International Family Law Chambers

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:

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:

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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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.