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Ancillary Relief Update (Autumn 2007)

Joanna Goodall, barrister with Addleshaw Goddard LLP, highlights recent key developments in ancillary relief case law.

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Joanna Goodall, Barrister, Addleshaw Goddard LLP

The Autumn update deals in some detail with two decisions of Baron J concerning treatment of inherited, pre-acquired and trust assets in some detail before turning to cases involving beneficial interests in property; insolvency; interpretation and enforcement of a consent order; interim payments for costs in Schedule 1 Children Act 1989 applications; and the approach to the s 25 Matrimonial Causes Act 1973 (MCA) balancing exercise following Charman.

S v S [2007] EWHC 1975 (Fam)
An appeal from the county court, this decision of Baron J concerns the treatment of assets emanating from extended family, inheritance prospects and pre-acquired assets, as well as dealing with a number of practical points.

A first marriage for both, the husband and wife were aged 34 and 27 respectively on their wedding day and 58 and 51 by the time of the hearing. Both were established to some extent by the time of the marriage, the husband having policies and savings of between £30,000 and £50,0000 and his own, albeit mortgaged, home. After a long marriage of 20 years producing 2 children aged 19 and 22, the assets at trial were £2.3m.

The husband had been privy to the wife's parents' wills, which provided for the nil rate tax band to be optimised. Other than some small bequests, on the death of the second parent (they were aged 86 and 83 at trial) the wife would receive the balance of the estate worth (per the husband) in the region of £1m to £1.5m.

The wife held assets in her sole name and which emanated from her family, namely a 50% share in her parents' home and a bond with a total value of £186,700. Together these represented 8.6% of the assets. The District Judge ring-fenced both assets on the basis that they had been kept separate from the family finances during the marriage. After an equal division of the remaining assets, this created a 17% differential in the wife's favour.

On appeal Baron J held as follows:

  1. After a long marriage of 20 years there was an expectation that the assets would be divided equally. The assets the husband brought to the marriage (capital and a fledged earning capacity), and his contributions during the marriage would not alter the division in his favour.
  2. To ring fence the assets that emanated from the wife's parents during their lifetime was discriminatory. This was a needs case and all of the assets had to be available to cover requirements. However, the wife's assets and the substantial funds the husband brought into the marriage were a contribution by each to be included in the overall consideration.
  3. The wife's inheritance prospects had rightly been ignored. It cannot be assumed that the monies would be forthcoming given freedom of testamentary disposition and the possibility of them being exhausted during her parents' lifetime. In any event, any receipt would be long after separation. At best this was a background factor weighing lightly in the overall analysis of fairness.
  4. An order had been made under s 24 MCA to make the wife a trustee of insurance policies and accounts, the beneficiaries of which were the parties' daughters. Baron J held that, in doing so, the parties would be locked into a situation where future conflict was possible. In circumstances where the beneficiaries were adults, and given the amount of funds involved (approximately £170,000 in total), this was an inappropriate use of s 24. As a result of the indications given the parties came to terms on this discrete issue. Insofar as bank accounts were concerned, one was placed in the name of the wife for the benefit of one child whilst the other remained in the husband's name for the benefit of the second.

The Judge also made a number of comments that were more procedural in nature, namely:

  1. In cases that are not run of the mill, s25 MCA statements should be provided as a matter of course before trial.
  2. As a general principle, after an ineffective FDR it is incumbent upon the court to fix another appointment as soon as practicable.
  3. The wife delayed pronouncement of decree nisi on the husband's petition on the erroneous advice that to do otherwise would inevitably led to the making of decree absolute. Where a wife stood to be financially disadvantaged by the making of decree absolute, it is pronouncement of the final rather than interim decree of divorce which should be delayed so as to provide the court with jurisdiction to make capital orders as soon as possible without prejudicing the wife's position.
  4. The order provided for the lump sum to be paid by a certain date. However, decree absolute was delayed by six months. Interest should not be used as a penalty for failure to obtain decree absolute promptly. Instead, maintenance pending suit should be ordered to compensate the payee for the delay in receipt of the lump sum.

Re C [2007] EWHC 1911 (Fam)
This decision of Baron J on appeal from the county court concerns the treatment of trust assets following Miller v Miller; Macfarlane v Macfarlane [2006] UKHL 24, [2006] 1 FLR 1186. The husband was 51 by the time of the hearing and a dentist. For the bulk of their (long) marriage, the parties and their three children enjoyed a "good middle class lifestyle" funded through the husband's earnings, which were £87,000 net p.a. by the time of the hearing. The matrimonial assets totalling £2.3m were sufficient to meet the parties' needs.

The wife was from a wealthy family and a beneficiary under trusts with capital assets totalling £5.8m. The trusts held shares in the wife's family's funeral businesses until they were sold in the mid 1990's when they were replaced with cash. From then on the wife, who had a lifetime entitlement to income from the trusts, received an income therefrom which was used to support family expenditure. By the time of the trial she received £120,000 p.a. net, which had a capital value on an actuarial basis of £2.3m.

At first instance, the District Judge treated the husband's business premises and goodwill in his dental practice as a liquid asset, made an order dividing those and the matrimonial assets equally and relied on Thomas v Thomas in disregarding the wife's interests under her family trusts.

In allowing the husband's appeal, Baron J held:

  1. The wife's interest under the trusts was of relevance since it provided her with an income which in turn had an impact on her mortgage capacity and therefore ability to pay the husband a lump sum whilst retaining the matrimonial home.
  2. To treat the husband's business premises and goodwill as a liquid asset was to ignore the reality of the situation since they underpinned the husband's earning capacity and as such were illiquid.
  3. An adjustment was made to the assets schedule to reflect the fact that the wife had paid £40,000 more in costs than the husband.
  4. Contents and cars should normally be omitted from asset schedules and dealt with in specie.
  5. Finally, the Judge commented that cases such as the present one which involved an unusual aspect (here the wife's entitlement under the trust), should be transferred to the High Court.

The resulting division provided the husband with 65% of the matrimonial assets and the wife with 35% excluding her entitlement under the trusts.

Holman v Howes [2007] EWCA Civ 877
This decision is of interest to practitioners in dealing with the ascertainment of beneficial interests and rights to occupy following the decisions in Oxley v Hiscock [2005] Fam 211 and Stack v Dowden [2007] UKHL 17.

The Claimant appealed a decision which declared that she had a beneficial interest of one half of a property purchased in her former partner's sole name in 1979 (exchange of contracts for which had been in the claimant's name), and providing that there should be no sale of it "for the time being", the Defendant's application for an order for sale having been refused at first instance. The Claimant sought a larger share of the property and more secure rights of occupation. The Defendant sought immediate sale by way of cross appeal.

In ascertaining the Claimant's interest, following Oxley v Hiscock the Judge at first instance looked first at the parties' communicated common intention at the time of the purchase. Since that could not be ascertained directly, conduct was examined to show what was intended. The Court of Appeal upheld the Judge's finding that the parties owned in equal shares on the basis of the fact that each made a substantial contribution to the purchase and did not regard the precise contribution of each as being significant at the time. In ascertaining common intention through conduct, that which post-dated the purchase did not assist, and given the limited dealings the parties had with each other post separation, any such conduct was unilateral. In contrast to the process undertaken in cases involving the Matrimonial Causes Act 1973, this exercise is not achieved by the court considering "what is fair".

In considering whether there should be an order for sale, the Claimant's appeal was allowed. A finding of fact had been made that the Defendant had given an assurance that the property would be available to the Claimant to live in for as long as she wanted as a result of which the property had been put in his sole name. As a result, equity required that the property should not be sold without the Claimant's consent.

Shah (Trustee in bankruptcy) v Baverstock and Baverstock (Decision of Bond J; 2 August 2007)
A further decision concerning the effect of insolvency following ancillary relief proceedings to those included in the last update (see Richard Hill and John Bangham v Wendy Haines [2007] EWHC 1012 (Ch) and Vivienne Joan Avis v (1) Charles Hamilton Turner (Trustee in Bankruptcy of the property of Edmund Charles Avis) (2) Edmund Charles Avis [2007] EWCA Civ 748 dealt with in the summer update] An order was made by consent in ancillary relief proceedings recording that the property owned by the husband and wife in equal shares would be transferred into the wife's sole name. A little over a year later the husband was declared bankrupt. The trustee in bankruptcy applied to the court arguing that the transfer had taken place at an undervalue. The wife claimed that the property had not been held in equal shares since she had paid both the mortgage and outgoings on the property. Despite the wife's contributions both in financial terms and in raising the family, the court accepted the trustee in bankruptcy's case that the transfer was a transaction at an undervalue and therefore susceptible to attack under the Insolvency Act 1986.

M v T [2006] EWHC 2494 (Fam)
This case is useful authority for those seeking interim payments for legal costs in applications under Schedule 1 of the Children Act 1989. Charles J held that, since the applicant parent was bringing an application for the benefit of the child, such payments were a payment for the benefit of that child and could therefore be made under the Act so as to ensure that children were properly represented. Any payments made could be taken into account in the substantive order. The earlier decision of Bennett J in W v J [2004] 2 FLR 300, was, as another decision of the Division, not binding.

Wood v Rost [2007] EWHC 1511 (Fam)
This decision of Peter Hughes QC concerns the interpretation and enforcement of a consent order made in 2001. A number of arguments were considered by the court in this case, which is included in this Update to remind practitioners of the importance of providing for every eventuality on the face of an order, particularly where lump sums are only payable contingent on other events, since the court will not always infer further terms in the event that the contingent events do not occur, even as a direct result of the payer's actions.

The order provided for the wife to receive three lump sums. The first was payable immediately, the second and third were dependent on the husband receiving staged consideration for the sale of his business, in part through an earn out. If the husband did not receive the full amount then, per the order, the amount payable to the wife was to be "rateably reduced". In fact, the husband resigned from his employment before the second tranche of his payment was due such that, he argued, the second and third lump sums did not become payable to the wife. This meant that, whilst the original order had envisaged the wife finally receiving 50% of the assets once the business had been sold, she in fact received 45%.

The wife argued that the court should read into the order an implied term that the lump sums were payable to the wife "save in so far as by reason of circumstances beyond his [the husband's] control he did not himself receive the full sums provided for". The judge held that the husband's liability to pay the lump sums was contingent on him receiving the balance of the primary consideration and, since the order provided for what would happen if they were not, namely that they would be "rateably reduced", the order already provided for the situation which had arisen. As such, the wife was entitled to a further payment rateably reduced to reflect the sums actually received by the husband.

L v L (financial Relief) (Family Division; Richard Anelay QC sitting as a Deputy Judge of the High Court; 29 June 2007)
Whilst the full judgement of this decision is not yet available, practitioners should be aware of this decision, which is illustrative of the approach of the courts to the s25 MCA exercise following the decision of the House of Lords in Charman. The Judge first determined the available assets and financial position of the parties before considering in what way the property should be shared (equal division being appropriate in the absence of good reasons to do otherwise) and finally considering the overall effect of that division to see whether the needs of the parties had been met. Only if the answer to the last question was in the negative would needs dictate that one party should receive a greater share than the other. Equally, there would be no reduction in the award simply because a party would otherwise receive more than their needs. In carrying out his analysis, the Judge excluded some pre-acquired assets including inherited assets from the pot.

Finally, practitioners are referred to the detailed analysis of the Court of Appeal in North v North [2007] EWCA Civ 760 and the article published on Family Law Week, North v North: Revisiting periodical payments.