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Home > Articles > 2013 archive

Finance and Divorce May 2013 update

Anna Heenan, solicitor and David Salter, Joint Head of Family Law at Mills & Reeve LLP analyse the April financial remedies and divorce news and cases



Anna Heenan and David Salter both of Mills & Reeve LLP

This update is divided into two parts:

1. News in brief
2. Case law update

News in brief
This section of the update highlights some of the news items that will be of particular interest to practitioners who advise on divorce and financial remedy cases.


Law Society investigates the effect of LASPO
The Law Society is seeking to monitor the impact of the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO) changes and is asking practitioners to provide example of when they have been unable to take on clients in complex family (non-domestic violence), domestic violence, immigration and housing cases:
For more information, click here:


Lord Justice Ryder outlines the changes ahead for family justice

Speaking at the Resolution National Conference, the outgoing Judge in Charge of the Modernisation of Family Justice, made a keynote speech setting a range of measures which will result in a "revolutionary change of culture" within the family justice system.
For the full story, click here:


Bar Council launches guidance for litigants in person
Following the cuts to legal aid, which came into force on 1 April, the Bar Council has published "A Guide to Representing Yourself in Court", which contains a section on family law (including dealing with property on relationship breakdown).
You can find the guidance here


Presumption of Death Act 2013 receives Royal Assent
The Act, which received Royal Assent on 26 March 2013, is available here:


Separating state and religious marriage?
The Evening Standard reports on proposed amendments to the Marriage (Same Sex Couples) Bill tabled by Greg Mullholland MP would mean:

- repeal of the Marriage Act 1949 and the Civil Partnership Act 2004;

- remove adultery as a basis for divorce and non-consummation as a basis for nullity;

- introduce civil unions, under which there could be no religious service.

For more information, click here:  


Growing numbers of divorces are based on women's drinking

The Telegraph reports on comments made by Amanda McAlister, head of family law at Slater & Gordon, that the number of men citing alcohol misuse by their wives as the reason that the relationship has broken down has risen by 70 per cent in the last five years.

For the full story, click here


Direct access to barristers extended
The Legal Aid Agency has formally approved changes allowing the public direct access in areas eligible for legal aid to barristers of less than three years call.

The Bar Council has welcomed the moves.

For the Bar Council response to the reforms, click here:


Benefits cap may encourage separation

The Institute for Fiscal Studies has warned that the Government's new welfare benefits cap may encourage fewer couples to cohabit.

The cap, which applies to benefits including jobseeker's allowance, income support, child and housing benefit, is £500 per week for couples and £350 for a single person.

For more information, click here


Concern expressed about divorcees' lack of understanding of pensions issues
Research by Phoenix Group reveals a number of findings about divorce and women's pension provision. For example:

- 66% of female divorcees over 40 rely on the state pension in retirement;

- 19% of women stopped paying into a pension altogether following divorce;

- half of divorced women made no contributions at all to a pension scheme whilst married, but only one in six had rights to a pension through their ex-husband; and

- 38% of women have no idea what settlement they received following their divorce.

For more information and comment, click here: 


Case law update
This section of the update considers an application to show just cause why a financial agreement should not be made an order of the court and a preliminary issue as to the ownership of a former matrimonial home.


T v T [2013] EWHC B3 (Fam) (Parker J) 28 January 2013
This case considers a wife's challenge to a "Separation Agreement" made in 1991 but never converted into a court order.

Background
The husband and wife signed a "Separation Agreement" on 26 June 1991, following extensive negotiations between solicitors. The wife received the majority of the assets (the precise percentage was a matter of dispute). The agreement also provided for a clean break and recited that divorce proceedings would be brought once the parties had been separated for two years.

A Decree Absolute was obtained in January 1995. The husband remarried and the wife had another child (who was not the husband's). The Agreement was never made into a court order.

The parties' positions were now very different from their positions at the time of the Agreement (when the wife had been the beneficiary of a trust and the husband was at the start of his career). The husband's company was now valued at £1.6m, he had a pension worth in excess of £1m, he had capital assets (including his interest in his matrimonial home with his new wife) of £630,000.  In contrast, the wife's capital had reduced to around £970,000 (her original capital position is unclear from the judgment), which was mostly tied up in her home. She had an income of around £30,000.

The wife's solicitors wrote to the husband pointing out that the agreement had never been made into a court order and requesting financial disclosure. The wife subsequently issued Form A and the husband applied for an application to show cause why the agreement should not be made into a court order.

The parties' positions
The husband argued that "this agreement should be treated as of 'magnetic importance' (per Crossley [2007] EWCA (Civ) 1491)  as being the most important and compelling feature of all the circumstances of the case and of the parties' conduct, and that in any event the wife has delayed for over 20 years in seeking any financial remedy against him. Thus he says that it is now too late for her to seek to put the clock back to re-write history when he has conducted his life and set up his new family on the assumption that everything had been agreed."

In her statements, the wife had suggested that it was inherent in the agreement that it was only an interim agreement, to be reviewed at the time of the divorce. Whilst Parker J accepted that the wife would have been advised that neither party's claims could be dismissed until the divorce took place, this did not mean that the wife truly believed she was entitled to reopen her claims later on. It was notable that the wife had not taken any steps since 1995 to seek alternative provision.

Counsel for the wife made the following arguments:

1. There was material non-disclosure;

The judge did not accept this. The husband's pension and life assurance were disclosed by the husband's solicitor in a telephone conversation with the wife's solicitor a week or so before the agreement was signed. A handwritten note was added to the asset schedule.

The wife argued that the version of the asset schedule she signed did not contain reference to the husband's pension. This was not accepted. The wife had had a version of asset schedule with the manuscript amendment ever since it had been signed and there had been no previous complaint that the wife had been misled. The wife had been unable to produce a signed version of the document which did not have a manuscript insertion dealing with the pension or life assurance. Even if the amendment was added later, the insertion must have been made with the wife's knowledge and agreement.

2. The wife was under pressure from the husband because he would not move out of the family home;

This was not accepted. The husband was also under pressure as he needed capital to buy a home. There were no allegations in correspondence that the husband was pressuring the wife; there was agreement between the parties that the husband should remain until the lump sum was paid.

3. The wife was pressured by her solicitor to enter into the agreement.

Parker J noted that the wife complained of pressure applied by one particular solicitor, but she was clearly happy with other members of the firm. Further, even if there had been pressure by the wife's solicitors, it was part of their job to help achieve a realistic result. There was nothing that indicated the agreement was not fair and the wife was not competently advised. Additionally, the wife had had a number of years to raise this issue and had not done so.

4. The husband had not given a satisfactory reason for not ensuring the agreement was embodied in a court order. It must have been because he wanted to preserve his position to make a later application.

Neither party was prepared to waive privilege with a view to explaining why the agreement was not made into an order of the court. Parker J was "wholly unpersuaded" by this argument; the husband had remarried shortly afterwards, which would deprive him of the ability to claim against the wife. Therefore, Parker J concluded that "each thought the agreement was enough to secure their respective positions."

5. The court must always scrutinise in detail the parties' current circumstances when deciding whether an agreement should be reflected in an order of the court.

Parker J noted that there were tensions between the Edgar principles and the requirement that the court should consider the s 25 criteria when exercising its discretion. However, authorities such as Soulsbury v Soulsbury [2007] EWCA Civ 969Pounds v Pounds [1994] 1 FLR 775 and Harris v Manahan [1997] 1 FLR 205 suggested that, whilst a judge was under a duty to consider consent orders and could make further enquiries if he or she felt it was required, there was no duty to require evidence. In Harris v Manahan [1997] 1 FLR 205, Ward LJ had noted that;

"The realities of life…. are that District Judges are under immense pressure and that the system only works because of the practitioners' help. I would therefore be very slow to condemn any judge for a failure to see that bad legal advice has been tendered to a party. The statutory duty of the court cannot be ducked but the court is entitled to assume that parties who are sui juris are represented by solicitors who know what they want. Officious inquiry may uncover an injustice, but it is more likely to disturb a delicate negotiate and produce a very costly litigation and the recrimination which conciliation is designed to avoid."

Parker J felt that this did not undermine the court's duty to make its own independent assessment and to consider the s 25 factors and fairness and a just result. "The exercise that the court conducts is not one of enforcing the agreement but of determining whether an order should be made in the same terms of the agreement. But I consider that the court is under no duty to examine in detail the parties' current financial circumstances in deciding whether the agreement is now fair."

The judge's decision
Parker J considered a number of authorities, including Brockwell v Brockwell [1975] CAT 468, Dean v Dean [1978] Fam 161, Edgar v Edgar [1981] WLR 1410 and X v X (Y and Z intervening) [2002] 1 FLR 508. She noted that the approach to agreements in England and Wales was that "where a financial remedy application is before the court, the court in every case must consider the s 25 criteria, and no agreement can oust the duty of the court to do so. Nevertheless, the importance of a freely negotiated agreement is of relevance and often of determinative relevance."  Parker J noted that the authorities suggested that the Agreement could be taken into account either as conduct under s 25(g) or as part of all the circumstances of the case.

Parker J considered:

1) Had the parties reached an accord by which they intend to resolve the matrimonial affairs?

2) How have the conducted themselves?

It was clear that the parties intended to resolve their financial affairs in 1991. The "parties have acted upon [the agreement], relied on it, and gained peace of mind from it, or certainly were entitled to gain peace of mind from it, for over 20 years." Therefore, Parker J concluded that the agreement should be given "magnetic" importance.

Costs

Perhaps unsurprisingly, the husband's application for costs was successful.

The "no order" principle did not apply to the proceedings and, therefore, the husband's application was covered by FPR 2010, r 28(3)(7).

Parker J considered the financial effect of an order for costs against the wife. Counsel for the wife had argued that the wife had no money in her account, she had medical difficulties and her employment was under threat. Although she had the best part of £1 million, this was tied up in the property where she lived with Mr T's daughter. However, Parker J did not accept these arguments, or the wife's arguments that the husband ought to be penalised for failing to engage in mediation:

"Mediation is a very useful tool in the box of resolving disputes between parties, but I do not think a party who considers that an application made against him or her is wholly unreasonable is to be forced into mediation, which would have been fruitless, it seems, in any event because the husband would no doubt have stuck to his guns as I found he was entitled to do.  I do not think that the husband's refusal to disclose the correspondence between himself and [his solicitors] and the attendance notes and so on, is conduct which ought to be reflected in costs. I think in the light of my approach to this case that really whatever had been the motivation of either party, unless they had come to a mutual agreement to start again, would have made the slightest difference to my decision.

I understand that the wife has no liquid capital but she is capital rich, and she chose to bring this application so I am afraid she must pay the costs on a standard basis, but subject to a detailed assessment
."


CR v MZ [2013] EWHC 925 (Fam) (Mr Jonathan Cohen QC, sitting as a Deputy Judge of the High Court) 13 February 2013
This case considered a preliminary issue as to the ownership of the former matrimonial home.

Background
The issue in this case was the ownership of the former matrimonial home. It was held in the name of a BVI company (IUL). The judge had to decide who was the beneficial owner of the property (the husband alleged that it was his father) and, if it was IUL, who was the beneficial owner of the shares in IUL.

The husband's family was very wealthy. The husband's father had been called on to give evidence in the case and had suggested that he could raised £50 million "at the drop of a hat, and… this represented no more than 10 per cent of the value of his wealth."

It was clear that the husband's father had not initially approved of his marriage to the wife. However, it was found that the family became closer after the children were born. This all changed again when it emerged that the wife had had an affair: "she was effectively written off by both the husband and the father."

COG Limited and the first property purchase
This was a Channel Islands company set up and named by the husband. The documents indicated the ownership and control structure was as follows:

1. COG Limited had one share held by Atlas Trust Company (Jersey) Limited (subsequently renamed the Nautilus Trust Company Limited);

2. The company was managed by MM in Jersey (who, in emails, sometimes described herself as a director); and

3. The husband was described in at least four of MM's emails as "the ultimate beneficial owner" or "the ultimate beneficiary of the company" and there was no evidence of the husband's father having any interest in COG.

In 2005, the parties' first London flat was purchased in the name of COG Limited (there was no evidence of the reasons for this). The deposit and part of the balance was provided by the husband's father. The remainder of the balance was provided by an HSBC mortgage, guaranteed by both the husband and his father. The father had been very generous to the husband over the years and there was nothing "contraindicative to the very large sums of money paid by the father towards this purchase as being other than a gift."

The judge found that there were various other factors supporting the idea that the husband, and not his father, was the beneficial owner of COG:

a. There was nothing in the documents to suggest that the husband's father had any interest in COG;

b. The name of the company was formed of the first few letters of the names of the wife and the parties' children;

c. The husband had raised a second mortgage on the flat, without telling his father, in order to purchase another property. If he was not the beneficial owner of COG Limited then this would have been a gross breach of trust;

d. When the flat was sold, the sale proceeds initially went into the husband's sole account, at his instruction, before they were paid to the mortgage providers; and

e. Although the second mortgage had resulted in a shortfall in the sale proceeds, which the father cleared, this was consistent with the history of financial support by the husband's father.

IUL and the former matrimonial home
IUL was a BVI company:

- It was incorporated in August 2007 and its one share was issued to Mrs A (its director) in the Seychelles;

- On 3 December 2008, Mrs A transferred her one share to the husband.

- The share was cancelled and 50,000 shares were issued to the husband.

- The husband was granted a very wide power of attorney to deal with the company affairs. Neither the husband nor the father had any dealings at all with Mrs A or REL Corporate Services, who managed the company. "[I]t is plain that at all times the husband was the heart and mind of the company."

The former matrimonial home was purchased for £3.8m, the mortgage for which was provided by ING. The conveyancing solicitors were initially told that the flat was to be purchased in the joint names of the parties. The solicitors then advised that it would be more efficient for the family if it was put in the name of IUL and this is what happened (although the parties provided a personal guarantee). The wife agreed to this course of action as the husband assured her that it would make no difference. The husband's father was not involved in the purchase. The judge concluded: "The husband represented himself to ING, IUL, the conveyancing solicitors and to the lenders' solicitors, as the sole legal and beneficial owner of the shares. The father's name does not appear anywhere in the files.

In evidence, the husband had indicated that he had not bothered to read or understand the documents in which he declared himself to be the beneficial owner and that he had relied on his solicitors. The judge found this to be inconsistent with the husband's character. He was an "articulate and intelligent man" and also a "man of many words and strong views." The judge further noted that:

"…It is common ground between the father and the husband that the husband did not tell the father (i) that the purchase or exchange was going to be in the joint names of the husband and the wife, (ii) that the mortgage was going to be taken out in the names of the husband and wife, (iii) what security was going to be given, and (iv) that the shares in the company were going to be charged. The husband says that he did it all under his power of attorney effectively as middleman. But none of what I have recited was consistent with the father having a beneficial interest."

Following the mortgage valuation of the property prior to purchase, ING had reduced the amount that it was prepared to loan. The shortfall in the purchase price was made up of a loan by the husband's brother. The husband's father provided the parties with a payment for them to refurbish the property.

In 2011, the former matrimonial home was remortgaged. Following the refurbishment of the property, the mortgage advance was greater than the old mortgage had been. The surplus was paid into the husband's sole account (which became a joint account shortly afterwards).

The judge concluded that the payments were gifts by the father. It was clear from his evidence that he wanted his children to be comfortable during his lifetime, rather than after his death. The evidence and demeanour of both the husband and the father also made it clear that the husband had enormous respect for the father and would not have abused his rights. Further, the father did not ever express anger or challenge the husband, as would be expected if his rights had been breached.

The documentation
The husband had produced four documents, dated 3 December 2008, some of which appeared to show that the father was the beneficial owner of the shares in IUL.  It was accepted that it was possible for metadata to be falsified. The judge concluded that:

"It must follow that inevitably the husband's case is that either he had been practising a deception on his own father and the lender institutions, the latter because they would never have lent to someone who had no beneficial interest in the property, or that the husband was not being dishonest with the lending institutions and other, but is, with the father's involvement, seeking to mislead this court as to the true ownership, so as to stop the wife having a claim on the property, either directly or through him."

The judge concluded that the father had no beneficial interest in the former matrimonial home:

"Stepping back, I have asked myself many questions, but including these:

(i) If, as I find, the father paid nothing to the purchase price, as opposed to the refurbishment of the FMH, why should it have been agreed that he would have any, let alone 100 per cent, of the beneficial interest of the property?

(ii) What is in it for the father?  He is an enormously rich man.  Why should he want an interest in his son's property?  After all, at the time of these transactions, his upset at the marriage had long since vanished.

(iii) If, as I find, he had no interest in COG, the first property holding company, why should things change for the second company, IUL?"

The judge, therefore, moved to consider whether the ownership of the former matrimonial home was vested in IUL, the husband or in the husband and the wife. On the facts, the judge held that the beneficial interest was not vested in IUL for the following reasons:

"In this case, I draw particular attention to:

(i)  The absence of any clear tax advantage in the scheme.  The rationale of the decision in Ben Hashem is not established in this case.

(ii) The personal liabilities taken out by the husband and the wife in respect of the mortgage in 2009, when the legal interest was transferred.

(iii) The money that they put in by way of loan from [the husband's brother].

(iv) The absence of any consideration for any transfer of the beneficial interest.

(v) My finding that the property was initially going to be bought in the names of the husband of the wife, and the husband's assertions to the wife that it would make no difference whether it was in their name or in a company name.

(vi) The absence of any genuine third party involvement."

Whilst the redistributive powers under the Matrimonial Causes Act 1979 meant it did not make a difference whether the beneficial interest was held by the husband alone or the husband and wife jointly, "in light of the matters I have set out immediately above about the liabilities they took on, what was said between them by way of initial intention, and the contribution of monies, it seems to me that it follows that I should answer the question that the property is beneficially owned by the husband and the wife."

The husband was ordered to pay the wife's costs of the proceedings on an indemnity basis:

"I have found as a fact that, on the critical issues, the husband and the father set out to mislead the court and the wife, and at all times their case was based on a falsehood, namely that the beneficial ownership of the property was with the father.  They have relied on documents that I have found to be a sham, and that in itself is sufficient for me to come to the conclusion that the defence, therefore, has been conducted in a way that is underhand and deceitful.  Therefore, in the circumstances, it seems to me appropriate that I should make an order for indemnity costs."