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When Patience Pays – Adjourning Claims for Financial Relief

Claire Reid, senior associate with Slater & Gordon examines the circumstances in which the court may adjourn a financial remedies claim.

Claire Reid, senior associate with Slater & Gordon  

The question of whether it might be appropriate to adjourn a party's claims for financial relief, or part of them, can arise in a number of situations following the breakdown of a marriage.

In recent years, when we have experienced significant fluctuations (usually a decrease) in the valuation of those assets which are commonly the subject of dispute following the breakdown of a marriage (usually the family home or the family business), the spouse whose interest in a particular asset is to be bought out will question whether they can delay the time when their share will be calculated and paid out until a point in the future when the economy will have improved and the asset value has increased.  They question the apparent fairness of them receiving a share of an asset whose value has been adversely affected by economic factors, and which will, in all likelihood, increase in the future in the other party's hands, after a financial settlement has been reached. 

Similarly, issues as to liquidity may limit the lump sum which a paying party is able to raise at the time a financial settlement comes to be determined.  Again, in such circumstances the recipient may challenge the fairness of them receiving a full and final settlement of their lump sum claims at that time when cash is limited.

Another situation in which one party may suggest that there should not be a final determination of their financial claims, is when the other party is likely to receive property or assets in the future, but where at the time of the financial remedy application, it is not possible to quantify the value of such assets, and /or to raise substantial sums for the benefit of the other party. 

In all of these scenarios, the starting point and preferred approach of the courts is that there should be a full and final settlement of all financial claims between the parties at the time of the original application. The rules and legislation applied by the courts endorse this approach. The overriding objective set out at rule 1.1 of the Family Procedure Rules 2010 provides, inter alia, that enabling the court to deal with cases justly includes:

"Ensuring that it is dealt with expeditiously"; and "allotting to it an appropriate share of the court's resources, while taking into account the need to allot resources to other cases".

This promotes adopting a "once and for all" approach to cases as much as possible.  In accordance with section 25A of the Matrimonial Causes Act 1973:

"It shall be the duty of the court to consider whether it would be appropriate so to exercise [its] powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable".

This specifically invites the court to consider the making of a clean break order, thereby terminating the financial claims which each party has against the other.

A fixed lump sum to be paid in the future 
As part of the exercise of their statutory discretion, and consideration of the checklist of factors set out in section 25 of the Matrimonial Causes Act 1973, the courts have the ability to consider potential financial resources. This therefore permits them to consider potential capital accretions. 

The courts have tried to ensure fairness in such circumstances, working within their statutory powers set out in section 23(1)(c) of the Matrimonial Causes Act 1973 which provides that:

"on granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation or at any time thereafter… the court may make….an order that either party to the marriage shall pay to the other such lump sum or sums as may be so specified"

One strategy which the courts have employed, in appropriate circumstances, is to make an order for the payment of a lump sum, but with the payment of such lump sum to be deferred until a date in the future.

In Priest v Priest, [1978] 1 FLR 189 the wife sought a share of a contingent gratuity which the husband might receive if he served for the Crown in the Royal Marines for long enough to qualify.  At first instance and on appeal, the court refused to take account of this future gratuity.  However, on further appeal it was held that an expectation of a gratuity payment was to be regarded for the purposes of s.25 of the Matrimonial Causes Act 1973 as a financial resource which the husband was likely to acquire in the future.  The court found that it was likely he would get that sum in 1983 (some four or five years' time) which was sufficiently proximate in time to be regarded as the "foreseeable future" for the purposes of a lump sum order.  However, the wife's application should result in an order with two parts.  Firstly, an order that the husband should pay her half of the cash now in his hands; second, that the husband should, if and when he received his gratuity from the Crown, pay one third of the figure of £5,229 to the wife if and when it was received.

More recently, in R v R (financial remedies: needs and practicalities) [2011] EWHC 3093 Coleridge J ordered a fixed deferred lump sum where it was anticipated that a deferred sum may become available in the future.  The parties had assets totaling approximately £4million net of debts, half of which was not accessible for some years, being tied up in two property development businesses in which the husband had a minority shareholding. The judge ordered the wife to receive a lump sum of £650,000 in the future, but applied an inflated rate of interest fixed at 5% p.a. until payment, at which point the wife's claims would be dismissed.

The judge's decision appears to have been influenced by his desire to avoid potentially complex arguments in the future to calculate the lump sum figure, especially where he was mindful that there would be arguments submitted by the husband as to post-separation endeavour, given the nature of the assets.  He stated:

"Having considered the various options to deal with this part of the case, I am in the end in broad agreement with Mr Chamberlayne's points about the very real desirability of fixing any sum to be paid to the wife now so as to avoid complex arguments about the value of the percentage in the future and future post-separation investment.  So this further amount should be achieved by reference not so much to a percentage share of the fund (because for reasons I have explained, the wife has had her strict sharing entitlement in the form of her share of the existing assets) but to a fixed sum designed to provide for a clean break at a proper level as soon as possible.  I think that is the practical proposition today and does not need to await the eventual payout to the husband and inevitably further expense, argument and litigation." [para 50]

Adjourning lump sum claims
On the face of the judgment, Coleridge J does not seem to have specifically considered an adjournment but there are some occasions when the courts recognise that there may be situations where it is not possible at that time to speculate as to the payment of a lump sum.  Instead, fairness dictates that it is appropriate to adjourn one party's claims for financial relief, or part of such claims, to be restored at a future date.

In Morris v Morris (1977) 7 Fam Law 244 the court was also considering the treatment of a future armed services gratuity.  The only prospect of capital arose from an army gratuity when the husband retired from the Forces.  The Court of Appeal adjourned the application for a lump sum with liberty to either party to restore, and rejected any order for a fraction of an unknown quantity of gratuity payable at some unforeseeable date in the future. 

That approach by the court was repeated in Davies v Davies, [1986] 1 FLR 497 where the wife was successful at first instance in obtaining a lump sum order on the basis that her husband's farming partnership was failing and likely to be dissolved.  As a result, the court decided that further capital would be released to enable a lump sum to be paid. On appeal, the wife's application was adjourned generally with liberty to the parties to restore, on the basis that an immediate lump sum order would force the farm out of business.  The court decided that failure of the business, whilst a real possibility, was not a certainty. The husband appealed the adjournment. He contended that the judge, having found that the application for an immediate lump sum was not sustainable, should have dismissed the application once and for all.

The Court of Appeal dismissed that appeal and found that whilst it was settled law that lump sum claims should usually be dealt with in their entirety, where there was a real possibility of capital becoming available in the near future from a specific source, as there was in this case, the court was able to order an adjournment, especially where it was the only means of doing justice between the parties.  It was preferable to achieve finality wherever possible; however justice meant that the judge was required to keep matters open in this situation. 

The court's concern was with the fact that there was no valid basis for an immediate order for a lump sum payment.  A distinction was made with the situation where a judge, anxious to preserve the wife's entitlement, might consider ordering an adjournment merely because the future might in some way or other throw up a possible fund of capital.  In this case there was a real possibility that the husband's partnership would be dissolved, realising a specific source of capital in the light of which to order a lump sum payment. 

The court may have felt otherwise limited in the options available to it, being unable to order a transfer of shares in the business to the wife because it was a partnership rather than a limited company  (see the case of AC v DC [2012] EWHC 2420 (Fam)).  In any event, the court is likely to have been loathe to involve the wife in a business possibly destined for failure.  Furthermore,the fact that by the time the appeal was heard the partnership had come to an end by the death of the other partner may have influenced the court of appeal's decision making.

Timescales for adjournments
So if there is a real possibility of capital becoming available in the future from a specific source, what is the maximum period for which the court is likely to consider it appropriate to grant an adjournment of claims?

The issue of a future armed services gratuity once again brought this matter to the fore in the case of Roberts v Roberts [1986] 1 WLR 437.  The husband was a serving soldier, due to receive a gratuity on his discharge from the army which would not be before 1988.  Decree nisi was pronounced in 1981.  An adjournment was not directly considered by the court at first instance, with the judge instead ordering the husband to make a lump sum payment out of the gratuity when received.  However, that order was rescinded on appeal.  The appeal court took the view that there was no capital out of which the lump sum could have been paid and the family assets had already been divided.  There was no evidence as to the gratuity's capital value nor of any present or future need of the wife for capital. 

As part of his judgment, Wood J expressed the undesirability of adjourning cases to an uncertain future and referring to Priest he indicated that:

"the longest period for which it would be appropriate to adjourn a case to enable a lump sum order to be made would be four or five years." (para 442)

He also relied upon the previous decision in Milne v Milne [1981] 2 FLR 286.  In that case, the period of time which was involved before the sum was to become due was ten years. The court took the view that the matter should not be adjourned beyond that period, expressly rejecting an application for a general adjournment with liberty to restore the application for a lump sum. Instead, the court could order a fixed deferred proportion to be paid on receipt.  The court in Roberts reflected on comments made by Purchas J in Milne where he observed that:

"the general concept of the Act of 1973 (is) that if possible, parties should know and come to some situation where they can look forward rather than back.  If an adjournment was granted neither of the parties would really know where they stood and that would not be advantageous to either.  If the court makes an order at this stage then the husband and wife can, against the contingent effect of the order, make appropriate arrangements, or at least, enjoy the expectation, so far as the wife is concerned, of good things to come."  (para 441)

Whilst these observations have been referred to in subsequent cases, they were obiter only.

In D v D (Financial Provision: Lump Sum Order) [2001] 1 FLR 633 the husband was a member of an executive incentive plan which had the potential of providing him with substantial but unspecified cash sums in April 2001 and again in 2002.  The judge found that the wife had an entitlement to a lump sum but that the exact quantum of that lump sum could not be ascertained at the time of the hearing.  As a result, the wife's financial provision application was adjourned generally with liberty to restore, to allow quantification of the sum due to the husband by the incentive scheme on the basis that to make a lump sum order at that time could do the husband an injustice, whilst to dismiss it before knowing what sum the husband would receive would do an injustice to the wife.  

The husband appealed against the adjournment of the wife's lump sum claim.  He contended that as a point of principle the judge was wrong to adjourn the lump sum application generally.  It was general policy that this should be a once and for all disposal.

The appeal was dismissed. The court considered that a court which decides to adjourn an application for a lump sum is in fact doing no more than exercising the discretion undoubtedly vested in it.  This step should only be taken in rare cases where there are circumstances in which justice to both parties can only be done if there is an adjournment.  One of those circumstances in an appropriate case is likely to be the real possibility of capital from a specific source becoming available in the near future.  This was the case here.

The Court of Appeal specified that the adjournment should be for a specified period; to a date not exceeding two months after the husband received his final entitlement, in order to allow for full quantification of the lump sum paid, rather than adjourning generally.

Events with no timescales
A not uncommon issue is the possible future resource of inheritance, when there is no fixed date by which the resource will come into existence.  In MT v MT (Financial Provision: Lump Sum) [1992] 1 FLR 362 the parties expected that the husband's father, who was 83 years old at the time of the proceedings and extremely wealthy, would leave him substantial capital upon his death.  By law the husband was entitled to inherit at least one eighth of his father's estate and could not be excluded from benefitting. The husband had no assets and accordingly the wife applied to adjourn her application until the death of her father-in-law.

It was agreed by both parties that in the circumstances it would be inappropriate to make any order for a lump sum which was quantified at the date of trial with payment deferred until the father's death. There was no way of quantifying the father's wealth at that time or the likely distribution of his estate upon his death.  Also, the parties' needs and circumstances may change in the future.  The choice was therefore between adjourning or dismissing the application for a lump sum.

The court held that it was required to have regard to the financial resources each party was likely to have in the foreseeable future as per section 25(2)(a) of the Matrimonial Causes Act 1973. In this case, justice demanded an adjournment of the wife's claim for a lump sum.

In allowing the wife's application for an adjournment, Braithwaite J explained his reasoning as follows:

1 There was a real possibility of capital from a specific source becoming available in the near future: The Husband had the certainty of a substantial inheritance which on any view was likely to become available within the next few years.

2 Adjourning was the only way to achieve justice in view of the "imponderable factors".

3 It was fair and reasonable to order the adjournment: The parties had always anticipated and lived for prospective capital. In a long marriage with no other capital the wife would be harshly done by if she did not eventually receive a share commensurate with her needs and the amount of capital available.

4 The attitude of the husband towards providing for the wife caused a serious concern as to the wife's financial future if she was not permitted to apply for a lump sum at a later date. The husband had even gone as far as to invite a lender to call in a loan which had the effect of rendering the wife and their child homeless. It was felt that periodical payments placed the wife in a precarious position as they could only be capitalised on the application of the husband, which he would never do since he objected to the wife having any capital.

5 The only possibility of a clean break, which would be appropriate in this case, was by an adjournment.

6 Refusing an adjournment would mean that the wife would permanently be without capital to buy even a property.

The illiquid family business
The case of AC v DC [2012] EWHC 2420 (Fam)  is a useful case for family lawyers as the judgment tackles a number of topical issues, including companies following the Supreme Court's decision in Prest v Petrodel Resources Ltd and others [2013]  UKSC 34 preserving assets; and pre-acquired assets.  

One part of the judgment considers whether the wife's lump sum claims should be adjourned.  The husband had an 84.6% shareholding in his company, DH Limited. A sale of the company was actively pursued and there was an offer from a buyer of £63.75million. It was considered that if the sale went through at a price of £63.75million, the husband's gross proceeds of sale would be £53.9million.

The husband's position was that the family home should be transferred to the wife and she should be paid a lump sum of £8million provided that the sale of the company completed. Completion of the sale would be a condition of the order of the court. If the sale did not proceed then there should be no lump sum and the wife's claim would be adjourned with liberty for her to restore. The husband recognised that such a fall-back position was "unsatisfactory" but considered that the prospect of the sale proceeding was sufficiently good to justify the wife's claims being heard now rather than in proceedings under the Inheritance (Provision for the Family & Dependents) Act 1975 should he die in the near future (he was in his 60s but in poor health)

The wife asserted that she was entitled to 50% of the marital acquest. She considered that she should be paid a lump sum by the husband equivalent to 50% of the net proceeds of sale of his shares in the company. In the alternative, if the sale fell through by 1st December 2012 or did not proceed to completion within three months of exchange, then 50% of his shares should be transferred absolutely to her. 

The court found that:

"the problem with the husband's position is that to adjourn [the wife's] application introduces uncertainty and risks further litigation, expense and delay. " [para 125]

In the court's judgment, the wife was, on the basis of the sale proceeding, entitled to an award of about 40% of the parties' net assets.

The court would not adjourn the application for a lump sum and the wife was awarded a proportion of the shares.  Having seen the wife give evidence, the court found it improbable that a transfer of shares by the husband to the wife would disrupt the running of the company.  It was in her interests to ensure that the company was sold for as much as possible. The court considered that if the company in the future sold for a figure less than the sum being offered at that time,

"The wife will receive the value of the shares transferred to her, no more and no less. That was the risk she takes.  There will be no top-up." [para 125]

What happens when the adjourned application is restored?
In G (Financial Provision: Liberty to Restore Application for Lump Sum), re K (formerly G) v G [2004] EWHC 88 (Fam) the wife restored her application for a lump sum.   The parties divorced in 1995, when the wife's claim for a lump sum was adjourned as the matrimonial home, which was occupied by her and the children at the time, was the only capital asset and the husband was expected to inherit on the death of his uncle. It was considered that a fair clean break settlement could not be reached until the inheritance had been received, at which point the wife could restore her claim for a lump sum.

Both parties subsequently remarried but the wife's second marriage failed. In 2001, the husband's uncle died and he inherited £2.1 million and each of the children received £855,000. The wife restored her application for a lump sum and the husband submitted that the application should be dismissed as the wife had remarried.  In the alternative, he submitted that the children's money should be used instead.

The court allowed the wife's application and applied the case of D v D (Financial Provision: Lump Sum Order) [2001] 1 FLR 633.  It considered that section 25 MCA 1973 was intended to achieve a fair result; lump sum claims could be adjourned where it was necessary to do justice. The court found that the wife was entitled to have the security of a home for her and the children and if the children owned a share of the house it could lead to a future conflict between the wife and the children. It was found that the wife's contribution to the children had not been reduced by her remarriage so her entitlement was unaffected.  The wife had made a major contribution to the first marriage. Accordingly, she was awarded a lump sum of £460,000.

It is apparent that the courts will be slow to adjourn an application for financial orders, or part of such an application.  Case law confirms that for the courts to grant an adjournment a specific event must be anticipated to occur in the near future.  The usual fluctuation in asset values or illiquidity of assets will not be enough to justify an adjournment.

That said, the "once and for all" principle cannot always achieve the right result and where, in the not so distant future, one party's financial position is expected to change, giving rise to the real possibility of them receiving further assets or property, the courts may bestow on the other the gift of patience, considering an adjournment to be appropriate.  Where an outright adjournment is not viewed by the courts as fair, they may instead prefer to order the payment of a deferred lump sum at the time when the additional assets or property are received.