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Finance and Divorce Update, July 2017

Sue Brookes, Senior Associate with Mills & Reeve LLP analyses the news and case law relating to financial remedies and divorce during June 2017.










Sue Brookes, Senior Associate with Mills & Reeve LLP.

Finance and Divorce Update, July 2017

As usual, this month's update is divided into two parts:

A. News in brief

6 out of 10 separating couples go straight to court
Figures obtained by National Family Mediation ("NFM") following a Freedom of Information request appear to show that in 2016 over 60 % of couples ignored the MIAMs requirement. Of nearly 90,000 applications for private law proceedings to a family court, only 35,627 had followed the MIAM process. NFM has queried whether solicitors are encouraging clients to exempt themselves from mediation and whether the courts are properly monitoring applications or using their powers to direct separating couples to attend a MIAM.


Government announces draft Domestic Violence and Abuse Bill
The Queens's Speech included a commitment to bring forward legislation "to protect the victims of domestic violence and abuse".  Provisions will include establishing a Domestic Violence and Abuse Commissioner, creating a consolidated new domestic abuse civil prevention and protection order regime and to ensure that courts can hand down sentences in cases of abuse involving a child that reflect the devastating life-long impact that abuse has on a child. 

In addition, the Courts Bill (which intends to "modernise the courts system") will introduce measures to put an end to the direct cross examination of domestic violence victims by their alleged perpetrators in the family courts. It will also extend the use of virtual hearings, which will allow victims to participate in trials without having to meet their alleged assailant face-to-face.


Divorces in 2015 fell by 9% compared with previous year
The Office for National Statistics has published statistics for the number of divorces, dissolutions and annulments in 2015. The stats show a drop in divorces of 9.1% compared with 2014 and a dramatic decline of 34% when divorces hit a peak in 2003. 


Administrative de-linking of financial and divorce proceedings goes nationwide
After a successful pilot in the South-West introduced a more streamlined process reducing delays, the scheme was rolled out to all courts on 19 June 2017. 


International family law arbitration scheme announced
Due to be launched in September, the International Family Law Arbitration Scheme, aims to help families avoid long and expensive litigation working out where family disputes should be resolved.  The arbitrator will determine which country the family has the closest connection to.  Significantly, the arbitrator will be from a third country which the scheme's founders suggest will mean they can act like "an umpire in a sports event who is not from either of the competing countries".  


B. Case Law Update

Sharp v Sharp [2017] EWCA 408
The Court of Appeal considered the correct approach to the sharing of assets in a case involving a short marriage, dual careers and no children and concluded that this is the obvious example where there may be a reason to depart from equal sharing.

The parties' relationship lasted a total of 6 years including pre-marriage cohabitation. The husband (H) worked in IT and the wife (W) was a trader. Both worked full time earning annual salaries of approximately £100,000 until the last year of the relationship when H took redundancy. W earned substantial bonuses totalling £10.5m but H's bonuses were only trivial. They had no children.

They had managed their finances quite separately, although there was no deliberate or agreed intention to do so. They never had joint bank accounts or investments, they each paid half of their utility bills and they often split restaurant bills between them. H was never aware of the details of W's bonuses, although he knew that they were substantial as she had bought their two properties, paid for holidays and gifted H three Aston Martin cars.

At first instance, Sir Peter Singer (the judge) found the assets were £6.9million, including two properties (one worth £1.1m bought by W in her sole name prior to the marriage) and the bulk of the remaining assets was held in W's bank accounts. H conceded that the £1.1m property should be kept out of the "matrimonial assets" pot, together with various other pre-acquired assets so the matrimonial assets were £5.45million.

H sought £3m and W offered £1.23m to include the £1.1m property and a further £130,000 towards his legal costs.

The judge found no reason for departing from an equal division of the matrimonial assets. He said there should not be an "inroad into the sharing concept to which the parties in effect subscribe when they marry unless they choose to opt out with a pre-nuptial agreement" and in this case W had not established evidence of such an agreement. But for H's concession, the judge would have included the £1.1m property as a matrimonial asset because it was their first matrimonial home and it had become mingled with other matrimonial property. However, in light of H's concession, he reduced the award to £2.275million.

W appealed, arguing that a short, dual career, childless marriage had been marked by the House of Lords in Miller v Miller; MacFarlane v MacFarlane [2006] UKHL 24; for a different approach from simple equal division and that the parties had structured their finances in such a way to justify a relaxation of the sharing principle as the starting point was to apply the doctrine of separate property.

H argued, based on Lord Nicholls in Miller,  that a short marriage is no less a partnership of equals than a long marriage. Any conflict between the judgments given by Lord Nicholls and Baroness Hale in Miller, had been resolved by the Court of Appeal in Charman v Charman (No.4) [2007] EWA Civ 503 expressing a very clear preference for Lord Nicholls' judgment and it is now settled law that, save for special contribution or truly non-matrimonial assets, all assets are to be divided equally irrespective of the length of the marriage or the manner in which the spouses conducted their financial life, unless there was a formal pre-nuptial agreement.  Any move back from this would be a retrograde step and discriminatory.

Lord Justice McFarlane in the Court of Appeal set out a very detailed analysis of the case law. He also made it clear that nothing in his judgment was intended to unsettle the clear understanding of the approach to be adopted in the vast majority of cases. He simply answered whether there is a fringe of cases which may lie outside the sharing principle.

His Lordship could not reconcile the judge's approach to either the outcome of Miller or the majority opinion in that case. H's arguments ignored the fact that Mrs Miller received substantially less than half of the assets accrued during their relationship and none of the judgments had gone as far as H was now arguing.

In White v White [2001] 1 AC 596, Lord Nicholls had expressly disavowed the establishment of a "presumption" or "starting point" of equality, holding that such a presumption would amount to an impermissible judicial gloss. He readily contemplated that, in some cases, fairness requires unequal shares.

In Miller, although Lord Nicholls based the equal sharing principle on marriage being a partnership of equals, he expressly acknowledged that there may be good reason why there should not be an equal division, with the yardstick of equality to be applied as an aid not a rule.

Although Lord Nicholls had defined matrimonial property as all property acquired during the marriage otherwise by inheritance or gift, the majority had defined "family assets" as assets generated by the joint efforts of the parties (which is much narrower than Lord Nicholls' approach). Baroness Hale had found that, starting with the premise of separate property, there is still the scope for one party to a marriage to acquire and retain separate property which should not automatically be shared. She went on to suggest a genuine dual career family where certain assets have been pooled and others have not might be such an example.

To the extent that practitioners have somehow adopted and concretised the obiter observations of the Court of Appeal in Charman which preferred Lord Nicholls' definition of matrimonial property, thereby suggesting a blanket approach of equal division to all assets accrued during the relationship other than those clear from external sources, this is an erroneous application of the law. If, in cases not pre-determined by needs, the equal sharing principle were to be applied automatically, this would be a very significant and wholly unjustified development from Lord Nicholls' approach and an impermissible judicial gloss on the statute which requires the court to consider all the circumstances of the case.

W's bonuses were not "family assets" as they had not been generated by joint endeavours. It was just a coincidence that the bonuses relating to W's 20 year career had been paid during the marriage.

The court is obliged to take account of the duration of the marriage under section 25 Matrimonial Causes Act 1973. Where both parties work full time and where there are no children, the court must also evaluate the extent, if any, by which H's domestic contribution exceeded that of W. In this case he only contributed more in the year he was not otherwise working and his overall contribution did not therefore exceed that of W.

The notion that any assets accrued during the marriage would be shared equally in the absence of a pre/post-nuptial agreement was unsustainable and not supported by authority. H's claim was therefore limited to £2m

Lord Justice MacFarlane highlighted the risk identified by Baroness Hale in Miller that a spouse who has given up work to run the house may end up receiving more than a spouse who has worked outside the home if the court were to allow equal sharing in a traditional bread winner/home maker case but depart from it where both parties work full time. However, Mrs Miller received substantially less than 50% and she had given up work so it was not a dual career case. It therefore does not necessarily follow that the home maker will receive 50% to unfairly contrast with a spouse who works.


Quan v Bray and Others [2017] EWCA Civ 405
The wife (W) appealed the judgment of Mr Justice Coleridge (the judge) in a preliminary hearing to establish the circumstances under which Chinese Tigers South Africa Trust (CTSAT) was set up and the nature of the trust, in order to determine whether or not the trust was a resource available to either W or the husband (H) for the purpose of section 25 Matrimonial Causes Act 1973.

The judge had found that the CTSAT was not such a resource and nor was it a post-nuptial settlement which was capable of being varied.

This appeal is the latest instalment of a very protracted and expensive case in which the legal fees already amount to £3.5million and a settlement has not yet been reached. W's appeal costs alone were £340,000.

King LJ, giving the leading judgment, summarised the history of the litigation and highlighted the extent to which the evidence had continued to escalate in breach of the court's detailed case management orders.

Prior to filing the appeal, W had submitted a "Barrell" application (Re Barrell Enterprises [1973] 1 WLR 19) inviting the judge to rewrite his judgment. W's application was accompanied by 43 pages of submissions. The response was a further 53 pages. It therefore went far beyond a party seeking amplification of reasons and the judge had clearly regarded it to be a misuse of procedure. He had declined to amend his judgment, instead feeling fortified in his findings and conclusions by consideration of the notes. One of W's complaints in the appeal was that the judge had not dealt with the Barrell application properly. On this point, King LJ found that if (following full argument) a party invokes the Barrell jurisdiction on the basis that the judge has failed to weigh certain evidence sufficiently or at all, such an application will only be allowed rarely and should not be regarded as being routinely available to a disappointed party.

W also argued that the judge had failed to give adequate reasons for his findings; that he had inadequately analysed certain critical topics which should have informed his findings; and that he should have found that the CTSAT was at least in part for the benefit of the parties and therefore a post-nuptial settlement; and under Thomas v Thomas [1995] 2 FLR 668 the assets of the trust were a resource which could be called upon by H.

In response to W's first argument, W had to undermine the judge's findings in relation to credibility, his findings of primary fact and his evaluations of them. Referring to Piglowska v Piglowski [1999] 1 WLR 1360, although a judgment could always have been better expressed, the reasons should be read on the assumption that, unless demonstrated to the contrary, the judge knew how to perform his functions and which matters to take into account. An appellate court should resist the temptation to substitute their own discretion by a narrow textual analysis which enables them to claim that he misdirected himself.

It was arguable that the judgment lacked the detail expected after a 25 day hearing. If not actually short of background and analysis, it was "perilously close to it". It was also neither helpful nor appropriate for the judge to have tried to shorten his judgment by attaching excerpts from H's narrative statement by way of factual background, which included a number of issues in dispute between the parties. His judgment must stand or fall on the findings in the judgment.

The parties had accepted that the answer to the fundamental question "what was the purpose of CTSAT" turned on oral evidence as W was disputing the paperwork. It therefore came down to the judge's view of the parties' credibility and he had been very clear about why he preferred H's evidence. He had found that W was an unreliable witness who was beside herself with grief and anger and wildly inaccurate in places as she had become blinded by her desire for revenge, which had led her to fabricate her case where she thought it would assist. In contrast, he found H's evidence was at every stage clear, detailed and consistent and his grasp of the history and knowledge of the documents was extraordinary.

In response to W's complaints that certain witnesses were not called and certain documentary evidence was not taken into account, the judge had considered the points and/or W's legal team had in fact released witnesses without requiring them to be heard.

W argued that the trust was being used as a tax shelter but she had provided no direct evidence of this and she had made no application under Part 25 Family Proceedings Rule 2010 ("Part 25") for the instruction of a US tax expert.

W now objected to a quasi-audit from BDO having been produced by H in response to her allegations that CTSAT was used to fund their extravagant lifestyle. BDO had concluded that all payments out were consistent with the trustees' fiduciary duties to the Chinese Tiger project. W now argued that the report should never have been allowed because H had not made an application under Part 25. However, she had requested a copy of the report and it was anticipated and accepted that it would be produced. It would have been better to have a joint instruction, but she had not sought permission to adduce her own evidence and she did not originally object to the court admitting the report from BDO. She could not argue about it now.

King LJ also commented on the danger of "island hopping" i.e. W's counsel taking the court to evidence spread throughout bundles, only for H's counsel to be able to respond with reference to further documents in the bundle. It is important for the court to be given as full and balanced picture as possible and for the appellate court to remember the first instance judge had "the whole sea of evidence available to him".

In relation to W's argument that it was post-nuptial settlement capable of being varied, the judge was correct to examine the true nature of the arrangement, not forgetting that the relevant transaction was embodied in a document. He had found that CTSAT does not and never has made any provision for H or W, so he was right to conclude that it was not a post-nuptial settlement. It was therefore also correct to find that the trust was not a Thomas resource and the assets were only available to the Chinese Tigers.

The judge had commented that a settlement which is non-nuptial at inception can later become nuptialised if there were a benefit to the parties during the marriage from the trust. This is potentially controversial and it will need to be adjudicated, but the Court of Appeal now declined to consider it is detail as it was not relevant to this case.


R v B and Capita Trustees [2017] EWFC 33
 
Mrs Justice Moor described this case as one of the most remarkable cases he had heard and the worst example of how not to deal with the division of finances following marital breakdown.

The husband (H) and the wife (W) had been married for 15 years. They separated in 2005, but H continued to run W's family businesses for 8 years after the separation.

The family business was a property business, set up by W's grandfather in the 1950s. H got involved prior to the marriage and later effectively became the equivalent of the chief operating officer and the chief executive and a driving force behind the business. However, H was never formally employed or a director of the business because he had a "complete and irrational obsession" with avoiding tax by ensuring that he had absolutely no assets or income. He did not have a national insurance number and he had never filed a tax return or paid a penny of tax in his life.

W issued a divorce petition on five years' separation in March 2010 with decree absolute being granted in February 2011 and issued form A in June 2014. By the final hearing in February 2017, the litigation had got completely out of control with a significant amount of satellite litigation, including a ten day preliminary hearing which had itself incurred £2million in costs.

The key issues for the judge at the final hearing were the parties' respective conduct arguments and how these should be balanced against the competing arguments of needs and contributions.

W argued that H had siphoned off £6.1million from the family businesses for a property in France (BGL); he had set up accounts in his new partner's name; he transferred money out of the businesses to fund his own personal spending; he had no regard to his fiduciary duties or corporate governance; his conduct had led to massive tax bills, penalties and interest; and his reckless management of work done to BGL, ignoring any requirement for planning permission, had led to ten separate pieces of litigation regarding the property and the threat of it being demolished.

H argued that W's conduct should be taken into account. Post-separation, she had met a fraudster on an online dating site who had taken a huge amount of money from W and her family and H now argued that the loss of £8,362,000 was as a result of W's conduct. He also alleged the removal of assets from one of the family trusts at an undervalue, non-disclosure and litigation misconduct through suppressing documents.

Moor J heard evidence from H and W as well as various professional trustees, the CEO of the family business, various financial experts and lawyers for the two adult children.

It was agreed that this was not a sharing case due to the inherited nature of W's wealth; it was not a case for compensation; so it was primarily a needs case. However, the question was how the judge should balance H's needs against any conduct and W's ability to pay.

Conduct is rarely relevant and it must be "obvious and gross" (Wachtel v Wachtel [1973] Fam 72). However, H was wrong to argue that conduct is just relevant in a sharing case. Conduct features within section 25 Matrimonial Causes Act 1973 without a gloss and a court can reduce an award from reasonable requirements generously assessed to something less (Clark v Clark [1999] 2 FLR 498). If a spouse has created unnecessary debt, this detracts from his contributions as well as meaning the assets have been reduced. Provision also has to be made for debts yet to be discharged.

H was extremely intelligent and able, but he was not an impressive witness. He would not answer the questions asked, he would not make any concessions even where they were blatantly obvious and he lied repeatedly. By contrast, W was a witness of truth doing her very best to assist the judge. Her foolishness had played a part in the financial mess the family were in, and the judge could not ignore that, but the other allegations H had made against W were all unfounded.

The burden of proof was on he who seeks to prove a disputed fact and the standard required (the balance of probabilities) is not affected by the seriousness of the allegation.

The judge accepted that W lost a total of £3.15million to the fraudster, incurring further tax consequences to the family trusts in addition to that sum. This satisfied the recklessness test for dissipation. She had been under huge pressure and suffered a breakdown, but she had been warned about him and any reasonable person considering the matter objectively would not have allowed him to commit such a huge fraud. However, rather than categorise this as conduct, the judge preferred to look at it as a liability incurred against the very significant contributions made by W via her inherited wealth. Everything that was left had come from her family.

H had clearly made a very considerable contribution to the businesses and he had improved the property portfolio over the years. However, his contributions did not detract from the fact that the business remained a non-matrimonial asset, so it was never a sharing case. Absent his conduct, H's contributions would have meant an award based on his needs generously assessed, but his financial mismanagement and desire to avoid tax had a devastating effect on the family's finances. H could never have thought it was legitimate to run the business for 25 years without earning anything whatsoever. There was clear deception in H's dealings (including hiding two significant loans from the family) which could only be categorised as fraud.

His Lordship considered that H was reckless in relation to planning approvals for BGL, simply not caring and doing nothing to rectify the problems despite occupying the property. Although he maintained throughout his evidence that everything with the property was "tickety-boo", the debt totalled over £2.7million owed to the family business and a further £3.78m to W and no tax had been paid. No reasonable man could have thought this was legitimate.

From the separation in 2005 until 2013, H had continued to spend what he wanted on himself, his new partner and his wider family, even though he had no entitlement to the funds whatsoever. W was left with a debt of £5,874,330 to the business as a result of H's improper drawings. The only way to clear that debt would be a distribution from the family trusts meaning further tax of £4.02million. It was quite clear that H's conduct was inequitable to disregard and it offset all of his substantial contributions.

H had needs, but they must be assessed in light of what he had done and the effect it had on those concerned.

When a family has lived massively beyond its needs, the standard of living is neither here nor there. However, this family's standard of living could have been high if they had lived within their means. Had H taken a salary and not bought BGL, they would have owned various properties with a net value of £20million plus W's inherited interest in the family business. H would also have had a 20% interest in the business (worth £6million net), which he had been offered by W's father but he had declined it to avoid tax.

Instead, H had no assets of any value and debts of over £1.1million, including legal costs of £948,845. The judge confirmed that the extent of litigation in this case had been financial suicide. Just about all of the satellite litigation had been unnecessary. H's costs were £3million, of which W had already paid over £2million. He had previously warned the parties about the costs but they ignored him and there were very serious consequences as a result.

H argued that the outstanding debts formed part of his needs and the court could not make an order that did not satisfy needs. The judge did not agree. H should not have run up this level of costs when he had no assets. He could not simply expect W to foot his bill. To order W to do so would be a licence to anyone to unreasonably litigate. It is clear from M v M (Financial Provision: Party Incurring Excessive Costs) [1995] 3 FCR 321 that extreme litigation can sound in the award.  

W had been left with net assets worth £3,520,784, plus her interest in the family trusts. The trusts had a net value of over £59million, but they were discretionary, dynastic and there were 14 beneficiaries. It was therefore not appropriate for W to be deemed to have a one-quarter share as H had argued. It was also unreasonable to expect the trust to be liquidated. The judge had to take into account the huge tax demands and loan write offs which the trusts now faced because of H and that they would provide W with an annual income of £100,000 going forward.

The judge also found:

1 The parties do not need two homes each, as H had argued.

2 Neither party had their own earning capacity.

3 They each needed a good income to fund their expenditure, constrained by W's available income from the trusts. Each could survive on £50,000 per year, meaning a Duxbury fund of £839,000 for H.

4 Although H did not have a state pension, this was because he had never paid any national insurance. W should not have to fund that.

5 There must be a clean break to avoid any possibility of further litigation.

The judge approved W's offer worth £3,712,940 as being more than fair to H as it left him with a property in central London, a lump sum of £1.25million, a property for his mother and a property for his sister. W could not pay any more.


ND V SD and Ors [2017] EWHC 1507 (Fam)
This was only a preliminary hearing before Mrs Justice Roberts who had to determine whether or not a trust set up by the husband (H) shortly after the parties' separation, into which he purportedly transferred the vast bulk of the fortune built up during the marriage for the benefit of their children, was genuine or a sham as the wife (W) now contended.

The judgment sets out the factual background and the history of the litigation, with each side having already run up costs in excess of £2million. However, the stakes were high as the balance the trust was some £50 million, which was either to be left out of account on H's case or available for distribution on W's.

H and W had met at university and married in 1982. By 1994, they had two children and they had set up a property business, in which they had both worked very hard, and they needed to restructure the business. They incorporated C Limited in X country for tax purposes as part of the business expansion. Non-residents were not permitted to be registered as shareholders of a company in X country, so two resident corporate entities initially held the issued share capital as nominees of non-resident individuals. H now sought to argue that he was the 100% beneficial owner of C Limited. W argued that they had each been 50% owners from the start. In any event, four months later, the legal ownership of the shares was transferred from the corporate entities to H's sister and her husband who lived in X country. H also engaged EW, a local lawyer to act on behalf of C Limited.

In April 1998, D Limited was incorporated in England, initially with the shares held by H and a third party but after a matter of months they were owned by H and W in equal shares and the legal title was still owned jointly at the time of the hearing.

H argued that the parties separated in 2006. W accepted there were tensions in 2007 but argued that they were still trying to work on their marriage. She went to a lawyer in June 2007, who drafted an agreement dealing with the joint care of the children and the occupation of the various properties, also recording that H and W were equal beneficial owners of their London property although it was owned legally in H's sole name. H refused to signed that agreement.

He now argued that he had signed a second version of that agreement which also covered the agreed financial separation, leaving W with 50% of D Limited and recording that C Limited would be given to the children. He said the parties began discussing this intention in 2005 and W had agreed because she retained sufficient other assets. He could not produce a copy of this second agreement which he alleged W had stolen and/or destroyed. W denied there was a second agreement. The solicitor who allegedly drafted it confirmed that her file had been given to W but she had not been instructed to amend the original June 2007 document.

H also argued that, following the discussions in 2005/2006 about giving C Limited to the children, he instructed EW to progress this. Around the same time, the sister and brother-in-law no longer wanted to be trustees of C Limited, so EW set up N Limited, the shares of which were legally owned by EW's colleague and held on trust 100% for the benefit of H. All of the shares in C Limited were transferred to N Limited in April 2006.

EW then also drew up a further trust deed for H's beneficial interest in the shares in C Limited, and his 50% of D Limited, to be held on trust for the children. This 2006 deed was never signed. Significantly the beneficiaries were named in that deed as H and the children. On 3 August 2007, H met with EW and the deed was amended so that H was removed as a beneficiary and the deed was signed by H, and formally witnessed (the "ABC Trust"). At the time, W had no knowledge of this trust or H's purported transfer of whatever interest he had in the two companies.

In March 2014, H needed to refinance his businesses. He initially approached two banks, telling them that the shares in C Limited were beneficially owned by his two daughters. Gamma Bank confirmed that the bank would only lend if the shares were legally owned by a person rather than N Limited and that H had to be the beneficial owner. EW advised and then drafted a new trust deed transferring the shares in C Limited from N Limited to PH (EW's employee) for her to hold for H's benefit absolutely. H now accepted that this 2014 trust was a complete sham and acknowledged that the information provided to Gamma Bank was untrue.

In September 2014, W was shocked and very angry to discover H's Will, which stated that H owned 100% of the shares in C Limited. She started divorce and financial remedy proceedings later that month.

Rather bizarrely, W's solicitor received a series of unsolicited and anonymous emails from TU, an employee of EW, who accused EW and H of colluding to provide false evidence to the court. She stated that W owned 50% of C Limited and that the ABC Trust was prepared in 2014 and not 2007. She also alleged that, in 2002, trust deeds had been signed to confirm that the brother and sister-in-law trustees held the shares in C Limited for the benefit of H and W in equal shares.

As soon as EW became aware that TU had done this, he obtained an injunction preventing TU from giving evidence and she was summarily dismissed from her employment. H had argued to keep TU's emails out of evidence but, at an earlier hearing before Moylan J, it was ordered that H had waived any legal privilege relating to the ABC Trust and he had ordered specific disclosure by lists with inspection to follow thereafter.

EW finally disclosed drafts of the 2002 deeds in June 2016 when he filed a statement confirming that, although he had prepared the draft deeds for the shares to be held for H and W in equal shares on H's instructions, H then instructed him not to proceed and the deeds were never finalised.


The judge's findings
The judge was hampered by the fact that TU could not give evidence because of the injunction, EW could not give evidence due to ill-health and H's sister (who had allegedly held C Limited shares for W) would not give evidence as she was already in separate litigation with H, which she did not want to compromise. H argued his sister would not get involved because she knew W's claim was false.

The judge found:

1 Both parties were good parents who wanted the best for their children. H had consistently maintained the family's financial wellbeing and continued to meet W's income needs.

2 Neither party had contemplated divorce between 2007 and 2014.

3 There was no amended or second agreement in which W had agreed to the children receiving C Limited and H's share in D Limited, as H had alleged. It was only 12 months into the proceedings that H even mentioned such a document and EW had also not referred to it at all. It is inconceivable that they would not have been referred to, it if the agreement did exist.

4 W did not find out about the ABC Trust until November 2014 and she did not see the trust document until H's form E in December 2014. She previously had no knowledge of H's intention to settle his shares into a trust.

5 Considering the previous case law:

5.1 There must be a dishonest intent before the court will find a sham and, where documents are properly and formally drawn, absent a dishonest intent, there is a strong presumption that rights and obligations are intended to be honoured.

5.2 It is not enough for the trust to have been set up with an artificial purpose. Although a sham trust requires a degree of dishonesty, an artificial intention is only one factor to be taken into account (National Westminster Bank plc v Jones and Others [2001] 1 BCLC).

5.3 For there to be a sham, all of the parties must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating (Snook v London and West Riding Investments Ltd) [1967] 1 All ER 518). The settlor may have an unspoken intention that the assets are to be treated as his own, but unless the intention is shared by the trustee from the outset, the settlement cannot be regarded as a sham (Shalson v Russo [2005] Ch 281).

5.4 Reckless indifference will constitute the necessary intention.

5.5 The test of intention is subjective (Stone v Hitch [2001] EWCA Civ 63)

5.6 The fact that an act or document is uncommercial does not mean that it is a sham. The question is whether they intend some other arrangement to bind them.

5.7 Subsequently departing from an agreement does not mean the agreement was never intended to be effective and binding, just that the original agreement is varied.

5.8 The court should be slow, but not naively slow, to find dishonesty.

5.9 The burden is on the party alleging a sham to prove it.

5.10 Once a trust has been properly constituted, the property cannot lose its character as trust property save in accordance with the terms of the trust itself. If a trustee subsequently agrees with the settlor to treat the trust as a sham, this does not make the trust a sham but simply means the trustee is in breach of his duties to the trust and exposes the settlor to a claim for knowing assistance in breach of the trust.

6 H may have wanted to limit W's claims, although divorce proceedings were not in contemplation at the time, but that is not enough to prove that the ABC Trust was a sham. All of the evidence, including H's dealings with the banks in 2014 and his Will supported H's contention that he intended his children to benefit from his shares in the two companies. Finding H was lying about the second agreement does not mean that he is lying about other aspects too.

7 The "creative accounting" did not mean the trust was not genuine. 

8 The self-declaration of trust on the face of the ABC Trust deed was sufficient, as no specific formalities are required for a self-declaration of trust.

9 The failure of H and EW to carry out administrative trusts such as registering the trust deed after it was completed did not go to the essential validity of the trust.

10 It is important to distinguish motive from intention. Even an artificial transaction which is put in place for asset protection will not necessarily be cast aside as a sham if all of the parties intended their agreement to be given effect in the form recorded. The courts will not enquire into their motives for so intending. 

11 On the basis of the above, the ABC Trust was not a sham. When H signed the trust deed in August 2007, he did so in the knowledge, expectation and with the intention that he was transferring the shares for the benefit of the children. The evidenced supports that EW shared this intention.

12 As the ABC Trust was not a sham, nothing said or done in relation to the 2014 trust (which was sham) could invalidate it. H could not give away in 2014 what was not his to give.

13 The judge accepted W's evidence regarding C Limited and found that W beneficially owned 50% of that company. The Deed of Settlement dated August 2007 therefore had the effect of H settling into the ABC Trust only his 50% beneficial interests in C Limited and D Limited.

14 The judge declined to exercise her discretion under section 37 Matrimonial Causes Act 1973, which was W's fall-back position if the trust was found to be genuine. The Deed of Settlement was not a reviewable disposition because, on W's case, the parties had not even separated when it was drawn up and there were no proceedings or any indication of a financial claim on her part until 7 years later. The judge could not see how H transferring his 50% of the companies was done for the purpose of defeating W's claims in the context of an application for financial remedy orders. In any event, the judge's findings meant W owned 50% of each company.