High Net Worth Financial Orders

1) How HNW cases differ to a general financial order case

1) Needs is not such an issue

2) There is more likely to be a distinction between marital and non-marital assets

3) Pre-Nupital Agreements are used in HNW

4) Compensation

5) Contribution / Special Contribution

6) Clean break more likely to be achieved

7) Capitalisation of periodical payments to achieve clean break

1) Compile a Schedule of Assets and Liabilities

Where can the financial information be found?

a) The scenario

b) The two parties’ Form E’s

2) Compile a Schedule of Income and Outgoings

Where can the financial information be found?

a) The scenario

b) The two parties’ Form E’s

a) Consider whether property will be divided into matrimonial and non-matrimonial property.Miller / MacFarlane – Established three principles:

2) When deciding whether property falls into the matrimonial pot the court should consider these factors:

a) Needs of both parties

c) Mingling of assets

b) Duration of the marriage

d) Fairness

The court will consider all the circumstances but the first consideration should be the welfare of any child of the family under the age of 18 – s.25(1) MCA 1973

2) The first consideration – Welfare of the child

1) Income, earning capacity, property (assets) and resources of both parties – s.25(2)(a) MCA 1973

3) s.25(2) MCA 1973 Factors

The court must have regard to all the circumstances of the case – s.25(1) MCA 1973

1) All the circumstances of the case

3) The factors the court will consider to decide an appropriate package

1) The principle of equal division of matrimonial property may not apply to non-matrimonial property with the same force, especially where needs have been met

3) Divide the assets into matrimonial and non-matrimonial assets Non-matrimonial assets will either belong solely to the

owning party or the principle of equality will simply be less vigorously applied

b) Potential non-marital property can be divided into four categories

1) Pre-marital assets

3) Assets acquired post separation due to one party’s efforts

2) Property acquired by gift or inheritance

4) Business or investment assets generated by one party

c) Inherited assets Rossi v Rossi Again duration of the marriage, mingling and needs are

relevant factors

K v L Court awarded husband £5 million from shares of £59

million Equality can be departed from given the exceptional

contribution in inherited wealth brought to the marriage by the wife

g) Consider the whether a party needs to be compensated for loss of potential / work – Miller / MacFarlane

1) If a spouse has given up a successful and potentially lucrative career in order to look after the family that spouse has the right to be compensated for that loss, normally through increased periodical payments

2) However the ‘compensation’ is not a separate head of claim and should be considered as part of ‘fairness’ – RP v RP

3) A party with ordinary career prospects is likely to have been compensated by an equal division of the assets in a HNW case – VB v JP

d) Pre-marital assets Jones v Jones Court ascertained what the potential of a pre-martial

asset was before marriage Declared this non-martial (£8 million)

Took this figure off the value of the asset on divorce (£25 million – £8 million = £16 million)

Awarded wife half of the value of the remainder (£16 million x 0.5 = £8 million)

N v F Mostyn J – Will turn on the facts of each case But will depend on duration or the marriage, mingling

and needs

e) Post separation assets B v B Husband acquired a substantial sum post-separation Position is that sharing ends at the end of the

matrimonial partnership

f) Business or investment assets generated solely by one party

Depends entirely on the facts of the case The timing of the acquiring of the assets is important Again duration of the marriage, mingling and needs are

relevant

2) Needs, obligations and responsibilities – s.25(2)(b) MCA 1973

a) Needs are likely to be much higher in HNW cases

b) However needs should easily be met by the marital assets and will therefore will have less of an impact on the division of assets compared to LNW cases

3) Standard of living prior to the marriage breakdown – s.25(2)(c) MCA 1973

4) Age of the parties and duration of the marriage – s.25(2)(d) MCA 1973

5) Physical or mental disability of either party – s.25(2)(e) MCA 1973

6) Past, present and future contributions to the welfare of the family – s.25(2)(f) MCA 1973

Impacts upon the factors in Miller / Macfarlane as to whether non-marital assets will fall into the marital pot as the older the parties are and the longer the duration of the marriage, the more the assets will have mingled

7) Conduct of the parties – s.25(2)(g) MCA 1973

8) The value of any benefit lost on the dissolution of marriage – s.25(2)(h) MCA 1973

Pre-Nuptial agreements fall into ‘conduct that it would be inequitable to disregard’ and therefore are mentioned here, but discussed in full later / below

4) A Clean Break – s.25A

5) The ‘Yardstick of Equality’ (fairness) – White v White

A clean break, in particular capital clean break, is far easier to achieve in a HNW case due to the surplus of assets

Consider whether there has been a special contribution in HNW cases

Pensions are likely to be much larger in HNW cases and greater consideration should be given to the loss of such a huge benefit

Lambert v LambertYou require very limited and quite exceptional circumstances to depart from equality of contribution (home maker / bread winner)

Sorrell v SorrellCourt felt that the husband’s business activities were akin to genius and so his special contribution warranted a departure from equality

Will be higher in HNW cases, but should be able to maintain this standard of living after the division of assets unlike in a LNW case

An income clean break may also be achieved through the capitalisation of payments (see 6 below)

4) Is there a Pre-nuptial agreement and how will it impact on the financial package?

a) What approach can the court can take to a Pre-nuptial agreement

1) Fully enforce the PNA;

2) Disregard the PNA entirely; or

3) Be partially guided by the PNA so that some parts are enforced and for other parts, additional provision is also made

c) To assess the approach the court will take, Lord Phillips in Radmacher v Granatino laid down a three step test:

1) Were there circumstances surrounding the making of the PNA that should detract form the weight that should be accorded to it?

2) Were there circumstances attending the making of the agreement that should enhance its weight (the foreign element)?

b) What type of PNA will be enforced by the court?

A PNA will be enforced that is “freely entered into by each party with a full appreciation of its implication unless in the circumstances prevailing it would not be fair to hold the parties ot the agreement” – Radmacher v Granatino

a) Was there the presence of any standard vitiation factors such as duress, fraud and misrepresentation?

If there is a foreign element to the PNA (nationality, residence or a foreign law clause) it weights on whether the parties had intended their agreement to be effective, as other jurisdictions approach PNAs more favourably as more likely to be enforceable

b) Was one party exploiting their dominant position to secure an unfair advantage ?

c) Was there anything in the parties’ circumstances at the time which would suggest unenforceability of the PNA such as:

Emotional state Pressures they were under Age Maturity Whether was married / in long relationships before

d) Was there appropriate legal advice and disclosure at the time the PNA was entered into including:

Any material lack of disclosure of information or advice e.g. in relation to assets

No legal advice given However a lack of legal advice is ok if the party is

evidently fully aware of the implications of the PNA

2) Factors in relation to marital and non-marital assets

1) No certainty in this area Opens up lawyers to litigation

2) PNAs are being decided on a case by case basis

e) Consider the problems for family lawyers with PNAs

3) Do the circumstances now prevailing (i.e. at the time of divorce) make it fair or just to depart from the agreement?

a) Whether the PNA prejudices the reasonable requirements of any children of the family

b) Whether the court should respect the individual autonomy of the parties and respect the decision of the couple as to how their financial affairs should be regulated

c) Whether there is anything unfair in the agreement regarding provisions for non-marital property acquired before the relationship or that was anticipated as being received from a third party

d) Whether the PNA has failed to address changes in the parties circumstances over the years which were not envisaged at the signing of the PNA, which would now make it unfair to hold them to their agreement

d) Consider recent (Post-Radmacher) case law and its approach to PNAs

Cases in which weight was given to the PNA

Cases in which little or no weight was given to the PNA

3) Wealthier party more likely now to want a PNA to protect themselves as the starting point for division of assets is now equality following White v White to

Z v Z French couple entered into PNA in France Both had full understanding of implications although no formal

legal advice Both parties aware of each other’s financial positions Judge held the parties to the PNA but found that, as 85% of

capital went to husband, wife’s needs were not catered for Judge used the PNA to depart from 50-50 equality but didn’t

give it full enforceability, awarding the wife 40% of capital

V v V PNA was a ‘good and powerful’ reason for departing form equal

50-50 division Husband would keep all pre-owned assets under PNA however

again the result was the wife’s needs would not be met Again, judge gave weighting to the PNA but did not enforce it

Kremen v Agrest Under PNA wife would get £1.5m out of £20-30m No financial disclosure at the time of the agreement Advice received was not independent PNA given no weight whatsoever

6) Finally look back over the package and consider its fairness

Is the proposed package fair bearing in mind:

1) The s.25 Factors

2) Any PNA

3) The existence / division of non-marital and marital property

2) Workout the shortfall between the receiving party’s income and their needs (the amount their maintenance payments will be)

3) Enter this figure into the Duxbury table to work out the capitalisation of that shortfall

5) Would it be possible to and advisable to capitalise income payments?

1) Are there enough excess capital assets to possible capitalise the spousal payments?