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ANCILLARY RELIEF: Charman v Charman [2007] EWCA Civ 503

Date:24 MAY 2007

(Court of Appeal; Sir Mark Potter P, Thorpe and Wilson LJJ; 24 May 2007)

The parties had been married for 28 years and had two children, now adult. The judge found that the parties' assets amounted to £131 million, including £68 million in an off-shore discretionary trust created by the husband upon an expression of wish that during his lifetime he should be its primary beneficiary. A trust set up for the children, containing assets of at least £30 million, was not treated as part of the assets to be divided. The judge awarded the wife £48 million, 36.5% of the assets; this was believed to be the highest ever award on determination of a contested application for ancillary relief in divorce proceedings. The wife had conceded a special contribution by the husband in the generation of the fortune, and the judge based his departure from equality on both the husband's special contribution, and the greater risks inherent in the assets remaining with the husband. Under a further order, if the husband was required to make specified tax payments (estimated by the husband at £11 million) the wife should contribute 36% of such payments (up to £3.5 million). The husband argued that the wife's award should have been no higher than £28 million, and that the money in the trust should not have been treated as assets of the parties, because the trust was a dynastic trust intended for the benefit of future generations.

Trust Assets

Upholding the judge's attribution to the husband of the all the trust assets, the court held that the judge's rejection of the husband's dynastic argument was inevitable, given: the obvious fiscal purpose behind the trust; the husband's inclusion of himself as a named beneficiary; his power to replace the trustees; the contents of his letters of wishes; the absence of any documentary evidence to support his argument; the inference to be drawn from his attempts to prevent the wife having access to trust documents, and other factors. It was correct that before attributing all the trust assets to the husband, the judge had to be satisfied that the trustees would have advanced those assets to the husband if he had asked them to do so. The judge had rightly asked himself the question whether the trust assets were a resource and, although he had made no express finding that the trustees would be likely to advance all the capital of the trust to the husband upon request, by his references to authorities and to counsel's arguments it was quite clear that he had effectively made such a finding. It was a perfectly adequate foundation for the aggregation of trust assets with a party's personal assets for the purposes of s 25(2) that they should be likely to be advanced to the party in the event only of need. Before the decision in White v White [2000] 2 FLR 981, the elaborate enquiry in the present case as to the status of the trust assets would probably have been unnecessary, but since the advent of reference to proportions the focus of the court had largely shifted from needs to computation of resources. Wherever such an enquiry had to be made, it was essential that the court bring to the task a mixture of wordly realism and respect for the legal effects of trusts, the legal duties of trustees and, in the case of off-shore trusts, the jurisdictions of the off-shore courts. In the circumstances of the case it would have been a reproachful emasculation of the court's duty to be fair if the assets that the husband had built up in the trust during the marriage had not been attributed to him.

Special Contribution

Neither in its method nor in its result had the judge's treatment of the husband's special contribution been vulnerable to appeal. The court noted that consideration of the sharing principle no longer had to be postponed until the end of the statutory exercise. Since the sharing principle meant that property should be shared in equal proportions unless there was good reason to depart from such proportions, departure from equality was not departure from the principle, but took place within the principle.

Notwithstanding some remarks in Miller, and subject to the exceptions identified in that case, the sharing principle applied to all the parties' property but, to the extent that their property was non-matrimonial there was likely to be better reason for departure from equality. The sharing principle could not, however, be a true starting point; as the judge had stated, the starting point of every enquiry in an application for ancillary relief was the financial position of the parties and was always in two stages: first computation and then distribution. Each of the three distributive principles identified by the House of Lords in Miller could be collected from s 25: the principle of need required consideration of the financial needs, obligations and responsibilities of the parties, the standard of living enjoyed by the family, the age of the parties and any physical or mental disability of either; the principle of compensation related to prospective financial disadvantage which some parties faced upon divorce as a result of decisions taken for the benefit of the family during the marriage; and the principle of sharing was dictated by reference to the contributions of each party to the welfare of the family, to the length of the marriage and, in an exceptional case, to the conduct of a party. It was as unnecessarily confusing to present a case of contribution as a positive type of conduct, which it would be inequitable to disregard, as it was to present a case of conduct as a negative or nil type of contribution. Any irreconcilable conflict between the result suggested by one principle and that suggested by another must be answered by application of the criterion of fairness. Certainly, when the result suggested by the needs principle was an award greater than the result suggested by the sharing principle, the former result should in principle prevail. When the result suggested by the needs principle was an award of property less than the result suggested by the sharing principle, the sharing principle should in principle prevail. Since Miller the court was no longer constrained to consider sharing only at the end of the process, and could, if the assets were substantial, consider sharing before needs. It was not the case that consideration of the discount from equality should play no part in the distributive exercise: a discount was nothing other than a departure from equality. The court did not agree with the approach suggested by Mance LJ in Cowan v Cowan (2001) EWCA Civ 679, [2001] 2 FLR 192 of sharing the surplus of the assets after needs had been satisfied; in the large cases, it was probable that sharing, whether equal or not, would cater automatically for needs. There was also the grave practical objection that an approach that invited expensive concentration upon the value of assets and also elaborate presentation of needs would be the worst of both worlds.

The notion of special contribution could, in principle, take a number of forms, non-financial as well as financial. In cases of substantial wealth generated by a party's success in business during the marriage, the court would have regard to the amount of the wealth, and in some cases its amount would be so extraordinary as to make it easy for the party who generated it to claim an exceptional and individual quality which deserved equal treatment; often, however, he or she would need independently to establish such a quality, whether by genius in business or in some other field. Sometimes, by contrast, it would immediately be obvious that substantial wealth generated during the marriage was a windfall, which was not the product of a special contribution. A party's property did not fall outside the court's redistributive powers in ss 23-25 just because it was not the product of a contribution within the meaning of s 25. The distinction put forward by Baroness Hale in Miller between unilateral assets and other matrimonial property was for use in cases in which the marriage was short, and had not been commended for use in other cases. Its application in a case such as the present would be deeply discriminatory and gravely undermine the sharing principle. No figure could be identified as a guideline threshold for a special contribution of wealth generation, however, responding to the judge's call for guidance on the percentage adjustment to be made in cases of special contribution, the court agreed with the judge that any adjustment for special contribution should be significant as opposed to token. It was hard to conceive that, where such a special contribution was established, the percentages of division of matrimonial property should be nearer to equality than 55%-45%, but also, following a very long marriage, fair allowance for special contribution within the sharing principle would be most unlikely to give rise to percentages further from equality than 66.6%-33.3%.

Baroness Hale's remarks in Miller at 154 were said to permit argument that a party's earning capacity was itself an asset to which the other had contributed and which might to some extent be subject to the sharing principle; this seemed an area of complexity and potential confusion which it was unnecessary to visit.

The court called for a review of the English law of the property consequences of marriage and divorce, and the state of international law in this area, by the Law Commission.