McFarlane v McFarlane

On an application to vary periodical payments, the court must apply the statutory criteria in the Matrimonial Causes Act 1973, guided by fairness and the principles of need, compensation and sharing. Those principles are interrelated and must not be treated as separate heads of claim or applied through a formula. Compensation is not assessed as damages for lost earnings. The court should assess the consequences of the parties’ marital choices against their available resources and compare the results produced by possible orders. A term or deferred clean break may be imposed where the evidence supports a fair outcome, but the court must consider whether the recipient will obtain lifelong security and whether the order remains fair to both parties.

The wife applied to vary periodical payments previously ordered following the parties’ divorce. The existing order required the husband to pay her £250,000 per annum for their joint lives and payments for the children, following the litigation considered in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24. The Court of Appeal had previously imposed a five-year term, which the House of Lords removed.

The wife sought increased payments and ultimately a clean break funded by the husband’s continuing income. The husband sought continuation of the existing arrangement and argued that a clean break should be achieved. The central issues were the proper application of need, compensation and sharing on variation, the effect of the existing order, and whether a time-limited order could fairly secure the wife’s long-term position.

1. The application was governed by section 31 of the Matrimonial Causes Act 1973. Section 31 required the court to consider all the circumstances, give first consideration to the welfare of minor children, and assess changes since the original order. The court could vary periodical payments by imposing a term and could make supplemental provision, including a direction preventing a further application.

2. Fairness was the overarching objective. Need, compensation and sharing were principles guiding the statutory exercise, rather than freestanding statutory heads of claim. They overlapped and could produce the same result. Separating them and adopting the highest separate calculation would be artificial and excessively formulaic.

3. Compensation did not require a damages-style calculation of what the wife would probably have earned had she continued her career. The relevant assessment concerned the consequences of the parties’ choice that the wife would leave work and the husband would pursue the principal earning role. The husband’s earning capacity and future income could therefore be shared, but the award remained fact-sensitive and had to be fair to both parties.

4. The court adopted a two-stage approach. First, it identified the surplus income above a generous assessment of lifestyle needs. Secondly, it applied all three principles to determine how that surplus should be divided. The wife’s future security, her mortgage and capital resources, the husband’s income and retirement plans, the effects of the marital choice, and the parties’ comparative positions were material factors.

5. The court rejected the continued use of the exceptional-justification approach discussed in Fleming v Fleming [2004] 1 FLR 667. The reasoning behind the earlier order remained relevant, including whether its purpose had been fulfilled. The court could therefore impose a term where the projected result was sufficiently likely to be fair, without treating the earlier term as creating a heightened legal threshold.

6. The wife’s payments were varied retrospectively from 25 June 2007 and were to continue until 31 May 2015. They were calculated by applying 40 per cent to the husband’s net Deloitte income up to £750,000, 20 per cent between £750,000 and £1 million, and 10 per cent above £1 million. No separate index-linking provision was made.

7. Payments for each child were increased to £25,000 per annum, index-linked, with provision for the children’s education as specified in the order.

1. House of Lords: In the earlier litigation, the House of Lords removed the five-year term imposed by the Court of Appeal and restored joint-lives periodical payments to the wife.
2. High Court (Family Division): On the wife’s subsequent variation application, Charles J varied the payments, imposed a term ending on 31 May 2015, and increased the payments for the children.