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Financial claims and divorce

View profile for Nick Ingrey
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The financial claims arising from the breakdown of a marriage are determined by the judges of the Family Court. The only reliable guide to the conduct of this discretionary exercise is contained within the legal structure imposed by Sections 25 and 25A of the Matrimonial Causes Act 1973 (“MCA 1973”). The same statutory criteria, mirrored in the Civil Partnership Act 2004, applies on the dissolution of civil partnerships. Case law has influenced how the statutory criteria is applied, with the overriding objective being a fair outcome.

How are financial claims in divorce assessed?
In essence, a two-phased exercise is conducted by the Court against the background of the Section 25 criteria, namely:

  1. Computation of the parties’ resources as required by s.25 (2) (a) MCA 1973; and,
  2. Distribution of those resources by reference to the three principles of need, compensation and sharing.

Of the three guiding principles of need, compensation and sharing, only need is specifically featured in the s.25 criteria. The compensation and sharing principles are essentially judicial constructs aimed at achieving fairness.

The distribution of the parties’ resources will, generally, be deemed to be fair by the Court if it meets the needs of the parties and their children and, absent compelling reasons, provides a broadly equal sharing of the matrimonial assets (otherwise referred to as “the fruits of the marital partnership”).  The principles of need and sharing are well established and understood and applied in almost all financial remedy cases.

Compensation payments in divorce
By contrast, the principle of compensation, which first featured in the 2006 House of Lords case of McFarlane v McFarlane is a very rarely applied legal construct; indeed, until the 2020 case of RC v JC, it seemed that it may have withered on the vine. In December 2022, HHJ Hess re-affirmed the existence of the compensation principle in the case of TV v KM, although echoing the views of Moor J, he stressed that compensation awards were truly exceptional and almost always delivered, if at all, in the context of an assessment of need at the most generous level. The very rare nature of such awards suggests that they are generally, the exception to the rule.

The principle of compensation is aimed at redressing any material prospective financial disparity between the parties arising from the way they conducted their marriage. In the three reported cases referred to above, each of the wives received a compensation award  having, so the Court held,  sacrificed highly successful careers so that they could look after, care for and support the family.  

In an earlier judgment, in 2014, in the case of SA v PA, Mr Justice Mostyn questioned the construct of such compensation awards and, whilst acknowledging that he was bound by the House of Lords decision in McFarlane, he suggested some guidelines as to when a compensation award might rarely be made.  

Judicial guidelines suggest that in terms of the compensation principle:

  1. It will only be in very rare and exceptional cases where the principle will be invoked successfully. An excess of resources, after satisfying the parties’ respective needs and sharing claims, will be required to support a compensation award. In other words, it will only apply in “big money” cases.
  2. The Court will need to be entirely satisfied that, but for the claimant sacrificing a very high earning career to support the family, they would have enjoyed earnings broadly equivalent to that now being earned by the other party; and, in all probability, their career would have generated greater resources than those awarded by the application of the needs and sharing principles.
  3. The sacrificed career was established for an appreciable period during the marriage, or there is a finding of fact that, on the balance of probabilities, the claimant gave up the likely prospect of a high earning career to support the family.

As this blog demonstrates, the financial aspects of divorce can be complex and need special advice.  If you have any questions, please contact our Family Law team who will be able to help.