The great divide

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Prurient readers of the daily press waited eagerly for details of the divorce settlement between Sir Paul McCartney and Heather Mills. At £24.3m ($47.2m), Sir Paul joined the ranks of one of the biggest payers of cash to an ex-spouse.

The figure was not, however, unprecedented. Such settlements have been rising steadily in recent years. Last year, insurance magnate John Charman was ordered to pay his wife Beverley £48m – Britain’s largest public divorce payout. The figure represents 37 per cent of Charman’s fortune.

Sir Paul’s judgment was made public partly because of pressure from the legal fraternity, which said that in the interests of the family justice system, the details – other than those that adversely affect the couple’s daughter – should be revealed.

Their interest lay in the fact that McCartney-Mills is an important precedent for ultra-wealthy couples who divorce after a short marriage and where one side has significant pre-marital assets.

London is widely seen as the divorce capital of the world and was the ideal place for Mills to pursue her case. The divorce regime in England and Wales is out of step with other legal jurisdictions in that it favours the less wealthy spouse.

If the couple had filed for divorce in Los Angeles, for example, her settlement would have been much smaller. In California, a rigid community property system means that if you have money and marry someone much younger and without money, everything you bring into the marriage is safe from attack. Similarly, in Scotland and much of continental Europe, pre-marital assets are excluded from a divorce settlement.

In England and Wales, not only are pre-marital assets included, divorce proceedings begin on the basis of a 50:50 split of the assets.

The approach in England and Wales stems from a landmark judgment in 2000 that set the yardstick of equality as the principle by which divorcing couples should split their assets. The case of Martin and Pamela White overturned the divorce regime of the previous 30 years. The House of Lords ruled that Pamela White had been instrumental in building up the assets of the marriage to the point of “pushing the plough” on the family farm. This assessment of her contribution entitled her to 50 per cent of her husband’s assets.

Before the White judgment, divorce settlements were decided on the basis of reasonable need. But the White judgment took into account the fact that marriage is a partnership and that even if one of the partners stays at home to bring up the children, that contribution is as equally valid as the breadwinner’s.

James Turner QC, a family barrister, says: “People read about these big money cases in the press and I’m still not sure they understand that since White vs White, the whole process of dividing up wealth is actually a lot more logical than before.”

In most of the 150,000 divorces that take place each year in England and Wales, the principle of equality is relatively uncontroversial. Problems arise when the couples are financially unbalanced, which is perhaps more common among the super-rich.

Mark Harper, a family partner at private client law firm Withers, has worked on two of the most important divorces of the past year: that of the Charmans and Stuart and Susan Crossley, whose case last year also had important implications. Harper says there is enormous uncertainty about the financial implications of divorce.

“It makes it very difficult for us to do our jobs properly because we can’t tell clients what the answer is,” he says. “In one of the cases I dealt with recently, we had the preliminary hearing before the judge and he said one point could only be decided by the House of Lords. So how do you think my client felt? He said what kind of legal system is this that I have to go to the House of Lords to get an answer to a simple legal question?”

This uncertainty is particularly acute in cases such as McCartney and Mills. Turner says: “In the McCartney case, one of the big problems would have been looking at what was built up during the marriage or any cohabitation that led into the marriage – in a genuine sense.”

Harper points to a paragraph in the Charman judgment that starts with the sentence, “To what property does the sharing principle apply?” It is a question that baffles lawyers who must wait for test cases to show the way.

In spite of recent significant test cases, however, critical issues in English and Welsh divorce law are still unresolved, such as whether the notion of equal division applies to all matrimonial property or just to family assets and excludes business or investment assets.

“It will be interesting to see what that sentence [in the Charman judgment] means in practice,” says Harper, who thinks the McCartney case has gone some way to clarifying the law on pre-marital assets. Luckily, for Sir Paul, who made the bulk of his fortune with the Beatles, this meant that income from famous albums such as Abbey Road did not count in Mills’s final settlement.

Turner has a different take to Harper on the uncertainty in English divorce law. “[The test cases] are trying to lay down some general principles for guidance,” he says. “Wives don’t get half of everything unless it’s been built up during the marriage or unless they can justify it by reference to needs because they’ve got kids.”

He feels that there is no ideal system that will always produce fair results and that a formulaic or more predictable approach such as the ones in Scotland and France are not necessarily the answer.

In the fight against unpredictable outcomes, many lawyers advocate pre-nuptial agreements. Sir Paul has been criticised for not taking out a pre-nuptial agreement with Mills.

Pre-nups received a boost in December last year when the Court of Appeal supported Justice Bennett’s decision to recognise the pre-nuptial agreement between Stuart and Susan Crossley. Stuart Crossley, a 62-year-old property developer, married thrice-divorced Susan who was already worth £18m. Their marriage lasted only 14 months and there were no children. Susan Crossley had tried to assert that the pre-nup was invalid owing to her husband’s failure to provide full financial disclosure.

For independently wealthy, childless couples, pre-nups can be a positive solution in a difficult separation. Harper says: “We have been swamped by pre-nups. The number we have done has trebled over the last couple of years.”

Yet in spite of the Crossley case and the popularity of pre-nups, such agreements are technically unenforceable in English and Welsh courts and remain so without government legislation. Earlier this month, the Law Commission announced that it plans to begin a review of the enforceability of pre-nups next year.

As things stand, courts may take pre-nups into consideration, and in cases such as the Crossleys they may provide the knock-out blow. But in many more cases they could still be overturned. Turner says: “The trouble with pre-nups is that it’s terribly difficult to foresee in advance what fairness is going to require at the end of the day.” But he does acknowledge that pre-nups could become more sophisticated and allow for changing circumstances.

Pre-nups are also being seen as a way to smooth the road to harmonisation of divorce regimes across the European Union. At the end of the Crossley case, the judges said that there would “be some narrowing between this European divide” if pre-nups were more binding. There would also be less “forum shopping”, where couples race each other to divorce in the most favourable jurisdictions for their interests.

Harper says: “There are a lot of non-Brits who find it outrageous that their marriage contracts are ignored in London when they are absolutely binding in their home jurisdictions.”

Because of the discrepancy between the divorce regime in England and Wales and the rest of Europe, there is a strong financial imperative for the poorer spouse of a wealthy couple to file her – or increasingly his – divorce petition in London.

To put it in context, if Sir Paul and Mills had divorced in France, they would have probably had a marriage contract electing separate property. Instead of £24.3m, she would have received maintenance only. In effect, there would have been no capital payment.

While the outcome of the McCartney-Mills divorce has answered some questions for family lawyers on the division of property, it is still unlikely to resolve many of the uncertainties surrounding divorce in England and Wales. The unpredictability of the system and the bespoke settlements will ensure that high-profile divorces continue to attract huge interest.

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