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Finance & Divorce Update Autumn 2011

Joanna Grandfield, barrister with Mills & Reeve, reviews the latest key matrimonial finance cases from the summer and early autumn.











Joanna Grandfield, Associate and Barrister, with Mills & Reeve LLP

The Autumn update deals with decisions from the summer and early Autumn and includes cases dealing with somewhat esoteric points involving interim relief under the Inheritance Provision for Family and Dependants) Act 1975; discharge of committal orders; treatment of personal injury awards in applications for financial remedy; the impact of payment of arrears in child maintenance on state benefits; and non-disclosing husbands.


Smith v Smith [2011] EWHC 2133 (Ch) (Mann J) 8 July 2011
This case emphasizes the need for an applicant to make a strong case if he or she is to be granted interim relief under the Inheritance (Provision for Family and Dependants) Act 1975.

The widow, who was Russian, married the deceased in 1991.  Shortly after the marriage the deceased made a will leaving the bulk of his estate to the wife. 

The matrimonial home throughout the marriage was a property in London owned in the deceased's sole name.  The marriage was in difficulties by 2003,as a result of which the wife signed a statutory declaration confirming that there was no relationship and that she considered herself and the deceased to have separated.  The wife returned to Russia the same year, allegedly to care for her terminally ill mother, and remained there save for occasional visits to England to visit the deceased.  During one of these visits the wife commenced divorce proceedings  (having done so at least twice previously), which she failed to pursue, allegedly at the request of the deceased.  Two years later, in 2005, the deceased made a new will leaving all of his property to other members of his family.  He died in 2009, leaving an estate worth £525,000.

The wife challenged the will on the grounds of the deceased's lack of testamentary capacity and propounded the earlier will.  She applied for the right to occupy the matrimonial home and a £25,000 lump sum in the alternative.  In response, the defendants claimed that this was a "fossil marriage" which was effectively over from 2003, if not before.   In those circumstances, it was argued, it was both understandable and justifiable that the wife should be cut out of the will.  The wife disputed that the marriage was completely over by the time of the deceased's death and that, in any event she was entitled to provision from the estate as his widow. 

The hearing was concerned with the interim arrangements: whether the wife should be able to occupy the matrimonial home pending final determination of the case and whether she should receive a lump sum of £25,000 by way of interim relief.  Dismissing the wife's applications, Mann J held that the wife was likely to lose her probate claim, had provided no real evidence and the circumstantial evidence produced was unlikely to demonstrate that the deceased lacked testamentary capacity at the time he made his new will.  Whilst the I(PFD)A claim was far more arguable, the court would only make an order for interim relief if the wife was "in immediate need of financial assistance".  Here, the wife was an unreliable witness (she had refused to answer questions about her financial circumstances when giving evidence, failed to disclose property ownership in Russia and bank accounts and had given evidence that was wholly inconsistent with her witness statement).  The wife had set out only a "thin case on need".  The Judge considered that

"it behoves an Applicant in an application under s 5 to proffer to the court and to the other side convincing evidence of the case that there is immediate financial need.  Mere statements of fact are not necessarily going to be sufficient and on the facts of this case they are certainly not sufficient" [30].

Since the court was effectively pre-empting the final decision when deciding on an interim award, a stronger case was needed.

In so far as interim occupation of the matrimonial home was concerned, rather than enter into a legal debate as to the jurisdiction for making such an order, Mann J assumed that the power was available and highlighted that a very clear and immediate need to occupy, or at the very least a very good reason why an interim right of residence should be given would need to be shown.  The Judge held that the wife's life was in Russia and it was unlikely that she wanted to make the matrimonial home her actual home.  Whilst she would therefore have to incur hotel expenses in pursuing her substantive claim, the wife had not demonstrated an inability to pay those expenses.  The Judge also took into account, having seen the wife give evidence, the defendant's concerns that, once the wife gained occupation of the matrimonial home it would be exceedingly difficult to get her to leave. 


Kremen v Agrest [2011] EWCA Civ 1014
This is the latest installment of complex litigation involving a variety of proceedings in a number of jurisdictions and which involved a number of third parties.  On this occasion, the wife sought permission to appeal an order made by Holman J discharging a committal order that had been made against her husband by Mostyn J almost a year earlier. 

An interim maintenance order requiring the husband to pay £8,000 per month to the wife and to discharge school fees was made within her application for financial relief under Part III of the Family and Matrimonial Proceedings Act 1984.  The husband failed to pay the sums due resulting in the wife's application to enforce and the husband's application to vary (which was subsequently dismissed).  The husband then failed to pay £10,000 on account of arrears of maintenance ordered by a District Judge at a subsequent hearing.  The wife issued a judgment summons, which application came before Mostyn J on 17 April 2010.  The Judge made a number of findings about the husband's financial conduct towards the wife and granted an order for committal in respect of £10,000 on account of the arrears, suspended until 14 May 2010.  The order was to be discharged if the husband paid the £10,000 and £100 issue free for the judgment summons before that date.  Again, the husband failed to pay and in the early summer of 2010 a warrant for his arrest was issued.  Since the husband remained outside  the jurisdiction, the warrant could not be executed.  The husband unsuccessfully appealed the committal order. 

On 15 November 2010, the husband unsuccessfully applied to discharge the committal order on the basis that the £10,000 had been paid from other funds, namely the proceeds of sale of the former matrimonial home which were held in court and of which arrears of maintenance totaling £164,000, as well as maintenance of £32,000 being that which would be due to the wife between October 2010 and the final hearing listed in February 2011, had been paid to the wife. 

The final hearing of the wife's application under Part III MFPA was listed to take place in February 2011.  Immediately before that hearing, the husband through a McKenzie friend made a further application to discharge the committal order on the basis that his human rights were being violated since he could not come to the country to represent himself without being arrested.  The wife, who had been expecting her Part III claim to be dealt with only to be met with an application for discharge of the committal order, requested an adjournment.  Holman J refused that request and discharged the committal order so as to enable the husband to attend the substantive hearing, since he considered the husband had a justifiable fear that he would be arrested if he attended the hearing and that the husband was entitled to have the order discharged as a matter of law on the basis that the £10,100 had been paid and as a matter of discretion since the sums involved were of little significance in the context of this case and it would be better (indeed necessary) for the husband to attend the substantive hearing .  The wife appealed on the following bases:

1 The Judge had effectively acted as an appeal court over Mostyn J's order in allowing the husband's application to be considered without appearing himself or instructing a lawyer (his McKenzie friend had no rights of audience).

2  The Judge was wrong to interpret the payment of monies to the wife as having satisfied the debt thereby entitling the husband to be discharged from custody under section 5 of the Debtors Act since the payment ordered from the funds in court were not intended to discharge that liability nor did it in fact discharge the liability since it was a sum equivalent to the debt but not payment of the debt.

3   The proceeds of sale paid into court were not, in fact, the husband's money and so could not amount to payment of the debt.

4  It was not in fact the committal order that was preventing the husband from attending court but his own actions in breaching the maintenance order and/or failing to make provision to attend by lawyer or alternative means (e.g. video link)

Black LJ granted the wife permission to appeal.


KW v Lancaster City Council & Secretary of State for Work and Pensions [2011] UKUT 266 (AAC)
This decision of the Upper Tribunal is included in brief to remind practitioners that clients need to be alive to the impact of payment of arrears of child maintenance on benefits paid for the period to which those arrears relate.  In the instant case, the mother received housing and council tax benefit since she was not in receipt of financial support from the father of her child.  The Child Support Agency eventually managed to extract a lump sum from the father of arrears in child maintenance totaling £34,408.64, over £23,000 of which was paid directly to the mother.

As a result of that payment, the Local Authority successfully applied to recover the relevant benefit payments made to the mother during the period to which the arrears related, totaling just under £15,000, arguing that the benefits paid were now rightly classified as overpayments (albeit payments made through no fault of the mother) and were recoverable. 

Once the adjudication had been made that they were recoverable, the Local Authority then needed to exercise its discretion in deciding whether or not to actually seek recovery of the overpayments.  That decision was not subject to any right of appeal but could in principle be challenged by way of Judicial Review.  The DWP provides general guidance on the point in the HB/CTB Overpayments Guide which includes [at  4.7.11]

"A recoverable overpayment may be recovered at the LA's discretion.  If an LA has a blanket policy of recovering all recoverable overpayments, the policy would be open to legal challenge". 

Whether the discretion is to be exercised or not depends on the facts of each individual case.


Mansfield v Mansfield [2011] EWCA Civ 1056
This case is included for the guidance it provides in terms of the treatment of personal injury awards in financial remedy cases.  The husband received damages of £0.5M in a personal injury claim in 1998, before he and the wife had met.  The parties subsequently began a relationship and cohabited for 8 months before marrying in September 2003.  Separation occurred in April 2008, making the marriage one of 6 years including the period of cohabitation and during which twins were born, who were 4 years old by the time of the hearing.

The husband invested his damages award in two properties, a flat, from which he received rental income and a bungalow specially adapted to meet his needs and  which became the matrimonial home. 

At first instance the District Judge considered that the wife had a mortgage capacity of £42,000 and that the husband should pay a lump sum of £285,000 to the wife so as to enable her to meet her housing needs.  If the lump sum had not been paid within 3 months, the matrimonial home was to be sold and the wife receive the greater of  £285,000 or 63% of the gross sale price.

The husband's first appeal was unsuccessful and the husband appealed to the Court of Appeal.  Giving the lead judgment, Thorpe LJ noted that the district judge had considered the leading case in the area,  Wagstaff v Wagstaff [[1992]1 All ER 27 5 and correctly applied the first limb of the guidance found therein in noting that the fact that the available capital came by way of compensation did not exclude it from the court's consideration.  However, the District Judge had erred in omitting

"to apply the second and important qualifying part of the guidance, namely that each case must be looked at on its facts, and in may instances the application of the general sharing rule must be tempered to reflect the particular needs of the recipient and the very nature of the acquisition of the capital, namely by way of compensation for personal injuries" [15]

That misdirection entitled the court to revisit the terms of the order.

However, the court felt unable to interfere with the first instance judge's conclusions that £285,000 was the sum required to meet the housing needs of the wife and children, whose needs are of course primary under the express language of the statute.   That said, special reflection of the origin of the family capital and the special purposes for which it was provided, as emphasized in Wagstaff  would properly be given in the making of a Mesher order in respect of one third of the equity in the wife's new property.  This would be fair since the wife's need for a substantial share of the limited available capital rested upon her function as the primary carer.  That need would end on the majority or conclusion of tertiary education of the children when, coincidentally, the husband's need for a return of the capital was likely to be increased since the ordinary process of aging was likely to accentuate his disabilities. 


Hutchings-Whelan v Hutchings [2011] EWCA Civ 1048 (Hughes LJ) 15 August 2011
This case involved an application for permission to appeal by a non-disclosing husband who was unhappy with the outcome of a final hearing.  The husband applied for permission to appeal the order of His Honour Judge C Masterman.  The parties separated in 2000, after a 20 year marriage in which three children all of whom were now adults, were born.  Financial proceedings were issued and culminated in an order made by consent in 2004, which provided for the wife to receive a lump sum of £176,000 on payment of which the former matrimonial home was to be transferred into the husband's sole name.  The order also provided for the property to be sold so as to pay the lump sum to the wife in the event that it went unpaid. 

The consent order was implemented only for the wife subsequently to discover that the husband had sold an investment property in Risca in which he had disclosed no interest in the financial proceeding for £1.3m.  As a result, the wife successfully applied to set aside the consent order on the grounds of the husband's non-disclosure in 2009.  During the proceedings which ensued, the husband was evasive in his disclosure to the point of a suspended committal order being made to ensure his compliance. 

The final hearing took place over five days in July 2010 during which the husband asserted that the purchase of the Risca property had been undertaken by the parties' son, Harry, using damages for personal injury awarded to him as a child and which   were received by him when he turned 18.  At first instance, the Judge held that Harry had been a bare nominee for the husband and, whilst some of his damages had been used to fund the purchase, those monies had subsequently been repaid.  The Judge also concluded that a large number of other property transactions undertaken by the husband alone, through nominees and with money advanced formally or otherwise through friends or funded by borrowings from commercial lenders had been comprehensively lied about by the husband.  The Judge concluded that as a result of the husband's persistent determination to conceal the true financial picture it was impossible to come to any final conclusions as to his financial position and ordered the husband to pay the wife a further lump sum of £384,000.  That award was based on providing the wife with a one third share in the profit on the RIsca property and a half share of the profit on another property and took into account not only the assets demonstrated to be in the husband's hands, but also substantial expenditure of £300,000 which must have been made by the husband but which had not been disclosed.

The husband was granted permission to appeal by Hughes LJ but only on the basis that the first instance judge had made two relatively minor errors which nonetheless made the overall conclusion challengeable, namely:

1 In taking as his starting point for the calculation of the profit on the Risca property the Judge had not allowed for the substantial payments of interest on informal loans from friends which the husband had paid.

2 The judge appeared to have had evidence as to the husband's costs in refurbishing two properties before him yet considered that the costs relating to one property were "not in evidence" and made no allowance for the other at all.