Needs must when dividing assets in a divorce

Fri 7th Jul 2017

How does a court decide on dividing assets when a couple divorces? Karen Pritchard, family lawyer at Coodes Solicitors comments on a high profile divorce case that reiterates the principle that, however wealthy you are, needs are the key factor.

A recent divorce case (referred to as FF –v- KF) reiterates the principle that ‘needs’ are the most important factor when dividing assets. In this high profile case, the husband was 65 and the wife 38. They started a relationship in 2004 and were due to marry in December 2007. The husband called off the marriage three days before the ceremony and the wife as a result, had to leave the UK to return to the Ukraine. They rekindled the relationship in 2010, started living together in 2011, and married in October 2011. By September 2013 they had separated.

The husband had assets of £37million, of which £2million was acquired during the marriage. The parties enjoyed a very high standard of living.

The wife suffered serious psychological harm as a result of the marriage and its breakdown. This had been diagnosed by an expert consultant psychiatrist and was taken into account by the court when assessing her needs.

Dividing assets of £37million

Initially a circuit judge heard the trial over five days in June 2016. The Appeal Judge criticised him for allowing a detailed investigation into marital assets and how they were obtained, where both parties’ positions were based on an assessment of wife’s needs. Both the husband and wife accepted the wife should receive a lump sum on a clean break basis to buy a property and provide an income-producing fund. The husband proposed £1.75million, the wife £6million. The judge awarded £4.25million. This was broken down as £2.3million housing fund; stamp duty of £190,000; other capital needs of £127,500; debt repayment of £291,000; and an income fund of £1.34million, representing a 10-year term of maintenance. The husband appealed.

The appeal judge dismissed the appeal saying that the trial judge quite clearly made an award that was wholly based on an assessment of the wife’s needs. The judge ruled that although the husband said it was overly generous, it could not be challenged as ‘wrong’ on appeal.

The judgment went on to give a summary of the Family Court’s approach to needs and its meaning. These are not new principles, but are a helpful reminder of how cases are decided by applying the two principles of sharing and needs.

Are assets divided based on ‘sharing’ or ‘needs’?

As a starting point in a divorce, assets should be divided equally. This means that what has been built up during the marriage, including the value of the home, savings and pension, should be split equally between both people. This is known as the ‘sharing principle’.

However, it is not that simple. Any divorcing couple will have to look at what each person needs to manage in the future. This includes an income and housing. This is referred to as the ‘needs principle’.

In most cases, the sharing principle and needs principle will each give a different figure. So, which is the right one?

The authorities make clear, and common sense dictates, that the result is the higher of the two figures generated by the principles. So, if the sharing principle produces a figure of £1million but the needs principle produces a figure of £4million then the result is £4million. If the needs principle produces a figure of £1million but the sharing principle produces a figure of £4million then the result, again, is £4million.

So far as the needs principle is concerned there is an almost unfettered discretion. The main rule is that, except in a situation of real hardship, the ‘needs’ must be related to the marriage. For example, Heather Mills-McCartney was awarded over £25million to meet her ‘needs’, Mrs Juffali was awarded £62million to meet her ‘needs’ and in the very recent case of AAZ v BBZ the court assessed the applicant-wife’s ‘needs’ in the sum of £224million.

Does ‘needs’ really mean needs, in divorce cases?

Plainly ‘needs’ does not mean needs. Obviously, no one actually needs £25million, or £62million, or £224million for accommodation and sustenance. The main drivers in the discretionary exercise are the scale of the payer’s wealth, the length of the marriage, the applicant’s age and health. The standard of living is also taken into account but cannot be allowed to dominate.
In a short marriage case, the discretion when assessing needs is particularly broad and fact-sensitive. Although it may be argued that in such cases need is determined by an award of a term of years, there is no rule, or even guideline, to this effect. There have been cases where lifelong support has been awarded after a short marriage.

What can we learn about the division of assets from this divorce case?

Although many cases we deal with have much more modest assets than the one I have described, the principles remain the same. The needs of the parties, and in particular any minor children, will always be the first priority of the court. The skill lies in assessing and presenting those needs to the best advantage of the client to achieve the outcome they want.

For advice on any of these issues, please contact the Family team at Coodes Solicitors on 0800 328 3282.

Fri 7th Jul 2017

Karen Pritchard

Partner

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