McFarlane v McFarlane

When income substantially exceeds both spouses’ needs but existing capital cannot secure an immediate clean break, periodical payments may exceed the recipient’s reasonable requirements. The surplus may be used to accumulate capital for financial independence under section 25A of the Matrimonial Causes Act 1973.

The court must consider all the statutory criteria. Needs are neither a ceiling nor the sole determinant. Both parties’ needs must be assessed, and both share responsibility for applying surplus income towards a clean break. In exceptional cases, a substantial but extendable term order may therefore be preferable to an indefinite joint-lives order. Equality is not an appropriate cross-check for dividing future income.

Two appeals concerning exceptionally high earners were heard together. In McFarlane, a district judge awarded the wife £250,000 annually after the parties had divided their capital equally. Bennett J allowed the husband’s appeal and reduced the award to £180,000 because the original order enabled the wife to accumulate capital through maintenance.

In Parlour, Bennett J awarded the wife £212,500 annually after an agreed capital division. The wife appealed, seeking a larger share of the husband’s exceptionally high but potentially short-lived income. The husband sought permission to cross-appeal.

The central issue was how periodical payments should be assessed where income greatly exceeded both households’ needs, but the available capital could not produce an immediate clean break.

1. Both wives’ appeals were allowed. Section 25A of the Matrimonial Causes Act 1973 required the court to consider whether financial obligations could be terminated as soon as was just and reasonable. That included particular consideration of a term order enabling adjustment without undue hardship. The cases had wrongly been approached as requiring indefinite joint-lives orders.

2. Needs or reasonable requirements were not a ceiling where the payer could afford substantially more. The assessment had to apply all the section 25(2) criteria and pursue fairness without discrimination between the earner and homemaker. Nevertheless, both parties’ needs had to be established before the surplus could be identified. A high earner could not properly refuse to disclose his own requirements.

3. In an exceptional case involving a large and sufficiently predictable surplus, periodical payments could exceed current expenditure and enable the recipient to accumulate capital. That was a legitimate means of progressing towards a clean break. The obligation was mutual: the payer had to give proper priority to payments from the surplus, while the recipient had to invest the excess sensibly towards financial independence. Periodical payments were suitable because they could vary with income and ended on remarriage.

4. The principle that capital provision is made once and for all was qualified. A prior capital division could later be supplemented by capital representing fair consideration for discharge of the surviving periodical-payments claim. An appropriately focused term order facilitating that result did not subvert the once-and-for-all principle.

5. The yardstick of equality was not an appropriate cross-check for future income. Future earnings differed from accumulated matrimonial assets and had to meet children’s claims, alternative housing and potentially new family responsibilities.

6. In McFarlane, Bennett J had not been entitled to interfere with the district judge merely because her award permitted capital accumulation. The £250,000 award was restored, without index-linking, for an extendable five-year term. In Parlour, a global award of £444,000 annually was substituted for an extendable four-year term. Mr Parlour’s application for permission to cross-appeal was dismissed.

1. Court of Appeal (Civil Division): In [2004] EWCA Civ 872, allowed both wives’ appeals. It restored Mrs McFarlane’s £250,000 annual award for an extendable five-year term and substituted a £444,000 global annual award in Parlour for an extendable four-year term.
2. High Court, Family Division: Bennett J allowed Mr McFarlane’s appeal from the district judge and reduced the wife’s annual award from £250,000 to £180,000. In Parlour, exercising an original discretion, he awarded the wife £212,500 annually.
3. Principal Registry: District Judge Redgrave awarded Mrs McFarlane periodical payments of £250,000 annually.