News

Bringing equality into Sharp contrast

Fri 11th Aug 2017

The recent decision of the Court of Appeal in Sharp v Sharp [2017] EWCA 408 has highlighted that the move toward a blanket presumption of equality is not the correct one. This has baffled some practitioners, who thought the law was straight forward when it came to resources acquired during the relationship. The decision sets out why, in certain circumstances, the concretised approach of equality does not achieve fairness. To understand why, requires a detailed analysis of the case and judgment.

The facts and first instance decision:

The case concerned a couple in their early 40s, whose childless relationship had lasted 6 years. This was a dual-career marriage, with the husband working in IT and the wife working as a city trader. Their respective careers were well established when they met. Each earned around £100,000 per year by way of salary but the wife also received annual bonuses, which during the course of the relationship amounted to around £10.5million. By habit rather than by design the parties had kept their finances separate from one another; each keeping their individual bank accounts from before the marriage but paying equally toward their household expenses or social costs. The husband was aware of the wife’s bonuses but not their quantum.

The wife had purchased the parties’ first home for £1.02million with pre-marital monies. Their second home purchased for £2million was also paid for by the wife. Both properties had been placed in the parties’ joint names.

The assets at the time of the decision at first instance totalled £6.9million; being £1.067million and £1.455million in the properties, £4.171million in the wife’s bank accounts and the balance of £207,000 in other assets.

The husband conceded that the first property was funded from non-matrimonial money before the marriage and therefore should be treated as non-matrimonial along with certain other items but argued that the matrimonial ‘pot’ amounted to £5.45million, including the monies retained by the wife from her bonuses.

At first instance, Sir Peter Singer rejected the argument that the couple maintained financial segregation during the marriage and concluded that there “should not be an inroad into the sharing concept to which the parties in effect subscribe when they marry unless they choose to opt out (or attempt to do so) with a pre-nuptial agreement.” The judge applied the husband’s concession as to non-matrimonial property and awarded him £2.725million, being an equal share of the remaining assets.

The respective arguments

The wife appealed. Her case was that a short, dual career, childless marriage, as found in that of Mr. & Mrs. Miller in Miller; McFarlane [2006] UKHL 24, required a different approach from simple equal division and that the parties had structured their finances in such a way to justify a relaxation of the sharing principle so that the court should apply the doctrine of separate property. The husband’s response was that a short marriage is no less a partnership of equals than a long marriage. Therefore, save for instances of special contribution, which this was not, or truly non-matrimonial assets as had been conceded by him, all assets are to be divided equally irrespective of the length of the marriage or the manner in which the spouses conducted their financial life, unless there was a formal pre-nuptial agreement.

The decision

McFarlane LJ gave the lead judgment. He commenced his discussion on the principles to be applied by making the important observation at paragraphs 74 & 75 that if the decisions in Miller; McFarlane and Charman v Charman (No4) [2007] EWCA Civ 503 “have to a great extent limited the potential for, and relevance of, parties fighting cases in this manner, and have increased the predictability of outcome and, therefore, the potential for early settlement, that is to be welcomed.” Further that the decision in Sharp was not “intended in any manner to unsettle the clear understanding that has been reached post-White on the approach that is to be taken to the vast majority of cases. The focus of the present appeal, which is very narrow, is upon whether there is a fringe of cases that may lie outside the equal sharing principle.”

McFarlane LJ explained that the difficulties in the case of a short, childless marriage such as this arose from the judge and the profession as a whole following and distilling the obiter preference expressed in Charman for the views of Lord Nicholls in the Miller case. Lord Nicholls should not be taken to have meant that a 50/50 result applies to all assets generated during the marriage without exception; to do so would be a very significant and wholly unjustified development.

The husband’s case failed to acknowledge that Mrs. Miller had received substantially less than half the assets accrued during the marriage and that none of the judgments in the case, including that of Lord Nicholls, had gone as far as the husband was now trying to assert. There is no presumption of equality, so that in some cases, fairness requires unequal shares. Where there was disagreement between Lord Nicholls and the majority in the House of Lords, clearly the majority view had to be followed. In that respect, the distinction to be drawn is that whilst Lord Nicholls defined matrimonial property as all property acquired during the marriage, the majority had defined it as assets generated by the joint efforts of the parties. In a dual career marriage, which was one obiter example cited by Baroness Hale in Miller; McFarlane, where assets have been pooled for the family benefit they will be matrimonial and subject to the principle of sharing but where they have been kept separate and are surplus to needs they should not automatically be shared.

In the Sharp case, the wife received bonuses way beyond the level of her previous earnings purely as a result of her employment that had lasted for the past 20 years and without any contribution, either domestic or business, from her husband. It was a short marriage and, unlike in the Miller case, both parties worked, so that the distinction in the domestic contribution each made would be less than it was in Miller.

Therefore, as a consequence of the duration of the marriage, to which the court should have regard under section 25, the dual career of the parties and where surplus assets had been kept and remained separate by the wife, the outcome should not be one of an equal sharing of the assets. The husband’s submission that, following Charman, the profession and judges at first instance have read Charman as requiring the courts to apply the equal sharing principle to unilateral assets even in a short marriage case (assuming needs are met), is plainly contrary to the decision in Miller and is not justified by anything that was said in Charman.

It follows that the argument that any assets accrued during the marriage should be shared equally in the absence of a pre/post-nuptial agreement is unsustainable and not supported by authority.

The award was therefore reduced to £2million on the basis that the concession made by the husband that the first property was not matrimonial was rejected. The property had been held in the parties’ joint names and lived in as their family home for five of the six years. This property, in addition to the second jointly held family home, came from the wife’s resources but was pooled for the benefit of the family; both were therefore matrimonial and shared equally. Half of the properties amounted to £1.3million; McFarlane LJ also enhanced the award to reflect (a) the standard of living enjoyed during the marriage; (b) the need for a modest capital fund in order to live in the property that he is to retain; and (c) some share in the assets held by the wife. This illustrates, as in Miller, that the factors that are in play are not to be taken as water-tight, black and white elements when the overall task is to achieve a fair outcome.

Comment

The decision shows that the specific circumstances of the marriage and how the parties acted within it can have sufficient bearing to impact on the more usual approach of sharing assets generated within the course of the marriage. However, the final award also highlights that the court will still exercise its discretion when considering the outcome, where a strict application of sharing does not provide fairness. It therefore shows that the desire to find a simple ‘one-answer fits all’ solution to cases, whilst understandable is not how decisions should be made or cases run. Where need is not the determining feature and where the facts of the case allow it, a departure from equality can still arise.

Robert Cole: Head of the Family Team

 

 

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