Marano v Marano

In financial remedy proceedings, an appellate court should intervene in a discretionary order only for an error of principle or a result outside the judge’s generous discretionary ambit. A trial judge may make a broad fairness assessment that considers non-matrimonial family money, contributions, housing and mortgage burdens, and the risks of assets retained by a spouse. A lump sum need not be mechanically matched to a particular latent tax liability. An approximate or fortuitous correspondence does not itself establish an error.

There is no hard-and-fast rule requiring gross or net asset values. The court may compare like with like and allow for estimated costs or tax where fairness requires. A contingent lump sum is an available mechanism for a future tax liability, but it is not mandatory.

The parties, who had married in California and divorced in London, brought cross-applications for financial remedies. Following a long marriage, the trial judge valued the husband’s Laurel Brook commercial developments at nil because borrowings exceeded property values, but considered the risks and latent United States tax liability associated with retaining them. She ordered the wife to pay the husband a lump sum of £5 million, while the wife retained the former matrimonial home and the husband retained other assets.

The wife appealed, arguing that the court should have used a percentage division on realisation or a reverse contingent lump sum, should not have taken account of a tax liability associated with negative-equity assets, and had given insufficient weight to her family contribution. The Court of Appeal also refused an application to admit fresh evidence. The central issue was whether the order involved an error of principle or fell outside the trial judge’s discretionary ambit.

Disposition

The appeal was dismissed unanimously. Thorpe LJ gave the principal reasons, and Wall LJ and Rimer LJ agreed.

1. Appellate review. The question was not whether another order might have been preferable. Intervention required an error of principle, and the order had to be assessed by reference to whether it fell within the trial judge’s generous discretionary ambit. No such error was demonstrated.
2. Fairness assessment. The trial judge had exercised a broad and general discretion. She considered the extent to which the wife’s family money was matrimonial property, the risks attached to the husband’s retained assets, the parties’ contributions and the mortgage on his home. The lump sum was not shown to have been calculated by reference to the latent United States capital gains tax liability. Its approximate correlation with that liability was fortuitous and did not invalidate the order.
3. Valuation. The guidance in White v White [2001] 1 AC 596 recognised that there was no hard-and-fast rule requiring gross or net values. Comparing like with like could justify using net values and estimated disposal costs or tax.
4. Contingent orders. Charman v Charman (No 2) [2006] EWHC 18979 (Fam) and Charman v Charman (No 4) [2002] EWCA Civ 503 illustrated the pragmatic use of a reverse contingent lump sum for a future tax liability. They did not require that mechanism. The judge was entitled to impose an immediate lump sum.
5. Fresh evidence. The application to admit further evidence was refused. The proposed reliance on Californian law had not been pursued below, and the husband’s connection was with New York rather than California.

The financial remedy order therefore stood, without remittal.

• Court of Appeal (Civil Division): The wife’s appeal was dismissed. The order for a £5 million lump sum was within the trial judge’s discretionary ambit. [2010] EWCA Civ 119
• High Court (Family Division): Mrs Justice Eleanor King gave reserved judgment on 23 March 2009 and made a financial remedy order requiring the wife to pay the husband £5 million.