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Finance and Divorce September Update

Anna Heenan, solicitor and David Salter, Joint Head of Family Law at Mills & Reeve LLP analyse July’s financial remedies and divorce news and cases.

Anna Heenan and David Salter both of Mills & Reeve LLP

This update covers developments in financial remedies and divorce during August 2012 and is divided into 2 sections:
• News in Brief
• Case Law Update (Commentary on Financial Remedies and Divorce cases)

News in brief
This section of the update highlights some of the news items that will be of particular interest to practitioners who advise on divorce and financial remedy cases.

Law Society publishes guidance on money laundering for family lawyers
The Law Society warns of a perception that solicitors carrying out litigation work may be less vigilant on client due diligence and gives examples of schemes which may target such solicitors. One such scheme involves individuals who present themselves as foreign nationals and who ask for assistance in enforcing a collaborative law agreement.

For the full story, click here

Amendments to the FPR come into force on 30 September 2012
The Family Procedure (Amendment No.3) Rules 2012 will come into force on 30 September 2012. Rule 3 of these rules amends the definition of "RSC" and "CPR" in rule 2.3(1) FPR 2010 and adds a new rule 2.3(4) to make it clear that, when the FPR apply certain rules of the Rules of the Supreme Court and County Court Rules, they are applying those rules as they appeared at a fixed point in time, and not subject to any amendment or revocation effected after that time.

For more information, click here

US research suggests that poorer couples are priced out of divorce
Research by Ohio State University found that 15 % of separations did not lead to divorce or reconciliation within 10 years. Couples within this group tended to be racial and ethnic minorities, have low family income and education, and have young children.

Dimitry Tumin, co-author of the study and a doctoral student in sociology at Ohio State University, said that "Long-term separation seems to be the low-cost, do-it-yourself alternative to divorce for many disadvantaged couples." 
For more information, click here

Study suggests that Brits divorcing in Turkey struggle to understand the Turkish legal system
A Study by Queen Mary, University of London has found that many Britons who move to Turkey fail to understand local and international laws which leaves them at financial risk. For example, the Turkish legal system impacts on British citizens who have invested in Turkey and have a Turkish partner. One of the authors of the study, Dr Shah, explains that:

"If the pair divorce, where the British spouse provided some or all the purchase price, court action might not produce a result which favours them, meaning life savings can be lost."

For the fully story, click here

A transcript is available of a press conference launching Mr Justice Ryder's final report on the Modernisation of Family Justice released
For the full story, click here

Mr Justice Ryder's report for the modernisation of Family Justice has been published
The recommendations in the report are intended to change the culture of the family courts. 

The key points highlighted in the report include:

1. "The single Family Court will be the vehicle for a significant change of culture characterised by strong judicial leadership and management and evidence-based good practice".

2. "The immediate challenge is to develop effective methods of assisting self representing litigants in private law cases, while maintaining fairness to all parties"

3. "Self-representing litigants will need to be assisted to understand and comply with the procedures which are necessary to achieve fairness in financial remedy cases"

For a detailed summary and a link to the report, click here

New civil partnerships and civil partnership dissolutions rise in 2011
The Office for National Statistics has released a new statistical bulletin providing provisional statistics for 2011. The bulletin explains that the civil partnership formation statistics are taken from information recorded when civil partnerships are registered as part of civil registration, as required by law. The dissolution figures have been compiled from court records and include annulments.

The number of civil partnerships in 2011 was 6.4% higher than in 2010. The bulletin also contains an analysis of the ages of those entering into civil partnerships, the areas in which they were formed and the sex of those entering into civil partnerships.

The number of civil partnership dissolutions was 28.7% higher in 2011 than in 2010.

For more information, click here

Court of Appeal holds that Islamic culture is not a good reason for failing to make maintenance payments
The Telegraph reports that Dr Zaid al-Saffar failed to make maintenance payments of £60,000 to his ex-wife that he was ordered to make by the court at first instance. His wife obtained an order for payment of the arrears in a lump sum and for him to continue to make the monthly payments.

Dr Saffar appealed to the Court of Appeal claiming that he had stopped making the payments because his wife did not need the money following an inheritance. The Court of Appeal dismissed his appeal, finding that he was determined not to make the payment because he thought them "illegitimate or illegal according to Islamic culture."

For more information, click here

Case law update
This section of the update deals with cases involving post-separation growth and contributions, an application for committal and a judgment summons and beneficial ownership of properties.

R v R [2012] EWHC 2390 (Fam) (Macur J) 13 August 2012
The wife was 58 and the husband 61. The parties married in 1983 and had two adult children. The judge found the date of separation to be September 2010.

The wife was subject to an Individual Voluntary Arrangement (IVA). She had significant additional debts following the closure of her solicitor's practice. When the wife had been looking to obtain an IVA, the husband had instructed his solicitors to obstruct the IVA proposal and thereby cause delay and additional cost. The judge held that the wife's debts should be top-sliced before the assets were divided, which might reflect that the husband's conduct in increasing the costs of the IVA "comes at a price to him."

The wife had been in poor physical and mental health for the last few years and the judge considered it unlikely that she would generate a significant income in the future. The wife lived in the former matrimonial home (which was heavily mortgaged) and she was dependent on maintenance pending suit (MPS) and loans from her family. Her personal assets and pension were minimal.

The husband held 91.75% of the shares in Z Limited and drew a substantial salary from it. In financial year ending 2010, his average drawings were £24,000 before payment of MPS. His only financial debts were his outstanding director's loan account and his legal fees. He also had a modest pension.

The total assets were found to be around £7.675m net, which appears to have been primarily of the value of Z Limited.

Z Limited was held to be a matrimonial asset. The company manufactured and sold the same refreshments as the husband's great-grandfather had sold door-to-door at the start of the 20th century. However, the husband's great-grandfather's business had ceased to trade many years ago, the wife was an equal driving force in the early days of  Z Limited and the husband obtained the recipes after the parties were married. The judge found the wife's "early contributions to the family actually outmatched those of the husband." For example, she personally guaranteed bank loans for Z Limited, she undertook legal work for the company on a pro bono basis and ran the family home. The wife had also owned property when the parties married which could be traced to the former matrimonial home.

The husband argued that post-separation growth of Z Limited was attributable to his efforts. Macur J considered that it had done nothing more than achieve its latent potential accrued during the course of the marriage but that, in any event, the husband's post-separation efforts were more than matched by the wife's early contributions.

The judge found it was likely the husband would consider sale of his shares in the company in the short to medium term. She ordered that the former matrimonial home be transferred to the wife and that the husband should pay her a lump sum of £4m by instalments, secured by loan notes. The first payment of £1.25m was to be made within 28 days to satisfy the wife's IVA and her legal fees. A further £1.25m to redeem the mortgage on the former matrimonial homes was to be paid by 31 December 2013 or the sale of the husband's shares, whichever was the sooner. The final payment of £1.5m was to be made on the sooner of 31 December 2015 or the sale of the husband's shares. Until the final payment the husband was to make periodical payments to the wife. These were to be £12,000 per month until the first payment of £1.25m and thereafter £7,500 per month until further order, plus an amount equal to the mortgage interest repayments for the former matrimonial home until the mortgage was redeemed.

Winter v Winter [2010] EWHC 3825 (Fam) (Baron J) 30 June 2010
This case concerned:

1. An application for committal relating to the breach of an order of Mr Philip Moor QC (as he then was) sitting as a Deputy High Court Judge; and
2. An application for a judgment summons for the breach of an order made by DJ Walker.

The parties were Swedish. They married in 1992 and had three children. The terms of the financial settlement reached on divorce are not set out in the judgment. What is clear is that the husband had paid no child maintenance following the wife's return to Sweden with the children in 2008.

The husband made an application for a downward variation of the periodical payments due to the wife and children. DJ Walker made an order reducing the periodical payments to the wife to a nominal order and to £410 per month in respect of the children (it is not clear from the judgment what level of payments was being made prior to this). The husband paid nothing under this order. By January 2010 the total arrears under DJ Walker's judgment were around £26,000.

The wife obtained a number of worldwide freezing injunctions against the husband. In November 2009, a flat owned by the husband in Sweden was due to be or had been sold and the wife wished to secure some of the sale proceeds against the amounts due to her and the children under the order of DJ Walker. The freezing injunctions were not effective in Sweden. In the course of a hearing before Mr Philip Moor QC sitting as a High Court judge, the husband agreed to bring £32,000 of assets into the jurisdiction and pay them into his English bank account. This was incorporated into a consent order which also provided that the husband should supply details of his bank account to the wife's solicitors. The husband did not obey the order.

Baron J noted that the husband received around £108,000 from the sale proceeds of the flat, that he had chosen to repay various loans (including one to his current wife and new family) and that he had withdrawn substantial sums from his bank accounts against the background of knowing he had a liability to his children.

The husband was sentenced for contempt to one year's imprisonment, unless he fully complied with the terms of an offer he had put before the court. This offer included that the husband would pay a total of £32,000 into a joint account in four tranches. In the event that he failed to make any of those payments on the due date, the entire sum outstanding would fall due.

Baron J adjourned the application for a judgment summons. The husband had lodged an appeal of the order of Mr Philip Moor QC and Baron J also indicated that, insofar as the Court of Appeal sought to remit any of the alleged arrears, the case should come back to her to consider the precise sums upon which the sentence of imprisonment would then require to be suspended.

Re Ali [2012] EWHC 2302 (Admin) (Dobbs J) 18 July 2012
In this case Dobbs J considered the extent of third party beneficial interests in a number of properties.

Mr Ali had been convicted of money laundering in the period from 1997 to 2001. A confiscation order was made against him in the sum of £756,000 representing the assessed benefit. Mr Ali's realisable assets had been valued at slightly more than £756,000 and they included 5 properties owned in his sole name: Woodland Road, Lilycroft Road, Skipton Road, Stonehaven Court and Plover Street.

A restraint order had been made in February 2001. A management Receiver was appointed but discharged in the spring of 2006. Mr Ali did not pay towards the order so an enforcement Receiver was appointed in June 2010. Various third parties made claims over the properties:

- Mr Ali's wife asserted a 50% interest in Woodland Road, which was accepted by the liquidator. She also claimed a further interest by virtue of a payment of around £20,000 by her nephews towards mortgage arrears which had arisen whilst Mr Ali was in prison.

- Mr Ali's wife also claimed a 50% interest in Lilycroft Road. This property was shown in the accounts of Watan Travel, in which Mr Ali's wife was a partner.

- Mr Ali's brother and sister-in-law asserted a 100% interest in Skipton Road. Mr Ali's brother claimed that he had contributed half of the purchase price (giving him a 50% interest) and that he had later agreed with Mr Ali that he was entitled to 100%. Mr Ali's sister-in-law claimed she had an understanding with her husband that she had a 50% interest by virtue of work she had done to the property.

- Another of Mr Ali's brothers claimed a 100% interest in Stonehaven Court, a property which was registered in the joint name of that brother and Mr Ali. The brother said he would eventually pass his 100% interest to his son. Alternatively, the brother claimed that he and his son each had a 50% interest in the property on the basis of renovation work and bills paid during the son's residence in the property.

- a third brother claimed a 100% interest in Plover Street on the basis that he had paid for the property.

The Law
Dobbs J reviewed the evidence given by each of the claimants. She noted that the starting point in these cases is the legal ownership of each property and that it as for the party asserting that the beneficial interests are held other than in accordance with the legal title to prove their case (Stack v Dowden [2007] 2 AC 432). Dodds J further noted that Jones v Kernott [2012] 1 AC 776 had made clear that in "sole name" cases there were two further questions to be asked:

1. whether it was intended that the other party have any beneficial interest in the property at all; and
2. if he does, what that interest was.

In considering question 1, there would need to be evidence of an actual agreement, arrangement or understanding between the parties "based on evidence of express discussion between the partners, however imperfectly remembered and however imprecise their terms may have been" (Lloyds Bank v Rosset and Another [1991] AC 107, Lord Bridge of Harwich at 132 F G).

In considering question 2, the court may have regard to the whole course of dealings between the parties to ascertain their intentions or, if necessary, to impute them.

In so far as improvements to the property are concerned, carrying out work on the property of another without more does not provide the party carrying out the work with a beneficial interest save in exceptional circumstances (Morris v Morris [2008] EWCA Civ 257).

The claimants needed to show either a financial contribution to the purchase price of the property (demonstrating an interest under a resulting trust) or:

1. An agreement or understanding that they were to hold a beneficial interest;
2. Reliance upon that agreement; and
3. Detriment or change of position referable to that reliance (Grant v Edwards [1986] Ch 638).

Credibility of Witnesses
Dobbs J concluded that Mr Ali was an unreliable and "less than credible" witness. There were significant inconsistencies between his statements and evidence and also between his statements and evidence and the evidence and statements of others. The documentary evidence also undermined his case.

The other witnesses were also considered unreliable in the main. On occasions, they were internally inconsistent and inconsistent with the evidence of others. It was apparent the family had discussed the case before giving evidence, not least because many of them made the same errors. All of the claimants were in court listening to the rest of the family giving evidence and when one of them raised an issue never raised before by someone else, the same issue was then adopted by another witness. "The summary of the evidence cannot convey satisfactorily the overall impression of want of reliability and credibility on the part of most of those who gave evidence."

Conclusions about ownership of the properties
In relation to Woodland Road, there was no dispute that the mortgage arrears accrued when Mr Ali was in prison. The money paid by the third parties was an unsecured liability and it was apparent that the two nephews envisaged that the loan might never be repaid. The basis on which Mr Ali's wife sought an increased share of the beneficial interest was because she had suffered during her husband's imprisonment in looking after the house and children. There was no legal basis for an increased beneficial interest but as the Receiver had conceded the wife had a 50% interest in Woodlands Road, this was declared.

In relation to Lilycroft Road, it was clear that Mr Ali's wife had contributed almost nothing to the partnership and that she had no decision-making powers. Mr Ali's conduct and treatment of the property was consistent with it being his own until the confiscation proceedings in this case began.

In relation to Skipton Road, there was no evidence of a joint purchase with Mr Ali's brother. Mr Ali's whole conduct up to the time of the restraint order had been to treat the property as his own, despite the fact he was not living in it. This undermined any suggestion of common intention. In relation to the claim by Mr Ali's sister-in-law, no evidence had been produced in support of the alleged work carried out. These works supposedly totalled £100,000 and the value of these works, the fact they were carried out relatively recently (when the family was aware of the confiscation order) and that the court was still treating the property as Mr Ali's made this surprising. The issue was first raised, out of the blue, in cross-examination. Further, there were no conversations between Mr Ali's brother and sister-in-law that would give rise to her belief about an interest: it was premised on the fact that she was his wife. There was also no discussion with Mr Ali as to ownership. The works were carried out without his consent.

In relation to Stonehaven Court, no documents had been produced about the purchase and mortgage repayments and Mr Ali's brother gave inconsistent evidence about the amount he paid by way of deposit. He also gave conflicting evidence about when he paid the mortgage off and where the funds came from. There was also conflicting evidence about why Mr Ali featured on the title. As it was accepted at the confiscation proceedings that the brother had a 50% beneficial interest in the property, there was no need for a declaration now. In relation to the nephew's interest, there was little paperwork to back up the assertion of improvements made to the property. Any claim he might have lay against his father.

In relation to Plover Street, there was no satisfactory evidence why it should have been registered in Mr Ali's sole name. The claim had been made late in the day, the evidence as a whole was unsatisfactory and did not satisfy the burden on the applicant to shift the presumption.

Dobbs J also noted that Mr Ali's response to the restraint order was to accept ownership of all the properties, and in some cases joint ownership. He did not consult anyone in the family when responding to this order.