“The treatment of personal injury damages on divorce: is it time for a more principled approach?” by Sarah Edwards

In 2010, James Cracknell, the Olympic rowing gold medallist, suffered devastating brain injuries when cycling across the United States. In a 2012 interview with the Telegraph, Cracknell and his wife revealed that a neuropsychologist told them as they were leaving hospital that 75% of people with brain injuries divorce. They vowed not to be part of that statistic for the sake of their children, but sadly, this year they announced that their 17-year marriage was over.

Whether or not the statistics provided to the Cracknells are correct (and there are conflicting studies), most clinical negligence practitioners are all too well aware of the impact that serious injuries can have on the uninjured spouse and the family as a whole. The strain on the uninjured spouse can be immense, caring for their injured husband/wife, who is sometimes a very different person from the one they married, and taking on roles previously done by the other. Serious injury brings with it financial worries, uncertainties about the future and shattered dreams. It is not surprising serious personal injuries can often lead to family breakdown and divorce.

There is a dearth of recent authorities on the way that personal injury damages are treated in financial remedy proceedings on divorce. The leading case remains Wagstaff v Wagstaff [1], decided in November 1991, before the decisions of the House of Lords in White v White[2] and Miller v Miller; McFarlane v McFarlane[3] heralded in a new era for “ancillary relief” proceedings. The approach to the assessment of damages in personal injury cases has become far more complicated; when Wagstaff was decided, the approach was “rough and ready” and the use of actuarial multipliers to calculate future loss was in its infancy.

The purpose of this article is to review the law on the treatment of personal injury damages on divorce and to consider what steps can be taken both by the family lawyers and the personal injury lawyers to reduce the impact of divorce on their client’s damages award.

Financial Remedy Proceedings

For the benefit of personal injury practitioners, a gallop through the relevant principles may be helpful. The starting point, in deciding what (if any) financial orders to make, is section 25 of the Matrimonial Causes Act 1973. This provides that the court must have regard to all the circumstances of the case, with the first consideration being given to the welfare of any children of the family, and taking into account the eight “section 25 factors”. These include the parties’ income, earning capacity, property and other financial resources, the financial “needs, obligations and responsibilities which each of the parties to the marriage has, or is likely to have in the foreseeable future”, any physical or mental disability, and the parties’ respective contributions.

The court’s objective, when exercising its wide discretionary powers, is to “achieve a fair outcome”, but as Lord Nicholls observed in Miller, McFarlane, fairness is an elusive concept, ultimately grounded in social and moral values. White v White established that the court must exercise its discretionary powers in a manner which is not discriminatory between the roles of husband and wife, and that fairness was to be measured against the “yardstick of equality”.

In Miller the House of Lords identified three principles that govern the exercise of the court’s discretion: financial needs, which in in many cases will override all other considerations, compensation (which rarely if ever arises) and sharing. Sharing reflects marriage being “a partnership of equals” with each spouse “being entitled to an equal share of the assets of the partnership, unless there is good reason to the contrary”, per Lord Nicholls at [16]. Lady Hale referred to “the sharing of the fruits of the marital partnership”. Following Miller, it is now clear that the equal sharing principle will almost invariably apply to matrimonial property, except where displaced by other factors such as need.

Matrimonial and non-matrimonial property

There is a common misconception that on divorce all property will be divided equally, regardless of its source. This is not correct. The court draws a distinction between matrimonial property and non-matrimonial property. In Miller Lord Nicholls said:

“This does not mean that, when exercising his discretion, a judge in this country must treat all property in the same way … One of the circumstances [of the case] is that there is a real difference, a difference of source, between (1) property acquired during the marriage otherwise than by inheritance or gift, sometimes called the marital acquest but more usually the matrimonial property, and (2) other property. The former is the financial product of the parties’ common endeavour, the latter is not: The parties’ matrimonial home, even if this was brought into the marriage at the outset by one of the parties, usually has a central place in any marriage. So it should normally be treated as matrimonial property…”

As matrimonial property is property built up by the spouses’ joint (but different) efforts, it should usually be divided equally. In S v AG [Financial Orders: Lottery Prize][4]Mostyn J summarised the position:

“Therefore, the law is now reasonably clear. In the application of the sharing principle (as opposed to the needs principle, matrimonial property will normally be divided equally… By contrast, it will be rare case where the sharing principle will lead to any distribution to the claimant of non-matrimonial property. Of course, an award from non-matrimonial property to meet needs is common-place…”

In the Privy Council decision of Scatcliffe v Scatcliffe[5], Lord Wilson suggested that the proper approach is to apply the sharing principle to matrimonial property and then consider whether the principles of needs and compensation require additional property to be transferred even if that evades non-matrimonial property. But even where property is matrimonial, it is not an invariable rule that it will be divided equally. For example, where one party brings assets into the assets which become part of the economic life of the marriage (the concept of “mingling”), the original non-marital source of the money may justify a departure from equality. Even the matrimonial home may not be divided equally if there have been unequal contributions to its purchase.

This issue can be difficult and has generated a great deal of case law. As Moylan LJ pointed out in Hart v Hart (CA)[6] it is not always possible to categorise an asset as matrimonial or non-matrimonial, because it can be a combination of both. He decided that the court was not required to adopt a formulaic approach in every case and the extent to which it is necessary to evaluate and reflect the non-matrimonial element depends on the facts of the case.

Categorisation of personal injury damages as non-matrimonial?

The issue of whether personal injury damages are non-matrimonial has yet to be determined by the courts, but logically, in the view of the author, most personal injury damages should be categorised as non-matrimonial. This is because damages are not assets comprising the product of the parties’ joint marital endeavour during the marriage. Instead, personal injury damages are brought into the marriage unilaterally by one of the parties as a consequence of their injuries and are therefore “akin to external donation” from a source external to the marriage.

There is some scope to treat different heads of damage differently. It is difficult, for example, to see how general damages for PSLA could ever be properly categorised as matrimonial property, whereas damages for loss of earnings awarded for the period that the marriage subsists may well be matrimonial and subject to the sharing principle. Similarly, damages for reimbursement of past losses such as aids and equipment, if paid initially from matrimonial funds as opposed to an interim payment, may well be matrimonial in nature. Damages for care are provided gratuitously to an injured spouse by their husband/wife during the marriage of course belong to the spouse providing the care[7] and are arguably matrimonial. In contrast, damages for future care provided after the end of the marriage are clearly non-matrimonial.

In general terms, future losses are likely to be categorised as non-matrimonial. The issue of whether a husband’s earning capacity is capable of being a matrimonial asset to which the sharing principle applies was recently considered by the Court of Appeal in Waggott v Waggott [8]. The Court of Appeal held that the clear answer was that it is not. Moylan LJ stated:

“The sharing principle applies to marital assets, being the property of the party generated during the marriage otherwise than by external donation (Charman v Charman (No 4))[9]. An earning capacity is not property and …it results in the generation of property after the marriage.”

Waggott was followed in C v C [10] in which Roberts J made it clear that post-separation earnings can be ring-fenced as non-matrimonial property. Applying these principles to personal injury damages, it must follow that future pecuniary losses that relate to the period after the marriage has broken down, are non-matrimonial, including damages for future loss of earnings.

The argument that personal injury damages are non-matrimonial and should not be subject to the sharing principle, has yet to be tested by the courts. But in order that family lawyers can advance arguments that personal injury damages should be “ring-fenced” they need evidence to establish the dividing line between what is, and what is not, non-matrimonial. Thus, where the claim has been settled by payment of a single lump sum award of damages, the family lawyers, and the family court, needs to understand how the award has been calculated. The personal injury lawyer can assist simply by providing a detailed breakdown in writing to show how they calculated the award, including their assessment of general damages, the breakdown of past losses, their assessment of the multiplicand for future losses and the multiplier.

Needs

The fact that assets, including personal injury damages, are non-matrimonial will count for little where the needs of the uninjured spouse without recourse to such assets. In Miller Lord Nicholls observed:

“When the marriage ends, “fairness requires the assets of the parties should be divided primarily so as to meet provision for the parties’ housing and financial needs, taking into account a wide range of matters… most of these needs will have been generated by the marriage, but not all of them. Needs arising from age or disability are instances of the latter.”

The Family Justice Council issued Guidance of “Financial Needs” on Divorce in April 2018, which provides a useful summary of the law:

• Need will be measured by assessing available financial resources.
• The court will strive to stretch finite resources and where resources are modest, the children’s need may predominate.
• Need will be measured by assessing the standard of living during the relationship, but a party may be expected to suffer some reduction in standard of living on divorce.
• To measure need, and the ability to meet it, both parties will be expected to present detailed budgets.
• Needs may be met from non-matrimonial resources.

Personal injury practitioners often question how it is that the family court can invade the personal injury damages, particularly where damages for future losses have been carefully calculated to meet the claimant’s ongoing care and other needs. The short answer is that the court must also balance the needs of the non-injured spouse, particularly where there are children involved, and attempt to stretch the financial resources to meet their needs, principally for a home.

Personal Injury Case-law

The existing case law will be summarised briefly. In Wagstaff v Wagstaff the parties were married. The wife had two children, who were treated by the husband as children of the family. 5 years after the marriage, the husband suffered very serious injuries in a road traffic accident that rendered him paraplegic and confined to a wheelchair. The husband’s claims for damages was settled for £418,000, which was used to purchase a property, adapted for his special needs. He invested the remainder in a health club, which was loss making and retained about £70,000 in bank accounts. The wife had purchased the family home, a council property, which she then sold to purchase a property jointly with a work colleague.

The Court of Appeal upheld the order of the Registrar which was for a modest lump sum of £32,000. The court made clear that there was “no argument but that damages fall to be considered as part of a spouse’s financial resources under s25(2)(a) of the 1973 Act”, and this is obviously correct. The court’s reasoning is consistent with the approach that the court would take today, in placing considerable importance on the source of the assets. Butler-Sloss LJ stated:

“The reasons for the availability of the capital in the hands of the spouse, together with the size of the award, are relevant factors in all the circumstances of s25. But the capital award is not sacrosant, nor any part of it secured against the application of the other spouse. In some cases, the needs of the disabled spouse may absorb all the available capital, such as the requirement of residential accommodation … In general, the reasons for the availability of the capital by way of damages must temper the extent of, and in some instances may exclude the sharing of, such capital with the other spouse.”

In C v C[11] the parties had one child and lived modestly in council accommodation. The husband suffered severely disabling and permanent brain damage in a road traffic accident, restricting his mobility and ability to communicate. The husband was awarded damages by way of a structured settlement. Had he been awarded damages on a conventional basis, he would have expected to receive about £950,000. Following the breakdown of the marriage, he moved to Cyprus to be cared for by his parents and a specially adapted house was built for him, leaving him with no spare capital. The balance of the structured settlement was used to purchase four annuities, but the annuity income produced broadly equalled his outgoings, including his care costs. On appeal, Singer J held that bearing in mind the husband’s circumstances, and his “very considerable” needs, there was in reality no readily available or realisable capital and ordered a clean break. He took into account and that the wife was securely housed.

In Mansfield v Mansfield[12] H received £500,000 for a personal injury claim prior to the marriage. He invested the money in a bungalow and an investment flat. The bungalow was specially adapted for him, partially funded from the sale of the wife’s pre-marital flat. The parties had 4-year-old twins. At first instance, the court awarded £285,000, more than half the assets in the case. The Court of Appeal upheld the amount awarded on the basis of the district judge’s finding that this was the minimum required to meet the needs of the wife and the children (whilst commenting it was on the high side), but converting the order to a Mesher order, whereby one-third of the capital awarded to the wife would revert to the husband upon the children reaching their majority.

Although the decision in Mansfield caused consternation among practitioners, it was clearly based on the needs of the wife as primary carer to provide a home for the children. But Thorpe LJ stated that “in many instances the application of the general sharing rule must be tempered to reflect the particular needs of the recipient and the very nature of the acquisition of capital, namely by way of compensation for personal injuries.” It should also be noted that in this case the husband’s personal injury damages had been “mingled”.

Attempts to protect the damages on divorce

Although personal injury damages are not sacrosanct, there are steps that can be taken in an attempt to preserve the damages on divorce.

• Provide a breakdown of the damages.

It is important that the personal injury solicitor provide a detailed breakdown of how the damages have been assessed in every case. As set out earlier in this article, this should enable the family lawyers to argue that at least majority of the award is non-matrimonial or relates to future loss after the end of the marriage. Perhaps more importantly, a detailed breakdown provides evidence of the injured spouse’s future needs. When, as is so often the case in clinical negligence cases, a discount is applied to the damages to take into account the risks of litigation, this should be clearly set out, as it follows that the damages received are less than required to meet the claimant’s future needs. All too often, all the family lawyer knows is the total quantum of the award, without any information as to how it was calculated, making it much easier for the court to share the award with the uninjured spouse.

• Periodical Payments.

As the readers of this article are well aware, whenever the court is considering a claim for future pecuniary loss, the court must consider whether or not to make an order for periodical payments as opposed to a lump sum. One advantage of a PPO is that it can provide considerable protection for the claimant in the event of divorce and avoid the very real concern that should a substantive order be made against damages in financial remedy proceedings, this will lead to the damages running out during the claimant’s life-time. Just as in C v C (above), the available capital will be limited. The family court could make an order for ongoing spousal maintenance from the PPO, but only by reference to needs. In practice it may be difficult for the family court to award spousal maintenance where it can be demonstrated that the entirety of the PPO is needed to meet the future care and other needs of the injured spouse.

• Marital Agreements

The decision of the Supreme Court in Radmacher v Granatino [13] has led to a fundamental change in the approach to the enforceability of marital agreements, giving them much greater weight. Lord Phillips held that “The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.” Although Radmacher concerned a pre-nuptial (antenuptial) agreement, it established that the same approach should apply to both pre-nuptial and post-nuptial agreements, made after the marriage. In the context of section 25 of the MCA 1973, the existence of an agreement is a very important price of conduct and a very important factor in considering what is a just outcome of the proceedings.

In the view of the author, practitioners should advise their married clients to enter into a post-nuptial agreement setting out how their assets and the personal injury damages should be dealt with if they subsequently divorce. Unmarried clients should also be advised that they should enter a pre-nuptial agreement should they get married in the future.

• Personal Injury Trust

Finally setting up a personal injuries trust should be considered. This is a complex area beyond the scope of this article. In short, the assets of the trust may well be considered a resource available to the injured spouse. Further, the court has power to vary both ante-nuptial and post-nuptial settlements under section 24 of the Matrimonial Causes Act 1973. Although a personal injury may therefore not succeed in protecting the damages on divorce, at the very least it keeps the damages separate, and this may persuade the court that the sums in the trust should be kept for the benefit of the injured party as the personal injury trust intended.

• [1] [1992] 1 All ER 275, [1992] 1 FLR 333. CA.
• [2] [2001] 1 AC 596, [2000] 2 FLR 981
• [3] [2006] UKHL 24, [2006] 2 AC 618.
• [4] [2011] EWHC 2637 (Fam), [2012] 1 FLR 651
• [5] [2017] AC 93
• [6] [2017] EWCA Civ 1306, [2018] 2WLR 509
• [7] Hunt v Severs [1994] 2 AC 350.
• [8] [2018] EWCA Civ 727
• [9] [66]
• [10] [2018] EWHC 3186 (Fam)
• [11] [1995] 2 FLR 171
• [12] [2011] EWCA Civ 1056, [2012] 1 FLR 117
• [13] [2010] 2 FLR 1900

This article was first published in the AvMA Newsletter. Visit the AvMA website here.

Sarah Edwards

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