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Divorce Lottery in light of S v AG (Financial Remedy: Lottery Prize) by Lucine Shahbazian (20 December 2011)

On divorce, both the Petitioner and Respondent can make a claim for financial relief against the other. All assets, owned jointly or solely, by either party to the marriage, form part of the matrimonial kitty to be divided between the parties (following s.25(2)(a) MCA 1973). The recent case of S v AG (Financial Remedy: Lottery Prize), heard in October this year by Mostyn J, addresses the issue of to how to deal with a lottery prize won by one party to the marriage.

In S v AG (Financial Remedy: Lottery Prize) [2011], the wife (W) and husband (H) were married in 1984 in Colombia, and came to the UK with their children some time after. In December 1999 W won a lottery prize of £1 million, shared equally with a friend with whom she had formed a lottery syndicate. W used the majority of her winnings of £500,000 to buy and renovate a house, into which the entire family moved. There was some argument over the date of separation, with W asserting that she and H were effectively separated since 1996. However, it was found that the parties separated in 2003. On H’s application for financial relief, the question of how to deal with W’s lottery winnings had to be addressed. The asset having come entirely from W, what claim did H have on it? How should the asset be treated within the financial relief proceedings and how should it be divided?

The first port of call in financial relief claims is the factors listed in section 25 Matrimonial Causes Act 1973. As well as the welfare of minor children of the family and the clean break principle.

The judgement of Mance LJ in Cowan v Cowan [2001] explored the idea of one party to a marriage making a ‘stellar contribution’ to the matrimonial wealth. Such a contribution was defined in general terms as special effort or skill, with one spouse having gone beyond what would ordinarily be expected, or what the other spouse could ordinarily have hoped to do himself or herself. The special skill or effort would be special to the spouse in question and thus a question was raised as to the other spouse’s claim on the fruits of the special effort. Mance LJ considered such a contribution to a factor worthy of consideration, and should be given weight in the appropriate cases. In the case of Cowan v Cowan the stellar contribution referred to the business skill and innovation of the husband, which had led to the very significant matrimonial wealth.

Unsurprisingly, the precise way of dealing with lottery money won by one party to the marriage has seldom arisen in financial relief proceedings. In Cowan v Cowan, Mance LJ raised the question. In paragraph 160 of his judgement he asked, “What, for example, of the individual spouse who each week invests a small part of his or her spare cash in the National Lottery, and one day wins £1 million, or £10 million? Should this asset be viewed like any sudden accretion to the value of the joint home or other matrimonial investment…? Or might it, in some circumstances at least, be more analogous to property brought into a marriage or inherited property?”

This very issue has now arisen and Mostyn J dealt with this very question little over one month ago, when judging the case of S v AG (Financial Remedy: Lottery Prize). Firstly, on the issue of special contribution, Mostyn J referred to the case of K v L [2011] and the judgement of Wilson LJ. In his judgement, Wilson LJ tied special contributions into the issue of whether the property was matrimonial or non-matrimonial, and further, to what extent then the sharing principle applied. At paragraph 7, Mostyn J summed up the law as follows, “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 a rare case where the sharing principle will lead to any distribution to the claimant of non-matrimonial property.” This is, however, only where assets exceed needs.

On the issue of whether the prize was matrimonial or non-matrimonial property, Mostyn J stated briefly and unequivocally that it is non-matrimonial property. It is a situation where one party has unilaterally bought lottery tickets from his or her own income, without the knowledge of the other party. To argue that the cost of the ticket derived from joint matrimonial assets would be “pure sophistry”, in the words of Mostyn J.

However, Mostyn J goes on to find that when W bought the former matrimonial home with some of the proceeds of the lottery win, she converted the money used into matrimonial property. This appears to be completely in keeping with previous judgements, especially with reference to Lord Nicholls in Miller/ McFarlane.

But to go back a small step, before even deciding whether the property was matrimonial or not matrimonial, Mostyn J considered the needs of each party, using the Duxbury calculation to find a figure for H’s financial needs. The Duxbury calculation is a method of arriving at a lump sum figure that will enable the recipient to live at a certain level of expenditure for the rest of their life. It is used to enable a clean break where there is enough money for a lump sum to cover the recipient’s needs for the rest of their life, thus avoiding ongoing maintenance payments. Mostyn J calculated a lump sum of £82,080 for H using this principle.

After determining a clean-break lump sum, Mostyn J turned to the issue of how to share the property. It was part of his consideration of the ‘sharing principle’ that he decided on what type of property the lottery money, and then the former matrimonial home, was. When deciding how to share the former matrimonial home, Mostyn J considered the source of the asset; that it derived not from joint endeavour but from W’s non-matrimonial property. This, coupled with the relatively short period of time that H lived in the FMH, led to Mostyn J to depart significantly from equality. His assessment of the sharing principle gave a range of the award to H as between £72,000 to £96,000.

The value of the former matrimonial property, less the costs of sale, was found to be £480,150. H was awarded a lump sum of £85,000, giving him approximately 17.7% of the value of the former matrimonial home. That the former matrimonial home was bought using money won by W in a lottery was but one factor, albeit a significant factor, considered when deciding how to share assets on divorce.