Clear as mud

The way that family law approaches and determines financial claims upon divorce has undergone seismic changes over the last 15 years. Prior to the House of Lords decision in White v White [2001] AC 596, the law applied a "reasonable needs and requirements" argument in order to determine the competing financial claims of a husband and wife on divorce.

It was in fact a farming case that brought about the change in favour of an equal division, when Mrs White took her financial claims all the way to the House of Lords.

Ironically however, an equal division of assets and wealth accumulated during a marriage is not always achievable for farmers, because of the need to preserve assets that were owned long before the marriage. Yet fairness still requires financial needs to be met. This article reflects on how judges have addressed that conundrum since White and what advisers involved in farming divorces need to consider as a result.

White v White

Mr and Mrs White had been married for over 30 years and had three children. They both came from farming backgrounds and had a dairy farming partnership. They contributed fully in cash and in kind in roughly equal amounts. In 1993, a year before the marriage broke down, Mr White acquired a separate farm by way of inheritance. Their combined net wealth at the time of trial before the High Court judgment was assessed at approximately £4.5m.

The judge at first instance made an award in favour of Mrs White of slightly more than one fifth of the total assets. She appealed to the Court of Appeal who increased her award to just over two fifths. Both parties then appealed to the House of Lords. Mrs White sought an equal share of the wealth and Mr White sought to restore the High Court judge's order. The House of Lords awarded her 43 per cent of the assets.

The reason this case is so significant
is that when giving the lead judgment, Lord Nicholls said:

"More often, having looked at all
the circumstances, the judge's decision means that one party will receive a bigger share than the other. Before reaching a firm conclusion and making an order along these lines, a judge would always
be well advised to check his tentative views against the yardstick of equality
of division.

"As a general guide, equality should be departed from only if, and to the extent that there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the parties and the court to focus on the need to ensure the absence of discrimination."

In the immediate aftermath of White, argument developed as to why an equal division of the matrimonial resources might not be a fair outcome, with the judgment itself providing the seed corn, where Lord Nicholls said:

"Property acquired before marriage and inherited property acquired during marriage come from a source wholly external to the marriage. In fairness, where this property still exists, the spouse to whom it was given should be allowed to keep it. Conversely, the other spouse has a weaker claim to such property than he or she may have regarding matrimonial property''.

Subsequent developments

The subsequent House of Lords authorities in Miller v Miller: McFarlane v McFarlane [2006] UKHL 24 established the "rationale for the distribution" as the three overlapping strands of "financial needs (generously interpreted), compensation and sharing". The requirement to provide for the needs of one party (usually the wife accommodating the children) may displace equal sharing.

However in farming cases, a typical combination of inherited wealth, complex ownership structures and a lack of liquidity often meant that farming wives would be confined to a needs based settlement. This gave rise to outcomes that seemed to belong in the pre-White era, eschewing developments in the law since White as to the equal sharing of matrimonial wealth.

Against the tide

P v P (inherited property) [2004] EWHC 1364 (Fam) and R V R (lump sum repayments) [2004] 1 FLR 298 seemed to be cases in point. In P v P the parties had been married for 16 years and had two children. They were both farmers and had spent the entirety of their married life farming a hill farm in the north of England. The farm had been in the husband's family and he was the fourth generation to have farmed it. The marriage broke down and the wife sought an equal division of the assets.

Munby J (as he was then) described the case as "excruciatingly difficult". If he awarded the wife an equal division, then there would have to be a sale of the farm which the husband described as all that he had left. The entirety of the assets was valued at £2,501,356, of which the husband held £2,105,610 and the wife £70,678, with the remaining £325,068 being held jointly.

The family's income had been affected adversely and reduced by the successive disasters of BSE and foot and mouth disease. The farm profits were stated to be £1,645 in 2001, £15,844 in 2002, and £40,731 in 2003. The wife sought a lump sum payment of £938,000. The judge said this about the wife's contribution:

"This was not a farmer's wife who simply stayed in the kitchen. She did hard physical work in the farmyard and in the fields: she wielded a pitchfork moving silage and straw, she did much of the lambing, she went to market and to the agricultural suppliers, she kept the books and made the PAYE returns and filled out the annual IACS form. She was the only licenced sheep dig operator on the farm. On top of that, as I have said, she supplemented the family's income by her work as a farming journalist."

Even so, the wife received an award of £575,000 - little over 25 per cent of the family's assets. In support of his award and "the overarching requirement of fairness", the judge referred to the following:

• the fact that the bulk of the family's wealth was represented by a farm which had been in the husband's family for generations;

• although the farm business was held in the joint names of the parties, the land and other tangible assets were retained in the husband's sole name;

• the fact that any other approach would mean a sale of the farm with implications devastating for the husband; and

• the fact that the award would meet the wife's reasonable needs.

Few would envy Munby J in the task he faced of deciding P v P, seemingly against the tide flowing from the opening of the White floodgates.

The objective observer might have been forgiven for thinking that farming cases had achieved a post-White exception and would therefore be determined in accordance with needs, rather than sharing. However the judgment in D v D [2010] EWHC 138 (Fam) handed down by Charles J potentially changed things again.

Continued confusion

In this case, Charles J was faced with the typical environment in farming cases, i.e. land and capital assets having been in the husband's farming family for generations; a corresponding unwillingness to order a sale of such assets; investment and expansion decisions made on the basis of years of careful tax planning and advice; a lack of liquidity; and an unwillingness to resort to increased or substantial borrowings.

In his decision, the judge refused to order a 'clean break' settlement between the parties and instead gave the wife a capital settlement, plus the payment of ongoing lifelong maintenance.

The facts in D v D were that the husband could trace back his farming heritage in the area to 1815. A farming company had been incorporated in 1952. The husband's father had died and he had bought out his brother so that he held 85.65 per cent of the shares in the company, with his mother controlling the remaining 14.35 per cent.

The parties married in 1986 and had two children who were both at university. The farm business had diversified into processing and packaging and received a "significant windfall" from the sale of land under a compulsory purchase order.

In 1985 the turnover was £350,000 and by 2009, it had increased to £6.84m. In 2005, when a separation was likely, the husband and his father had invested £3m into a new processing plant on the farm. Until the date of judgment, this had been a loss making venture and significantly reduced the company's liquidity.

What was made clear in D v D was the judge's outright rejection of any notion that the case should be treated differently because it involved a farm. He stressed that there is no exception based on need, and the law set out in White subsequently applied.

In a long and very detailed judgment, Charles J was critical of the husband, among other things, for failing to produce forecasts that added to his business plan, or providing to the bank the information it required as to his "very clear plans and the feasibility of proposed sales", for not approaching alternative lenders to seek financing, and failing to provide copies of all communications between the company and the bank until "very late in the day".

He went on to award the wife the former matrimonial home worth £945,750 (although she was slightly over housed) plus a lump sum of £1.5m (to be funded by the payment of a dividend) and periodical payments of £44,000
per annum.

The judgment in D v D is compulsory reading for those advising in farming cases, be it as accountants, land agents, private client or divorce lawyers. Charles J was not satisfied with evidence that sought to establish only the value
of the husband's shareholding at the date of trial.

He made careful directions at various stages during the lifetime of the case and raised questions relating to the market for the husband's shares (and thus the company), what further borrowing (if any) could be maintained and how the company could be utilised by the husband to extract funds.

He also ordered the husband to produce a business plan and documents setting out the maximum monies he maintained could be provided to the company by borrowing.

Clearly the judge was not satisfied that he had done enough to comply with his directions, and while declining to order a sale of the company or the husband's shares, he also declined to order a full and final settlement in the form of a 'clean break', leaving it open to the wife, in due course, to renew her claims for an order capitalising the remainder of her maintenance claims, and effectively coming back for a substantial payment in the future.

In 2012 the case of Y v Y [2012] EWHC 2063 (Fam) was reported. This was another farming case where the parties had been married for over 25 years, living on the family's estate which had been in the husband's family since the 1940s.

At the date of trial the net value placed on the estate was £22.9m and although the judge did not order an outright sale, she pointed out that a sale might be the inevitable consequence of her lump sum award of £8.7m to the wife, equalling 32.5 per cent of the net assets.

Where we stand today

Both D v D and Y v Y reaffirm for farming cases that an outcome based on the sharing of matrimonial wealth reflects the law post White.

It is incumbent on both parties and their various advisers to go the extra mile and investigate ways in which the assets and resources available can be used to provide for the wife on a 'clean break'. n

Jane Keir is a partner in the divorce and family team at Kingsley Napley