During divorce proceedings, the family court will, in limited circumstances, offer a party “compensation” for the loss they suffered as a result of the relationship, for example, where they gave up a high-earning career to care for children.

In the recent High Court case of AT v BT [2023] EWHC 3531 (Fam), in which the wife argued for the application of this rarely used principle, Mr Justice Francis considered the circumstances a prime example of where it should apply. Associate Amy Wills reviews the case.

Background

The husband (H) and wife (W) were 61 and 53, respectively, and both nationals of country X. They cohabited before their marriage in 2007, but there was a disagreement as to whether that cohabitation began in 2003 or late 2005/early 2006.

A pre-nuptial agreement was signed the day before the wedding when W was four months pregnant. Both parties worked in private equity at the time of the marriage and throughout their relationship until that point. Upon marriage, W was forced to leave her job as her employers were concerned about a conflict of interests with H, who had originally worked at the same firm but had moved on to be a senior executive at a rival firm. Before leaving her role, W had been her firm’s youngest partner and the highest-paid female.

Divorce proceedings were issued in 2020. After a brief fight over jurisdiction, H issued financial proceedings in 2021. Proceedings concerning the arrangements for the children were also issued and resolved before the conclusion of the financial proceedings. They were incredibly contentious and difficult, resulting in the parties’ two children (aged 15 and 13) living only with H and having limited contact with W.

Positions

W sought an award of £9.145m and argued that this was a sharing case (ie, the parties’ marital assets should be shared equally between them). She said the £7m in trusts disclosed by H and claimed to be pre-marital had been matrimonialised and should form part of the ‘pot’ of marital assets to be divided equally. W’s alternative argument, in the event the judge found some of the assets to be non-matrimonial and considered there should be a departure from equal sharing on that basis, was that this departure could be neutralised by applying the compensation principle.

H offered £3.545m to W on the basis that it was a needs case (ie the assets should be divided according to W’s needs) and that the monies held on trust were pre-marital and should not form part of the ‘pot’.

Compensation principle

The aspect of this case worthy of the most attention is Mr Justice Francis’s treatment of the principle of compensation. The compensation principle has become difficult to argue successfully in recent years, which makes Mr Justice Francis’s judgment highly unusual.

Mr Justice Francis set out three key factors of relevance to W’s situation:

1. W had had to leave her job because of her relationship with H;
2. W had a difficult pregnancy and then cared for her daughter (and later son) full-time; and
3. the parties relocated to England after their marriage.

The judge held that it did not matter whether or not leaving her job and ending her career was something W actively wanted; what mattered was that her “glittering” career was brought to a halt in 2007.

According to Mr Justice Francis: “This is not just a case of somebody having had a good school career and a good degree, with good prospects; this is a case of somebody with a proven track record of excellence and achievements where her career was brought to a grinding halt for reasons entirely connected with the marriage. In my judgement, if this is not a marriage-generated disadvantage, then that concept has no place in our law… to ignore compensation in this case would, in my judgement, be an affront to the proper application of the compensation principle.”

Decision

Before resolving the issue of whether to include H’s contingent tax liabilities in the ‘pot’, Mr Justice Francis returned to the issue of compensation. He considered that the fairest way to resolve issues to reduce the possibility of the parties ever returning to court to deal with future disputes would be to use his wide discretion to simply bring all assets “on schedule”. This meant that not only were the £7m in trust assets (which H argued were non-matrimonial) included as part of the ‘pot’, but that so were H’s contingent tax liabilities, despite the fact that H was likely to be able to mitigate these by transferring some funds to W offshore.

The parties would, therefore, equally share the whole ‘pot’ as now identified, leaving them with just shy of £6.9m each. Having considered the principles of sharing and compensation, it fell to Mr Justice Francis to conduct a final crosscheck against needs. Although £6.9m did not meet W’s needs as pleaded, he considered that on any objective basis, £6.9m was more than sufficient to meet W’s needs for the remainder of her life. If W were to have a housing fund of £2.5m, she would have over £4m remaining which, on a Duxbury calculation, would give her £175,000 per annum to live on for life. (A Duxbury calculation is used to determine an appropriate lump sum figure to replace regular maintenance payments.)

Partner Sophie Chapman comments on the judgment: “It remains to be seen whether the treatment of compensation in this case will have wider ramifications, but it is certainly a noteworthy case given that the position on compensation prior to this point appeared to be fairly settled. The approach adopted by Mr Justice Francis is advantageous in being straightforward to apply, if not scientific, but whether it will be more widely adopted, only time will tell.”