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Foreign Divorce: Risks and Rewards for Americans
Abroad
Article by Marjory D Fields and David Truex analysing the
Court of Appeal decision in Miller v Miller [2005]
EWCA Civ 984; [2006] 1 FLR 151 from the perspective of New
York law. Conclusion: similar result but for different reasons.
Now what will the House of Lords decide?
This Article, published in International
Family Law, March 2006, is a revised and updated
version of the paper presented by Marjory and David at the
New York State Bar Association Conference in London, October
2005.
 American
Melissa, aged 31, married English Alan, aged 36, on Bastille
Day 2000 in London. There was no pre-nuptial agreement.
Shortly before the marriage the husband bought a family
home for them in London at a cost of £1.8 million.
In 2001 they bought a villa in the south of France. In April
2003 the husband left the family home to pursue his relationship
with another woman. In the divorce proceedings in London
the asset pool was put at £30-36 million with the
marital acquest (increase in value during marriage) valued
at between £12 million and £18 million. It was
accepted by both parties that these assets had been built
up entirely by the husband’s efforts as an exceptionally
successful fund manager. The husband offered £1.3
million, the wife sought £7.2 million. The trial judge,
Singer J, ordered that the wife receive £5 million
comprising the London home (now valued at £2.3 million)
plus a lump sum of £2.7 million. This represented
between one sixth and one seventh of the husband’s
fortune and about 34% of the marital acquest. The husband’s
appeal was dismissed. The trial judge and the Court of Appeal
considered that the husband’s infidelity entitled
the wife to a more generous award than usual (Miller
v Miller [2005] EWCA Civ 984, [2006] 1 FLR 151). It
has been calculated that the marriage cost Mr Miller £4,935.83
(US$8,600) per day during its 2¾ years’ duration.
The husband’s appeal has been heard in the House of
Lords but the judgment had not been given at the time of
writing.
The ratio of Miller is pretty simple: English judges
have a very broad discretion in matrimonial financial cases.
The trial judge has an overriding obligation to take into
account all the circumstances of the case. In deciding what
is fair in a particular case the judge can, in effect, reward
a wife who was committed to the marriage and penalise a
husband whose actions destroyed it. Although the Court of
Appeal felt that the trial judge’s award to the wife
was at the top end of the permissible bracket, it was not
so excessive as to go beyond the range of the wide discretion
allowed under s 25 of the Matrimonial Causes Act 1973. The
appeal judges were at pains to point out that the facts
and circumstances of Miller were highly unusual. This is
judicial code intended to warn off a potential flood of
hopeful dependant spouses. However, only time will tell
if the floodgates have been opened.
What would happen if Miller were decided in New York?
New York law
New York statute distinguishes separate property from marital
property. Only marital property is subject to equitable
distribution upon divorce. The increased value of separate
property resulting from the efforts of either party during
the marriage also may be divided. There is limited-term
‘rehabilitative spouse maintenance’ to enable
dependent spouses to become self supporting and maintain
the marital standard of living (get degrees or qualifications;
take licensing examinations; renew professional licenses;
find employment). Lifetime spouse maintenance may be awarded
by the court if needed by the dependent spouse to maintain
the marital standard of living after a long-term, 10-plus
year marriage, with or without children.
Spouse support, equitable distribution of marital property
and award of part of the increased earning capacity of the
financially responsible spouse may all be awarded by the
court. A percentage of the future increased earning capacity
may be awarded when that increased earning capacity is the
result of an advanced university degree or a professional
licence obtained during the marriage with the contribution
of the dependent spouse as a wage earner, homemaker, child
carer or spouse.
The New York case-law on avoiding ‘double-dipping’
is tricky. The appellate courts have suggested ways for
trial courts to structure the spouse maintenance, marital
property division and portion of the increased earning capacity
awards so the dependent spouse does not receive double compensation.
Marital property awards are based on contribution to the
marital partnership. Economic and non-economic contributions
are valued equally. Marital fault is not a factor, except
when a spouse wasted marital assets or engaged in gross
misconduct (the attempted murder of the dependent spouse
by the financially responsible spouse, for example, but
not adultery). Spouse maintenance (alimony) is based on
the marital standard of living, the duration of the marriage,
the ages and health of the parties, child care responsibilities
and the ability of the dependent spouse to become self-supporting
at the marital standard of living.
Applying New York law to Miller
In New York the case would have a similar financial result,
but different implementation and reasoning. The divorce
would be granted for adultery, if there were corroboration
of the adultery, or for cruel and inhuman treatment. The
husband’s confession of adultery (without corroboration)
would not be sufficient to prove the adultery, but would
be the basis of a divorce for mental cruelty (‘I do
not love you any more and have started a new relationship’
and it was an open and notorious, adulterous relationship).
New York has six statutory grounds for divorce:
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cruel and inhuman treatment
-
abandonment for more
than one year
-
three years continuous
imprisonment of the respondent
-
-
living apart for one
year after executing a separation agreement
-
living apart for one
year pursuant to a separation judgment
The property division in New York is governed by statutory
standards: the wife’s contributions as a wage earner
for 9 months; her supervision of the renovation and decoration
of the London family home and the villa in the south of
France; her support as a spouse; host of the husband’s
clients and business associates; planner of family holidays;
her agreement to delay pregnancy; and, then, her brief
unsuccessful pregnancy. Like the Court of Appeal and Singer
J in London, New York statute and case-law do not place
different values on the financial and non-financial contributions
to a marriage.
Equitable distribution of marital property would include
an award to each party for half of the increase in value
of the London family home (the refurbishment of which
the wife actively supervised until completion in May 2001).
The London home is the husband’s separate property.
It increased in value by £700,000 from the date
of purchase 4 months prior to the marriage to the date
of the commencement of the divorce action. Thus, the wife
would receive £350,000, assuming that the increase
in value was the result of the wife’s efforts, not
passive market increase.
The wife would receive half the value of the villa in
the south of France. It was purchased during the marriage
in joint names. The wife completed the decoration and
refurbishment of that property by April 2002. From the
Court of Appeal decision we assume that the wife would
be awarded £500,000 as half the value of the villa.
The parties divided their furniture and chattels by agreement.
In New York, the wife would have received half the value
of the furniture and chattels purchased after the marriage.
This would include jewelry and clothing purchased by the
husband as gifts for her after the wedding. Gifts given
by one spouse to the other during the marriage are marital
property to be divided upon divorce. Furniture, chattels
and other personalty acquired before the marriage or by
inheritance or gift from third parties after the marriage
remain the separate property of the donee. Wedding presents
are marital property to be divided equally. The wife’s
engagement ring is her separate property because it was
given to her before marriage on condition of her promise
to marry. Upon fulfilling that promise, the engagement
ring becomes her separate property.
The 200,000 shares in New Star are the husband’s
separate property. They are in consideration of the hedge
funds the husband brought to his new employer on 29 January
2001, 6 months after the marriage. These hedge funds were
developed by the husband prior to the marriage. The husband,
however, devoted his efforts to New Star for 2½
more years of the marriage (to the date of the commencement
of the divorce action). Thus, the wife is entitled to
a portion of the increase in value of the shares from
the date they were granted, 29 January 2001, to the date
of the commencement of the divorce action under New York
law. This portion would be less than 50% of the increase
in value because the marriage was short. Faced with no
trial record on the value of the shares at the date of
commencement of the divorce action, we cannot calculate
the amount of this award.
The court must decide if the basis of valuing the shares
on the date of acquisition should be real market value
of £80.00 per share or the actual price paid for
the shares. The other issue would be the husband’s
contribution through his efforts on behalf of New Star,
as opposed to passive market forces, to the increased
value of the shares as of the date of commencement of
the action for divorce. The trial record does not have
evidence on these issues.
Other New York considerations
In New York, property distribution is not affected by
the recipient’s remarriage. Property distribution
is no longer dischargeable pursuant to the new US bankruptcy
law effective on 14 October 2005. Both property distribution
and support obligations for children and former spouses
have top-priority status and are not dischargeable under
any circumstances.
This is a major change that impacts settlement negotiations
by removing the risk attached to taking a property settlement
in lieu of alimony. Child support and alimony arrears
are moved from seventh priority to first priority in bankruptcy
proceedings.
Spouse maintenance (alimony) might be awarded to the wife
for 3 years, depending on the total marital property settlement.
In the USA alimony is taxable to the recipient and deductible
by the payor. It could be assumed that the wife would
be able to return her pre-marital level of employment
by the end of 3 years.
The amount of periodic spouse maintenance is based on
the property distribution award, the duration of the marriage,
the age and health of the parties, the training cost and
time needed to qualify for employment, the ability of
the dependent spouse to become self-supporting at the
standard of living during the marriage, and child care
responsibilities. Thus, the spouse maintenance may be
low or zero, depending on the total amount of the recipient’s
award of marital property, especially in a short marriage,
such as the Millers’. If the recipient married again
prior to the end of 3 years, the alimony would terminate
at the time of the marriage.
The New York conclusion
With a total asset pool of £30-36 million and a
marital acquest of £12-18 million, an award of £5
million to the wife does not look excessive by New York
standards. However, it would be a cash (“distributive
award”) award: the husband would not be ordered
to give the wife the house he had purchased before the
marriage because it is his separate property.
Desperate housewives to New York or London?
It is notorious in the family law profession that New
York and London are the twin emerald cities of divorce
riches for wronged wives. Does this perception withstand
close scrutiny? The main difference between New York and
England may be procedural rather than substantive. New
York’s statutory criteria are explicit, for example,
treating marital property differently from separate property.
The golden thread in England is broad judicial discretion.
Despite these different approaches, outcomes can be similar
in a given fact situation, as we have seen with Miller.
In different circumstances there could be a wide discrepancy
between a matrimonial financial outcome in New York and
one in England. Where the family is relatively asset poor
and income rich, lifetime spouse maintenance is possible
in both jurisdictions but our feeling is that English
judges, particularly in London, are more inclined to award
dependant wives with a guarantee of permanent support
from the former husband. Professionals for whom a practising
licence has quantifiable value (for example, lawyers and
doctors) dread the New York practice of awarding the dependant
spouse a percentage of the breadwinner’s future
increased earning capacity (which is based on the professional
licence).
There are no easy answers. As the Court of Appeal said
in Miller (and as has been said often in many
earlier decisions): each case is different. When the family
lawyer is confronted with a choice of divorce jurisdictions,
whether New York/England or otherwise, great care must
be taken before legal proceedings are launched.
Forum shopping
Can lawyers protect clients from getting divorced in ‘unfriendly’
jurisdictions? Conversely, what can the lawyer do to secure
the most favourable jurisdiction for divorce? The opportunities
for forum shopping are limited by circumstances. The New
York couple who marry and live in New York all their lives,
with no international or out-of-state connections, will
probably be stuck with New York law for their divorce.
The rascally husband who launches a tactical divorce petition
in Reno or Mexico may rue his action when cut short by
an anti-suit injunction or post-out-of-state judgment
suit, refusing recognition of the judgment on jurisdictional
grounds and substituting full New York financial relief.
Similarly, the archetypal English couple in their country
cottage will probably be advised to stick with English
law for their divorce.
Increasingly, however, families have international connections.
It is common now, in London, to see clients who, though
resident in England, are nationals of two or more other
countries with assets spread around the world. Several
countries may share divorce jurisdiction. For example,
an American-born husband with Australian dual-nationality
lives in London with his German-born wife. They move to
New York for a 2-year work contract and the marriage then
breaks down. Divorce jurisdiction options are New York
(residence), Australia (husband’s citizenship),
England (husband’s domicile of choice) and Germany
(wife’s citizenship). The New York lawyers representing
the parties both need to get advice from family law specialists
in all other relevant jurisdictions before New York divorce
proceedings are contemplated. The questions which need
to be asked in respect of each jurisdiction include:
-
Is there presently divorce
jurisdiction in the country?
-
If not, how soon can divorce
jurisdiction be established (for example, by one or both
parties residing there for the required minimum period)?
-
Assuming there is divorce
jurisdiction, do grounds for divorce presently exist in
the country (for example, adultery, cruelty, unreasonable
behaviour)?
-
If not, how can grounds
for divorce be established?
-
On the facts of the particular
case, how would the court deal with various aspects of
the divorce (child custody and visitation/access, property
division, spousal maintenance, child support, etc)?
-
What are the likely costs
and time frame to completion of proceedings?
-
Is there a likelihood
that the respondent would be ordered to pay the petitioner’s
costs?
-
-
Will orders be reciprocally
recognised and enforced and can assets in the jurisdiction
be seized as an enforcement measure?
-
What is the relevance
of any pre-nuptial contract, post-marriage contract or
separation contract?
-
What are the tax (including
inheritance tax) implications in the country?
-
Can assets in the jurisdiction
be ‘frozen’ easily?
-
Can income be attached
for maintenance payments?
Some of the answers might surprise. For
example, an English party who has been resident in the USA
for many years may still claim English domicile of origin.
If so, this entitles that party (or the party’s spouse)
to claim English divorce jurisdiction and, perhaps, launch
English divorce proceedings immediately, even though both
parties may still be resident in the USA. Australia accepts
divorce jurisdiction on the basis of Australian citizenship
of just one of the parties, even though the married couple
may never have lived together in Australia. Citizenship
also confers divorce jurisdiction in the EU although the
rules in the EU are complicated (see below).
The Quick and the Dead
As soon as the jurisdiction options have been carefully
considered, a decision should be made as to which is the
most appropriate jurisdiction for the client. Once this
decision has been made, divorce proceedings should be commenced
and documents served on the respondent as quickly as possible.
Within the EU, the first to issue and serve will conclusively
secure jurisdiction. Forum conveniens arguments, familiar
to those of us from the common law jurisdictions, do not
apply. This crucial point about securing the preferred divorce
jurisdiction first in time is particularly important for
any US lawyer dealing with a divorce which might have a
jurisdictional nexus with a European country. The lawyer
who is too slow to start a divorce in the client’s
most favourable jurisdiction may be beaten to the punch
by in Spain, Germany or the UK. This could cost the client,
the lawyer and the lawyer’s professional indemnity
insurer dearly.
The new European divorce jurisdiction rules
The three separate domestic legal jurisdictions within the
UK (England and Wales, Scotland and Northern Ireland) are
now part of a federal European legislative framework for
divorce jurisdiction purposes. This fundamental change in
international law came into effect on 1 March 2001 throughout
the EU (with the exception of Denmark which opted out of
the federal scheme) by the Regulation commonly referred
to as Brussels II. On 1 May 2004, 10 new countries joined
the EU so that there are now 25 Member States with a total
population of approximately 480 million. In terms of population
covered, the EU is the third largest jurisdiction in the
world after China and India, covering about 8% of the world’s
6.5 billion souls.
On 1 March 2005 the EU divorce jurisdiction Regulation was
revised and expanded in scope. Its official citation is:
Council Regulation (EC) No 2201/2003 of 27 November 2003
concerning jurisdiction and the recognition and enforcement
of judgments in matrimonial matters and the matters of parental
responsibility, repealing Regulation (EC) No 1347/2000.
In practice the new law is referred to variously as Brussels
IIA, Brussels II bis or Brussels II revised to distinguish
it from the “original” Regulation. In this article
Brussels II means the current, revised, law.
Brussels II establishes seven possible grounds for divorce
jurisdiction in the 24 Member States. The first six depend
primarily on habitual residence. For example, there is immediate
jurisdiction if both spouses are habitually resident or
if the respondent is habitually resident in the jurisdiction
at the time proceedings are commenced. If the respondent
has not been habitually resident, then jurisdiction can
be based on the applicant’s habitual residence for
at least a year immediately before the application was made
or 6 months if the applicant is a national of the Member
State or (in the case of the UK or Republic of Ireland)
has his or her ‘domicile’ there. The seventh
ground for jurisdiction is based on the nationality of both
spouses or, in the case of the UK and the Republic of Ireland,
of the ‘domicile’ of both spouses.
In England and Wales, domestic legislation has been enacted
to provide for an eighth jurisdiction ground: where Brussels
II does not apply there will be jurisdiction if either of
the parties to the marriage is domiciled in England and
Wales on the date when the proceedings are begun. This is
the English ‘loophole’ in Brussels II which
allows an English-domiciled party or the spouse of an English
domiciled party to claim English jurisdiction even though
the parties may have been residing overseas for many years.
Brussels II does not define habitual residence. This means
it must be clarified by case-law. Importantly, the concept
is one of European federal law, not domestic law in each
country. In other words, all courts within the EU countries
must apply a European concept of habitual residence as determined
by the highest court in the jurisdiction, the European Court
of Justice (ECJ) sitting in Luxembourg. To our knowledge
there has not yet been an ECJ decision on what habitual
residence means in the context of divorce proceedings. However,
ECJ decisions in tax and welfare benefit cases suggest that
habitual residence connotes where a person has his or her
centre of interests. See, for example, Collins v Secretary
of State for Work and Pensions (Case No 138/02) [2004]
OJ C 106/9), Swaddling v Adjudication Officer (Case
No 90/97) [1999] ECR I-1075 and Rigsadvokaten v
Ryborg (Case No 297/89) [1991] ECR I-1943. Contrast
the common law position in England where it has been held
by the Court of Appeal that it is possible for a party to
have two contemporaneous habitual residences for divorce
jurisdiction purposes. See Ikimi v Ikimi [2001]
EWCA Civ 973, [2001] 2 FLR 1288.
We are beginning to see some interesting cases developing
the parameters of Brussels II. See, for example, Chorley
v Chorley [2005] EWCA Civ 68, [2005] 2 FLR 38, where
it was held that the husband filing a requête
initiale in the French court, triggering automatic
conciliation before a judge, amounted to the commencement
of divorce proceedings within Brussels II. This meant that
the wife’s English divorce petition, issued a year
later, was second in time and, therefore, had to be stayed
in favour of the French divorce proceedings. The scope for
intra-European jurisdiction squabbling is immense, particularly
when having regard to the wide disparity in the grounds
for divorce. For example, in Malta there is no divorce at
all. In Ireland there must be 4 years separation before
divorce proceedings can be commenced, whereas in England
no separation period at all is required if matrimonial fault
can be established. Brussels II is bound to keep the lawyers,
judges and legal academics of Europe busy for many years.
Contracts and agreements
Can a pre-nuptial agreement conclusively determine the jurisdiction
for divorce? In the EU, including the three separate jurisdictions
within the UK, the answer must be ‘no’ because
Brussels II conclusively determines the jurisdictional criteria
irrespective of any agreement between the parties. However,
when the jurisdiction dispute involves a non-Brussels II
country such as the USA the answer is ‘maybe’.
A couple of cases decided in England before Brussels II
was implemented give guidance.
In S v S (Divorce: Staying Proceedings) [1997]
2 FLR 100, English divorce proceedings were stayed on a
forum conveniens basis. A significant factor in the decision
of Wilson J was a term in the New York pre-nuptial agreement
which provided for New York to be the jurisdiction for any
divorce. Stays of English proceedings were also granted
in the foreign pre-nuptial agreement cases of C v C
(Divorce: Stay of English Proceedings) [2001] 1 FLR
624 (England-France) and N v N (Foreign Divorce: Financial
Relief) [1997] 1 FLR 900 (England-Sweden). Note that
these latter two “European” cases were decided
before Brussels II so that now, as against France and Sweden,
a pre-nuptial agreement purporting to specify divorce jurisdiction
would be ineffective on that point in any of the 24 Brussels
II jurisdictions.
The general rule is that English law does not enforce pre-nuptial
agreements, whether they are made in England or overseas.
However, increasingly, English judges are indicating that,
in certain circumstances, they will give considerable weight
to pre-nuptial agreements in the exercise of their discretion.
When the jurisdiction dispute involves a non-Brussels II
country the pre-nuptial agreement may be taken into account
to help determine which is the more appropriate forum. In
some jurisdictions it is possible to do a binding marriage
contract after the marriage (for example, Germany, Australia
and New York). This opens up the prospect of strategic relocation
for divorce jurisdiction planning.
Machiavellian Hypotheses
How dark can the dark science of matrimonial law get? Is
it ethical for a family lawyer to help a client plan his
or her affairs so as to secure a matrimonial jurisdiction
advantage when there is no hint of marital discord in the
relationship? Lex Luther is a professional evil genius with
headquarters in London. He has grown fabulously wealthy
from the profits of his nefarious activities. He lusts after
a virgin bride. But he is worried about what the Superheroes
in the Royal Courts of Justice might do to him and his treasury.
He seeks your advice. A pre-nuptial agreement will not work
because they are not binding in England. Luther heaps gold
on your desk and demands that you think creatively. Should
he get married in Germany, or somewhere else on the Continent,
where pre-nuptials are binding? Should he go through a Hindu
wedding ceremony in Bali, knowing that the marriage will
never be recognised in England? Should he give his wife
the white wedding in London, relocate with her to Sydney,
then persuade her to execute an Australian post-marriage
binding financial agreement limiting her claims to a pittance?
Conclusion
International factors complicate divorce. With the UK jurisdictions
now governed by European federal legislation it is even
more difficult to answer the questions our clients ask.
An American businessman who travels with his family to London
on a short-term secondment will find himself on a sticky
wicket if the marriage breaks down, particularly if it is
his fault. Family lawyers with international clients need
to be especially careful when giving advice, lest ignorance,
delay or over-confidence lead to disaster. I know of at
least one professional indemnity insurer in London which
has decided to decline cover for English solicitors who
accept instructions from clients in the USA or Canada. Fear
of the US litigation culture, coupled with the increased
risk of exposure that international issues bring, means
that we must all be very careful
Editor’s note: The House of Lords
decision on Miller v Miller is expected in April
2006.
International Family
Law, March 2006
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