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Autumn Finance and Divorce Update

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

Joanna Grandfield, Associate and Barrister, with Mills & Reeve

The Autumn update deals with the clarification on the treatment of Hildebrand documents provided by the Court of Appeal, before turning to further big money cases which illustrate the judicial approach being taken when issues such as post-separation accrual, inheritance, variation and capitalisation of maintenance after remarriage of the payer or cohabitation of the payee and valuation of businesses before dealing briefly with pension sharing and transfer of property orders where there are children.

Imerman v Imerman, Imerman v Tchenguiz & Ors [2010] EWCA Civ 908  – CA (Lord Neuberger MR, Moses and Munby LJJ)
This decision of the Court of Appeal has received extensive coverage in family law circles and I do not propose to consider it in any detail for the purposes of this update.  In short, Hildebrand rules, which saw parties to divorce proceedings take, copy and retain copies of confidential documents belonging to a spouse under suspicion of seeking to obscure assets from view to use in matrimonial proceedings, are not good law.  Those (including legal advisors) who copy or retain documents in breach of confidence, the law of tort or criminal law, are liable under those headings.  When copies of documents are obtained they should be disclosed promptly on request and at the latest by the time of questionnaires.  Instead, the Court recommended greater use of search and freezing orders notwithstanding previous judicial sentiment within the division which indicated that such applications should be used only rarely.  Courts retain a discretion to admit improperly obtained information but not the documents themselves, which must be returned.  However, documents which themselves show direct evidence of measures taken or intended to be taken to defeat a party's claims will defeat a claim of confidentiality.  For the first instance decision, see the March 2010 Update for a detailed analysis of the Court of Appeal decision, see Imerman – no reprieve for Hildebrand by Ashley Murray.

B v B [2010] EWHC 3422 (Fam)  – Moylan J, 15 January 2010
The parties, who were in their early 40s by the hearing, met in the early 1990s whilst working for the same employer before marrying in 1996 after three years' cohabitation.  By the time they separated in July 2007 there were 3 children aged 11, 6 and 5, the youngest of whom had special needs.  The wife had been a full time wife and mother since 2000, two years after the husband had got a "lucky break" and become a trader with the firm.  He moved to a senior role a year later before taking on further management responsibilities post-separation in 2008. 

In 1997-98, the husband was earning £40,000 p.a. gross.  By 2006 this had increased to £4m gross whilst his bonus in 2008 was some £9.2m.  As is not unusual, the bonus was complicated for the purposes of matrimonial proceedings insofar as it was paid in instalments over 3 years.  The husband gave evidence of his desire to leave his current employment, which he found stressful.  Moylan J considered that the husband was entitled to do so.  The effect of the husband doing so would impact upon the amount of deferred bonus that he would be paid.    Assets at trial were £15m with a further £3.5m in deferred bonuses due thereafter. 

The husband argued that a fund of £500,000 should be created to meet future school fees and a housing fund of £300,000 also be set aside to provide for the youngest child in the future.  The wife should receive half of the remaining assets thereafter, including bonuses paid, and to be paid, for the years up to and including separation (2007) with a "run-off" providing her with a decreasing percentage of future bonuses (25% of that earned in 2008 and  12.5% of that for 2009) together with a  50% pension share.  The wife sought half of the total wealth including bonuses earned up to and including 2009 and opposed the creation of trusts for school fees and the youngest child.

The Judge considered the s.25 factors carefully, noting that the award would remain the same irrespective of whether the husband remained in, or left, his current employment since there was no justification for the wife to receive any future share of that income.  To allocate the wife half of the existing wealth at the date of trial would be wrong, since this would not give sufficient weight to the fact that a substantial part of the wealth had been created by the husband post-separation.  Absent needs and/or compensation, sharing ends with the termination of the marital partnership.  Moylan J declined to order creation of either a school fees trust or one for the youngest child and ordered that the husband should pay school fees whether or not he left his employment subject to the court being able to reconsider this in light of any change in the financial situation of either party.  Whilst provision would need to be made for the youngest child, this did not justify a deduction from the asset base before calculating the wife's award.   

The wife's needs were assessed at £7m, being £1m for capital (which was the value of the FMH) and £6m for income.  This would meet the wife's needs whilst providing her with a fair share of the resources.  Insofar as the future deferred bonuses were concerned, these could total £3.5m.  If the husband receives significant additional capital from those instalments he was ordered to pay the wife a further sum or sums equal to 15% of all net sums received for the years up to 2009 and currently payable from 2011 so as to ensure she would receive a fair share of all the resources.

N v N [2010] EWHC 717 (Fam)  Charles J
The husband was chief information officer at a City bank, earning a six-figure salary plus bonuses, whilst the wife did not work.  The husband came from  a wealthy family.  The matrimonial home was a large stately home occupied under a 50-year lease which was owned by a family investment company incorporated by the husband's father to hold properties owned by the family for generations.  These were valued at £8.8m, although there were questions over the valuation methodologies used.  The husband owned just fewer than 50% of the shares in the company, all of which were gifted to him, and effectively controlled the remaining shares which were held in trust and would eventually be passed on to the children.  The case is interesting in both its treatment and methods of valuing a family investment company which is effectively a vehicle for inherited assets.  Other assets included a New York apartment, home in Buenos Aires worth £1.6m, bank accounts and investments of £1.8m, declared bonuses of £800,000, pensions of £350,000, and a lease of £1.25m and inherited chattels of £2.3m. 

After a 30 year marriage in which 3 now adult children had been born, the wife was awarded a lump sum of £5.3m, equating to 32-34% of the parties' wealth.  This comprised a housing fund of £2.5m, a sum to cover costs and liabilities of £200,000, £200,000 for moving expenses and a Duxbury of £2.4m to reflect income needs of £110,000 – £125,000 p.a..  The wife could trade down in property should she wish to supplement her income in later years.  Charles J rejected the wife's argument that she was entitled to an income for the rest of her life at the same level as the family had enjoyed during the recent "boom" years, to reflect the parties' previous understanding that their income would reduce on the husband's retirement.  The significant departure from equality was a fair outcome to reflect the assets which had been passed down through the husband's family.

Charles J makes it clear that, when applying the sharing principle the court should take account of the fact that assets could come from different sources at different times and consider each independently in deciding whether there should be a departure from quality on the sharing principle. The husband's deferred bonuses post separation, the gifted shareholding in the family investment company and the inherited chattels were good reason for the departure from equality.  However, the lease on the matrimonial home and the chattels in it should be shared equally since their length of use in the marriage made them effectively joint assets despite their provenance. 

K V L [2010] EWHC 1234– Bodey J 
This case is included in brief as an illustration of how inherited wealth coupled with a modest standard of living during the marriage can lead to a significant departure from equality.  The wife, was worth £28m at the date of separation and £59m by trial as a result of inheritance.  That wealth had always been a discrete asset, the parties having lived relatively frugally during their 21 year marriage, living in a 3 bed roomed semi detached home worth £225,000 and spending £80,000 p.a.  Since separation the wife and 4 children had moved to a detached house worth £345,000.  One child had started at an independent school whilst the other 3 remained in the state sector.  The husband sought £18m whilst the wife offered £5m and the FMH.  The court held that the wife's offer of £5m was generous, there were clear grounds for a departure from equality given the wife's exceptional contribution in bringing her inherited wealth to the marriage, allowing it to be used to support the family without either spouse having to work,  and the marital standard of living and £5.3m was fair. 

Vaughan v Vaughan [2010] EWCA Civ 349
This decision of the Court of Appeal (Wilson, Hughes and Patten LJJ) saw the wife's appeal  against the dismissal of her income claims without capitalisation (also see Andrew Commins' article) allowed.  The parties separated in 1981 after a childless marriage spanning 13 years.  A deed of separation was entered into, which was subsequently made a court order and which provided the wife with an income of £27,175 p.a..  The husband remarried in 1985 and had two children. 

The husband applied to terminate the periodical payments after his income reduced as a result of his ill health.  The wife sought capitalisation at £560,000.  At first instance, the judge analysed the husband's financial position and allocated a proportion of his income and capital to his second wife.  The adverse affect this had on the husband's financial position lead to termination of the periodical payments to the first wife without capitalisation.  The Judge considered that that the wife would not suffer hardship if he did so since she was mortgage-free, had valuable chattels which could be sold and had received an inheritance from her parents. 

The wife appealed.  Allowing the appeal, the Court held that the Judge had erred in his analysis of the Husband's income position and the proportion of income and capital that could be allocated to his current wife.  Roberts [1970]P. 1 , whilst confirming that there is no rule that the claims of the first wife should be given priority, does make it clear that the second wife certainly should not be.  The Judge had prioritised the second wife's needs in allocating elements of the husband's pension and assets to her which had lead to the husband's income being under-calculated by some £30,000 p.a..  Additionally, it was wrong to expect the first wife to amortise either chattels retained by her in the divorce proceedings or her liquid capital, in order to meet her living expenses.  The Court of Appeal considered it impossible to be categorical as to the expectations of a wife as regards using her own capital to meet her maintenance needs.  Where a Duxbury payment is made such an expectation may be more likely, but the Court would not generally expect a wife to use inherited assets (as opposed to income from inherited wealth) to do so.   In cases where the parties are at or close to retirement, the lines between capital and income become more blurred however.  The wife was therefore awarded capitalised maintenance of £215,000, being the difference between her income needs and her own ability to meet them.

FZ v SZ & ors [2010] EWHC  1630 (Fam) Mostyn J 
After a 9 year marriage which resulted in two children, the wife received a lump sum of £8m, being half of the matrimonial property within the jurisdiction.  Both parties were foreign nationals.  The wife was a banker whose father was a foreign diplomat.  The husband was an investment banker with extensive business interests in that country. 

Mostyn J gives guidance on four specific areas of family law: use of Hildebrand documents where computers are involved (since the decision predates that of the Court of Appeal in Imerman, it is not covered in detail in this Update and practitioners are referred to the report should they wish to consider it); conduct; methods of valuation of a business; and the division of matrimonial/non-matrimonial property.

• Conduct

Both parties had behaved badly.  The actions of one were cancelled out by those of the other, such that there would be no adjustment to the final award.  Mostyn J considered the wife's actions in asking the police to assist on the date the husband was required to vacate the former matrimonial home under an improperly obtained occupation order, alleging that he had been violent when he had not, and caused the husband to suffer a panic attack constituted "conduct".  Likewise the husband's sending of confidential documentation obtained from the wife within the proceedings to foreign authorities to make them investigate her parents, and taking legal proceedings abroad against her parents to put pressure on the wife.  The wife's obtaining Hildebrand documents from a computer without breaching a password; allegations made by the wife of the husband's dishonesty without any evidence; forgery of a file about his business interests; and the husband's defective form E and Replies to questionnaire were not considered to be conduct.

• Methods of valuation

The wife's forensic accountant argued that the fair rather than market value of the husband's interest in a company through which he wanted to build a shipping platform should be used.  He argued that the fair value would reflect the fact that the projects would only achieve their market value over time and a snapshot value was inappropriate.  The wife's accountant sought to use the total amount invested by the husband of £14.7m, whilst the husband's accountant considered the present market value to be £3.2m.  The Judge considered that the market value was the most appropriate measure to consider at trial.  Any rough justice that may result in some cases was worth predictability and consistency.  Serious injustice would need to be demonstrated before any other measure of value should be considered.

• Matrimonial/non-matrimonial property

The court held that the husband's overseas business interests were matrimonial and offered the wife a choice.  Either she could have a share in any uplift in the assets as well as a share in the responsibility if they failed or she could have no part in either.  The wife chose the latter and the interests were ignored for the purposes of her award.

After assessing non-matrimonial property at £2.182m, the court considered the case law on matrimonial and non-matrimonial property, and in particular the decision of Burton J in S v S (Non-matrimonial property: Conduct) (2007) (considered in the Winter 2007 update ) The Judge considered the effect of his award as a percentage of the matrimonial property first and then as a percentage of the overall assets as a final check to ensure that the yardstick of equality is applied. 

H v H [2009] EWHC, Baron J, 26 November 2009
I mention this case briefly as authority that a pension share must be expressed in a court order as a firm percentage rather than a calculation which will produce a percentage on the pension sharing annex.

Baron J considered that the wife should receive such percentage as was equivalent to £900,000 from the husband's pension, and asked counsel to draft on this basis.  The husband then withdrew the requisite sum from his pension fund and placed it in cash pending transfer to the wife.  A delay of some months ensued whilst the drafting was finalised.  During that time, the husband's pension fund increased in value by a further £100,000.  The wife argued that she should share in the increased value of the pension fund, since the delay in drafting had delayed implementation and prevented her from investing in her own funds.  The Judge agreed.  Whilst a court can calculate a percentage pension share by taking the appropriate capital sum and translating that into a percentage, the result must only be specified in percentage terms just as it must be in the documentation prepared to enable implementation. 

Fisher-Aziz v Aziz [2010] EWCA 673 CA (Thorpe, Rix, Etherton LJJ)
This decision of the Court of Appeal reiterates that the first consideration is that of the needs of the parties' children.  As a matter of principle, a parent in occupation of the former matrimonial home with the children should ordinarily succeed on an application for transfer of the property in preference to proceeds of sale, provided that release of the co-owner's mortgage liability and any other charges attached to the property can be secured.

W v W [2009] EWHC 3076 (Fam) – Moylan J, 6 November 2009
This decision is a further example of the courts wrestling with applications to vary periodical payments orders involving a recipient who is cohabiting.

After a short marriage of less than 5 years including cohabitation during which one child was born, the wife, who was a vetinary nurse, obtained a lump sum for housing totalling £478,000 from her solicitor husband and maintenance of £18,000 p.a. for herself with provision of a further £15,600 p.a. for the child on their divorce in 2004.   The husband then sold his company for £11.4m in 2006.  The wife sought an increase in her maintenance and capitalisation.  The husband sought a downwards variation and discounted capitalisation on account of the wife's cohabitation with a new partner whom, the husband contended, he was supporting. 

Moylan J held that the fact that a payer's wealth had increased since the end of the marriage does not put it out of the reach of the court on an application to vary/ capitalise.  Whilst the marital standard of living is a factor, neither this nor the recipient's needs are determinative on a variation application.  The court must look at the overall concept of fairness.  Whilst the three strand test set out in Miller; McFarlane are important considerations, they are not heads of claim and do not put a ceiling on the wife's claims.  In particular, the concept of relationship-generated disadvantage does not confine a wife to what she would have earned but for the marriage.  Cohabitation is a circumstance to be taken into account but does  not equate to marriage and cannot automatically end maintenance.  Uncertainty over a wife's future plans (i.e. whether she will remarry or not) is not a reason not to capitalise unless it can clearly be demonstrated that fairness cannot be achieved until that uncertainty has been resolved.  Whilst the wife's contributions as a wife were short in duration, those as a mother entitled her to financial independence.  As such, periodical payments were increased to £40,000 p.a. and capitalised at £625,000 after a significant discount from her Duxbury had been made to take account of the specific features of the case.