How to divorce a millionaire

Thanks to a landmark ruling in the House of Lords, women in big-money divorce cases can now expect larger settlements. So will we now see a rise in the number of American-style prenuptial agreements?

When it comes to divorce, the role of wife and mother has, for the first time, been given equal value to that of the family breadwinner in a groundbreaking judgment by the House of Lords.

When it comes to divorce, the role of wife and mother has, for the first time, been given equal value to that of the family breadwinner in a groundbreaking judgment by the House of Lords.

Five law lords last week acknowledged that the family courts had not kept pace with the times, and laid down guidelines which could see wives in "big money" divorces successfully laying claim to half of the family's joint assets.

The judgment, described as "staggering" by one family lawyer, comes at a time of uncertainty for divorcing couples. From December 1, new pension-sharing arrangements come into force which will, for the first time, allow wives to split their husbands' pensions to create a new pension for themselves. At the same time, family lawyers are warning all divorcing couples that reforms to the Child Support Agency will make decisions over child maintenance unpredictable, even though they don't come into force for another 18 months.

While the impact of last week's judgment will be limited to wealthy couples, family lawyers believe it could spark greater use of pre-nuptial agreements and the use of trusts to "ring-fence" assets either inherited or acquired before the marriage.

Dozens of divorces have been kept on hold, waiting for the conclusion of Martin and Pamela White's four-year, £840,000 legal battle over the £4.6m of assets built up over 33 years of farming together. Both ended up disappointed - Mr White because the Lords left his ex-wife with the £1.5m awarded her by the Court of Appeal and Mrs White because she was not awarded one of the couple's two farms.

However, even though the law lords dismissed both their appeals, their ruling will mean that in future cases where a couple's assets exceed their housing and income needs, awards must start with the "yardstick of equality". Up until now, wives were restricted to their "reasonable requirements" for a house and maintenance, often only a fraction of what the couple's assets were worth.

The law lords questioned why, in those cases, the surplus should belong solely to the husband. Lord Nicholls, whose decision was endorsed by the four other law lords, made his views clear: "There should be no bias in favour of the money-earner and against the homemaker and the child-carer."

He stressed a wife would not automatically get half the assets because there were other factors to take into account - in the White case, Mr White was entitled to more because his father had lent some of the money and one of the estates came from his family.

However, "as a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so," he said.

Nigel Shepherd, head of family law at Addleshaw Booth & Co's Manchester office, felt the immediate impact of the Lords' ruling. He was involved in a case conference on the day of the judgment and had to warn the client that his divorce was going to cost him another £200,000.

"You can see its impact when you look at past cases, such as Sir Terence and Lady Conran. There were assets worth over £85m. The judge stressed the contribution Lady Conran had made during the marriage but she only got £10.5m, about 12 per cent of the assets. If that case was being heard now, she could expect millions more.

"In the Dart case involving an American businessman with assets worth £400m, his wife received £10m, only two and a half per cent, because that was more than enough to meet her needs. That would be very different now.

"This is a clear move towards the recognition that contributions can happen in different ways so why discriminate against the wife because she doesn't work outside the home or have assets of her own?"

However, he said, the key question was going to be "half of what? There is a danger people will start focusing on conduct to argue against giving up half of their assets - although judges find those arguments unattractive - and in knocking valuations down.

"In cases where most of the assets are tied up in a family business, the court is not going to order it to be sold to come up with half the value of the assets. But the question will be can you raise the money without ruining the very thing that produces the income?"

David Davidson, head of family law at London law firm Charles Russell, said the judgment meant wives of rich men - "or the other way round, what is sauce for the goose, is sauce for the gander" - would receive much more substantial awards. "Why should the role of wife and mother be devalued? People can't spend hours digging at the coal face and churning out the shekels without a wife and mother at home."

However, the judgment also made it clear that spouses would be entitled to retain property which they either acquired before the marriage or inherited, he said.

"This will result in interesting cases involving difficult issues of valuation of assets, for instance, where a husband marries in his forties with a big pot of pre-acquired assets and then divorces at 60; a couple who divorce after maybe five or seven years separation - will the courts look differently at major appreciation of assets during those years?; or a couple where the bulk of the assets are tied up in a family business.

"It is likely to encourage rich spouses to keep inherited or other wealth in trusts so they remain easily identifiable as extra-marital assets to avoid expensive tracing exercises of money which has become merged into joint assets."

He said the judgment, while groundbreaking, would not have a "colossal impact" because it would only affect cases involving assets starting at about £3m. "The irony is that lower down the income scale, the wife tends to get more than half to meet her and her children's needs."

Sue Bland, of London law firm Gordon Dadds, said: "It is a staggering judgment, but fair and about time. There will be a flurry of lawyers withdrawing offers left, right and centre, because you now have to say goodbye to the old benchmark of reasonable needs. However, it is likely to bring behaviour back into the forum with husbands saying 'why should she get half when she's done such and such' - the gloves will be off.

"It is also likely to encourage more people to consider pre-nuptial agreements as they try to ring-fence assets more effectively, even though the agreements only have evidential value and won't prevent a court making a different order. I will be encouraging clients to put them much higher up the agenda than before."

For James Copson, partner with City solicitors Withers, the new "yardstick of equality" would not mean wives automatically getting 50 per cent of their husbands' pension under the new pension-sharing arrangements.

"Those arrangements are still going to involve looking at future needs," he said. "What the judgment does do is move towards a more American model. What husbands should do now is think twice before putting money and other assets into joint names during their marriage, while wives should insist on them doing so."