Ancillary Relief - A Legal and Practical Overview FROM WHITE TO LAMBERT AND BEYOND: AN OVERVIEW Copyright Laura Harris June 2003-All rights reserved. No part of this document may be copied or used without the written permission of the author.

1. INTRODUCTION

1.1 Family law, like rock music, goes in cycles. For those old enough to remember, just as the late 70s before the advent of punk were dismal and uncreative, family law in the late 90s had settled into the slough of reasonable needs/competing budgets/battle of the property particulars, certainly in bigger money cases. To test this hypothesis, ask yourself if you can remember any really significant decisions emanating from that period. If you say you can't remember any significant decisions from any period (except perhaps Wachtel) it's time to consider a career change.

1.2 Did 26 October 2000 herald in a new dawn? Or was it simply a catch up in the legal field of social and cultural changes which had been in progress over the previous 30 years? Probably a bit of both. What White has done is to bring in its wake a plethora of case law explaining, clarifying and also meeting attempts to undermine its primary purpose, which, I believe was two-fold: to end gender discrimination and to provide more certainty in this highly discretionary area of law thus facilitating a more ready resolution of disputes in the majority of cases. The jury is still out on whether it has achieved either objective. The purpose of this paper is, in a modest way, to examine key developments in the case law in the wake of White and to consider what areas of uncertainty and controversy still exist to be resolved by the courts.

2. WHITE: THE ESSENCE

2.1 In performing the discretionary exercise enjoined by s25 the overarching requirement is to achieve a fair result.

2.2 There is no basis for discriminating between the breadwinner and the homemaker.

2.3 The court must perform the s25 exercise and test its tentative results against the yardstick of equality to ensure discrimination avoided.

2.4 As a general guide, equality should be departed from only, and to the extent that, there is good reason to do so.

3. WHAT HAVE BEEN THE DEVELOPMENTS?

3.1 Case law has homed in on a number of diverse areas: business interests and the connected area of liquidity, inherited wealth or other assets emanating from outside the marriage, special contributions ("the counter-attack"), the impact of White on short and medium length marriages, small money cases and on income provision.

A whole new lexicon has entered (and in some cases then left) our daily legal language: gender discrimination, cross-checks, stellar contributions.

3.2 Initially it seemed the courts, weaned on a diet of reasonable require
ments, had little stomach for 50/50 awards and awards settled down around the 40% mark, both court led and agreed. Nicholas Mostyn QC even offered dinner and a night at the Dorchester (with him?) for the 1st contender to get past the post and hit the 505 jackpot. In Lambert [2003] 1 FLR 139 [para.29], he asserted it was common knowledge in the specialist profession that family division judges were divided into those who had espoused the concept of equality (e.g. most notably Colerdige J.) and others who "adhered to ingrained discriminatory thinking." while his opponent, Martin Pointer QC diplomatically disclaimed that such a fissure existed.

4. CONTRIBUTIONS

4.1 Special contributions
For obvious reasons, contributions has been the s25 criterion most under the spotlight. In Cowan v Cowan [2001] 2 FLR 192, the "bags on a roll" case, H argued for recognition of his exceptional entrepreneurial and business skills, his "stellar contributions". From the total assets of about £11.5 m, which were all in liquid form following the sale of the family business, W's award was increased to £4.4m or about 38% and H retained about £7.1m or 62%. Thorpe LJ, as he subsequently pointed out in Lambert, decided the outcome on 5 specific bases, some strictly fact specific [paras.65-69]. One of these was the exceptional business skills of H [para.67]. Mance LJ developed the concept of "exceeded expectations" in a frequently quoted passage [para.161]:

"The underlying idea is that a spouse exercising special care and skill has gone beyond what would ordinarily be expected and beyond what the other spouse could ordinarily have hoped to do for himself or herself, had the parties arranged their family lives and activities differently. The first spouse's special skill and effort is special to him or her, and the individual's rights to the fruits of an inherent quality of this nature survives as a material consideration despite the partnership or pooling aspect of marriage. For my part, I think this consideration is a material one to which weight can and should be given in appropriate cases."

4.2 Special contributions: the demise
Predictably, this decision was seized upon by practitioners as representing the first breach in the fortifications erected by White and in case after case husbands paraded their stellar qualities whilst wives made high-flown and, often exaggerated, claims to having significantly contributed to the success of family businesses: the Pandora box effect. The hoped for greater certainty and predictability was being undermined and the CA in the case of Lambert v Lambert [2003] 1 FLR 139 addressed head on the effect of their earlier decision. In that case, a marriage of 23 years, the family assets arising principally from the sale of shares in H's very successful business amounted to about £20m. W was awarded 37% at 1st instance, equating to £7.5m. CA awarded her 50% of family assets.

The ratio of decision was:

(1) It was unacceptable to place greater value on contribution of breadwinner than that of homemaker, particularly, since nature of contributions intrinsically different and incommensurable.

(2) Special contributions would be restricted to exceptional cases and were more likely to be found in the generating force behind the fortune rather than in the mere product itself. Would have to be left to case by case exploration. The concept of exceeded expectations was firmly rejected.

(3) In performing the s25 exercise, it was not necessary to conduct a detailed critical appraisal of the performance of each party during marriage. "Couples who cannot agree division are entitled to seek a judicial decision without exposing themselves to the intrusion, indignity and possible embarrassment of such an appraisal."

(4) A finding of equality of contribution did not necessarily lead to an order for equal division because of influence of other statutory criteria and overarching requirement of fairness.

(5) Objective consideration of fairness would determine outcome.

(6) Judge's order meant W would have to deplete capital to sustain costs of living while H would not. Duration of marriage and parties' ages also relevant considerations.

4.3 Effect of Lambert

(1) Other than David Beckham, Paul McCartney and Mr.Dyson of vacuum cleaner fame, who else is going to meet up to qualities identified by Thorpe LJ?

(2) Case punctures Duxbury as means of evaluating W's income needs in large money case, involving as it does amortisation of capital over expected life span of W. Reinforces concept identified in White of W having right to have own estate to pass on.

(3) Emphasises overarching concept of fairness; equal contribution does not lead inexorably to equal division (although in many cases, it inevitably will).

4.4 Short childless marriage
Foster [2003] EWCA Civ 565, 16 April 2003
Parties aged 33. Marry 1997 and separate February 2000.
Acted as property developers in joint venture. Assets of £395,000. W had contributed lion's share of money and had significantly larger income.
DJ returned to parties what each had brought into marriage and what had been contributed by parties to outgoings on property after separation but divided profits during marriage equally. Effect 61% to W and 39% to H.
Appeal to CJ who found inadequate weight to financial contributions made by W and varied order to 70/30.
CA restored order of DJ. Hale LJ said White approach not limited to long marriage with children. In evaluating contributions there can be no justification for treating differences in income any differently from differences between breadwinning and homemaking.
"If both go out to work and pool their incomes or spend a comparable proportion of their incomes for the benefit of the family, it would be a surprising proposition indeed if they were not to be regarded as having made an equal contribution to the family home or other family assets." [para.18].
"… where a substantial surplus had been generated by joint efforts, it could not matter whether they had taken a short or long time to do so." [para.19].
Important case as White principles applied undiluted to short marriage.

4.5 Medium length marriage

GW v RW, N.Mostyn QC, sitting as a Deputy High court Judge, judgment delivered on 18 March 2003
H 44 and W 43. Married 1989. July 2001 W petitioned for divorce 2nd time. £12m of assets derived from H's remuneration as city worker. H's pre-marital worth $500,000. W not worked. 2 children aged 5 and 2 ½ .
No case since White where principles established have been tested against marriage of 10-12 years.
Duration of marriage: Deputy Judge was prepared to count period of 18 months pre-marital co-habitation "where relationship moves seamlessly from cohabitation to marriage without any major alteration in the way couple live" cf if cohabitation on basis of trial period to see if basis for later marriage [para.33]. Conversely, he left out of account period of estrangement during which 1st petition presented from duration of marriage.
Deputy Judge justified departure from equality for 2 reasons:

(1) Judge accepted proposition that entitlement to equal division must reflect not only parties' respective contributions but also accrual over time. He found it fundamentally unfair that party who had made domestic contributions over 12 years should be awarded same proportion of assets as party who made domestic contributions over 20 years. To say otherwise would also be to disregard s25(2)(d).

(2) H brought into marriage assets with present value of $781,000 and a developed career, existing high earnings and an established earning capacity which could equally be treated as a non-marital asset. H also built up significant assets during period of separation. These contributions were unmatched by comparable contributions by W.
These factors justified a departure from equality of 10%.
To avoid arguments about the discount to be applied to H's deferred assets to reflect risk and payment over time, Judge ordered there should be Wells (see below) sharing of realisable and risk-laden capital assets, although this meant there were capital payments made over number of years to W.

Is GW inconsistent with Foster? Judge in GW expressly rejected argument form counsel for W that did not matter if money made over 20, 10, 5 or even 2 year marriage provided within span of marriage. Cases could be reconciled on basis of finding in Foster that property development business was joint venture to which both parties contributed equally whereas in GW H was sole creator of wealth. But doesn't this fall foul of no-discrimination principle in which domestic contributions are valued equally with money-making contributions? It was not argued that W in GW failed to make full domestic contribution. Having said that, result in GW seems to accord with fairness.

4.6 Non-marital assets
The genesis for this debate was the well-known passage in judgment of Lord Nicholls of Birkenhead in White [2000] 2 FLR 981 at p.994C-G.

Again there have been differences of judicial approaches to treatment of non-marital assets, such as inheritances.

The first approach is to ring-fence or quarantine some or all of these assets:
H v H [2002] 2 FLR 1021, decision of Peter Hughes QC sitting as Deputy High Court Judge.
One of H's inheritances which had always been kept separate and apart by H should not be taken into account and a fair balance could be struck without it.

M v M [2002] Fam Law 509 (NI)
Judge deducted inherited assets of £400,000 + £100,000 for CGT from family assets of £3,677,470 before division: 45% to W and 55% to H.
A different approach is taken in Norris v Norris [2003] Fam Law 301, a decision of Bennett J.
Facts: W 49, H 60. 23 year marriage,1 adult child. W's assets £3.7m and H's £4,159,000. Applicant W claims exceptional contributions based on domestic contribution, primary carer of child, contributions from inherited wealth. Destined to fail on Lambert which applies equally to Applicants as Respondents. Judge held that all assets should be included in pool available for distribution. Inherited assets should be treated as part of a party's contribution and weight to be accorded to fact inherited will depend on circumstances: in big money case may well justify departure from equality. In small money case, opposite likely to apply.
W awarded £360,000 to achieve financial equality.
Submitted in system where no community of property, this construction is right and accords with statutory criteria.

5. BUSINESS INTERESTS

5.1 How to apply White and Lambert when assets tied up in family business. Again differences of judicial approach have emerged.

N v N [2001] 2 FLR 69: liquidity need not impact on quantum of award but may well impact upon scheme devised by court to achieve desired result.
"However, I think it must now be taken that those old taboos against selling te goose that lays the golden egg have been laid to rest; some would say not before time. Nowadays, the goose may well have to go to market for sale, but if it is necessary to sell her it is essential that her condition be such that her egg laying abilities are damaged as little as possible in the process."

5.2 In Parra v Parra [2003] 1 FLR 942 CA adopted different approach: parties marry in 1980; 2 teenage children. Parties are 50/50 owners of company and brownfiled site bought for future business purposes. At 1st instance Charles J. awarded W 54.3% of assets and H balance. H appealed and appeal allowed.

Thorpe LJ said fundamentally simple case and court should have adopted broad brush approach. Overwhelmingly obvious solution was equal division. If H did not raise necessary funds to buy out W would have to be sale. Thorpe LJ returned to a theme he had 1st developed in White in the CA:
"The parties had, perhaps unusually, ordered their affairs during the marriage to achieve equality and to eliminate any potential for gender discrimination. They had in effect elected for a marital regime of community of property. In such circumstances what is the need for the court's discretionary adjustive powers? The introduction of the "no order" principle into s 25 of the Matrimonial Causes Act 1973 might contribute to the elimination of unnecessary litigation. As a matter of principle I am of the opinion that judges should give considerable weight to the property arrangements made during the marriage and, in cases where the aprties have opted for equality, reserve the exercise of the adjustive powers to those cases where fairness obviously demands some reordering." [para.27].

5.3 F v F [2003] 1 FLR 847: 28 year marriage with 2 adult children. Example of decision where illiquidity of family company meant W could not receive anything approaching her justified ½ share of assets of just under £3.5m but continued to receive pps of £75,000 pa to enable H and W to share in results of company's performance until such time, if ever, as emerging liquidity enabled clean break to be achieved. H would in effect be trading and making profits from capital, which, in changed circumstances, would fairly have been W's. Example of case where court regarded fair outcome as having higher priority than clean break.
"…the Court of Appeal is not prepared to surrender fairness for sacrifice on the altar of finality."

5.4 Wells v Wells [2002] 2 FLR 97 is another example of case where fairness took priority over statutory aspiration of achieving clean break. The Court of Appeal criticised the judge at 1st instance for not achieving a fair allocation as between H and W of the copper-bottomed and liquid assets as against the illiquid and risk-laden ones.
"Separation of the family should not have terminated the sharing of the results of the company's performance; such sharing could have been achieved by a fair division of both the copper-bottomed assets and the illiquid and risk-laden assets. A substantial increase in the wife's shareholding in the company would have enabled her to participate in future prosperity by dividend receipts or capital receipts on sale or cessation of trade, whereas if profitability were not recovered both parties would have shared a marked reduction in standards of living." [p.97(1)].

5.5 Despite the recent decision in Parra which plainly contemplated a sale of the company if W's ½ share could not be bought out, it is submitted that it is more likely in practice that a court will seek to preserve the integrity of a family company, either by selling off part as contemplated in N or by deferring W's full pay-out either by way of deferred capital payments or a periodical payments order leading to a future capitalisation of maintenance as in F.

6. SMALL MONEY CASES

6.1 There was initially considerable debate over the application of White to small money cases. In Cowan, Thorpe LJ stated:
"Any consideration of the application of the principles in White to the sort of case that is decided daily by district judges up and down the country, and which may therefore be loosely described as average or normal, will no doubt arise and is better deferred to a case prepared and tried since October 2000." [para.56].

6.2 However, in Elliott v Elliott [2001] 1 FCR 477, the Court of Appeal appeared to be applying White principles in fairly undiluted form when it upheld an appeal from CJ and restored the order of DJ who had granted a Mesher order for 45% of the equity in FMH. CJ had made order on Martin terms.

6.3 The definitive statement as to the court's approach is found in Cordle v Cordle [2002] 1 FLR 214 where CA held that first duty of court was to apply s25 criteria in search of the overarching objective of fairness.
"It seems to me that in the search of that overarching objective in the typical ancillary relief case the district judge will always look first to the housing needs of the parties…So in the ordinary case the court's first concern will be to provide a home for the primary carer and the children…"

6.4 Thus more often than not the primacy of need sin a small money case will need equality is an unrealistic objective. There is, however, probably a stronger argument for Mesher orders post-White as exemplified by Elliott and anecdotal evidence suggests they may be enjoying something of a revival.

7. EFFECT OF WHITE ON INCOME PROVISION

7.1 Arguments have consistently (and persistently) been forward since White that anti-discrimination provisions and overarching requirement for fairness means White principles should apply to income provision as well. Even if equal division of capital in case where surplus above needs, H may be left with much larger income than W. Lambert also suggested unjustified for W alone to have to amortise capital, i.e. income award based on Duxbury principles may be discriminatory in big money case. There are two schools of thought:

(1) needs based: if W has capital in excess of housing and income needs, should be sufficient even if H's income much larger. Further while capital provision retrospective in that reflects contributions already made, income provision prospective in that W no longer making contribution to generation of income by H.

(2) Fairness dictates should be some assimilation of income, particularly where W has suffered career handicap by being carer.

7.2 No ruling from higher courts on this issue yet, although decision is expected in autumn on appeal from PRFD. Submit nothing in White to suggest equality cross-check applies to income. Further submit approach to be taken would probably depend on how large disparity is as well as how great surplus is. If surplus very large, unlikely to be case for income adjustment. If surplus not large and H's income very substantial, may be justification for greater than 50% share to include capitalisation of pps.

8. PRE-NUPTIAL SETTLEMENTS

8.1 Whilst this is not a development emanating from White, a significant shift in court's approach to pre-nuptial agreements is worthy of mention. Recent case law shows the court will pay considerably more regard to them than previously. The approach mirrors that applied in cases of agreements for financial relief, i.e. Edgar principles apply.

8.2 In M v M [2002] 1 FLR 654, the court held that it was immaterial whether the pre-nuptial agreement was regarded as one of circumstances of the case or as conduct. Parties had been married for 5 years and had child of 5. Pre-nuptial agreement provided W should receive £275,000 in event of marital breakdown. W's total net worth at breakdown was £300,000 and H's £7.5m. W sought £1.3m. W was awarded £875,000 based on housing need and limited capitalisation of maintenance. Court held that whilst agreement did not dictate W's entitlement, was one of more relevant circumstances of case and had tended to guide it to more modest award than might otherwise be made. Other relevant factors were shortness of marriage and fact H had created family wealth. W also received order for pps for child only + school fees and expenses.

8.3 In K v K [2003] 1 FLR 120, parties separated after 14 months. W had had independent legal advice and was not pressured to sign agreement. Was pregnant with parties' child at time of marriage. W had assets of £1m and H at least £25m.
Held applying Edgar principles no injustice in holding W to terms of agreement as to capital, i.e. £120,000. However, W was entitled to continuing pps despite absence of provision in agreement in view of ongoing contribution in caring for child. H was also ordered to pay £1.2m to provide house and furniture for W and child until child ceased full-time education when capital should revert to H. Approach akin to that taken in applications for financial provision for child under CA 1989, e.g. A v A [1994] 1 FLR 657.

9. COSTS

9.1 Currently a mess. Unloved and unlamented Rule 2.69C of FPR repealed by amendment to FPR from 24 February 2003 pending more substantial review of ancillary relief costs rules. Interplay of CPR Parts 43 and 44 and remaining FPR. On literal reading of Rule 2.69B where each party has made offer and award is between two (probably most common situation), both will end up paying costs. See interesting discussion on costs issue in GW v RW at paras.78 to 112 where Mostyn QC argues that return to Gojkovic principles inappropriate in post-White era [para.85] and he suggests safer starting point in big money cases to be no order as to costs save where unreasonableness of one or other party demonstrated [para.92].

10. CONCLUSIONS

10.1 Post-White working out has not led to uniformity of judicial approach to all problems thrown up, e.g. approach to family businesses and liquidity.

10.2 Rich husbands with aid of expensive lawyers, will not give up quest for new ways to undermine equality. Now that special contributions have been sat on from a great height, how long before negative contributions, i.e. conduct, rears head to justify less than 50% awards?

10.3 White combined with FDR has led to more cases settling and settling earlier.

10.4 Valuations, particularly of businesses, have assumed new importance in wake of demise of reasonable needs and replacement by cross-check of equality.

10.5 Court of Appeal needs to give definitive ruling on effect of White on income provision.

10.6 Cost rules and principles need sorting as matter of urgency.