09 June 2008

Family news: The Financial award in McCartney v Mills


The financial award was calculated according to Heather Millsʼ needs, accounting for a reasonable standard of living needed as mother of their child, and the fact that she should expect to be self-sufficient. The case also demonstrated that the marital standard of living is not determinative in a needs case. The Judge rejected the applicability of the ʻsharing principleʼ given that the majority of the husbandʼs wealth has been accumulated before the marriage and had not increased thereafter; therefore there was no significant ʻmarital acquestʼ.

This judgment helps wealthy spouses following short marriages.

Facts of the case

The parties were married for four years both having been married previously. The husband is a world famous musician, composer and singer, had three children from his first marriage and was aged 65 at the date of the Hearing. The wife is a model, charitable fundraiser and intermittent TV presenter and was aged 40 at the time of the Hearing. They have a daughter aged 4.

The fundamental issue for the judge to consider was how much of the husbandʼs enormous pre-marital wealth should be given to the wife. It was the wifeʼs assertion that the husband was worth in excess of £800m and therefore she was entitled to part of the ʻmarital acquestʼ. She sought an award of almost £125m based on the principles of compensation, contribution and need. The husband argued that because his enormous wealth was for the most part, if not all, pre-marital assets, provision for the wife should be based on “needs” alone. It was the wifeʼs case that the marriage should be regarded as 6 years in length as the couple had cohabited for 2 years prior to the marriage. She maintained that she was wealthy and independent with properties and cash totalling between £2m and £3m when the parties met, and that the husband had restricted her opportunities for career development. The wife sought compensation for ʻthe loss of her career opportunityʼ equal to an amount that would reflect her marriage to such a wealthy man. The wife also relied on the contributions she claimed she had made in counselling the husbandʼs children and promoting his professional career. The wife also made claims of conduct on the husbandʼs part that would be inequitable to disregard and that this conduct should increase the financial award made to her.

The final hearing

The Judge did not accept that the wife was wealthy and independent in her own right prior to the marriage as she had no evidence to prove it. The Judge also rejected the wifeʼs claim that the couple had moved from cohabitation to marriage ʻseamlesslyʼ and that the marriage had lasted 6 years. The Judge found that the husband and wife only enjoyed a truly settled relationship only from the moment they got married.

In relation to compensation for loss of opportunity regarding her career, the Judge found that the husband did not restrict the wife but in fact had done the opposite using his name and reputation to help her business and charitable activities. The Judge concluded that the issue of ʻcompensationʼ did not arise. In relation to contribution the Judge accepted that the wifeʼs presence was emotionally supportive to the husband but rejected the argument that she was the husbandʼs ʻbusiness partnerʼ or psychologist. The Judge also rejected the wifeʼs case
that her contributions were exceptional.

Assets of the husband

After lengthy expert reports the Judge found that the husbandʼs total wealth amounted to approximately £400m.

Assets of the wife

The Judge found that the wifeʼs assets amounted to £7,302,561.

Add-back

The husband argued that £1,666,000 should be added back to the wifeʼs assets as representing ʻreckless expenditure since the separation. The Judge considered the case of Norris v Norris (2003) where the husbandʼs expenditure over income was classified as reckless and an add-back into his assets was ordered. In relation to this argument Mr Justice Bennett examined the partiesʼ standard of living. He found that the parties lived well but that their lifestyles and their homes were comparatively simple. The Judge also found that following the breakdown of the marriage, there was an element that the wife intended to over spend in order to prove that a budget in excess of £3m per annum (put forward in her financial disclosure in September 2006) was justifiable. As a result of this expenditure the Judge added back to the wifeʼs
assets a figure of £500,000 giving a total of £7,802,561.

Wife's earning capacity

The wife argued that she was at a disadvantage in relation to her earning capacity but the Judge concluded that it would take the wife 2 years to recover to full earning capacity and that after this she would be able to command an income of about £75,000 per year before tax.

Income needs

The Judge regarded the wifeʼs projected annual expenditure of £3.25m to be ʻunreasonableʼ and the Judge found that the sum of £600,000 per annum would allow the wife to adapt her standard of living to that of a ʻself-sufficient womanʼ. The husband was also ordered to make annual periodical payments of £35,000 for their child, as well as £30,000 for a nanny, and school fees.

The husband agreed to offer £150,000 per year for two years towards the wifeʼs costs of managing security. As to the husbandʼs capital and income needs he had more than enough assets and income to cater for his needs.

Conduct

The wife sought to introduce pre-separation and post-separation conduct into the financial proceedings and the husband sought to introduce post-separation conduct. The judge however concluded that the authorities overwhelmingly show that conduct must be truly exceptional before it becomes inequitable to disregard. All of the wifeʼs allegations of the husbandʼs conduct were disallowed as were those of the husband.

Conclusion of the case

The Judge concluded that in a short marriage where the majority of the assets were pre-marital the wife should only receive a needs based award. Thus the principle of ʻsharingʼ should not be engaged. Fairness only required that the wifeʼs needs were the dominant factor in the section 25 exercise. Any other radically different way of looking at the case would be manifestly unfair.

The Award

The Judge capitalized the wifeʼs income needs of £600,000 per annum and with reference to Flick v Flick (1995) which allowed a step down in income needs in later life. A Flick capitalization would amount to £11m and on a Duxbury v Duxbury capitalization this would amount to approximately £17m. The Duxbury capitalization allows a set income for life, net of tax, index linked and on the basis of amortization. The Judge took a figure midway between both and gave a fair capitalization figure for the wifeʼs income needs of £14m.

Together with the £2.9m required to purchase a new property as well as the property the wife was already living in, the final lump sum to be paid by the husband amounted to £16.5m. This meant she would exit the marriage with property and funds of £24.3m.