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Ancillary Relief Update (January 2010)

Joanna Grandfield, barrister with Mills & Reeve, analyses the latest key ancillary relief cases.










Joanna Grandfield, Associate and Barrister, with Mills & Reeve

The January 2010 update deals with variation applications made by a former spouse and unmarried mother, two cases considering the impact of family trusts on ancillary relief proceedings before finally turning to the question of provision for legal costs in an interim application made under Schedule 1 Children Act 1989.

Hvorostovsky v Hvorostovsky [2009] EWCA Civ 791

This case sees the Court of Appeal considering the relevant factors to consider in assessing an application for an upward variation of maintenance following a significant increase in the husband’s income.

The husband was a world-renowned Russian opera singer, whilst the wife had been a ballerina, although she retired when the parties married in 1989.  By 1994, the family were living in London where, two years later, the wife gave birth to twin sons.  Three years later, in 1999, the marriage broke down and Decree Absolute was pronounced in February 2001. A consent order in ancillary relief proceedings provided for the wife to retain the matrimonial home, an Islington property worth £1m by the time of the present proceedings and which represented some 80% of the available capital.  That property was then used as security to enable the husband to take a mortgage of £90,000, repayments for which were provided for through the maintenance payable to the wife.

The original award of £113,000 p.a. for the wife and children amounted to £98,150 p.a. for the household after stripping out school fees and the university fees of the wife’s daughter from a previous relationship, equating to 30% of the husband’s earnings.  In 2002 this was to be increased to £117,000 plus RPI and any increase in school fees.

Eight years later, the husband, who had remarried and had two children from that relationship, had continued to enjoy a successful career.  His earnings had increased from £552,000 gross p.a. at the time of the divorce to £1.86M gross p.a..  The wife, who had not worked since abandoning her career as a ballerina, continued to look after the twins, who were now 12 years old and day boys at a private school.  The wife spoke only basic English and required the help of an interpreter during proceedings.

The wife sought an increase in the provision to be made to her.  A technical point arose as to what section of the Matrimonial Causes Act the application should be made under, since the maintenance provision made for the wife in the original proceedings was endorsed on counsel’s briefs rather than in the order itself, which simply adjourned that aspect of the wife’s claims generally with liberty to restore.  The application was made by way of an application to vary under s31 MCA 1973, although the court held that it should have been made either by way of an application to determine the wife’s adjourned claims for periodical payments for herself and the children or to vary the maintenance agreement reached and endorsed on the briefs under s35 MCA 1973.  However, for practical purposes this did not matter since the criteria that applies to s31 simply imports the s25 criteria.  By now, the parties were in their mid to late forties.

At first instance the wife’s periodical payments were increased to £120,000 p.a. with a further £12,500 p.a. to be paid for each of the twins.  The husband was ordered to pay school fees and extras in addition.  Since the payments could only be met from income remitted to the jurisdiction, it attracted income tax (which had not previously been payable) and therefore cost the husband £285,000 p.a. from his income of £1.86M.  The wife appealed.

Allowing the wife’s appeal, Thorpe LJ gave the lead judgment and held that the incidence of UK tax, the husband’s obligations to his second family and the length of the marriage were factors of which account had rightly be taken.  However, the uncertainties of the husband’s career as an opera singer and the time that had elapsed since the breakdown of the marriage “hardly affect quantification” [at 25].  The fact that the wife had waited for 2 or 3 years before issuing her application was a neutral circumstance of the case.

In awarding the wife £140,000 p.a. and £15,000 p.a. for each of the twins left the wife with £37,500 p.a. surplus above her needs, Thorpe LJ commended the judgment of Charles J in Cornick v Cornick (No 3)[2001] 2 FLR 1240 in as much that fairness justifies an upward variation in periodical payments when income rises just as a fall in income justifies one downwards, even if that means that the wife will enjoy a higher standard of living than she did during the marriage [at 35].  “Reasonable requirements” are not a determinative or limiting factor on variation cases where there is surplus income over needs just as, following White v White [2001] AC 1 AC 596, they are not on an original application.

The wife argued that she should receive compensation for the relationship generated disadvantage suffered by moving to London to promote her husband’s career and caring for the children, whilst her lack of qualifications and poor English had prevented her from developing an independent career.  Those arguments were given short shrift by the court, which held that there was no evidence that the wife had made any sacrifice; she was coming to the natural end of her career as a dancer at the time of the marriage and in any event had benefited from the husband’s success.  She could have returned to her native Russia or improved her English had she wanted to so do.  Her efforts and activities were a contribution to the marriage and not a sacrifice meriting compensation.  Where compensation for relationship-generated disadvantage is important, it will be particularly so in the assessment of the original division of capital and income.  If reflected at that stage it will continue to be reflected on a variation hearing without fresh assessment.

C v C (Ancillary Relief: Trust Fund) [2009] EWHC 1491 (Fam)

This case came before Munby J (as he then was) on the issue of whether, and if so to what extent, the husband’s interest under a trust was “ a financial resource” which he “has or is likely to have in the foreseeable future” under s25(2)(a) MCA 1973.

The husband was one of a class of beneficiaries in a trust fund settled by his deceased father worth between £4M and £6M.  The trust provided for his
stepmother to receive an income for life, and on her death to the settlor’s four children, one of whom was the husband, as tenants in common in equal shares.  The trustees also had power to advance capital to the widow with regard only to her well-being and disregarding the interests of the other beneficiaries.  Whilst the trustees could advance capital to the reversionary beneficiaries, they could only do so with the express consent of the widow, who was 74 at the time of the hearing.

Munby J held that the trust was not discretionary and therefore the present circumstances were very different from a Thomas v Thomas [1995] 2 FLR 668 scenario, since the trustees had no power to advance capital to the husband and siblings without the agreement of the widow, whose consent could be given or withheld at her unfettered and uncontrolled discretion.  Whilst the husband’s 25% share in the trust on the death of the widow was a vested interest, it was possible that that interest may have been wholly exhausted by the time of her death.  Notwithstanding this, the husband’s interest was held to be a resource within s25(2)(a) of the 1973 Act, since it could be anticipated that he would inherit his share in the trust in around 15 years’ time, by which time the fund may be somewhat depleted but not to the extent that it would encroach upon the main estate.

Practitioners should note that this case was “at or very close to the outer extremity of what can properly be considered a “financial resource” which a spouse is “likely to have in the foreseeable future”[at 63].  The result is likely to have been different had the chance of the husband actually receiving anything on the widow’s death been significantly lower or her life expectancy been significantly longer.  Whilst the court generally had a choice whether to adjourn the application, or make an immediate order, for example directing that some part of the interest should be paid to the spouse on receipt, which route was appropriate would depend on the circumstances of each individual case, being ultimately a matter for judicial discretion.  The judgment provides a useful list of cases where each course had been taken.  Adjournments tend to have been made where the property was likely to be received in two or three years.  Whilst Munby J declined to provide a specific time limit, he held that 15 years was “considerably in excess of any period which could possibly justify an adjournment” [at 60].  The case was returned to the county court for a district judge to consider the husband’s interest in the trust as a resource for consideration along with the other s25 MCA 1973 factors.

SR v CR (Ancillary Relief: Family trusts) [2008] EWHC 2329 (Fam)

This case involved a 20 year marriage during which three children, now aged between 7 and 16 were born.  The parties, who originated from South Africa, were both in their 40s by the time of the final hearing, which came before Singer J.

The wife had not worked since the 1990s, whilst the husband, who had a history of depression and addiction, had had mixed fortunes as a property developer and as chairman of a family company.  The husband’s father was extremely wealthy and controlled all of the family funds and business interests.  Like the parties, the father was resident in England but domiciled overseas.

After sale of the family home in Hampstead, the assets totalled between £7M and £8M, whilst legal costs had reached £1.65M including those of the trustees of a trust of which the husband was a beneficiary of his father.  The parties had enjoyed a very good standard of living during the marriage, typically spending £1m per year.  As a result, there were insufficient assets available to meet both parties’ needs for accommodation and maintain them in the manner to which they had become accustomed without recourse to the husband’s interests in his family trusts.  Those trusts held $170M, all of which were settled by the father, who began doing so 5 years before the marriage, and were managed by an independent Swiss trustee company.  One group of the trusts excluded the wife and the father from the class of beneficiaries, leaving the husband first in line of beneficiaries (the “excepted trust”). 

There was a history of gifts made by both the father and the trusts to the husband, which the husband and father argued had predominantly been made for business purposes.  The wife, whose evidence was preferred, argued that there was little difference or delineation between business and family purposes in practice.  By the time of the hearing the husband and father’s case was that the father had become so disillusioned by his son’s incompetence in business (the son was unemployed by this time and retraining for a new profession) that he had decided that he would object to any further gifts being made to the husband from the trusts. 

The husband sought an equal division of the assets on the basis that he would pay child maintenance and school fees from the capital until his income recovered.  The wife sought an order providing her with all of the capital on the basis that the husband’s other resources through the trust and his father should be taken into account.

The judgment provides an excellent review of the applicable principles to be applied in cases of judicious encouragement.  Singer J considered the history of distributions and loans provided to the husband and held that they had not been purely for business purposes and that the husband had not been fully frank in his disclosure.  The court noted that the husband’s eventual inheritance from the excepted trust alone would be at least $23M and awarded the wife £3M for a home and £3.25M on a Duxbury basis.  Allowing for a future downsizing on the part of the wife, she would be left with £133,000 p.a. and £45,000 p.a. for the children.  The husband would be left with £1.6M and his interests under the trusts. 

H v C [2009] EWHC 1527 (Fam), [2009] Fam Law 802

This case involved the mother’s application for provision for her two children aged 17 and 14 from their father under Schedule 1 Children Act 1989. 

The mother, who lived in a property with the children which was owned by the father (the parties having never lived together), had been reluctant in the past to push him to make more provision for the children.  The father, who was by now in his 60s with assets worth between £58M and £123M, had failed to give proper disclosure of his assets or co-operate with a CSA assessment.  However, there had been a series of applications under s15 and Schedule 1 of the Children Act 1989 following an initial CSA assessment in 1999. 

In 2004, the father was ordered to pay a lump sum to the wife and to transfer their home into a trust to be transferred to the children at the age of 25.  On that basis the wife had agreed not to seek a second lump sum.  That agreement formed a recital to the court order.  It was not until 2007 that the mother obtained a maximum CSA assessment against the father, and for Charles J to order a top up of £15,000 p.a. for each child.

The mother then sought an increase in periodical payments to £57,000 p.a. for each child until the age of 18, with provision to last beyond their 18th birthdays and backdated, and a lump sum of £174,000 to assist with the upkeep of the home.  It transpired that the husband had been receiving a pension income of £400,000 p.a. for many years and issued the present application.  The father, whom it transpired had been paying into a life insurance policy that would provide each child with £1M in the event of his death, argued that the 2004 Order was final such that any backdating could only be from 6 months before the 2007 application.  He also sought to rely on the mother’s agreement in 2004 not to seek a second lump sum.

His Honour Judge Kevin Bennett increased periodical payments for each of the children to £45,000 p.a. backdated for 5 years since the 2004 Order had not been final and therefore the court had jurisdiction to backdate any award to 2003.  If an application or an integral part of an application is to be dismissed, that should appear clear on the face of the order itself.  Given the father’s non-disclosure, the mother would not be bound by her agreement not to seek a further lump sum.  Since inclusion of an amount for improvements to the home would amount to a further settlement of property which was not amenable to precise analysis, a broad brush approach was called for.  A lump sum would be ordered but the costs of upgrading the home would be built into the order for periodical payments, since those costs would more properly be carried forward from one year to the next.  Finally, the judge commented that a “carer’s allowance” component can vary from time to time to reflect the realities and changes in the child’s life and may, in particular, fall for reconsideration if and when that child goes to university.  Caring in a real practical sense, as opposed to “mere” emotional care, does not cease merely because a child is at university or college.  When the elder child began university in a year’s time, the father would pay £10,000 directly to the child and £4,000 to the mother as well as paying tuition fees.  At that point, maintenance for the younger child would increase to £71,000 p.a., since the costs of running the home had not dramatically changed and the mother would still require a carer’s allowance.

The history of the relationship between the parties and the imbalance of power, together with the father’s non-disclosure, meant that it was not appropriate to require the mother to submit accounts as had been the case in P v P [2003].  The life insurance policy meant that it was unnecessary to secure the periodical payments.

G v G [2009] EWHC Moylan J, 8 April 2009

The final case in this update is provided as authority for those seeking an allowance for legal costs within an order for periodical payments made under Schedule 1 of the Children Act 1989.

The mother of three children aged 10, 9 and 7 applied for an interim periodical payments order to include legal costs.  The father, relying on W v J [2004] argued that the court had no jurisdiction to make such provision and submitted that Re S [2005] applied only to legal proceedings in a foreign jurisdiction. 

Moylan J held that the decision of the Court of Appeal in Re S [2005] clearly established that there was jurisdiction to include a legal costs allowance in these applications, and that there was no justification for distinguishing between legal proceedings in this and a foreign jurisdiction where the proceedings were for the benefit of a child.  The mother had demonstrated that she could not reasonably procure legal advice and representation at a level apt for the proceedings.  Since the father had the resources to enable him to pay the sums sought, an order was made that he pay £40,000 being the shortfall between the fees already paid and those which the mother was going to have to pay.