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Finance & Divorce Update September 2014

Jessica Craigs, senior solicitor and Amy Starnes solicitor, both of Mills & Reeve LLP analyse the financial remedies and divorce news and cases published by Family Law Week in August

Jessica Craigs, Senior Solicitor, and Amy Starnes,both of Mills & Reeve LLP

This month's article provides an update of the News followed by a case law update summarising the latest developments which will be of interest to family lawyers.

News in brief
1,409 same-sex marriages between 29 March and 30 June 2014
The Office for National Statistics published the first same-sex marriage statistics showing that a total of 1,409 marriages were formed between same sex couples between 29 March 2014 (when the first same-sex marriages took place) and 30 June 2014. Of these, 56% of marriages (796 marriages) were to female couples while 44% (613 marriages).  were to male couples The early uptake of marriages of same sex couples is lower than the uptake of civil partnerships.  For the full statistics click here.

Transparency consultation paper issued by President of the Family Division
The President of the Family Division, Sir James Munby, has issued Transparency- the Next Steps, a consultation paper on the transparency agenda within the family justice reforms.  The President says that the underlying principles are:

• a need for greater transparency in order to improve public understanding of the court process and confidence in the court system; and

• the public has a legitimate interest in being able to read what is being done by the judges in its name.

The consultation document can be found here.

Consultation launched on strengthening the law on domestic abuse
The Home Office has launched a consultation which seeks views on whether the current law on domestic abuse needs to be strengthened to offer better protection to victims.  The consultation focuses on whether there should be a specific offence that captures patterns of coercive and controlling behaviour in intimate relationships, in line with the Government's non-statutory definition of domestic abuse.  Comments in response to the consultation should be sent by 15 October 2014.  The consultation document can be found here.

Relate welcomes announcement on free mediation sessions for separating couples
Relate has welcomed the announcement by the Ministry of Justice that more free mediation sessions will be funded by the Government.  The announcement of a single mediation session for both parties if one of them is already legally aided is the latest stage of reforms to improve the family justice system and follows recommendations made by the independent Mediation Task Force.  More information can be found here.

Legal aid cuts have left family courts 'at breaking point'
The Guardian reported that the family courts being at "breaking point" due to the abolition of legal aid For the full article click here.    

Mrs Justice King appointed to the Court of Appeal
Mrs Justice King has been appointed to the Court of Appeal and will take up her appointment this autumn.

Financial Remedies Working Group publishes proposals
The Financial Remedies Working Group, established by the President of the Family Division in June 2014, has published its proposals in an interim report.  Views on the proposals in the report are requested by 3 October 2014 from individuals and organisations.

The Report is divided into 4 chapters covering observations and recommendations on procedure, litigants in person, standard orders and arbitration.

Jacqui Thomas, barrister at 37 Park Chambers has summarised the recommendations of the Working Group as follows:

• The use of one unified procedure for all financial applications, whether following divorce or through Sch 1 to the CA 1989 [para 6];

• A review of the use of the magistrates' courts to deal with financial proceedings, in the light of the ethos of the single family court [ para 8];

• The reinstatement of compulsory FDRs in variation and Sch 1 applications, rather than the short cut procedure [para 10];

• The review of international enforcement procedures [para 10];

• A simplification of financial remedy forms – using the Form E for all applications and abolishing the E1 and E2, as well as streamlining the 14 application forms currently available [para 11-12];

• Simplification of the process of issuing proceedings, with only one party needing to issue the Form A, in order for both sides to have their claims considered [para 14];

• The FDR to take place on the first occasion that the parties attend at court, and parties to prepare for it as such [para 19];

• A review of the procedure for leave to seek financial relief after an overseas divorce [para 23];

• A recommendation that financial proceedings are de-linked from divorce / dissolution [para 29];

• The choice for litigants who want to use the specialised financial remedies unit to issue through the Central Family Court. This option is likely to arise in high value or international cases [para 34];

• Support for the proposal of the mediation taskforce that the MoJ should consider paying for all MIAMs for a period of 12 months in order to improve the take up of mediation services [para 47 onwards];

• The introduction of a mechanism to ensure the adoption of arbitral awards as swiftly and simply as possible [para 85], following the observations of the President in S v S [2014] EWHC 7 (Fam);

• Clarification of the court's powers to order one party to pay the outgoings of the marriage directly, rather than by undertaking;

• Guidance for LiPs to be issued in addition to better use of the tools already available [para 40 onwards];

• Court orders to be drafted in plain language in order to assist LiPs, and see the compendium of orders attached to the report [para 58 onwards];

• Specialist judicial training, particularly in relation to conducting FDRs between unrepresented parties, [para 55-57 and see para 65].

The summary of the recommendations can be found here.  The report can be found here.

Family lawyers sound alarm on separating parents
The Law Society Gazette reported on the warnings given by family lawyers that separating parents are giving up on the courts and may take the law into their own hands in trying to see their children.  This followed the publication of new figures by Cafcass which show a sharp drop in the number of private family law cases in July 2014.  Access the article here.

Case law Update
US v SR [2014] EWFC 24
Mrs Justice Roberts addressed the issues that had been presented to her in October 2013 in relation to this case.  At that date she was asked to deal with issues as to costs, allegations and cross-allegations as to conduct; both litigation conduct and conduct as recognised by s.25(2)(g) of the MCA 1973.  The outstanding issues that Mrs Justice Robert had to decide related to how the couple's wealth was to be distributed.

The assets involved amounted to approximately £5m of which £1.76m was in pension funds.  The legal costs had been £1.25m.  It was agreed that the husband would retain the pension funds.

The relationship lasted some 16 years with the marriage itself lasting 13 years.  Three children were born who were now aged 19, 17 and 14.  The wife (age 48) was a Russian national.  The husband (now 63) is a British national.  He spent many years working overseas in the gas and oil industry.  The husband left employment in December 2011 and was now effectively retired and drawing a pension.  The husband has since remarried and has a three year old child.

The wife remained living in the former matrimonial home.  This was agreed as being worth £1.1m subject to a mortgage. 

At the time the parties met, the husband was in his early 40's and divorced from his first wife.  He had a successful career and, despite having to pay a settlement to his first wife, had re-established his capital base.  He had acquired four properties in Moscow but at the time of the hearing, only two remained. Both were currently used as investment vehicles and generated an income for the wife.

The wife had disposed of one of the four properties and Mrs Justice Roberts had found that it was sold at an undervalue and then the sale proceeds spent, or otherwise disposed of by the wife.  Consequently she had added back a notional £1m to the balance sheet.  Paragraph 6 of the judgement states: 'The impact of this loss and the costs burden of this case drive the outcome inevitably towards a needs-centric solution'.

It is on this basis that many of the assets that would have arguably been classified as non-matrimonial and therefore out of the sphere of "sharing", were in fact included in the asset pool.  For example, the husband's pensions which had notably been accumulated prior to the marriage.  Mrs Justice Roberts comments at paragraph 34: 'Given the value of the resources which remain to this couple, I am spared the task of making specific findings in relation to the value of the non-matrimonial property in this case.  It would be an empty and futile exercise.  Every last pound and rouble in this case is going to be required to meet ongoing need and make provision for these children.'

The judge struggled with reaching a fair conclusion and compensating the husband for the wife's financial conduct in relation to one of the Russian properties.  The conclusion was based on a cross-check of needs without overlooking the fact that the husband had been essentially deprived of £500,000 from the balance sheet.

The final issue addressed by the court was one of costs.  At paragraph 59, Mrs Justice Roberts delivers a salutary lesson:

'The costs award which I am proposing to make is designed, in part, to reflect the court's opprobrium of the husband's conduct in this litigation. As I have said before, this was not simply an attempt by him to conceal assets. This was a deliberate and sustained concealment compounded thereafter by a fraudulent presentation advanced on the basis of fabricated evidence.  He misled the court, his former wife, her advisers and his own legal team.  Conduct on that scale has to be reflected in a punitive costs order.'

The judge made an order that the husband pay 70% of the wife's costs.

Once the costs order had been taken into account the final award, in percentage terms, was 45.78% to the wife and 54.22% to the husband.  The difference in the shares was a 'proper reflection' of the wife's misappropriation of the husband's half share of the £1m loss incurred on the Russian property.
Paragraph 85 summarises:

'Is it fair in all the circumstances that the wife should receive less than 50%?  My answer to that question is: undoubtedly, yes.  I cannot ignore the impact of her conduct in selling Property B at such a substantial undervalue…Furthermore, in terms of overall fairness, I am satisfied that the award which I have made properly reflects the existence of non-matrimonial property acquired by the husband…'

SK v TK [2013] EWHC 834 (Fam)
The wife (aged 52) was a nurse by profession.  Since the birth of the younger child, she had been a housewife and mother.  The husband (aged 49) was a technology entrepreneur.  From 1987, he worked in the technology sector for a company.  Initially he wrote software but he then became involved in sales and was very successful.

The parties married in 1994.  At the time of the hearing they had two teenage children both attending public school.  School fees were approximately £48,000 per annum.

A petition was filed in August 2011; decree nisi was pronounced in May 2012. 
The wife's case was that all the assets were accrued during the marriage.   Each party had made an equal contribution (in different ways) and the assets should be divided equally on a clean break basis.  In addition, the husband should pay the children's school fees, university costs and periodical payments of £20,000 per annum, per child.

The husband's case was that the assets should be divided 60:40 in his favour. The reasons for the departure from equality were:  special contribution, pre-acquired assets and that by retaining the shareholding in his company, Limelight, he was taking on the greater financial risk that the wife.  In relation to school and university fees, he said they should be met equally.

In 1992 (prior to the parties' marriage), the husband had discussed with two colleagues, setting up his own company.  The company, Vision, was incorporated in 1992.  At the time of incorporation, the husband was a 'sleeping partner' due to his ongoing work with his present employer.

As at 31 December 1993, Vision had net assets of £24,853 which had risen to £84,654 by the end of 1994. 

The husband began working for Vision after her parties were married.  The husband acquired a 1/3rd shareholding in Vision and the company became extremely successful. 

In 2000, after various offers for sale, Vision was sold for £36m.  By the time the husband left the company, he had received total consideration of £12m gross (subject to 10% CGT).

In 2004, the husband started his second business venture, Limelight. Again, it was very successful.  The husband held 75.4% of the shareholding and was keen to retain this free from any interest of the wife.

At the time the matter was before the court, the assets in the case were between £18 - £20m net of tax.  Mr Justice Moor had to consider the three elements of the husband's argument as to why there should be a departure from equality.

1. Special contribution
Mr Justice Moor acknowledged the husband's ability as a businessman with a number of important skills.  However, applying the authorities he was not satisfied, that there was a 'special contribution' to amount to a good reason for departure from equality.   In his words: 'It would not be accurate to describe him as a genius.'

2. Pre-acquired assets
The judge was reluctant to accept the husband's case that his interest in Vision should be treated as a pre-marital contribution.  At the date of marriage, Vision had no significant value, plus the husband had not, at that stage, made sufficient contribution to Vision to justify this claim.

No substantial offers were made to purchase Vision during the period prior to the marriage.  Moor J describes the business as 'fledgling'.

The second reason for denying this argument was that the husband had not worked for Vision at any point prior to the marriage.  With reference to the Jones line of argument, Moor J comments [paragraph 48]:

'He cannot rely on a springboard because he had not yet arrived at the swimming pool let alone got onto the diving board.  The hard work was yet to come.'

3. Risk
The husband argued that he should receive a greater share of the assets because he was taking all the risk by retaining the shares in Limelight.  This argument was dismissed on the following basis:

a) The husband wanted to retain the shares.  Whilst he would be taking on the risk, he would also have the opportunity associated with Limelight in the years ahead.

b) The value of the husband's interest in the company was only about ¼ of the total assets in the case.

c) The husband had a significant earning capacity.  The wife did not.

d) Until the sale of Limelight (where the husband was only due to receive 50% of the sale proceeds), he would be in receipt of 75% of the dividends.

e) The risk in relation to the future or Limelight should be factored into the value attributed to the company rather than giving the husband an increased share of the net assets.

The conclusion reached was that this was a clear case for an equal division of the net assets.  On the basis that the assets were divided equally, Mr Justice Moor concluded that the school fees and university fees should also be divided equally.  In addition, the husband was ordered to pay £10,000 p.a. per child, leaving the husband with a net income of over £100,000 p.a.

Fred Perry (Holdings) Ltd V (1) Ivan Genis (2) Ayelet Haim Genis (2014)
This was an application by Fred Perry (Holdings) Ltd for an order for possession and sale of the first defendant's property under the Trusts of Land and Appointment of Trustees Act 1996.

Ivan Genis and Ayelet Haim Genis occupied the property with their two children.  The property was the family home and was registered in Mr Genis's sole name.  The parties married in 2007 and Mrs Genis subsequently registered her rights in the property under s.30 of the Family Law Act 1996.
Fred Perry (Holdings) Ltd had three charging orders on the property.   

The High Court gave priority to the commercial creditor's charging orders over the wife's registered home rights and made an order for sale of the property.  The operation of the order for sale was deferred for 12 months to enable the family to obtain alternative accommodation and arrangements for new schools without interruption to the children's studies during the next school year.