What’s mine will no longer be yours: A review of the case law surrounding post-separation accrual of assets on divorce

7 March 2022

Anyone who has visited a family lawyer will be aware that it is a highly discretionary area of law. Part of the reason for this is that much of what guides a judge’s decision, and indeed a lawyer’s advice, are the cases that have come before them. Of course, there are statutes and binding law that judges must follow, for example S1 (1) Children Act 1989 ‘[…] the child’s welfare shall be the court’s paramount consideration’, but case law provides invaluable guidance to family practitioners. Our judicial system allows flexibility so that when it comes to the interpretation of statute the courts can evolve and progress in line with society.

Each case will be decided on its own merits but as shown in this article, the case law has developed and there have been trends to notice, especially concerning post-separation accrual.

The case of White v White [2001], starting with the immortal words “Divorce creates many problems”, aimed to equalise any perceived unfairness in the division of martial assets on divorce. Lord Nicholls said that “in seeking a fair outcome, there is no place for discrimination between husband and wife and their respective roles”. The case emphasised that where the available assets exceeded the parties’ housing and income needs, the remaining marital pot created during the marriage should be shared equally. The case aimed to put as many financial assets on the negotiating table as possible. [You can read further about the case from my colleague’s blog: White v White: 20 years on from seminal farming divorce case]

However in the subsequent case of M v M [2004] the courts still seemed to favour the traditional mind-set of hard work predominantly taking place outside of the home. Where the husband’s financial resources had increased significantly since the date of separation, Baron J noted that “the post-separation accrual does not arise from the trading of capital which existed at separation, rather it has accrued from the husband's own hard work post-separation.” Despite this, the wife was eventually awarded a share of his post-separation bonuses due to the husband providing inadequate interim provision for his wife and the proceedings being unduly delayed. This highlighted that the courts were not afraid of taking into account the conduct of parties when using their discretion to divide marital assets.

The appeals heard jointly in the House of Lords in the cases of Miller and McFarlane [2006] led Baroness Hale to call for some “consistency and predictability” in court decisions dividing assets. She expressed that there were three key rationales for distributing assets between parties on divorce: “the relationship has generated needs which it is right that the other party should meet”, “compensation for relationship – generated disadvantage” and “the sharing of the fruits of the matrimonial partnership”. The principles of sharing, needs and compensations cases gave structure to judgements and are the basis of all financial proceedings advice given today.

In the case of Rossi v Rossi [2006], which came out swiftly after the above case, Nicholas Mostyn QC sitting as DHCJ continued to provide some guidance around post-separation accrual of wealth.

Firstly he differentiated between assets that have passive economic growth following separation, such as house price inflation, and increases that have been generated due to active effort; the latter he said with “such sole unmatched contribution should be recognised and reflected by the court in its award.” He stated that if one party had created and increased an asset, post-separation, that was not attributable to a matrimonial asset, there was no reason this should be subject to the sharing principle. Each case would be decided on its own merits and he championed courts taking a broad approach saying that “the non-matrimonial property is not quarantined and excluded from the court’s dispositive powers.”

Secondly, on the subject of bonuses, the judge attached an arbitrary deadline to the distribution of bonuses saying “I myself would not allow a post-separation bonus to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after the separation”. He took the unsubstantiated approach that parties remained financially linked during the period of separation and therefore a strict cut off point was not equitable. He also took into account a range of factors such as behaviour between the parties and prospects of future earnings. [You can read further about the treatment of bonuses here: Doughnut or double - bankers’ bonuses and spousal maintenance].

In the big money case of Cooper-Hohn v Hohn [2014], Mrs Justice Roberts further developed the view that post-separation endeavours deserved to be recognised. She stated that, “I do not consider that it would be fair to treat the wealth creation after the breakdown of the marriage as simply part and parcel of the marital acquest in which the wife should be entitled to an equal share.” If parties could show that they had actively managed the assets, and that they were not attributable to matrimonial assets, it seemed fair that they should be isolated. The all-embracing approach of equal division was once again being examined.

In two recent cases, the courts have sought to establish consistency around the issues.

In Waggott v Waggott [2018] Lord Justice Moylan said, “any extension of the sharing principle to post-separation earnings would fundamentally undermine the court’s ability to affect a clean break”. The courts have come to the wise decision that they don’t want parties linked together by unending, uncertain future financial awards. The courts have always favoured a clean break in finances where possible and if that means limiting access to post-separation endeavours then this might be the balance to be struck.

Importantly, in O’Dwyer v O’Dwyer [2019], Mr Justice Francis gave guidance that “if a bonus is earned during the marriage but not paid out until after the marriage has ended then there is every reason to treat it as matrimonial property in the true sense. Sharing bonuses that were generated or earned after the marriage ended would usually be possible only by reference to the principles of needs and compensation.” Applying this principle to all post-separation earnings, the case law seemed to recognise the importance of giving financial finality in divorce cases. Parties wanted assurance that post-separation endeavours were not definitively subject to equal division; O’Dwyer gave that assurance.

If you have a case where post-separation accrual of assets might be important we are well-placed to advise you and to help protect your financial position on divorce.

FURTHER INFORMATION

If you have any questions about the issues raised in this blog, please contact a member of our family and divorce team.

 

 

ABOUT THE AUTHORS

Felicity Yule is a trainee solicitor at Kingsley Napley and is currently in her first seat in the Family team. Felicity joined Kingsley Napley in August 2017 as a paralegal in the Immigration team. She was promoted to senior immigration advisor and recently offered a training contract with the firm.

Felicity graduated in French and History from King’s College London in 2016, and spent her third year in Martinique. She completed her Graduate Diploma in Law at BPP in June 2017 and her Legal Practice Course in June 2020.

 

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