London’s reputation as divorce capital could be tested by legal shake-up

There seems to be a raft of striking London divorce settlements that have cemented the city’s reputation as the world’s divorce capital, especially for the very wealthy.

In top position was the £554mn that Sheikh Mohammed bin Rashid al-Maktoum, the billionaire ruler of Dubai, was ordered to pay his former wife Princess Haya, in December 2021.

Not far behind was the £454mn that Russian oligarch Farkhad Akhmedov was required to hand over to his ex-wife Tatiana Akhmedova. And in third place was the £350mn awarded to Kirsty Bertarelli, a former Miss UK and writer of a hit song, after splitting with her Swiss-Italian billionaire husband Ernesto Bertarelli.

These settlements are exceptional but are no surprise to legal scholars: for decades, London has been gaining momentum as the go-to place for divorce, especially for financially weaker partners of ultra-rich breadwinners.

But, this may now be changing following an announcement by the UK government earlier this year that the Law Commission will be reviewing the way in which a couple’s finances are dealt with upon divorce.

“While the courts have done a good job of moving with the times, the rules are 50 years old and each judge still has a lot of discretion as to how assets can be split,” says Renato Labi, partner at Hughes Fowler Carruthers, in London.

While the Law Commission, the independent agency that reviews legislation, deliberates in private, lawyers say it is likely to take a hard look at the favourable treatment given to the spouse of the main breadwinner — often, though not always, a non-working wife.

The commissioners are also expected to give weight to the growing importance of prenuptial and postnuptial agreements, which are increasingly used by richer partners to limit potential future claims from the less-well-off spouse. Also, amid rising public unease about the costs of litigation, divorce lawyers’ bills are likely to come under increased scrutiny.

The English (and Welsh) legal system is particularly attractive to the financially weaker person in a couple because it focuses on splitting the combined marital wealth of divorcing spouses equally, even if one partner is the moneymaker.

The approach is different to Scotland and other European countries where financial awards are far less generous and maintenance is often given only for a limited number of years, with the expectation that both parties will become financially independent.

These discrepancies often result in a “race” to file for divorce, in which the financially weaker spouse — usually the wife — looks to London, while the main breadwinner heads elsewhere.

Jaqueline Julyan, barrister and advocate at 5 St Andrew’s Hill, says: “When an international couple’s marriage breaks down, there is likely to be a rush to secure jurisdiction in the form most favourable to that spouse. A Russian husband will try to secure jurisdiction in Russia, while a Russian wife will want to secure jurisdiction in England. This is what’s known as ‘forum shopping’.”

While London divorce court rulings are often based on decades of precedent and important legislation such as the Matrimonial Causes Act 1973, spouse-friendly divorce awards are of more recent origin. Julyan says the attractiveness of England and Wales in this area accelerated only after a case called White vs White, in 2000, which changed the law and allowed wives to claim 50 per cent of marital assets.

“Before then, wives were limited to only being able to claim their reasonable needs,” she says. “This ushered in an era of increasingly big money cases with huge payouts to wives where enormous amounts of money had been made over the marriage.” 

Deborah Jeff, partner and head of the Family Department at London law firm Simkins, says that the driving force was equality between the spouses: “White vs White swept away this discriminatory approach in England, but it still exists in some other jurisdictions around the world.”

However, critics of the current 50-50 approach say it is now outdated. Nicky Hunter, partner at Stowe Family Law says: “It is hard to think of any other rules that were modern and relevant to our grandparents that we would still consider relevant and applicable today.”

She says that society has undergone dramatic changes over the past few decades: “Many more women go to university and work full-time now, and couples tend to marry and have children at an older age.”

In today’s world, women are more financially independent and dual-earning couples are becoming the norm, so there is less emphasis on a need for women to be supported by their ex-husbands for the rest of their lives.

New legislation could tighten up the definition of marital assets and exclude certain assets from any split. Jennifer Dickson, a partner in Withers’ international family law team, says that, for example, Scotland defines matrimonial property as all assets acquired during the marriage but before a relevant date, plus any house used as the family home, but with certain exclusions including premarital assets, inheritance and gifts from third parties.

But, this is delicate territory. As Dickson says: “A move away from the starting point of a 50/50 division of marital assets is likely to be considered discriminatory.”

The law as it stands is already quite flexible on how couples divide their finances. Emily Brand, head of family law at Boodle Hatfield says: “The vast array of variables; financial circumstances, age, children and cultural differences, to name a few, mean that the way couples approach their finances is as unique as any relationship.”

She says this variation is a strength of the current divorce legislation and explains: “It offers bespoke solutions and is malleable to the inevitably unique and complex circumstances that emerge as two people extricate themselves from their married lives.”

However, this flexibility can trigger uncertainty as some aspects are open to debate where the factual matrix of the case to be decided does not “fit” the facts of an earlier case with comparable but different circumstances. 

Moreover, the outcome is dependent on a judge’s discretion. “Each judge is a human being with their own subjective views of what is fair and reasonable, and often overworked with limited court time,” says Hunter.

Although people can appeal against a decision, many parties will not have the appetite or financial resources to risk making an appeal. And most lawyers will warn their clients at the outset of their case of the litigation risk of an uncertain and potentially unfavourable outcome before embarking on an appeal. 

Hunter says: “It can be extremely difficult to challenge and overturn an unfavourable decision on appeal. Unless it can be shown that the judge has wrongly applied the law or the decision was unjust because of a serious procedural or other irregularity.”

Brexit has made English courts less attractive

Not every wealthy international couple facing difficulties in their marriage can file for divorce in London. For an individual to file for divorce in the capital they must be able to demonstrate a connection to the UK. 

Patricia Astley, managing director at Julius Baer International, says: “International families often travel through or own properties in the UK. Wealthy divorces involve properties held in the UK, which allow the parties to commence divorce proceedings.”

Also, just because people are able to secure London as their preferred jurisdiction that does not mean it always delivers the best outcome. If assets are held overseas, the ability to enforce any divorce settlement needs to be considered.

Brexit has also created an additional layer of complexity. EU legislation meant that EU nationals could choose any jurisdiction in the EU and file for divorce if they got there first. While England and Wales (like Scotland and Northern Ireland) are no longer bound by those rules, EU states are.

James Riby, a partner at law firm Charles Russell Speechlys, says: “Brexit has already made English courts less attractive for wealthy international couples than any of the proposed reforms, because there is now a real risk that English judgments will not be recognised and enforceable abroad, and enforcement against foreign assets is often crucial in wealthy cases if the court’s award is to have any hope of actually being implemented.”

Many cases have racked up large legal costs

Another driver for change is the rise in legal costs — which have been so striking that they have occasionally come under attack even from judges.

“While these cases are a minority they grab the headlines,” says Hunter at Stowe, “It’s generally only [about] the cases which involve wealthy parties and complex assets heard at the upper levels of the family court system.”

When a judge heard, in 2021, that a Russian businesswoman and her Greek ex-husband had run up lawyers bills of £5.4mn in their divorce battle at London’s High Court with “vast amounts of future costs in the pipeline” he described the amount as “apocalyptic”. Mr Justice Mostyn said the legal expenses from the dispute between Russian retail executive Alla Rakshina and her ex-husband Lazaros Xanthopoulos were “hard to accept even in a conflict between the über-rich”. 

The judge added: “In my opinion, the lord chancellor should consider whether statutory measures could be introduced which limit the scale and rate of costs run-up in these cases.”

Legal guidelines in need of reform

High-profile figures support the calls for reform. Conservative peer Baroness Shackleton of Belgravia, who has represented royalty and celebrities including Paul McCartney, told parliament earlier this year that she and her legal colleagues “make a fortune in arguing”, because the guidelines are 50 years old and in need of reform. 

Baroness Deech, a crossbench peer in the House of Lords is also demanding change. She pointed out that the law was “lagging 50 years behind nearly every other country in the western world”.

Under her bill, pre-and postnuptial agreements would be binding provided certain conditions are met. Matrimonial property (essentially, all property acquired after the parties were married, save for gifts and inheritances) would be divided equally, and spousal maintenance limited to five years unless the spouse would otherwise suffer serious financial hardship.

However, even if the rules change, lawyers say they expect the financially weaker spouse to keep choosing London as a divorce destination. At Withers, Dickson says with the English court’s increasing willingness to respect prenuptial and postnuptial agreements, and the trend away from making “meal ticket for life” joint lives maintenance awards, London is not quite as generous as it used to be. “But in my experience, it is rare for another jurisdiction to be more generous to the financially weaker spouse.”

She adds: “England also has strict disclosure obligations, and so if you are worried about your spouse not disclosing assets, England can feel like a secure place to be.”

Others agree, Labi at Hughes Fowler Carruthers says: “Even if there is reform, London remains a wealthy, world-class and cosmopolitan city, which attracts people and money from around the world. Some of those people will marry and divorce and I suspect that the divorce courts in London will remain busy for a long time to come.” 

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