Britain's Angry Wives Target Bonuses in Divorce Cases

Britain's Angry Wives Target Bonuses in Divorce Cases
Bloomberg, 2007-01-25
By Caroline Byrne

London bankers are celebrating a record 8.8 billion pound ($17.4 billion) year-end bonus pool. Thanks to a court ruling on future bonuses, spouses and their divorce lawyers may have the last laugh.

The judgment involving an antique dealer and his wife may let ex-wives claim a portion of payouts awarded long after a breakup, burnishing London's reputation as a top venue for big-money divorce settlements. Legal experts say that a divorce hearing now before the High Court cites the case, Rossi v. Rossi, as a precedent for a bonus claim.

The climate is so favorable to ex-wives that divorce lawyer Jeremy Levison advises bankers and hedge fund executives to avoid the altar altogether. Pre-nuptial agreements offer little protection because U.K. judges aren't bound to follow them.

``Don't get married,'' said Levison, a partner at London- based family law firm Levison Meltzer Pigott. ``If you must, make sure your other half is as rich as you are.''

Levison represented Kenneth McFarlane, a Deloitte Touche Tohmatsu partner at the center of one of two landmark House of Lords judgments that sent chills through trading floors in May.

Britain's highest court ordered McFarlane to pay his ex-wife 250,000 pounds a year for life after the breakup of their 16-year marriage. A lower court had limited maintenance payments to five years. Julia McFarlane's lawyers argued for a greater sum in recognition of her role in raising the couple's children and other domestic contributions.

Separately, the court ordered Alan Miller, then a hedge-fund manager at London's New Star Asset Management Ltd., to pay 5 million pounds to Melissa Miller after a childless marriage of less than three years.

Equal Contributions

The recent cases strengthen the ability of wives to claim a share of the riches earned by their spouses.

``There is no difference between a working wife and a non- working wife,'' said Sandra Davis, head of the family law practice at Mishcon de Reya, the London-based firm representing Heather Mills McCartney in her divorce case against ex-Beatle Paul McCartney. ``Contributions are now recognized as equal.''

The Rossi case took the law one step further, said James Pirrie, a lawyer at London-based Family Law in Partnership.

``In the past, I could only have a share of your bonus if I could show I needed it,'' said Pirrie, who represented Julia McFarlane. ``Whereas now I am treated as being entitled to a share in it just because of the marriage partnership, even though the marriage had ended a year before the bonus was paid.''

Future Assets

The Rossi case, decided in June, classified bonuses earned ``at least'' 12 months after separation as marital assets. That language leaves it open for wives to claim half of future bonuses, Pirrie said.

``Bankers would argue that all bonuses received after the separation should be excluded,'' Pirrie said. ``But the judges are showing an inclination to include bonuses received a year or more later as part of matrimonial property to be divided -- often equally.'' The English courts have handed ex-wives headline-grabbing settlements over the past year.

The ex-wife of insurance executive John Charman won a record 48 million pound award in August after the end of a 29-year marriage. Charman, chief executive officer of Axis Capital Holdings Ltd., is appealing the decision. The ex-wife of WPP Group Plc founder Martin Sorrell was awarded 30 million pounds in 2005.

Details of High Court family cases can't be reported until judgments are published or appealed, and lawyers say it could be weeks or months before the precedent is applied in English divorce cases.

Lawyers have different views on how the Rossi judgment will affect divorce settlements.

`Contentious'

``Future income is a very contentious issue which hasn't really been addressed by the recent run of cases,'' said Emma Hatley, a family law partner at London-based Withers LLP, the firm that represented Melissa Miller. ``The state of our law at the moment is that it is the most generous jurisdiction for wives, and in some respects it has gone too far.''

The recent U.K. rulings have implications for Americans working in Britain. New York law makes it easier for bankers to argue that bonuses should be excluded from settlements, said Robert Stephan Cohen, a partner at New York-based Cohen Lans LLP.

``If you can argue Goldman Sachs had a terrible first six months based on the reporting it has done, and the action is started at the end of June, then you can possibly keep the bonus, or 6/12ths of it, out of the divorce,'' Cohen said.

`Fingers Crossed'

While pre-nuptial agreements aren't binding in the U.K., they are gaining significance, Davis said. A court of appeal in London ruled Jan. 18 that the rabbinical court in Israel must hear the divorce case of an Israeli couple with assets in the U.K., because of the provisions of a pre-nuptial agreement.

One thing the lawyers do agree on: U.K. divorce law is evolving so rapidly that arguments over future compensation will ensnare the courts for years.

``It is so haphazard at the moment, there is really no correct answer,'' Levison said. ``If all else fails, sign a pre- nuptial agreement and keep your fingers crossed.''

The lawsuit is Rossi v. Rossi and Rossi, No. FD 92D08228 & FD05F00254, High Court, Family Division (London).