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Finance and Divorce December Update

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








Anna Heenan and David Salter both of Mills & Reeve LLP As usual, this update is divided into two parts:

1. News in brief
2. Case law update

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.

Prest to be heard by the Supreme Court
The wife has been granted permission to appeal to the Supreme Court in respect of the Court of Appeal decision in Petrodel Resources Ltd & Ors v Prest & Ors [2012] EWCA Civ 1395.

Website launched for couples in Europe
The Notaries of Europe, supported by the European Commission, have launched a website giving EU citizens access to information about the law relating to matrimonial property regimes and the property consequences of registered partnerships in all EU countries.

For full story, click here.

Worrying impact of divorce on women's retirement

A survey of divorced women carried out by Scottish Widows reveals that in just 15% of cases were pensions discussed as part of their settlement.

For the full story, click here.

Saudi woman entitled to retain affluent lifestyle
The Telegraph reports on a decision of Baron J in which the wife was awarded a lump sum of £4 million plus periodical payments of £150,000 p.a. for life. The wife is reported to suffer from mental health problems and not to have an earning capacity.

For the full story, click here.

Foreign holiday homes become 'millstones' for divorcing couples
The Telegraph reports that tumbling property values mean that couples are increasingly trying to ensure that their spouse keeps a foreign holiday home in financial settlements on divorce.

For the full story, click here.

Cohabiting couples on the increase
The "Families and households, 2012" statistic bulletin from the ONS reports that "[t]he number of opposite sex cohabiting couple families has increased significantly, from 1.5 million in 1996 to 2.9 million in 2012."

The bulletin also gives an overview of the makeup of families as a whole.

For more information, click here.

Are "needs" relevant in big money cases?
The Telegraph reports on statements made by Thorpe LJ in this case of Davies v Davies (not yet reported). Not only does Thorpe LJ suggest that needs are not relevant to "big money" cases, but he is also reported to have commented that the days of wives receiving multi-million pound divorce payouts to keep them in a style to which they have become accustomed are over.

For more information, click here.

Reduced rates to be used for pension forecasts
The Guardian reports that firms will be required to reduce the projection rates used to illustrate what people might gain from their pension on retirement. The current standard rates are 5%, 7% and 9%. The FSA has said that these rates will be reduced to 2%, 5% and 8% to ensure that customers are not given misleading or exaggerated information.

For the full story, click here.

Celebrities more likely to divorce than other married couples
A report produced by the Marriage Foundation, an organisation founded by Sir Paul Coleridge which aims to be a national champion for marriage, suggests that celebrities are twice as likely to divorce as the rest of the married UK population.

For the full story, click here.

Economic upturn to result in more divorces?
The Telegraph reports that some family lawyers are predicting an increase in divorce cases following the end of the recession.

The report also notes that: "Official figures show that a general downward trend in divorces continued for the first two years of the downturn but then rose by five per cent in 2010 to 119,589."

For the full story, click here.

Case law update
This section of the update deals with cases dealing with whether a non-marriage can found a Matrimonial and Family Proceedings Act 1984 claim, the effect of bankruptcy on payments to a former spouse and assessment of costs.

Sharbatly v Shagroon [2012] EWCA Civ 1507 (Ch) (Thorpe and Black LJ and Hedley J) 21 November 2012
The husband and wife were both Saudi nationals.  In 1994, although the husband was already married, he and the wife went through, what purported to be, a valid Islamic marriage ceremony in a London hotel.  No attempt was made to comply with the Marriage Acts 1949 to 1986 and there was no attempt to supplement the ceremony with a civil ceremony that complied with English law.

In 2001, the wife petitioned for divorce (and subsequently amended this to a nullity petition). The parties eventually reached a financial settlement.  As security for the performance of that settlement, it was agreed that, once the husband had obtained a talaq divorce in Saudi Arabia, the wife could apply under for financial provision after foreign divorce under the Matrimonial and Family Proceedings Act 1984 Act, Part III (the 1984 Act).  Her application would be adjourned generally and not activated unless the husband fell into substantial breach. 

The wife sought to activate her Part III claim.  The issue was whether she was able to do this. Counsel for the husband argued that there was never a marriage sufficient to satisfy the provisions of Section 12 of the 1984 Act.  He argued this was effectively a "non-marriage".  Counsel for the wife argued that all the wife had to prove was that the divorce was entitled to recognition in this jurisdiction. 

In this case the marriage had been dissolved according to Saudi law.  The Court of Appeal held that, unless counsel for the wife could convince them that the decision of Holman J in Asma Dukali v Mohamed Lamrani [2012] EWHC 1748 (Fam) was wrong, then the husband's appeal would have to succeed.  Thorpe J expressed agreement with the reasoning of Holman J at paragraphs 42 – 46 of his decision in that case:

"33. I am in complete agreement with this reasoning. The 1984 Act cannot be divorced from the 1973 Act, consolidating the provisions of the Matrimonial Proceedings and Property Act 1970 which had introduced the sweeping reforms that enabled applicants to seek the equitable redistribution of family assets in the discretion of the judge. Experience of the operation of the reforms had shown that in some instances that right of application was lost in consequence of the intervention of a foreign divorce entitled to recognition under our liberal regime.

34. Justice required that spouses in that position should not be deprived of their right to apply. But fundamental to that right is the existence of a marriage recognised as valid or void by the lex loci celebrationis.

35. It would be fanciful, and clearly contrary to policy, to suggest that a person without that foundation could acquire a right of application by virtue of the pronouncement of a talaq divorce in some other jurisdiction".

McRoberts v McRoberts [2012] EWHC 2966 (Ch) (Hildyard J) 1 November 2012
This case concerned the effect of the husband's bankruptcy on his liability to make a lump sum payment by instalments to the wife.

The parties had resolved their respective claims for ancillary relief (as they then were) in a consent order dated 1 April 2003 (the "2003 Order"). The 2003 Order provided for the husband to pay to the wife a lump sum by instalments of £450,000. Interest was payable on late payments and the 2003 Order provided that if the husband failed to pay any instalment within 14 days of the date on which it was due then the whole sum became payable.

The husband did not keep up the instalments and he was declared bankrupt in September 2006. The wife entered a proof of debt in the sum of £244,966 (the amount of the outstanding lump sum and interest). As there was a large shortfall on the husband's bankruptcy, no distributions could be made to unsecured creditors and the wife received nothing. The husband was discharged from bankruptcy in September 2007. The amount outstanding to the wife by the time of this hearing was approximately £350,000.

The husband sought to be released from this debt to the wife.

The law
The husband's discharge from bankruptcy meant that he was released from all bankruptcy debts provable in his bankruptcy except as provided by s 281(5) of the Insolvency Act 1986 ("IA"). "Bankruptcy debts" are defined in IA s 382 as including any debt or liability to which the bankrupt is subject at the commencement of the bankruptcy. S 281(5) provides:

"Discharge does not, except to such extent and on such conditions as the court may direct, release the bankrupt from any bankruptcy debt which….

(b) arises under any order made in family proceedings or under a maintenance calculation made under the Child Support Act 1991."

The 2003 Order was made in relevant "family proceedings".

Hildyard J held that the court had a discretionary jurisdiction to release the husband from the debt entirely or conditionally and on such conditions as it may direct. The judge commented that no express limitations were placed on the ambit of the court's discretion. The only authority which addressed the issue was Hayes v Hayes [2012] EWHC 1240 (Ch). In that case, Judge Pelling QC held that the discretion conferred on the court was unfettered and he identified various circumstances that would be relevant to the exercise of that discretion.  These included:

"(1) any lapse of time between the date when the discharge occurred and the date of any application for release, and the reasons for any delay;

(2) the future earning capacity of the applicant, the possibility of some future income or capital receipt or windfall, the prospect accordingly of the obligation being fulfilled in whole or in part if not released, and in the round whether there is any good reason for maintaining the obligation;

(3) the risk of the respondent to the application using the fact of the obligation (if not released) to harass the applicant, for example by seeking to diminish the applicant in the eyes of the community, or his future prospects, by reference to the stigma still relating to bankruptcy, or by bringing new and abusive bankruptcy proceedings calculated to restrict the applicant in building a new life;

(4) the duration of time that has elapsed since the relevant obligation arose."

Hildyard J concluded that these were all factors to be taken into account although "I doubt that the last will often weigh materially in the balance." He continued,

"As it seems to me, the ultimate balance to be struck is between (a) the prejudice to the respondent/obligee in releasing the obligation if otherwise there would or might be some prospect of any part of the obligation being met and (b) the potential prejudice to the applicant's realistic chance of building a viable financial future for himself and those dependent upon him if the obligation remains in place.

25. In striking that balance I consider that the burden is on the applicant; unless satisfied that the balance of prejudice favours its release the obligation should remain in place: that follows from the fact that continuance is the default option, and from the rationale of excluding such obligations from automatic discharge.  As Judge Pelling QC put it (in paragraph 15 of his Judgment):

'The policy behind this approach is not one which is necessary for me to comment upon but probably stems from the desirability of ensuring that family liabilities are not avoided by a bankruptcy.'

26. I would add this, since it is of relevance in this particular case: it seems to me that the purposes for which the discretion is conferred do not include review of the merits or overall fairness of the underlying obligation. In my view, the purpose of the discretion is to enable the Court, in order better to achieve the objectives of discharging a bankrupt, to release an obligation if persuaded that the likelihood of its being satisfied is not such that its continuance is likely to have be of any benefit to the obligee, and that, conversely, its release is necessary in order to assist the obligor in building a viable financial future.

27. Further, as it seems to me, in the case of an obligation imposed in matrimonial proceedings, that is so, even if circumstances have changed such as might suggest that the obligation might fairly be reviewed or modified.  In my view, any such review or modification of the underlying obligation should be reserved to the matrimonial courts in the exercise of its jurisdiction to do so (if any) conferred by the Matrimonial Causes Acts; and if review or modification is not within their jurisdiction under those Acts, I do not consider that section 281(5) of the IA was intended or should be deployed to supply some additional basis of review."

The parties' positions

Counsel for the husband argued that:

1. The payment of a lump sum by instalment was by way of maintenance;

2. Therefore, the order was capable of variation under the matrimonial jurisdiction and this court should be able to review, release or modify it in the same way; and

3. Leave of the court is required to enforce arrears of maintenance that are more than 12 months old.

These arguments were rejected:

"32. I do not accept this submission.  That is not so much because this court lacks analogous experience (though I myself consider that the matrimonial courts would be better equipped to review their own orders).  It is because (a) I am not persuaded that the relevant obligation should be re-characterised as in substance an order for maintenance payments (b) I am not persuaded it would be open to review in matrimonial proceedings and (c) in any event, I do not consider that the discretion conferred by section 381(5) of the IA was intended to extend to such a review.

33. As to (a),  Counsel for the [wife] pointed out first that section 23(2)(c) of the Matrimonial Causes Act 1973 expressly provides for payment of a lump sum by instalment without any suggestion that provision for instalment payments alters the essential character of the obligation (being for payment of a lump sum). Secondly, he drew my attention to the specific provision in the 2003 Order (to which I have already referred in paragraphs 3 to 5 above) which provides for the whole of any lump sum then outstanding to become payable forthwith upon failure to pay any instalment: so that the provision is, given multiple defaults, now plainly a provision for payment of a lump sum without any instalment option.

34. As to (b), Counsel for the [wife] submitted that a lump sum was not susceptible of review under the Matrimonial Causes Acts: section 31 of the 1973 Act has no application.  That seems to me to be right: and I am not satisfied that the matrimonial courts could or would be likely to review this settled obligation.

35. Counsel for the [wife] also submitted that in any event it would be most unfair to review and vary the lump sum order since it was a quid pro quo for the transfer to the Applicant of the (then apparently valuable) shares in Combi (UK) Ltd and would render the overall deal unfair. There seems to me some force in this, though without further detail as to the circumstances of the 2003 Order I do not feel able to reach a concluded view on that, and it does not seem to me to be either necessary or appropriate that I should attempt to do so.

36. As to (c), and even if the matrimonial courts could review and vary such an obligation, I do not consider that such a review would be within the scope of my discretion, for the reasons I have sought to provide in paragraph 26 above."

Counsel for the husband also argued that if the obligation was discharged it would not prejudice the wife as, if the husband were to receive significant income or capital in the future, the matrimonial courts would still have jurisdiction to make orders for financial provision as the clean break orders in the 2003 Order were subject to conditions that had never been satisfied. Hildyard J accepted the argument of counsel for the wife that the matrimonial courts would be looking purely at the wife's needs and not by reference to shared property in the matrimonial assets (which would be treated as satisfied by the 2003 Order). In any event, Hildyard J felt that the possibility of future orders by the matrimonial courts did not justify releasing the husband from this obligation.

The ultimate balance to be struck was "whether there is so little prospect of the outstanding lump sum being paid, even in part, that its release would not substantively prejudice the [wife] but would materially advantage the [husband] in a realistic effort to build a viable financial future for himself and his dependents."

It was noted that the husband's business ventures had been closed down or terminated (amongst allegations of bribery or corruption, which the husband denied). It was also held that none of the husband's other sources of income or assets were presently accessible. However, the husband's self-assessment tax return indicated that, even when he was employed and receiving little salary, the husband was receiving over £100,000 a year for expenses, travel and subsistence. Additionally, the husband's passport stamps showed destinations such as the Maldives, which did not appear to be countries in which he had been doing business. This suggested that the husband had not been entirely transparent and that "since these fairly substantial sums were being provided to him whilst the obligation to pay subsisted, that if (as he maintains he will) he demonstrates the allegations against him to be false he may well be able to generate funds or means of support in the future which may be enough both for his and his family needs and also to begin to enable him to reduce the lump sum outstanding."

The husband had not provided any evidence of a future business opportunity that he had in mind which would be blighted by the obligation nor any special reason why the obligation would restrict him moving forward:

"The reality is that the [husband's] case came down to this: that under present circumstances, his own needs and those of his own family are greater than the needs of the [wife] (who is earning a reasonable amount) and that the "fair outcome" would be release of the debt.  That would simply be to treat section 281(5) as an adjunct or addition to the jurisdiction of the matrimonial courts. For the reasons I have already given I do not think that is what was intended nor do I consider it appropriate."

In the circumstances, Hildyard J felt it inappropriate to exercise the discretion. Whilst unfettered, the discretion must be exercised for the purposes for which it is conferred and that purpose was not "to review and vary an obligation according to what, as between the parties, a matrimonial court would now think to be appropriate… The question is not whether the obligation would now be justified if it could be satisfied; it is whether, accepting that its imposition was justified, there is any real prospect of it being satisfied now or in the future and whether its release is necessary to enable or at least substantially assist the discharged bankrupt to re-establish himself."

Turning to the factors outlined by Judge Pelling QC, Hildyard J concluded that:

1. The fact that the husband was released from bankruptcy some 7 years before did not weigh substantially either way. On the one hand, the continuing obligation might suggest that the continuing obligation had not resulted in identified special prejudice. On the other, it might suggest there was a lesser prospect of him being able to generate funds in the future given his apparent failure to do so in the interim;

2. The fact that the 2003 Order had been made some time ago was not material. The wife's restraint should not be held against her.

3. Whilst there might be a risk of the wife using the obligation to harass the husband, the evidence did not suggest this was likely. Further, if the wife did act in this way then there were controls to prevent her seeking bankruptcy for improper and oppressive purposes.

S v S [2012] EWHC 2960 (Fam) (Mostyn J) 25 January 2012
This was the wife's application for permission to appeal the decision of D.J. Malik and includes Mostyn J's views on how to deal with an assessment of costs.

The husband and wife began cohabiting in 1982 and married in 2007. They separated in April 2008 and, because they had been married for only four months, the wife applied for judicial separation.  The husband was a property developer and the wife did not work.

The wife's twelve grounds of appeal were distilled into two points:

1. That the judge had erred in the exercise of his discretion in failing to order the transfer of the former matrimonial home to the wife; and

2. That the judge had failed properly to reflect the husband's litigation misconduct in the costs award: he should have awarded her £170,000 and not £100,000.

Permission was not granted on either ground. Mostyn J noted that under FPR 2010, rule 30.3(7) permission to appeal may only be given where the court considers that the appeal would have a real prospect of success or there is some other compelling reason why the appeal should be heard.

The transfer of the former matrimonial home
Both parties wanted to retain the former matrimonial home. The husband's reasons were that he had lived in the area throughout his life and had personally pushed to buy the property. Additionally, the property could house the building materials for his business. The wife wanted to retain the property and undertake some small building works. D.J. Malik held that "I do not think this is a realistic option on [the wife's] part. It seems to me that the husband is in a better position to retain [the former matrimonial home] and to develop any future business using that as a base and springboard."

It was held that this decision was "squarely within the district judge's legitimate discretion" and therefore permission to appeal was denied.

The costs award
The parties' combined costs were £490,000, which amounted to almost 20% of their total assets. The wife accused the husband of litigation misconduct, and sought an add-back of £406,000 to the husband. The husband said that the wife had pursued him with "obsessive zeal". Both allegations were upheld to some extent. The judge found £68,800 of the wife's add-back claim to be proved.

The findings at first instance were as follows:

- the total assets (excluding unpaid costs and the add-back) were £2,326,299;

- the wife should receive 55% of the net assets;

- half of the add-back of £68,800 should be deducted from the husband's award and added that sum to the wife's award;

- this meant the wife received a total of £1,317,304 (56.6% of the total assets);

- the wife should also receive £100,000 towards her costs on account of the husband's litigation misconduct;

- this meant that, once the wife had paid her outstanding costs of £263,163, she was left with a net sum of £1,154,141.

Mostyn J cited the editorial note at page 81 of the 2011/12 edition of At A Glance, suggesting that taking unpaid costs off the top is the starting point for such cases and remarked that the judge's approach was "unconventional" as he had not done this. Mostyn J considered what the position would have been if the judge had proceeded in the conventional way:

- Adding the add-back to the total assets gave a figure of £2,395,099 (£2,326,299 + £68,800)

- Deducting the parties' unpaid costs of £297,478 reduced the total to £2,097,621

- A 55% division in the wife's favour would give her £1,153,692 (only £450 more than the net figure the wife received)

However, Mostyn J did not agree that this meant the decision at first instance failed properly to reflect the husband's litigation misconduct. Mostyn J referred to the case of RH v RH [2008] 2 FLR 2142 in which Singer J had dealt with a situation where there had been a significant disparity in the parties' costs, which he did not consider to be justified. In that case, Singer J had notionally increased the husband's assets by the amount that his costs exceeded the wife's costs to ensure that the wife was not saddled with a half share of his excessive costs.

In this case, 75% of the total costs (£365,564) had been incurred by the wife and 25% (£124,472) by the husband. The effect of a 55:45 split of the assets meant that the total costs liability was also split 55:45, thus:

- The wife paid 55% of each party's costs (and so effectively paid £68,460 towards the husband's costs);

- The husband paid 45% of each party's costs (and so effectively paid £164,504 towards the wife's costs);

- Thus, the husband was making a net payment of £96,044 towards the wife's costs (£164,504 - £68,460).

Mostyn J concluded:

"24. I would suggest, deferentially, that where there is a striking disparity in the costs, as here, an alternative to Singer J's technique is to calculate, as I have done, the true net payment by one party to the other in respect of costs.  Once that has been done then it requires only a monetary or liquidated adjustment in the opposite direction to split the costs in the proportion of the main division rather than leaving them as they are.  So if the judge here had wished that the costs burden should fall 55%/45% he should have adjusted his final figures by a payment of £96,044 from the wife to the husband to achieve that.

25. Although the district judge did not perhaps appreciate the effect of his order it was, as I have explained, to require the husband to make a net payment of £96,044, together with the £450 to which I have earlier referred, towards the wife's costs, a total of £96,494.

26. I cannot judge that contribution to be unreasonable on the district judge's findings.  Had I been sitting at first instance I may have taken a different view.  Under FPR 2010 r28.3 the starting point is no order as to costs.  Where the combination of a disparity of costs and the division already means or effects a significant net costs shift between the parties I have to suggest that the conduct referred to in that rule would have to be very poor indeed to warrant any further adjustment."

One aspect of the first instance decision which did cause Mostyn J was some concern was the fact that only the sharing principle was applied and nothing was said about need. However, he concluded that this did not undermine the judgment because:

"(a) The wife never advanced a case on need.  Her Form E failed to include any information at all in box 3.2 (capital need).  Box 3.1 merely stated an income need of £3,025 per month.

(b) The wife's two section 25 affidavits did not advance any case of need.

(c) There was no evidence adduced at the trial about need.  There were no budgets or estate agent's particulars supplied nor was there any oral evidence on the subject.  The wife's only needs case was that [the former matrimonial home] should be transferred to her.  She could live in the bungalow and receive the rental income of £2,400 per month.

(d) In the notice of appeal needs are but faintly advanced within ground 6 and the complaint is in truth confined to the issue of the transfer of [the former matrimonial home]."