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Financial Remedy Update, February 2020

Sarah Hunter, Senior Associate and Eleanor Cawthra, Associate Mills & Reeve LLP consider the important news and case law relating to financial remedies and divorce during February 2020.


Sarah Hunter, Senior Associate and  Eleanor Cawthra, Associate Mills & Reeve LLP

As usual, this updated is provided in two parts:


Divorce, Dissolution and Separation Bill

The first reading of the Divorce, Dissolution and Separation Bill took place on 7 January 2020. The Bill was first introduced in June 2019 and is being brought before Parliament again following the General Election. The second reading – the general debate on all aspects of the Bill – is yet to be scheduled. The Bill will replace the current requirement to evidence either a conduct or separation 'fact' with the provision of a statement of irretrievable breakdown of the marriage (couples can opt to make this a joint statement). It will remove the possibility of defending a divorce, as a statement will be conclusive evidence that the marriage has irretrievably broken down. It will also introduce a new minimum period of 20 weeks from the start of proceedings to confirmation to the court that a conditional order of divorce may be made, allowing greater opportunity for couples to agree practical arrangements for the future where reconciliation is not possible and divorce is inevitable.

First female Justice of the Supreme Court Lady Hale retires

A trailblazer for women in law, Lady Hale has retired. In 2004, Lady Hale became Britain's first female law lord, in 2009 she became the first woman to serve on the UK's Supreme Court, and she became its first female President in 2017.

Lady Hale recently hit headlines when the Supreme Court ruled that Boris Johnson's suspension of Parliament was unlawful.  Lord Reed is the new Supreme Court president.

Spouses and civil partners to inherit more from intestate estates

From 6 February 2020 spouses or civil partners with children will be able to inherit £270,000 from intestate estates. The increase, from £250,000, has been welcomed by the Law Society of England and Wales. The president Simon Davis highlighted the importance of "writing a legally valid will with the help of an expert solicitor", adding that "many people are unaware that under intestacy laws, unmarried partners and close friends cannot inherit."
The increase has been effected by the Administration of Estates Act 1925 (Fixed Net Sum) Order 2020.

Online divorce service for legal professionals

All legal professionals are now able to make an application for a divorce online and progress through to decree absolute on behalf of their clients. The Law Society website explains what the new online service does, its benefits, how to sign up, and how to act for a respondent in a case that has been initiated digitally.


CB v KB [2019] EWFC 78 (Mr Justice Mostyn) 20 December 2019

The husband ("H") and wife ("W") had been married for 19 years (including cohabitation) during which time the parties enjoyed a "high, but not over-indulgent" standard of living.  They had six children aged between 7 and 20.  The two eldest children lived with W. The middle child lived with H. The three younger children divided their time equally between the parties.

H was the bass player in a well-known band.  The lead singer of the band had written almost every song released by the band and was the "kingpin of, and rainmaker for, the band" unlike H and the band's drummer. 

Decree absolute was granted in 2018.  H had remarried and was expecting a child with his second wife, who also had two daughters from a previous relationship aged 7 and 4. 

The family home had already been sold for £5.5million. Since then, both had re-housed. The W's assets net of liabilities were £2.75million. H's net assets were £3.01million. Combined, these assets amounted to £5.76million.
H's income derived from five streams:

• Stream 1 - publishing or composition royalties in respect of three songs written by H. Assessed (net of all notional taxes) at £55,561;

• Stream 2 - equitable remuneration in respect of broadcasts of the band's songs on radio and TV pursuant to the Copyright, Designs and Patents Act 1998 (non-assignable);

• Stream 3 - income representing 8.33% of the lead singer's publishing or composition royalties by virtue of an agreement between the band members. This arrangement had a significant element of goodwill to it as there was no obligation on the lead singer to share these royalties. The agreement had recently been amended so that the level of remuneration now depended on whether H stayed or left the band;

• Stream 4 - a one-third share of the recording royalties paid through a company, T Ltd, owned equally by the members of the band; and

• Stream 5 – H's share of ticketing and merchandising income generated by touring.

It was undisputed that the royalty income streams (streams 1-4) represented the realisation of matrimonial assets and was subject to the sharing principle.

In order to capitalise W's share, the court had to quantify the amount of income the royalties brought in and assess for how long H would receive this income and how much income he would receive.  Expert evidence was given and, unusually, the expert witnesses for each party gave evidence together ("hot-tubbing").  Mr Justice Mostyn noted that hot-tubbing (provided for in the civil sphere by CPR practice direction 35 para 11) allowed evidence to be heard concurrently and advocated its use in other financial remedy cases "where competing valuers give evidence". 

The total income H would receive from royalties was assessed to be £4.45million.  The experts agreed that the appropriate method of valuing Streams 2 and 4 was the traditional multiplicand-times-multiplier method, although they disagreed on the appropriate multiplier in some instances. Mostyn J repeated a comment made in another matter that analogies drawn by one of the experts with huge music companies were "like using the accounts of Tesco to value the village shop in Ambridge".  The experts agreed that the best means of valuing Stream 3 was the discounted cash flow method and Mostyn J also applied a 25% discount to that stream to reflect a "significant" non-matrimonial element.  He declined to apply a further discount to the overall income figure to reflect the fact that the figure had been arrived at with a certain amount of subjectivity, had risky aspects to it and, in some respects, was incapable of being turned into cash. To do so would, he said, be a double discount as all the relevant risks had been captured by the multipliers used; he was confident that his figures were "robust".

As for the income from touring, there was a dispute as to whether this represented future earnings (H's position) or the realisation of an asset built up during the marriage (W's position).  W's argument was rejected.  Stream 5 was to be treated, Mostyn J concluded, as pure future earnings. 

The pot of assets therefore totalled some £10million.  The equal sharing principle gave W £5,110,079.  H was ordered to pay W a lump sum of £2,355,728 in three instalments over three years.  Pending payment of the first instalment, the interim maintenance regime would continue. Pending payment of the second and third instalments, H was ordered to make periodical payments to W at a rate of £42,786 a year, reducing rateably on payment of the second instalment. There would be a clean break on payment in full of all instalments.  Mostyn J considered that the arrangement amply met W's reasonable needs on the assumption that she would obtain paid work and would move to a smaller property at age 60; after debts, she would be left with a Duxbury fund of £2.15million providing an income of £172,126 a year. 

H was also ordered to pay child support at the rate of £12,600 a year in respect of the four youngest children living with W until each child completed tertiary education. He was also ordered to pay the children's school fees.

TT v CDS [2019] EWHC 3572 (Fam) (Mr Justice Cohen) 20 December 2019

The husband ("H") and wife ("W") were both in their mid-forties.  They had been married for 21 years (including cohabitation) and had two children aged 9 and 13.  During their marriage, H and W had built up a successful mobile telephone business which provided the family with a good standard of living.  All of the family's assets had been built up during the marriage (a claim to beneficial ownership by H's mother having been dismissed by Mostyn J at a previous hearing). 

The marriage had ended in highly acrimonious circumstances and the subsequent litigation (spanning financial, children and Chancery proceedings both here and in the US) had been on a "massive scale" and had caused "enormous upset to W and the children".  By the time of this hearing, H was in person.

The family's primary assets comprised three flats in London with equities of about £199,000, £210,000 and £168,000 respectively, a property in Miami worth £1.25million, a 'Cabana' adjoining the Miami property worth £143,000, and the business which was valued at £1.85million.  However, there were also substantial debts.

Before reaching his conclusion, Mr Justice Cohen said:

"It is obvious that this has been the most destructive litigation. There is no avoiding the fact that [the husband] is very largely responsible for the situation that has arisen. Since the breakdown of the marriage he has acted destructively and throughout the litigation without any regard to the normal rules."

As to the business, which had been run by W since the separation, he concluded that:

"It [would be] inconceivable that the parties could work together in the business and … the only way that I can be confident that [the wife] and the children are properly looked after and do not find themselves deprived of funds is if the beneficial interest in the business is transferred to [the wife]. Thus it will be that she is provided with an income which will permit her to run her home, pay the children's school fees and maintain an appropriate standard of living for the children."

Given that there was no question of the business being sold (it being required to meet the needs of W and the children), Cohen J concluded that it was not necessary to speculate further about its precise value.  He commented that "I can have no confidence that [H] will provide for [W] or the children".

As to the flats, W would keep the first two, and H would keep the third.  The cabana would be transferred to W.

Finally, the Miami property would remain in the sole ownership of H, but W would receive a £250,000 lump sum from H which was to be secured upon the property. 

The end result was that W would have the business, but would be left with debts that exceeded her other assets by a small amount; H would be left with net assets of about £634,000.  In all, the effect of the litigation was that neither would end up with much capital. 

Goddard-Watts v Goddard-Watts [2019] EWHC 3367 (Fam) (Mr Justice Holman) 27 November 2019

The background to this long-running case was that the husband ("H") and wife ("W") had divorced in 2010 and a final financial remedy order was made in the same year. In 2015, W succeeded in setting that order aside because of the husband's ("H") fraudulent non-disclosure of two trusts of which H was principal beneficiary.  Final judgment was handed down on her financial remedy application by Moylan J in November 2016.

In 2017, W discovered that H had failed to make full disclosure again and made a second set aside application. In October 2015, an offer for H's company would have resulted in him receiving £65million. At the re-hearing in June 2016, H told the judge the offer was unrealistic and had been withdrawn. The judge accepted the joint valuers' figure of £16.14million. In fact, there had been further non-specific discussions with the buyer ("X"), both before and after the re-hearing, culminating on 22 November 2016 in a specific proposal being made on behalf of H and with his knowledge, at a higher price than previously. X did not reject it but sought clarification.

Mr Justice Holman found there had been fraudulent non-disclosure. He found that H knew his duty of full and frank disclosure, to W and to the court, continued until the final order was sealed in December 2016 and he should have disclosed the discussions and proposal. By the time of the judgment at least, H's evidence was no longer true. There was a real prospect that W would have received a significantly different award and it was impossible to say that the judge would simply have considered the non-disclosed assets in isolation.  Consequently, the order was set aside and a second re-rehearing ordered.

In conclusion, Holman J took the opportunity to repeat (a statement which had previously been endorsed on three of his directions orders made earlier in the proceedings) that he "[urged] the parties to enter into serious negotiations and find an early basis for settlement so that the vortex of profligate spending and mutual destruction finally ends".

JK v MK [2020] EWFC 2 (Mr Justice Mostyn) 20 January 2020

This case concerned the legality of "amicable", a company ('E-negotiation Ltd') assisting couples to navigate their divorce and financial matters through to final orders by:

• helping them to complete forms;

• negotiate financial matters; and

• draft consent orders.

Importantly, amicable do not go on the court record, do not represent their clients and do not conduct litigation on their behalf. 

JK and MK, after a two year childless marriage, wanted to divorce uncontentiously. They had no capital assets. Each was earning. They wanted a simple clean-break financial remedy order.  Jointly, they approached amicable. 

amicable helped to prepare a divorce petition which was filed at the East Midlands Regional Divorce Centre and later prepared the application for decree nisi and statement in support.  Decree nisi was pronounced in December 2018.  amicable also drafted or helped prepare a simple consent order using the standard order precedents, a Form A for dismissal purposes only , a Form D81 and a joint statement regarding legal responsibilities and disclosure of assets which was signed by both JK and MK.  All of these documents were sent to the court under cover of letter dated 12 March 2019 written on amicable's headed notepaper but signed by JK. The letter stated that the fee for the consent order of £50 should be paid from the account with the Ministry of Justice in the name of amicable.

JK and MK were charged £300 by amicable for the divorce and £300 for the financial consent order.

The role of amicable was noticed by the court. A concern was raised that amicable was placed in a position of conflict of interest in acting for both parties. A further concern was later raised that amicable was doing things that were forbidden to non-lawyers under the terms of the Legal Services Act 2007. The case eventually came before Mr Justice Mostyn with both the Queen's Proctor and amicable being given permission to intervene.

Dealing firstly with the financial consent order, Mostyn J approved it and gave permission for the decree nisi to be made absolute. 

Looking at amicable's business model and the witness statements from both the company's founder and the SRA investigator, he noted that amicable was not regulated by statute or voluntarily, which gave rise to policy questions outside the judgment's remit.

However, he did make:

• a declaration that no conflict of interest arose in amicable assisting both parties under its business model. The joint instruction of a solicitor arose frequently, Mostyn J said. He considered that a fiduciary relationship, similar to solicitor-client relationships, arose between amicable and its clients. Amicable would also decline to act when circumstances become apparent which could cause a conflict of interest (for example, domestic abuse or lack of financial disclosure).

• declarations that amicable's activities did not constitute a "reserved legal activity" (s.12 Legal Services Act 2007) and so were not unlawful (section 14 LSA 2007). He found that amicable did not conduct "litigation" (paragraph 4 Schedule 2 LSA 2007), that legal advice from a non-lawyer was not prohibited (Agassi v HM Inspector of Taxes [2005] EWCA Civ 1507) and nor was any activity that took place prior to the issue of proceedings, which involved no contact with the court (Heron Bros Ltd v Central Bedfordshire Council [2015] EWHC 1009). He noted how an accountant helping to draft aspects of a Form E did not breach paragraph 4 and found that amicable helping clients to draft a petition also did not breach paragraph 4. He considered the covering letter sending documents to court should not have been on amicable's notepaper, but that the court fee could be taken through amicable's account.

On "reserved instrument activities" (paragraph 5 LSA 2007), Mostyn J said that it was "obvious from the use of language that the draftsman is speaking of legal documents which create, settle, transfer or otherwise dispose of a legal or beneficial interest either in realty or personalty".  He noted the only use of "instrument" in the divorce context involved security for payments and property adjustment orders and that the "drafts which amicable have helped come into existence are not within its scope." If he was wrong about this, Mostyn J said it was his "clear view" that an unqualified person would not have "prepared a document for use in legal proceedings" unless she or he had been a "major contributor to its drafting" and had "filed the document with the court". amicable's business model was that it filed nothing with the court itself and all filing was done by its clients. 

Highlighting that the declarations made in this case applied only to amicable, Mostyn J did go as far to say that other online divorce facilitators could rely on them provided that their business models were "virtually indistinguishable" from amicable. 

Finally, Mostyn J suggested that the Family Procedure Rules Committee might wish to amend the rules to clarify that a petitioner's business address in the petition could be someone's other than their own.

Solomon v McCarthy [2020] 1 WLUK 130 (HHJ Matthews) 21 January 2020

This was a civil case in the county court between former cohabitants, proceeding under the Trusts of Land and Appointment of Trustees Act 1996 ("TOLATA").  It related to two properties, both purchased from the council under the right-to-buy scheme and both held in the Claimant's ("C") sole name.  The first, 'Ridgeway' had been the parties' family home and was still the Defendant's ("D") home while the second ('Morden') was let to tenants. C sought a declaration that she held both on trust for herself and D in equal shares and an order for sale.  D admitted equal beneficial ownership of Ridgeway but claimed money was due to him for work done to the house under equitable accounting and, as to Morden, sought a declaration that C held it on trust for his three children (two of whom were also hers) or D.  He disputed that either property should be sold.

In relation to Ridgeway, the judgment includes a useful discussion of the law relating to equitable accounting.  In this case, HHJ Matthews concluded that there was insufficient evidence of D's alleged expenditure on the property or resultant increase in value to justify departure from the 50/50 beneficial ownership provided for in a trust deed.  Further, C's request for an order for sale was granted because the reason for the trust (to provide a home for the parties and their children) had been fulfilled.  If achievable, D could purchase C's share within a short time at the open market price for vacant possession.

As for Morden, HHJ Matthews found that D had paid for it (through his right-to-buy discount, cash, loans and payment of the mortgage) and therefore it was in C's name nominally only.  D had argued that the property had been transferred by him to C to be held on trust for the children.  However, even if correct, such trust was not in writing.  The court held that, if in such circumstances the trust was declared only orally so that it did not satisfy the required formalities set out in s.53(1)(b) Law of Property Act 1925, the trust could not be enforced and the property was held on a resulting trust for D as transferor. No order for sale was made because D objected to it.

It was clarified that the facts of this case could be distinguished from the decision in Stack v Dowden [2007] UKHL 17 because it involved a transfer of an investment property by one cohabitant into the sole name of the other, with the intention that it should be held for the benefit of the transferor's three sons.

AA v Persons Unknown [2019] EWHC 3556 (Comm) (Mr Justice Bryan) 17 January 2020

In proceedings involving injunctive relief following computer hacking and payment of a ransom in Bitcoin, Mr Justice Bryan granted proprietary injunctions against the defendants holding that a crypto asset such as Bitcoin was a form of property capable of being the subject of a proprietary injunction.  He accepted the analysis in the UK Jurisdictional Taskforce (UKJT) legal statement on crypto assets and smart contracts (November 2019)).

The law regarding cryptocurrencies is still developing and this decision is important as it is a judicial finding that cryptocurrencies are property.

Behbehani v Behbehani [2019] EWCA Civ 2301  (Lord Justice Baker, Lord Justice Longmore and Lord Justice Moylan) 20 December 2019)

The husband ("H") had been ordered to pay £20million over 10 years to the wife ("W") back in 2008 (plus periodical payments, costs and interest on late payment) but had failed to pay anything at all.  A without notice order had been made appointing receivers of shares in a Spanish company, of which H had been found to be the beneficial owner. This receivership order was set aside following an application by other parties, and W now appealed against the set-aside order.

The Court of Appeal held that in financial remedy proceedings, if the transfer of an asset is sought and it is asserted that the asset belongs to a third party, it is usually appropriate to join the third party for ownership to be determined.  However, where the claimant seeks another form of relief (such as a lump sum) based on the value of the respondent's wealth, which is disputed on the basis that assets attributed to the respondent belong to a third party, it is disproportionate to join the third party. There may be cases where joinder is appropriate, but it should not be the rule.

In enforcement proceedings, where a claimant seeks to enforce a lump sum award against assets held by a third party, which the claimant asserts are beneficially owned by their spouse, the third party should be joined. A third party can assert their alleged rights when they become directly affected by an application to enforce an order against assets they claim are theirs. 

In this case, not joining the third parties in 2008 did not prevent W from enforcing the judgment against assets, which the judge found were beneficially owned by H (though the legal title was vested in the third parties). However, the court should not have set aside the receivership order on the third parties' assertion that they owned the assets. Until it was established that H was not the beneficial owner, the court was obliged to assist W to enforce the order, provided the rights of the third parties not bound by the order were respected.

To be respected, those rights had to be established. A third party could not expect the court's protection if they were not prepared for their rights to be scrutinised. Consequently, the receivership order was restored.  The third party could apply to set it aside by submitting to the jurisdiction and establishing their beneficial interests to the court's satisfaction.