Using the “millionaire’s defence” in family financial proceedings

Family proceedings involving financial claims, whether matrimonial proceedings or Schedule 1 proceedings relating to provision for children, will inevitably involve disclosure. That process can be time consuming and intrusive (and will often involve significant cost). Parties are required to provide comprehensive disclosure of all their assets, with accompanying evidence such as 12 months of bank statements for each account, business accounts for the last two financial years for each business interest disclosed or copies of tax assessments. Parties may be subjected to repeated rounds of questioning until the court is satisfied that it has a complete understanding of a party’s wealth.

However, where one party is enormously wealthy, they may be able to rely on the “millionaire’s defence” in order to avoid the expense and hassle of disclosure (albeit the title of the concept is a misnomer in that it would not be open to most millionaires, nor is it a “defence” to a claim). In what circumstances are the courts likely to allow one party to provide limited (or no) disclosure?

Schedule 1 of the Children Act 1989

The main purpose of Schedule 1 of the Children Act 1989 is to allow the court to make limited financial provision for the children of unmarried parents when they separate. Schedule 1 is predominantly used where the parent who does not have day to day care of the child is particularly wealthy and / or the resident parent is making a claim for a home during the child’s minority.

Under Schedule 1, the court’s award is based on an assessment of the needs of the child. A “paying” parent who is particularly wealthy may wish to argue that the claim can be calculated without reference to their wealth on the basis that they could afford to pay whatever sum the court might order, therefore no disclosure should be provided. This has become known as the “millionaire’s defence.” In practice, this would only be deployed in cases with hugely substantial wealth, where there is no risk that the award a court might make would be unaffordable for the paying party.

The millionaire’s defence was considered in the recent case of Y v Z (Schedule 1) [2024] EWFC 4, in which a mother brought a claim on behalf of two children. The father was a member of a Middle Eastern royal family. The mother and father were married in a Nikah ceremony, a form of Islamic marriage that does not constitute a valid marriage under English law, hence the only claim the mother could bring was on behalf of the children.

The father accepted that he had the “liquidity and resources to meet any reasonable orders that may be made by the court for the benefit of the children up to the level of [the mother’s] claims … and any reasonable level of security for ongoing payments if required.”

While some payors may try to argue the millionaire’s defence in an attempt to avoid the need for financial disclosure at all, Peel J found that provision of some disclosure is usually necessary for the following reasons:

1. It enables the claimant party and the court to have some understanding of the scale of wealth and how it is structured.
   
   The court is required to consider the income, earning capacity, property and other financial resources of the parties when dealing with a claim under Schedule 1. This is only possible with an understanding of the wealthy party’s resources. It is also likely to shape the claimant party’s request.
   
   

2. It enables thought to be given to the structure and enforceability of any award.
   
   While a party may have substantial assets, their wealth could be highly illiquid. This could prevent them from meeting the level of award that the court orders. In addition, this may lead to issues with security (ie sufficient additional resources in the background against which to secure an award). In Y v Z, Peel J confirmed that the millionaire’s defence is only possible where there is not only enough wealth to meet any award, but enough security for any maintenance and school fees provision which may be ordered.
   
   This is particularly important in cases where the father does not wish to have a relationship with the child and has no ties to England, as there is then a real risk that the order will not be enforceable without such security.
   
   

3. The level of wealth “may still inform the reasonableness of the budgetary claims”.
   
   As explained, a claim under Schedule 1 is calculated by reference to a budget. What is considered to be reasonable in the budget will depend on the paying party’s wealth.
   
   

What disclosure should be provided?

In Y v Z, Peel J ordered that the father should file a Form E (a summary of a party’s assets), but with no documentary evidence in support. He directed that the father should provide a narrative explanation of non-standard assets such as trusts or businesses. This struck the appropriate balance between the need to understand the payor’s wealth and other relevant circumstances with the need for disclosure. It also had the benefit of requiring the father to produce his disclosure in a Form E which was confirmed by a Statement of Truth, from which he would have difficulty in any subsequent attempt to row back. 

Matrimonial proceedings

The millionaire’s defence has been expressly disapproved of by the Court of Appeal in most matrimonial proceedings. This is because, in matrimonial proceedings, both spouses are entitled to an equal share of the marital assets unless there are good reasons to the contrary. This can only be considered with full disclosure.

However, there is a very small category of cases in which it may be possible to run this argument: if the marriage was short, and the assets are exclusively or predominantly pre-marital. In these cases, one spouse may be limited to a needs claim, and therefore full disclosure may not be required.

In the case of AH v PH [2013] EWHC 3873 Fam, the parties had a four-year marriage and two young children. All of the £76m of assets were non-matrimonial. The husband confirmed that he could meet any reasonable order. Moor J held that he was satisfied that the case did not involve the principle of sharing the marital assets and therefore it was proper for the wealthier party to give only a broad outline of wealth, after which he could run the millionaire’s defence.

A decision to “run” the millionaire’s defence requires careful strategic thought. It is important to take specialist legal advice as to what is appropriate and effective in each individual case. When used appropriately, pragmatic solutions such as the millionaire’s defence can save substantial costs and time, whilst seeking to preserve privacy. 

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2024