make a decision based on fairness.

Conclusions?

So, where does this recent case leave us? The earlier case of T v T was, as we said, decided solely on the basis of needs and the amount of award delayed because these needs could not be calculated sufficiently accurately many years before retirement.

What seems to now be clear is that the initial approach might well now be to think in terms of a 50/50 split on the basis of compensation and then debate upon why that would not be appropriate rather than what had started to become the norm of making “needs” the starting and end point.

Much will still therefore depend on the way in which a claim is presented and defended and the judge&#39s attitude to other circumstances surrounding the case, including the level of other available capital and income. One certainty, though, is that if no claim is made in relation to pension rights, then neither will an award be made.

Next week, we conclude this series of articles on pension rights in divorce settlements by discussing how, in summary, a pension adviser can add tremendous value to the progress of negotiations, part icularly when instructed by a solicitor for either spouse.

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