Divorce financial settlements upon divorce should reflect fairness, which in turn will usually mean equality unless there is good reason to do so.  This principle has been long established since the case of White v White [2001] 1 AC 596. 

There are exceptions in high value cases but they are few and far between. 

Great care needs to be taken when challenging this `Yardstick of equality’ test especially on behalf of the dominant money generating partner who is looking to retain more than half of the matrimonial wealth.

Trying to argue for a deviation from equality can incur massive costs. 

What is more it seems that the willingness of the courts to set aside this principle in high value cases is in decline. 

For the wealthier partner, there are three strategies for trying to justify a departure from equality.

1. Special or “Stellar” contribution
2. Pre-marital assets
3. Risk

The recently reported case of SK v TK [2013] EWHC 834 (Fam) presents a fairly typical scenario – a wealthy, entrepreneurial husband trying to justify his wish to retain more than an equal share of the matrimonial wealth.  In doing so he ran all three of the above arguments. 

The court dismissed each and every one of them. 

In doing so the court has yet again reiterated the dominance of the `Yardstick of equality’ test.

The case judgment can be found by clicking here.

The family’s wealth was in the region of £20m, largely formed from a business sale in 2000 and a current business interest worth in excess of £4m.

Special contribution

There were many cases following White v White that asserted special or stellar contributions. 

The instances of such applications being successful seems to be in decline.  In one recent case it was suggested that if one needs prove their special contribution that the nature of that contribution is not adequately obvious to be successful.  Essentially, the special contribution needs to be so obvious as to be self-evident.  Having to prove it, so that it can be recognised, reveals that the contribution is not self-evident and therefore fails the test.

Just because a business person has generated great wealth from her or his endeavours does not mean that they have made a special contribution.  It is becoming increasingly difficult to contemplate just what would demonstrate special or stellar contribution but it would require a degree of genius as opposed to excellent or even exceptional business or wealth generating skills.

The judge in this case went on to comment (at paragraph 45) that the £20million fortune generated was not “Truly vast wealth” and then gets into a bit a mess by asserting:

“I am certainly not intending to lay down a rule that it is impossible to make a “special contribution” if the assets are below £20 million.  It is however a factor that the Husband’s business success has not been so great as to generate truly vast wealth.”

This is a strange and unnecessary comment.  By drawing attention to a £20million watershed, even by denying that there is one, the comment will no doubt suggest to some that such a watershedmight exist.  That encouragement is perhaps best avoided!

Pre-acquired assets

The second justification for deviating from equality is to assert that the wealthier partner had introduced pre-acquired assets.

Very often such assertions rely upon relatively minute contributions to the matrimonial wealth that then builds up over the next 10, 15 or more years of business and marriage.  In the current case, for example, the judgment reflects that the pre-marital contribution introduced by the husband was worth £24,853, representing an interest in an early business venture. 

The husband would have no doubt sought to justify this frankly insignificant amount (less than 0.125% of the current worth) by arguing that this was the start of what then ballooned into far greater wealth.  If it was not for that tiny germ of an idea, he would have argued, then the rest of the wealth could not have grown from it.

The argument was dismissed on the grounds of the insignificant value and also because the link between that value and the current value was not automatic.

It was not inevitable that this small value would grow so much.  In the words of the judge, the hard work was yet to come to nurture that fledgling business into a very profitable one.  That hard work came during the course of the marriage. 

Critically, the wife’s role in supporting husband in his endeavours and bringing up the children of the family would have been recognised as having equal contribution to the generation of this wealth.  Baroness Hale, a very senior family judge, once memorably said that a husband in a case that she was hearing “Was able to feather his nest because he had not had to sit in it.”  That applies in many such cases.

It is also worth remembering with pre-marital assets that the length of time that has passed since the marriage, and the extent to which pre-marital assets and wealth have been subsumed and mingled in with other assets will further diminish the likelihood of succeeding in this argument.

Risk

The third part of this trinity of arguments against equality is risk.  Here the wealthier party tries to assert that because she or he will be taking less secure assets – those which could go up as well as down in value – that they should have a greater share. 

Again this argument was rejected for the following reasons:

1. The husband wanted the shares
2. The Husband will have all the opportunity to derive benefit in the years ahead (ie any risk of loss was offset against possibility of reward)
3. The value of the “Risk” assets was `Only around ¼ of the total assets in the case. It is not one of those cases where “all his eggs are in one basket”.’
4. The husband has a significant earning capacity which the wife did not.
5. The risk in a company should be taken into account in the valuation of the company `Rather than giving the Husband an increased share of the net assets.’

In summary

In summary, therefore, the yardstick of equality remains firm and possibly firmer than ever.  This can be unpalatable to the greater wealth generating partner.  The temptation to run a case seeking a deviation from equality can be massive but needs very careful consideration.

Let us help you

Family Law in Partnership are an award winning firm of family and divorce lawyers in London.  We have experience in dealing with leading cases including high net worth assets and matrimonial wealth, representing both husbands and wives.

If you have any questions about divorce or family law then email us confidentially here at Family Law in Partnership on hello@flip.co.uk.  Alternatively you can telephone 020 7420 5000 and ask to speak to one of our divorce solicitors in London.