Financial Settlement On Divorce - House Of Lords Ruling

The House of Lords has recently clarified the law concerning (a) what the starting point should be for the division of assets on the break-up of a marriage and (b) the extent to which the conduct of the parties to a marriage can have any bearing on any financial settlement post-divorce.

In Miller v Miller & McFarlane v McFarlane [2006] 3 ALL ER 1, Lord Nicholls conceded that the conduct of the parties was a vexed issue in ancillary relief cases but said that in most cases “fairness did not require consideration of the parties conduct”.

In the Miller case, the marriage had failed because the husband had committed adultery. It had lasted less than three years and was childless. The House of Lords, however, allowed Mrs. Miller to retain the £5,000,000 awarded to her at first instance and confirmed by the Court of Appeal but not because of her husband’s conduct. Lord Nicholls in that case went as far as to say that the Court of Appeal had misdirected itself on the issue of conduct. In the case of Mrs. McFarlane, it reinstated her entitlement to periodical payments of £250,000 per annum until her re-marriage or a further Court Order.

The basic principle laid down by the House of Lords in the earlier case of White v White in 2000 was that a 50/50 share of assets on divorce should be the starting point.

The Miller case has refined this by saying that the most important consideration in deciding a fair share is not conduct but acquest i.e. how much a couple accumulates and how much their assets increase during the duration of the marriage. Once basic needs are met there should be a fair share of what has been built up over the course of the marriage.

The House of Lords said that non-marital assets such as inherited assets, assets provided as gifts or pre-marital assets are not necessarily subject to the basic principle of equal division.

In the light of these cases some commentators have predicted that couples bringing assets to a marriage may be more likely to give consideration to the making of a pre-nuptial agreement. There has only been one recent reported case i.e. K v K (Ancillary Relief: Pre-Nuptial Agreement) [2003] 1 FLR 120 in which a Court has held a party substantially to the terms of such an agreement. Historically pre-nuptial agreements have not been enforceable (see Hyman v Hyman [1929] AC 601 in which Lord Hailsham said that the parties to a marriage “cannot validly make an agreement either (i) not to invoke the jurisdiction of the Court or (ii) to control the powers of the Court when its jurisdiction is invoked.”)

However, whereas the Courts in the 1990s have indicated that there might come a time when such agreements could in particular circumstances be influential or even critical, (see for example the case of S v S (Divorce: Staying Proceedings 1997 2 FLR 100) such circumstances as the birth of children may be taken to invalidate the terms of such an agreement.

Overall therefore the status and potential effectiveness of such pre-nuptial agreements remains open to debate.