Case No. EWFC-155

v McFarlane [2006] UKHL 24, in particular the speeches of Lord Nicholls and Baroness Hale, should be followed to achieve a fair outcome. Extracts from these speeches appear below.33.Per Lord Nicholls:-“.” 34.Per Baroness Hale:-“35.In the years since 2006 the courts have become very used to applying the needs and sharing principles and it is not necessary for me to say very much about them at this stage, save to say that Lord Nicholls’ words (“When their partnership ends each is entitled to an equal share of the assets of the partnership, unless there is a good reason to the contrary”) have become widely applicable in relation to matrimonial property. For example, in the words of Mostyn J in JL v SL [2015] EWHC 360:-“Matrimonial property is the property which the parties have built up by their joint (but inevitably different) efforts during the span of their partnership. It should be divided equally. This principle is reflected in statutory systems in other jurisdictions. It resonates with moral and philosophical values. It promotes equality and banishes discrimination.”36.The present case is perhaps unusual because it engages, at least potentially, the compensation principle. I shall return to this issue, and the various authorities on it, below. FIRST CONSIDERATION – THE WELFARE OF THE MINOR CHILDREN37.I bear in mind that I must give first consideration to the welfare while a minor of any child of the family who has not attained the age of eighteen. In this case both children of the family are under 18. It is therefore necessary for me to consider how their respective needs and interests will affect this case. 38.It is common ground that both parties will need enough money to house, feed and provide a reasonable lifestyle for the children when in their care and I shall take this matter into account when assessing need below.39.It is common ground that my order should contain provision for the husband to pay child periodical payments to the wife for the benefit of the children and that he should also pay all their school fees for the remainder of their secondary education.40.There is a dispute about the quantum of child periodical payments order and its duration, which I need to resolve, and the parties agreed at the PTR hearing to an order using the methodology in V v V [2001] 2 FLR 799, giving me power to fix the appropriate quantum on a variation. 41.There is also a dispute about whether my order should contain a provision for university tuition fees to be paid by the husband.PROPERTY AND OTHER FINANCIAL RESOURCES42.In relation to the “property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future” many of the figures are not controversial and I do not need to deal with them in detail, but there are a number of disputed issues to determine, which I do as follows.43.The first issue relates to the US Property:-(i)In 2015 the property was owned and occupied by the wife’s father. He then ran into some financial difficulties and it was agreed that the husband and wife would make an outright purchase of the property on the basis that the wife’s father would be able to continue to live in it during his lifetime, if he so wished.(ii)The purchase was made for $950,000 in 2015 and it continues to be held in joint names. The wife’s father is now aged 91 but continues to occupy the property as his home.(iii)It is common ground that this should be regarded as matrimonial property to be shared equally between the parties and it is common ground that its net value should be attributed to the wife’s half share on the division of assets, but the parties have not been able to agree the value of the property.(iv)I note that the wife’s Form E suggested a gross value of $1,250,000 and the husband’s Form E suggested a gross value of $1,332,300. Splitting the difference between these two figures at this stage may have saved a good deal of trouble and cost, but instead of doing this a direction for an SJE valuer was made at the First Appointment.(v)Thus, Mr Tom Cullen reported as an SJE real estate appraiser on 15th March 2022 and suggested a value of $1,475,000. The wife was unhappy about this figure and (in the approved manner) quickly posed a list of written questions to test his appraisal. Unfortunately, Mr Cullen became ill and failed to answer these questions until the day before the hearing in November 2022.(vi)In the meantime the wife made a Daniels v Walker application for her own valuer, which I allowed at the PTR. This allowed the admission of the written report of Ms Lisa Annunziata, another real estate appraiser, dated 26th July 2022 which suggested a value of $1,275,000.(vii)I heard both experts giving oral evidence. I found myself more persuaded by Ms Annunziata’s analysis. Mr Cullen was an engaging witness, but had to accept a number of specific avoidable errors in his written report and had to downgrade his valuation to $1,400,000, rather ‘on the hoof’. It may be that he was a little distracted by his illness, but overall I felt his approach was more casual, and less reliable, than that of Ms Annunziata. The husband’s Form E figure and Mr Cullen’s own assessment of the general trend in local property prices between 2015 and 2022 also pointed more in the direction of Ms Annunziata’s figure.(viii)My overall conclusion is that I should assess the value of the property at $1,275,000. After conversion to UK £ at £1,080,508, and the net value is identified by a deduction of agreed notional sale costs (£32,415) and estimated tax on a disposal (£127,659), this producing a net value of £920,434. This is the figure I shall put in my schedule.44.The next issue relates to the New York property:-(i)This is a flat in New York City. The legal title is in the wife’s sole name, she having purchased it in April 2005 for $775,000, funded by her savings of $175,000 and a $600,000 mortgage in her sole name. She had also rented the flat before the purchase from September 2004 to April 2005. (ii)It is common ground that this property has a gross value of $1,320,000. It is common ground that after conversion to UK £ the value is £1,118,644, and the net value is identified by a deduction of agreed figures for notional sale costs (£33,559), estimated tax on a disposal (£238,041) and the outstanding balance on the mortgage (£266,875), this producing a net figure of £580,169. (iii)The issue here is whether it should be treated as matrimonial property (and thus strongly subject to the sharing principle) or non-matrimonial property (thus probably free from the sharing principle). (iv)It is the wife’s case that this is her property, that is has not played a central role in the marriage and that it should be treated as non-matrimonial property and not counted in the sharing process. It is the husband’s case that it was central to the early part of the relationship, albeit for less than two years, and should be divided equally, like all other assets, although he is content for it to remain on the wife’s side of the asset schedule after an equal division.(v)This dispute is one reason, perhaps the main reason, why the 2004 to 2006 cohabitation issue was argued over with such ferocity. I have now made a finding that the relationship of cohabitation began in August 2004. It follows from this finding that the property was purchased during the course of the relationship and was the family home from August 2004 to December 2006 and this places it fairly persuasively (though not necessarily inevitably) in matrimonial property territory: see, again, Lord Nicholls in Miller v. Miller; McFarlane v McFarlane [2006] UKHL 24. I note also that the mortgage has been significantly reduced in the course of the relationship (from $600,000 in 2005 to $314,912 now) and there is evidence in the bundle of at least one contribution to the mortgage made by the husband in 2006 – in the period after 2006 the property has been let to tenants and the rental payments have gone towards making the mortgage payments.(vi)In the end I have not at all been persuaded by the wife’s arguments on this. It is part of the matrimonial acquest and to exclude this asset because of the difference in contributions to the purchase price would in my view be discriminatory. The wife’s argument has the flavour of “what’s mine is mine and what’s yours is half mine”. My overall view is that this property should be treated as part of the matrimonial property to which the sharing principle should apply and I propose to include this asset in my schedule at the figure of £580,169.45.The next issue, which is in rather similar vein, is that the wife argues that at least some of her pensions and investments pre-dated the marriage and should be excluded from the assets subject to the sharing principle. The strength of this argument is weakened by my findings in relation to the commencement of the relationship and it is not at all clear on the evidence how much of these investments should be treated as pre-dating August 2004 as opposed to a later date. Further, and also significantly, is the fact that the husband similarly accrued some of his valuable pension prior to 2004 (it is currently worth £1,023,826 and he started accruing the pension in 1999). If I were to deduct a straight-line portion of his pension (although this might not be fair because he has not accrued it on a straight-line basis, there is no evidence to assist any different calculation) this would remove a significant amount to set off against whatever the correct figures were for the wife. I find myself unattracted by the proposition (advanced by the wife) that I should deduct from one side and not the other. In my view the search for fairness here is best served, absent any detailed expert accountancy evidence and after this long marriage, by leaving in all of these assets in my schedule and subjecting them all to the sharing principle.46.As far as the husband’s restricted / deferred compensation stock is concerned, the parties have agreed a form of words whereby all those which have currently been granted (whether yet vested or not) will be sold as and when they can be and the net proceeds divided equally. This does not apply to any granted in the future. This has the consequence that these sums will be paid over a period of years (perhaps four) and if the husband leaves the bank for whatever reason and ends up forfeiting these interests (which both agree is unlikely) then the wife will also forfeit her share. This seems like a reasonable compromise and I propose to adopt it. 47.The husband accepts that there should be a pension sharing order from his pension which has the effect of equalising CEs. It is agreed that if I include all the wife’s pensions in the equal division (which I will – see above) then the appropriate percentage figure for the pension sharing order will be (to two decimal points) 39.02%. I note in passing that this is not a case where there has been a PODE report commenting on the loss of benefit arising from transferring money out a defined benefit scheme, but it has been common ground that such a report was not appropriate in the circumstances and I do not intend to interfere with that decision in the context of the assets available for distribution in this case.48.Having made these determinations I am now able to set out my assessment of the assets and debts for distribution in this case.49.The situation can be summarised as follows:-REALISABLE ASSETS/DEBTSJointWifeHusbandPENSION ASSETSWifeHusband50.On the basis of this asset schedule an overall equal capital division of assets would be achieved by:-(i)the wife receiving the American Property;(ii)the husband’s stock being divided equally as and when received;(iii)the joint HSBC accounts being divided equally;(iv)the husband paying an equalizing lump sum of £2,092,126; and(v)there being a pension sharing order of 39.02% on the husband’s pension; and(vi)otherwise assets remaining where they stand.Such a division, representing the application of the sharing principle, remembering that fairness and equality usually run together hand in hand, would produce the following outcome:-NEEDS51.I propose to turn next to the question of the “financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future” I have the following observations.52.I bear in mind that, in the context of this case, it is appropriate for me to make a generous assessment of needs; but this is not (as Mr Calhaem has suggested) a case which falls into the category of the super-rich, justifying the applicability of the sorts of comments made by Thorpe J in F v F [1996] 2 FCR 397 and Mostyn J in Collardeau-Fuchs v Fuchs [2022] EWFC 6. 53.Both parties have the need for a suitable home for themselves and the children when in their respective care. I have heard and read a good deal of evidence on this. In this context I have in my mind the standard of living that the parties jointly enjoyed during the marriage, and the agreeable house they lived in from 2017 to 2022. Both are looking for a good country home in the vicinity of the city in which they live or possibly further West in the context of B’s attendance at boarding school. The husband contended for a mutual housing need of c. £2,000,000. The wife contended for a mutual housing need of c £3,000,000. I sensed both contentions had an element of strategic positioning rather than genuine attempts at assessing need. As ever, the selection of a home takes into account location, size, appearance, decorative state, number of bedrooms and no doubt other things and it is not for the court to select a particular property, but overall my conclusion is that a housing fund of c. £2,500,000 each (including the costs of purchase) would provide a generously suitable home for each of the parties.54.I note that Mr Calhaem’s submissions (taking their lead from the wife’s Form E) threw in such items under the heading of capital need as £250,000 for renovation and decoration (of an as yet unidentified house?), £250,000 for furniture, £85,000 for old age care provision, £14,000 for graduation gifts for the children and £15,000 for funeral costs. For me, these had the feel of lawyers’ strategic padding and I decline to include them under the heading of capital need. I take the same view about the asserted need of £919,427 for a second home in America – if she does remain living in the UK (and she may well not once the children have left school) then it is reasonable for her to have good holidays in the USA each year, but there is no need for the ownership of a second home. 55.Both parties have the need for a suitable amount of income for the remainder of their lives to meet a reasonable amount of spending needs for themselves and the children when in their respective care, in the context of their respective ages, the duration of the marriage and the standard of living that the parties jointly enjoyed during the marriage. Inevitably this case has involved the usual ‘battle of the budgets’. Again, I sensed a significant element of strategic forensic positioning in the way each side put forward its figures; but this comment particularly applies here to the wife. The reality here is that this high income family did not generally live a hugely high spending lifestyle. To their credit they generally spent sensibly and saved a good deal, which is why they have a substantial amount of capital at this stage. My sense was that the wife’s proposed annual expenditure budget of £331,885 for herself and the children when with her (living mortgage-free and not including any school fees) was far in excess of anything which could reasonably be described as a ‘needs’ budget in the context of the standard of living which had been enjoyed during the marriage.56.On a very broad analysis, if the wife never earned another penny in her lifetime, the equal capital division discussed above would leave her with investment funds (including pensions) of just short of £4,000,000 to fund her living expenses for the remainder of her life. In very broad Duxbury terms this would provide (using At a Glance tables) an income for life of c. £175,000 per annum net. In my view it could not sensibly be argued in this case that the wife has income needs above that figure. Indeed, I would probably place the figure rather lower than this and in addition, as I shall set out in more detail below, I do not accept that it is reasonable to assume that the wife will never earn another penny in her lifetime. Further, she will have the benefit of child periodical payments to supplement her income while the children are in education.57.I agree with and propose to follow the view expressed by Mostyn J in CB v KB [2019] EWFC and again in Collardeau-Fuchs v Fuchs [2022] EWFC 135 to the effect that “it is pre-eminently reasonable that the wife should be required to amortise – that is to say, to spend – her Duxbury fund…After all that is what money is for.”58.My conclusion is that the wife’s sharing claim is greater than her needs claim and there is no justification, in capital or income terms, in my making additional provision for the wife based on needs.INCOME AND COMPENSATION59.I now turn to the question of income and consider “the income, earning capacity…which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire” and “whether it would be appropriate to require periodical payments to be made or secured only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party” and the related question of compensation. I have the following comments.60.The husband is a very capable individual who has earned well with the bank throughout the marriage. In the years that he worked in the Middle East he paid no income tax and this has made a big contribution to the savings held by the family. His income is paid through a range of incentive mechanisms and a good portion of his income for a particular year is decided in the January of the following year and is based on performance in the previous year. In recent years his income has been, in overall terms, the following:-61.The husband has taken every opportunity to suggest that this income is heading on an alarmingly downwards spiral. A key client of his died in 2021. The husband was unwell for a while in 2021 and has a bad back as well. He has informed the bank that he wants to take four weeks unpaid leave each year with his children. At age 48 he is getting to the end of his career in a young person’s business. His ‘book of business’ has been partially distributed to others. He has been warned that the January 2023 meeting will give him bad news. It may be that there is something in some or even all of these pessimistic observations, but (as Mr Calhaem was able to establish in cross-examination) he has something of a record for making unduly pessimistic predictions and I sense some significant strategic positioning here as well. Even if his income falls to some extent in the years ahead, I don’t think it is unreasonable to predict that (unless he chooses otherwise) he will most likely remain by most standards a very high earner for a significant number of years ahead. As Mr Calhaem has illustrated, even if he retires at age 60, or even age 55, he should still have been able to save a good deal of money from his substantial surplus of income over expenses, even assuming that he pays full child maintenance and child education costs.62. I therefore turn to the wife’s past, present and likely future income and the related question of whether this is a case for a compensation award.63.It has been established to my satisfaction that in the years leading up to 2007 the wife was a high earner in a not dissimilar bracket to the husband (recalling that these figures date back nearly 20 years when she was in her 30’s). Her income first at an American bank in New York and then at an English bank in London was substantial:-64.It is correct, as Ms Faggionato has submitted, that there was a diminution in the wife’s income in 2007; but it seems to me that this was mostly attributable to her move to London in December 2006 to be with her new husband and her move from the American bank to the English bank (which was also hampered by the effects of the global financial crisis at that time). In 2008 the wife was pregnant with A, then took maternity leave and was then made redundant by the English bank and the wife has never worked in this field again. It was, for me, an unfortunate feature of the husband’s presentation that he urged that I should somehow conclude from the events of 2007 and 2008 that the wife had lost her way and lost her status as a potential high earner. I have little doubt that the wife remained a potentially high earner and the reasons for the loss of her position were first the move to London to be with the husband and secondly the arrival of her first child in 2008 and her decision to devote herself to the child-care role – both in my view relationship-generated sacrifices by the wife. If neither of these things had happened, I am satisfied that she would have remained a very high earner, probably in New York. 65.In my view the wife’s ability to be a high earner was further inhibited by two further relationship-generated developments - the arrival of their second child in 2011 and the move to the Middle East between 2010 and 2016. In this context the letter sent by the husband to his employers in 2011 in the context of negotiations about his remuneration after the move between Middle East countries is, in my view, of significance. It may be that the wife had a hand in its drafting, but that doesn’t detract from the point. In this letter the husband says:-“So, we signed a 3 year contract just over 12 months ago to move from London to the 66.There is a clear indication here, in 2011, of the husband accepting that the move to the Middle East involved a hefty career sacrifice for the wife, so justifying higher pay for him. There is no indication here of his belief that she had lost her earnings touch in 2006 or 2007.67.In the meantime, the wife set up a fabric business through a company owned by her,. It has made a little money from its trades but doesn’t seem likely (even on the most favourable analysis) to bring in an income of more than £15,000 to £20,000 per annum for the wife and its current performance may be much lower than even this. 68.It was put to the wife by Ms Faggionato that she could and should now return to the investment finance world at a high level (probably inconsistently with the submission that the wife had in fact lost her touch in 2007/2008), but the wife did not think this possible and I agree with her that this is unlikely at age 50 after 15 years out of that field, certainly not at anything like the pay levels she used to receive. It does not follow from this that she has no earning capacity at all or even no earning capacity beyond that which she could earn through her company. She is intelligent, resilient and well qualified in business, still not old and in reasonable health and her need to be devoting time to child-care is diminishing and will diminish further when B becomes a boarding pupil next year. Although there was little evidence before me targeted towards this, I would suggest that, if she so decided, it is more likely than not that the wife could find remunerative employment at perhaps £50,000 per annum gross in a business-related employment and quite possibly significantly more than that.69.As I have already said, a combination of this earning capacity and the capital assets with which she will be left under the sharing principle means that, for me, there is no sustainable basis for any further provision based on need; but what then of a compensation claim?70.Ms Faggionato has suggested on behalf of the husband that no such claim should be contemplated by the court. Mr Calhaem on behalf of the wife has contended for an award expressed in a CPI linked spousal periodical payments award of £212,668 per annum for seven years without a section 28(1A) bar. This would be worth c.£1,500,000 in capital terms.71.A return to the core guidance set out above from the House of Lords in Miller v. Miller; McFarlane v McFarlane [2006] UKHL 24 (for example Lord Nicholls comment that “Compensation and financial needs often overlap in practice, so double-counting has to be avoided. But they are distinct concepts, and they are far from co-terminous”) suggests that a compensation award can be made even where needs are fully met; but I observe that later authorities at High Court level were discouraging to compensation claims. 72.73.Mostyn J in SA v PA [2014] EWHC 392, in his customarily persuasive and clear style, expressed his strong discomfort with the very principle of a compensation claim as articulated by the House of Lords in Miller v. Miller; McFarlane v McFarlane [2006] UKHL 24:-" I confess that I find the theory to be extremely problematic and challenging both conceptually and legally… Let me try to explain my difficulties …compensation almost invariably denotes a payment made by a wrongdoer to a victim to make amends for harm caused by the wrongdoer to the victim. The language of the House of Lords appears to reflect this concept in that they speak of "handicap" or "sacrifice" of "suffering a loss" or "economic disadvantage". But in any usual situation where compensation is claimed the victim is not an active enthusiastic voluntary participant in the events that give rise to the claim. True, in a negligence claim contributory negligence can reduce the damages, but even there it can hardly be said that the victim was an active volunteer. Lady Hale recognises this strange aspect of this type of compensation claim in para 138 where she said "all couples throughout their lives together have to make choices about who will do what sometimes freely made in the interests of them both. The needs generated by such choices are a perfectly sound rationale for adjusting the parties' respective resources in compensation" and in para 154 where she said "the fact that she might have wanted to do this is neither here nor there"…I would have thought the free choice made by the claimant to give up work was the dominant consideration. While it was true that her decision was agreed with Mr McFarlane, the reason Mrs McFarlane gave up work was because she decided to give up work. No-one forced her to give up work. She was not browbeaten by Mr McFarlane to give up work. Her motives for giving up work seem to me to be irrelevant. Perhaps she was driven by an intense maternal instinct. Perhaps she was bored with her high-flying job and saw a life being supported by Mr McFarlane bringing up her children as more comfortable. Perhaps she wanted to do something else. Her motives seem to me to be irrelevant. At the end of the day, however, what cannot be disputed is that the reason Mrs McFarlane gave up work was because she, an intelligent liberated autonomous adult woman, decided to give up work. I cannot see how that can be characterised as a loss "suffered" by her entitling her to an award in excess of her reasonable needs.”Nonetheless, he acknowledged that he was formally bound by the House of Lords decision but sought to suggest some strict guidelines as to when a compensation award might be made. I agree with his sentiment that compensation claims are likely to be very rare and almost always delivered, if at all, in the context of an assessment of need at the most generous level; but I don’t read this as meaning there can never be exceptions to this. 74.Although not a case specifically about compensation, Moylan LJ’s judgment in Waggott v Waggott [2018] EWCA Civ 727 makes clear that the court should not value an earning capacity for sharing purposes and this in most cases has, in practical terms, a discouraging consequence for compensation claims as in many circumstances these concepts will become entwined and any court dealing with such a claim must be careful to respect the Waggott decision.75.Despite this line of authorities discouraging the pursuit of compensation claims, I have found Moor J’s judgment in RC v JC [2020] EWHC 466 to be the most resonant and applicable to the facts of the present case. In that case the court held that, prior to the marriage, the wife had been on a clear path to becoming a partner in a magic circle Solicitors’ firm and would in all probability have become a very high earner. Instead, she became a child-carer for the family on the arrival of children and her high earning prospects were accordingly extinguished by a relationship-generated sacrifice. The husband continued his high level, high earning, work through the marriage, a capital pool was duly established and it was likely that he would continue to earn at a high level for at least another four years after the court hearing. On the application of the sharing principle an equal division of assets would produce for the wife a fund of £4,850,000. This would be sufficient to meet her housing needs of £2,500,000 and income needs through a Duxbury fund (including some pensions) of £2,350,000. The court could not justify any needs-based outcome greater than the sharing outcome; but Moor J went on to consider whether it was appropriate to make a discrete compensation award, and decided to do so in the sum of £400,000 and, in so doing, expressed the following views:-“I entirely accept that McFarlane was an unusual case where the capital was not nearly as high as in this case, whereas the Husband's income was very high. A periodical payments order was probably inevitable in McFarlane in any event, but the figure awarded of £250,000 per annum was considerably higher than need alone would justify. I accept Mr Bishop's submission that there have not been many successful claims for compensation for relationship generated disadvantage. In my view, this is, primarily, because, even if there is sufficient evidence of loss, a respondent can either argue that the applicant would never have been able to earn as much as they are going to be awarded from their share of the marital assets or that the assets and income are insufficient to do more than cover the parties' needs. Equally, I remind myself that an earning capacity is not capable of being a matrimonial asset to which the sharing principle applies. A spouse is not, therefore, entitled to share it going forward (