Standish: Principle over discretion

In April this year, the Law Commission launched a review of the laws concerning how finances are divided between couples after divorce, due to report this September, and part of its survey is: the discretionary powers given to judges over the division of financial assets, and whether there is a need for a clear set of principles, enshrined in law, to give more certainty to divorcing couples.

At first blush, this decision may seem to indicate that reform is necessary. Not so. By contrast, and thanks to Court of Appeal decisions such as this one, the principles are perfectly clear. So long as their application is securely based on relevant factual findings, there is no need for reform. Indeed, there is good reason not to do so.

Moylan LJ’s criticism of the first-instance decision was twofold:

• Moor J misapplied a concept called matrimonialisation; and

• There was a disconnect between what the judge found and what he did when making fair allowance for a substantial contribution of non-matrimonial property by the husband.

Very occasionally the courts have found it to be fair to include some sharing of non-matrimonial property: so-called matrimonialisation. Where Moor J went wrong was to adopt too lax an approach: linking it to title. Mere title alone proves little and is not the right test. Why is it wrong to be too lax ? Because matrimonialisation is a derogation from the foundation principle: money made in the marriage = shared; money not made in the marriage = not shared. Any derogation must be cautious or the foundation principle will be harmed. In the future, the courts will be cautious and stick to the categories identified in Standish.

Life is not neat and some cases involve assets which are part matrimonial and part non-matrimonial. The classic example: a company started by one party years before the marriage which grows substantially during the marriage years. The court makes a fair allowance for the element of the value of the asset which is reflective of non-marital endeavour. A variety of means have been devised as to how to do this fairly: historic value; straight line; half in half out; historic value uprated. Whilst there may be debate about what method is best they are all paths up the same mountain: making fair allowance for non-marital endeavour.

Moor J got the principle right but applied it in a way which did not reflect the facts he had found. He effectively included about £58m (77%) out of £80m of the money the husband had put in the wife’s name within the sharing principle. This simply did not fit with his factual findings. Nor did he use any of the methods mentioned above.

So there is nothing wrong with the principle and there are various methods which the court can use to determine a fair allowance, just as a business valuer uses various methods when valuing a block of shares, cross-checking one against the other. But a Judge must make the factual findings relevant to the exercise and, crucially, must then input those factual findings into the fair allowance evaluation. This is meat and drink to the money judges; and it works. It could perhaps become more reliable and consistent if they were to employ two or three different methods to capture the fair allowance and then land their discretion within the zone established by this exercise.

There are four main areas of debate in connection with the sharing principle: matrimonialisation, special contribution, hybrid assets and post-separation accrual. In relation to the first three, the principles are clear. With matrimonialisation, use the Standish categories and proceed cautiously. With special contributions, use the principles approved by Moylan LJ in Work v Gray. With hybrid assets make a fair allowance using one or (preferably) more of the recognised fair allowance techniques based on relevant factual findings. With post-separation accrual admittedly, there are seemingly conflicting first instance authorities. However, it can only be a matter of time before then Court of Appeal looks at this topic and sets down the principles, founded upon the wisdom of White and Miller, which will allow a consistent approach to be adopted.

This is to be compared with the straight jacket of a formula: a one size fits all principle to be used in ALL cases. It would either be so detailed and complex to lead to inevitable dispute and / or hardship in its deployment; or so broad as to be indistinguishable from the status quo. It is quite impossible to see how a single principle could be devised to deal justly with ALL situations, such as relating to a company whose lifetime straddles a marriage or an inheritance which is consciously merged with matrimonial wealth or a case involving billions. Our experience of looking at awards made in civil law jurisdictions with inflexible marital property regimes is that they often entail rough justice, consistency instead of fairness.

If principle is placed over discretion, divorcing couples in England have the best of both worlds: flexibility with consistency.

Tim Bishop KC was Leading Counsel for the successful party Mr Standish.