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Ancillary Relief Update (Winter 2007)

Joanna Goodall, barrister with Addleshaw Goddard, reviews the latest ancillary relief decisions

Joanna Goodall, barrister with Addleshaw Goddard

The Winter Ancillary Relief Update deals with recent decisions which continue to interpret the House of Lords' decision in Miller; McFarlane [2006] UKHL 24, applications under Schedule 1 Children Act 1989, variation applications under section 31 of the Matrimonial Causes Act 1973, the correct procedure to be adopted in dealing with applications under Trusts of Land and Appointment of Trustees Act 1996, before turning to the interplay between child support and overnight contact and the Proceeds of Crime Act 2000 and confiscation and associated proceedings in the criminal courts.

S v S [2006] EWHC 2793
In differentiating between matrimonial and non-matrimonial assets, S v S provides a reconciling analysis of the differences in the speeches of Lord Nicholls and Baroness Hale in Miller; McFarlane, Burton J (a judge of the Queen's Bench Division) concluding that the judges take different routes essentially to arrive at the same place.

The parties married when the husband was 52 and the wife 32 and separated 7 ½ years later. This was a "reasonably long marriage," the duration of which would not reduce the wife's entitlement. The husband, who had been married before, had been an equity partner in a firm of chartered surveyors, with a successful career spanning some 30 years. At the time of the marriage, difficulties within the husband's firm were such that his interest had no real value. Somewhat out of the blue, the firm was bought by a French company during the marriage, as a result of which the husband received £1,200,000 for his interest. The husband was then made redundant and began working as a consultant for a different firm, from which he earned £25,000 p.a. The wife had been a trainee chartered surveyor although she did not work after the marriage, becoming a housewife and mother to the parties' children, who were 8 ½ and 3 by the time of the hearing. All of the available assets were either brought into, or created during, the marriage by the husband. The parties had a tumultuous relationship with separation finally taking place after the husband was arrested and subsequently convicted for assaulting the wife.

Maintenance for the children was agreed at £15,000 p.a. plus future school fees, envisaged to be a total of a further £18,000 p.a. It was also agreed that there should be a clean break as between the parties. The issue was the amount that would be required to give effect to this.

Burton J grouped the net assets of £7,000,000 into the following 4 categories to enable him to consider whether they were matrimonial assets, and therefore subject to division, or non-matrimonial assets, and therefore excluded from the pot:

1 The matrimonial, former matrimonial and intended matrimonial homes.
These were matrimonial assets irrespective of the source of the funds used to purchase them.

2 The commercial properties purchased prior to this marriage.
The husband had done nothing more than sufficient to generate "passive economic growth" in performing the duties of a landlord during the marriage. The wife had made no contribution to them. These were non-matrimonial assets.

3 The pension portfolio.
This was worth £435,000 at the time of the marriage and liquidated during it, realising £970,000. The husband used the funds realised to invest in a property portfolio within the pension wrapper, which as a result of his efforts in managing the fund, had a net value of £3,400,000 by the time of the hearing. Had the portfolio in place at the start of the marriage not been liquidated, it would have been non-matrimonial. Since the husband was an expert in property who, since being made redundant had managed the fund as his main "earning capacity", the fund now in place was matrimonial. In any event, given the size of the fund, to find otherwise would have left insufficient assets to meet the wife's needs.

4 Commercial property purchased during the marriage, which was either funded by sales of property purchased before it or from the proceeds of sale of the husband's partnership interest.
Since the partnership interest was not considered to have any real value on marriage, the monies received for the husband's interest were likened to the increase in value of Mr Miller's New Star shares in Miller; McFarlane. Since the interest was realised and the proceeds invested in property, the husband's area of expertise, this was matrimonial property. Burton J did not give explicit consideration to the property funded from the proceeds of sale of property acquired before the marriage in his judgment.

Having ascertained which assets were matrimonial and therefore subject to division, Burton J considered the manner in which they should be shared. Neither the length of the marriage nor conduct (which, whilst having the "gulp," did not have the "gasp" factor) would affect the provision for the wife. The wife was attributed an earning capacity of £15,000 p.a., less than she would have earned had she not left employment, but even so, compensation did not arise as a separate head. The husband was given credit for the substantial financial contribution he had made to the marriage. As a result, he retained 60% of the matrimonial property and all of the non-matrimonial property. The wife's 40% share was, on a clean break basis, made up of the final matrimonial home (value £1,800,000), a lump sum of £700,000 and payment of her legal costs and other debts by the husband of £500,000.

Finally, the judge found that the yardstick of equality should be tested against the matrimonial property alone. That said, even if non-matrimonial property exclusive of the legal costs was included, the wife received 35% of the total, which was justified in the circumstances of this case.

Re C (A Child: Financial Provision) 7 December 2006
Heard in the Principal Registry before District Judge Million, Re C shatters the glass ceiling in Schedule 1 of the Children Act 1989 applications and follows on from the Court of Appeal decision in Re P (A Child) (Financial Provision) [2003] EWCA Civ 837, [2003] 2 FLR 865, which itself raised the bar for such claims, Thorpe LJ holding that " a more generous approach to the calculation of the mother's allowance is not only permissible but also realistic" (at para. 43).

Re C involved cross-applications by the parents of a 4 year old child to vary an order made by consent in 2002. The mother was in her 30s and a former model. The father was in his late 40s and a businessman. The child was conceived during a relationship which "stuttered along" between 1997 and 2001. Living together by September 2000 and engaged early the following year, the parties separated in May 2001, when the mother was pregnant.

The original order provided for the mother to receive £57,800 p.a., of which £37,400 was general maintenance and £20,400 rent. The father's wealth, which was "less than "fabulous"" but more than "significant," seemed to be in the region of £100m at the time of the original order in 2002. He relied on the millionaire's defence in the variation applications. By the time of the hearing, the father lived in a 7 bedroomed house in London with his second wife (who also owned an expensive property in London), and their child. He also had a second home in the country with 5 bedrooms and a separate 2 bedroom staff block. Following the original order, the mother, who was not an English national, moved abroad in the summer of 2002, returning to London in December 2004. Her return precipitated her variation application.

The mother also benefited from financial assistance from an older, multi-billionaire businessman with whom she had had an intimate relationship in the past, but which she claimed was not ongoing. In any event, the "benefactor" provided substantial sums to the mother, including a £300,000 loan paid by way of £10,000 monthly instalments, the term of which was said to be until the present application had been "clarified"; a Bayswater flat, upon which notional rent was charged but did not seem to be paid; and her legal fees.

The mother sought to increase periodical payments from £57,800 to £160,000 plus school fees. Of this, £87,000 was to pay rent for the London apartment owned by her by the benefactor.

The District Judge found that the sums provided by the benefactor could not be seen as a reliable source of ongoing support and that, in any event, the father had legal obligations to his child and therefore a duty to support the mother during the child's dependency. The judge followed the approach of Re P, and took a broad approach to the mother's budget, awarding her £75,500 p.a., to include the cost of an au pair and £12,000 p.a. for holidays.

The judge considered that investing in a property held in trust would be a better use of money in investment and tax terms and would provide more security for the child than the approach the mother advocated,which was for sums to be paid to her to meet the rent on her present apartment. She needed a 3 bed-roomed property with a fourth bedroom or study. To enable this to occur, £2,000,000 was required to include costs of purchase, decoration, repairs and refurbishment. In so ordering the Judge noted that "It would be a mistake (as identified by the case of Re S) to treat Re P as setting a guideline figure for the fund value of the purchase of accommodation in this class of case" (at para 62).

Despite being a European national, a second property in the mother's home country was not provided for, although whether such accommodation would be appropriate was a "question of lifestyle, rather than any narrowly defined issue of "need" (at para. 71). Whilst the father had 3 homes in this country, the mother and child had not spent significant periods of time abroad since their return to the UK, and they were unlikely to do so in the future.

Of further interest to practitioners may be the District Judge's concerns, albeit obiter, at Thorpe LJ's comments in Re P at paragraph 49 to the effect that first, it may be appropriate for mothers to account for outgoings and expenditure, and second that monies received should be exhausted each year. The District Judge considered that the former would be unnecessarily intrusive, whilst the latter would be inappropriate, not least because Schedule 1 applications overwhelmingly involve wealthy fathers and as such a high degree of discretionary spending was to be expected.

Readers should be aware of the decision of the Court of Appeal in Morgan v Hill [2006] EWCA Civ 1602, which deals with the approach taken to pre-existing agreements in Schedule 1 applications. The case is considered fully by Lynsey Cade-Davis in Family Law Week (follow this link)

N v N [2006] EWHC 3269 (Fam)
This was an appeal from the Principal Registry involving the wife's application to vary, under s. 31(7) of the Matrimonial Causes Act 1973, that part of an order made by consent in 1981 which provided for her to receive nominal periodical payments.

At the time of the original order, the court did not have power to dismiss an application for periodical payments. Since the husband had care of the three children of the marriage, who were then aged 12, 10 and 6 in the matrimonial home, the wife, who was 32 at the time, was awarded a sum to enable her to rehouse herself and investments which provided her with an above average income. At the time of the consent order, the husband was a builder whose business was not prospering.

Since 1981, the husband's business recovered such that, by the time of the variation application, he was worth, on his case, £5,000,000 and, according to the wife, at least double that. In the intervening period the husband had voluntarily provided the wife with further monies, including £23,000 of investments from an inheritance and payment of her legal costs incurred in other proceedings. For her part, the wife did not return to paid employment, which was found by the court to be a lifestyle choice and sold her property in the UK and emigrated to Australia, where she rented an apartment in an exclusive part of Sydney. The wife emigrated with £328,000. As a result of bad investment advice, this was worth around £255,000 by the time of her application to vary the 1981 order.

At first instance, the District Judge found that, whilst the wife's present position was entirely of her own making, s.31 (7) permitted an exercise of his discretion so as to order an increase in periodical payments to £16,500 p.a., which he capitalised to £202,000.

On appeal, Charles J found that, whilst the wife's position had "been brought about by a failure to help herself, some extravagance and losses on her investments", s.31 (7) required the court to look at all "all the circumstances of the case" and to "any change in any of the matters which the court was required to have regard when making the order" that is, the section 25 MCA 1973 factors. The wife's behaviour of itself could not act as a bar to prevent the exercise of the court's discretion. Whilst Charles J found there to be a powerful case not to exercise the statutory discretion so as to increase the nominal order and moreover that, had he been hearing the case at first instance it was likely that he would not have done so, the decision of the District Judge had not been plainly wrong.

Wilcox v Tait (2006) (CA (Civ Div)) 13 December 2006
This Court of Appeal's decision is included as authority for the correct approach to equitable accounting in claims under s.14 Trusts of Land and Appointment of Trustees Act 1996.

The parties and their children had lived together in a property since 1990 which was transferred into joint names with an express declaration made that they owned as beneficial joint tenants in 1994. The parties separated in 2000. It was agreed that the property should be sold at a relatively low price in order to achieve a quick sale. In making his order, the Judge not only gave a declaration as to the applicant's interest and made an order for sale, but went further and gave credit for the financial contributions of the respondent, the effect of which was to extinguish the applicant's equitable interest.

The Court of Appeal held that the judge ought to have limited himself to granting a declaration in terms of the express agreement and made an order for sale. To embark on an equitable accounting exercise at the substantive hearing had been a step too far. The exercise should not be confused with an enquiry into the beneficial interest, since equitable accounting came after the beneficial interest had been ascertained and should have waited until after the property had in fact been sold.

Re B (A Child) (Child Support: Reduction of Contact) [2006] EWCA Civ 1574
A reduction in contact from 105 to 93 nights a year was ordered on the mother's application under the Children Act 1989. The family were assessed under the old regime under the Child Support Act 1991, as a result of which, since the number of nights the child was now to spend with the father fell below 104 nights, the father's child support liability increased. The Court of Appeal held that this factor was not only irrelevant, but consideration of it within the Children Act proceedings in deciding the suitable level of contact would have been unlawful since it did not relate to the child's welfare.

Webber (Applicant) v Webber (Respondent) & Crown Prosecution Service (Intervenor) [2006] 2893 (Fam)
This decision of the President of the Family Division, Sir Mark Potter, deals with the correct procedure for dealing with applications for ancillary relief which are ongoing at the time of confiscation proceedings under the Proceeds of Crime Act 2002.

Prior to POCA, confiscation proceedings were dealt with in the Crown Court whilst the High Court had jurisdiction over the making of restraint orders, appointment of receivers and enforcement of confiscation orders. When such proceedings were ongoing alongside those for ancillary relief, matters were dealt with by a High Court Judge of the Family Division who was also a nominated judge of the Administrative Court. POCA removes the jurisdiction of the High Court to deal with enforcement of confiscation orders, making of restraint orders and appointment of receivers, leaving the Crown Court with sole jurisdiction in this area. The correct approach in situations where both types of proceedings are ongoing will therefore be for ancillary relief applications to be disposed of first, so as to enable the Crown Court judge to decide whether the amount left available in POCA proceedings required any adjustment.

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