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Ancillary Relief Update (May 2008)

Joanna Grandfield, of Mills & Reeve, rounds up the latest ancillary relief cases of interest

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Joanna Grandfield, Barrister, Mills & Reeve

The Spring update includes recent decisions covering a number of areas of ancillary relief including variation applications, application of the new costs rules and the treatment post-separation accrual amongst others.

VB v JP [2008] EWHC 112 (Fam)
Perhaps unsurprisingly, there have been far fewer reported decisions dealing with the approach to variation applications following Miller; McFarlane in comparison to original applications for ancillary relief. This decision of the President considers the post-Miller case law dealing with the question of compensation for relationship generated disadvantage (RP v RP; Lauder v Lauder, H v H and CR v CR). Approving the approach adopted in Lauder, the President held that the wife was entitled to such compensation, albeit since a clean break was not possible, this would be by ongoing (increased) periodical payments

When the parties married the wife was an Oxford graduate who declined a promotion in her chosen career because the husband, a City solicitor, refused to move from Hertfordshire to a different county albeit within the commuter belt. The wife subsequently gave up work to take on the traditional role of housewife and mother.

The parties were in their mid forties with two boys aged 11 and 13. The 11 year marriage broke down and a consent order was made in June 2001 providing for a clean break as to capital (the wife receiving 60% and the husband 40%), whilst the wife received periodical payments of £35,000 pa for herself and £24,000 p.a. for each of the 2 children. Including payments for school fees and various insurances, the wife received 34% of the husband's net income.

Since the original order was made, the husband's income increased significantly to £807,000 p.a. / £470,000 p.a. net. During that time the wife had lived frugally, sold the matrimonial home and moved into rented accommodation before purchasing her current home mortgage free (with the help of an inheritance).

The wife filed a Form E in her variation application claiming income needs of £102,000 p.a.. She argued that she should receive £130,000 p.a. on the basis that she was entitled to a credit for the relationship generated disadvantage. Contrary to the decision of Coleridge J in RP v RP, the wife adduced evidence to the effect that, had she not taken a career break to have children, she might now be earning over £100,000 p.a. as a HR director. The President was not impressed by the husband's arguments as to who had made the decision to give up work, holding that the reality is that in a marriage partnership, such decisions are inherently mutual;.

The court held that it was both difficult and speculative to try to assess the earnings the wife might have achieved but for leaving paid employment, but held that she had an earning capacity part time of £7,500 p.a. until 2010, when the children would be at the same school and £20,000 p.a. on the basis that she returned to full time work in 2015. A closer examination and more precise quantification of her earning capacity for the purposes of a clean break were unnecessary until a clean break was possible. Instead, the President held that a generous assessment of the wife's needs would suffice to do justice to the parties.

In considering the recent case law on compensation, the President gives useful observations as to how the concept should be dealt with in ancillary relief proceedings as follows (at 59):

1 Consideration of compensation arises as a feature of the concept of fairness rather than as a head of claim in its own right at the end of a marriage when looking at the division and for redistribution of assets.

2 On breakdown the partnership ends and in ordinary circumstances the wife has no right or expectation of continuing economic parity("sharing") unless and to the extent that needs or compensation so require.

3 In big money clean break cases a wife with ordinary career prospects is likely to have been compensated by an equal division of the assets and consideration of how the wife's career might have progressed is unnecessary and should be avoided.

Dixon v Marchant [2008] EWCA Civ 11
This decision of the Court of Appeal is included to highlight the importance of giving careful legal advice to those seeking to capitalise a maintenance order. In the case in question and contrary, perhaps, to that which the man on the London bendy bus may consider to be fair, remarriage of a payee, even only a matter of months after an order capitalising a maintenance entitlement is made, does not constitute a Barder event requiring the order to be overturned.

The husband and wife were 64 and 59 years of age. In divorce proceedings heard in 1993 after a 15 year marriage, provision for the wife included a lump sum of £40,000 and periodical payments on a joint lives basis of £15,000pa. By 2005, the husband was preparing to retire and sought a consequent reduction and capitalisation of his obligations to the wife. By this time the wife had become friends with a man called Derek, with whom she denied cohabiting. Agreement was reached for the wife to receive capitalised periodical payments of £125,000. The sums were a reduction on those that would have been payable under a strict Duxbury calculation, which would have totalled £200,000.

An order was made by a consent on 25 April 2006. The wife completed form M1 confirming that she had no intention to either cohabit or remarry. Despite this, 6 months later the wife and Derek did just that. The husband appealed to have the order set aside and permission to appeal out of time. The wife claimed within the proceedings that she and Derek had come to the decision to marry after deciding that life was too short following a visit to a sick friend.

At first instance, the Judge found the wife to have been honest and forthcoming in both her disclosure and form M1. He also came to the conclusion (upheld by Ward and Lawrence-Collins LJJ) that the fundamental assumption on which the consent order had been made was that the husband's obligations towards the wife would be bought to an end. The subsequent remarriage did not invalidate that assumption such that the order should be set aside. On appeal to the Court of Appeal, Wall LJJ held that form M1 requires the parties to state their present not future intention and, as such, the wife did not have to promise not to remarry in the future. In capitalising his obligations to the wife, the husband took a chance on the wife remarrying. There was no implied term of the agreement that the husband would receive his money back if the wife remarried within a certain period.

Lawrence-Collins LJJ focused on the 'importance of finality in clean break cases and held that this is so fundamental that situations where the Barder principle would apply were exceptional. Wall LJ gave a strong dissenting judgment. He held that, since marriage terminates periodical payments it is a critical event the occurrence of which so soon after the order was made vitiated the fundamental assumption upon which the order was based.

F v F (Family division; Baron J, 4 December 2007)
This case is included as an illustration of litigation conduct which goes beyond that which should be penalised by way of a costs order and is conduct under section 25(1)(g) Matrimonial Clauses Act 1973. The husband's conduct in presenting a 'wholly false claim' in circumstances that led to legal costs of £4m being incurred, some 40% of the total assets, were judged by Baron J to be more a section 25 MCA factor since an order for costs alone was insufficient to deal with the gravity of the situation.

E v E [2008] Fam Law 112
E v E serves as a reminder of the statutory requirements for those applying for financial relief upon divorce. The wife petitioned for divorce in May and decree absolute was pronounced in September 2003. The terms of the consent order were finalised two years later, in July 2005. These included for the wife to pay the husband £250,000 on a clean break and a recital that the agreement was to be binding only if the Court approved its terms.

The husband remarried a month later, on 12 August 2005. His solicitors then sent form A to the wife's solicitors to be lodged at Court with the consent application. Since the husband had remarried, the Court had no jurisdiction under section 28 (3) MCA to approve the Order.

By way of reminder, section 28 (3) of the MCA reads as follows:-

"If after the grant of a decree dissolving or annulling a marriage either party to that marriage remarries whether at any time before or after the commencement of this Act or forms a civil partnership, that party shall not be entitled to apply, by reference to the grant of that decree for a financial provision Order in his or her favour, or for a property adjustment Order, against the other party to that marriage."

B v B (ancillary relief) [2008] EWCA Civ 543
This decision of the Court of Appeal (Sir Mark Potter P, Wall and Hughes LJJ) is an example of a case where a fair outcome did not involve equal division of the assets. During a 12 year marriage which produced one child the wife, a rich heiress, set the husband, who was penniless, up in a car washing business, the premises of which were bought in her sole name and leased to the husband at a reduced rate. The available assets at trial totalled £1.37m. At first instance, and upheld on first appeal, the court held that fairness dictated that the husband should retain the car washing business and the premises from which it operated to be transferred to him since there was no reason to depart from equality.

On appeal to the Court of Appeal, the Court held that the starting point in ancillary relief proceedings is the financial positions of both parties and that the court's objective is to achieve fairness. Whilst this would often mean that the Court will not depart from equality, on the facts of the present case, where the wife had brought all of the assets into the marriage, there was good reason to make a departure. A fair result would be for the husband to occupy the business premises as long as he wished and ,when the business was eventually sold, the proceeds of sale should be divided equally. In the meantime, the husband should continue to pay rent at one half of the market rate in the interim.

P v P [2007] EWHC 2877
This decision of Moylan J concerns the treatment of future earnings in ancillary relief proceedings.

The husband and wife were South African and in their early 50s having been remarried for 24 years during which time three children, aged 23, 21 and 18 were born. The husband was a city banker whilst the wife had taken on the traditional role of housewife and mother. The total assets prior to judgment were £19.5m per the wife and £17.6m gross/£13.3m net per the husband. Perhaps predictably, the wife sought half of the matrimonial assets, which were held in a complex structure including five post-nuptial trusts in South Africa and Jersey. The matrimonial home (valued at £7m) was held in a further Jersey trust which the wife sought to be transferred to her free of the trust. The husband planned to leave his employment to set up his own business, which he would do in the future having decided to stay with the bank for him to benefit from deferred share options some of which are realisable in 2010. Five months from the date of the hearing, the husband would therefore be eligible for deferred shares worth a total of £2m net.

Moylan J included the husband's deferred share options at their current net values. Since there remained an issue as to how many of these would be captured before the husband left his job, the Judge held that he would at the very least capture those becoming open to him in the first few months of 2008 at their current net value of £922,000. The high risk investments were included at the husband's lower valuation to take account of that risk although the Court accepted that they could be worth much more in the future. As a result of this and other findings, the Court arrived at a value for the assets at £16.8m with an additional £1.825m in respect of the future potential resources.

The Court assessed the wife's income needs at £150,000 per annum which created a Duxbury of £2.7 to £2.4m or £3.1m to £4m on a non-amortising basis. As a result, the court took £3.5m "as income fund which I should use to test whether my award meets the wife's needs" (at 98).

The Court assessed the wife's housing needs at £3.52m to £4m for two houses (one in the UK and one in South Africa) despite that fact that the present matrimonial home and South African property had a combined value of £4.8m. The husband's housing needs were assessed in a similar fashion with addition of £1.5m to enable him to invest in his new business venture.

When considering the post separation accrual, the Judge held that the weight that should be given to this was a matter for his discretion. Equally, when considering the husband's earning capacity, the judge held that he could not ignore future earning capacities since it is one of the express factors listed in Section 25(2) of the MCA.

In meeting the wife's housing needs, the judge ordered that the wife should keep the South African property and transfer the matrimonial home to the wife subject to the trust of which the wife would be in control. In so doing, the court had regard to the decision of the Jersey court in In The Matter of the B Trust (2006) in which that jurisdiction urges English courts not to seek to vary foreign trusts but to seek assistance from the Jersey Court to implement English Court orders.