MCJ v MAJ
| Jurisdiction | England & Wales |
| Judge | ROBERTS J |
| Judgment Date | 06 July 2016 |
| Neutral Citation | [2016] EWHC 1672 (Fam) |
| Court | Family Division |
Financial remedy – Sharing or needs – Pre-marital assets – Matrimonial acquest – Court’s approach where benchmark valuation of pre-marital property not possible – Mingling – Effect of using income generated by capital to sustain married life on court’s view of capital – Meeting income needs – Whether appropriate to award income-generating non-matrimonial asset or amortising fund – Duxbury paradox concerning age.
The husband applied for financial remedy orders following his second marriage; the relationship had lasted about 13 years. The disclosed assets were worth between £10.5 million and £11.6 million. A commercial portfolio of central London investment properties made up about 68 per cent of the husband’s assets; it was worth in the region of £7.3 million net and was essentially the same portfolio he had owned when the couple met. There were in addition two care homes, one now closed and the other sold, which the husband had owned before the marriage but which the wife had worked in and in which she had been given a shareholding. The former matrimonial home was worth about £790,000, with a net equity of about £500,000.
The husband argued that the wife should be limited to her needs and was not entitled to a share of his pre-marital wealth. The husband accepted that from time to time he had been obliged to use rental income generated by the property portfolio and the security in the land bank to prop up the care homes business, but nonetheless argued that the property portfolio had not become part of the marital assets. The wife’s claim was based on a full sharing entitlement. The husband had offered the wife a lump sum of £1 million, on the basis that she would transfer back to him her 2.38 per cent shareholding in the closed care home company, together with her interest in a Spanish property, but would retain the £500,000 she had already received in respect of her shareholding in the care home that had been sold. In respect of her housing the wife was seeking a specific portfolio property with a garden worth about £780,000, plus a lump sum of £200,000 for necessary works; she also sought a commercial property worth about £3.9 million producing a gross annual yield of £140,000, which had been purchased during the marriage in substitution for another property owned by the husband before the relationship began.
Issues for the court included the extent of the husband’s pre-marital wealth and how it should be treated, the nature and extent of the wife’s contribution to the care homes, and the standard of living during the marriage.
Held – (1) In appropriate cases (the vast majority), the court accepted and endorsed the stepped and intellectually rigorous approach to pre-marital property of (a) deciding whether the existence of pre-marital property should be reflected in outcome at all, depending upon the length of the marriage and the extent of any ‘mingling’ of funds; (b) deciding, if so, the extent of the pre-marital property to be excluded from the sharing principle; and (c) dividing equally the remaining (marital) property subject only to the cross-check of fairness and need (JL v SL (No 2) (Appeal: Non-Matrimonial Property)[2015] EWHC 360 (Fam) referred to). However, there were cases, such as the present one, where reliable accountancy evidence was not available to establish a reliable and historical benchmark in terms of crystallised value at a particular point in time. Applying AR v AR[2011] EWHC 2717 (Fam), the substantial wealth tied up in the husband’s portfolio was pre-marital property to which the wife had made no contribution. The application of income generated by a capital asset in order to sustain – in part – the domestic economy of a marriage (or, indeed to prop up a parallel but unrelated business venture) did not thereby change the fundamental nature of that capital asset. There might have been ‘churn’ in the underlying composition of the property portfolio but as an entity it had remained wholly external to this marriage. It stood in exactly the same position as a significant sum of money inherited by a party prior to the celebration of a marriage. If such inherited funds were invested and preserved throughout the marriage without any inroads being made into the underlying capital value, the use of interest generated in respect of those funds did not impugn the fundamental nature of the inheritance as non-matrimonial property. In all the circumstances, the wife’s maximum sharing claim was a 50 per cent interest in the care homes, to which she had made a very significant contribution; this interest equated to about £1,282,000 (see [56]–[57], [62], [90], [109], below).
(2) The commercial portfolio property the wife was asking for was undoubtedly non-matrimonial property, having been acquired in substitution for another commercial property owned by the husband before he met the wife; the wife had made no contribution towards the purchase price and had had no meaningful involvement with its management or operation. For this reason alone the transfer of the commercial property was not appropriate in circumstances where the husband accepted that he was in a position to raise a capital lump sum to meet the wife’s future income needs. Furthermore, a Duxbury fund was intended to provide the recipient with an amortised income-producing fund of capital, whereas, in seeking a transfer of this commercial property, the wife was looking not only to income generation but to capital appreciation, the antithesis of amortisation (see [116], below).
(3) There was sufficient money in this case to give each of these parties a decent, if not luxurious, standard of living for the rest of their days: an annual net income of £90,000 pa would enable the wife to live comfortably. The fact that the wife’s age meant that she required a smaller income-producing fund (‘the Duxbury paradox’) could not be relied on as a good reason for increasing her share of the assets in a case based upon needs where there was a significant element of non-matrimonial property. The wife was entitled to a housing fund of approximately £1 million (representing the garden property together with the cost of the projected works, net of the cost of transfer) plus a Duxbury fund of £1.289 million for her income needs, so a total award of about £2.3 million. Given that the wife already had just over £500,000, in order to meet her needs she would require a sum of £1,020,000 from the husband plus the garden flat. The total award exceeded by a significant margin a 50 per cent share of the notional marital acquest, but the wife’s needs could not properly be met for less. Where non-matrimonial property must be invaded to meet needs, the courts had been inclined to adopt a more restricted approach to the assessment of needs: for example NA v MA[2006] EWHC 2900 (Fam), [2007] 1 FLR 1760, but it would not be fair in all the circumstances to reduce the wife’s overall needs below these figures. This award would leave the husband with over 75 per cent of the wealth and was fair to both parties (see [121]–[123], [126], below).
Cases referred to
AR v AR[2011] EWHC 2717 (Fam), [2012] 2 FLR 1.
JL v SL (No 2) (Appeal: Non-Matrimonial Property) sub nom JL v SL (Financial Remedies: Rehearing: Non-Matrimonial Property)[2015] EWHC 360 (Fam), [2015] 2 FLR 1202.
Jones v Jones[2011] EWCA Civ 41, [2011] 1 FCR 242, [2012] Fam 1, [2011] 3 WLR 582, [2011] 1 FLR 1723.
N v F (Financial Orders: Pre-acquired Wealth)[2011] EWHC 586 (Fam), [2012] 1 FCR 139, [2011] 2 FLR 533.
NA v MA[2006] EWHC 2900 (Fam), [2007] 1 FLR 1760.
Robertson v Robertson[2016] EWHC 613 (Fam).
S v AG (Financial Remedy: Lottery Prize)[2011] EWHC 2637(Fam), [2011] 3 FCR 523, [2012] 1 FLR 651.
S v S[2014] EWHC 4732 (Fam).
Application
The husband applied to the court for financial remedy orders at the end of his second marriage. The facts are set out in the judgment.
Richard Sear (instructed byPayne Hicks Beach) for the applicant, H.
Jonathan Cohen QC (instructed on a direct access basis) for the respondent, W.
6 July 2016. The following judgment was delivered.
MRS JUSTICE ROBERTS.
[1] This is an application for financial remedy orders. It is made by MCJ, the husband in these proceedings (‘H’). The respondent is MAJ to whom I shall refer as the wife (‘W’). I intend no disrespect to either in adopting this convenient form of shorthand which will protect their anonymity in what are essentially private proceedings concerning the financial consequences of their divorce.
[2] W has been represented throughout this five day hearing by Mr Jonathan Cohen QC who has been instructed on a direct access basis. H has been represented by Mr Richard Sear of counsel, instructed by Payne Hicks Beach. I record at the outset my thanks to both counsel whose preparation has been meticulous and whose presentation of agreed matters and matters in issue (of which there are many) has been clear and comprehensive. We have worked throughout from a single asset schedule which sets out precisely where the parties are apart in terms of the issues which fall to be determined in the context of computation.
[3] H made his application for all forms of financial relief in September 2014. In reality, he did so in order to engage the court’s jurisdiction on behalf of himself and W so as to resolve all outstanding matters between them at the end of a marriage which has lasted over 17 years on W’s case, or something nearer 13 years on H’s case. For all practical purposes it matters not since this has been a marriage where both of the parties have made their respective contributions over a significant period of time. To seek to establish with any degree of precision exactly the point at which the marriage foundered would be a sterile exercise in circumstances where there is no element of post-separation accrual which falls to be considered. On H’s case, W’s financial award should not be predicated on the basis of sharing; rather, he contends that...
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