Finance & Divorce Update March 2015

Jessica Craigs, senior solicitor of Mills & Reeve LLP analyses the financial remedies and divorce news and cases from February 2015

Jessica Craigs, senior solicitor of Mills & Reeve LLP

This update is provided into two parts:

1. News in brief
2. Case law update

News update

Complaints against conveyancers overtake family lawyers
An annual report has shown that complaints to the Legal Ombudsman against family lawyers has been usurped by conveyancers.

Residential conveyancing accounted for a fifth of all complaints – up from 15% – and commercial conveyancing a further 2%, while 17% of complaints were about family law. "This may suggest an upturn in the housing market and, if it continues, could be a sign of things to come," said the report.

For the full article click here

ONS household and families 2014 statistical bulletin published
The ONS bulletin provided annual statistics on the number of families by type, people in families by type and children in families by type. The bulletin also presents statistics for 1996 to 2014 on the number of households by type, household size and people living alone.

The statistics showed that the fastest growing type of family in the UK were cohabiting couples. The growth was at 29.7% over the last ten years.

Other key points to note included:

•In 2014 there were 18.6 million families in the UK. Of these, 12.5 million were married couple families. This is the most common family type in the UK.

•In 2014 there were 2.0 million lone parents with dependent children in the UK. Women accounted for 91% of lone parents with dependent children.

•There were 26.7 million households in the UK in 2014. 28% of these contained only one person.

•Households containing two or more families were the fastest growing household type in the decade to 2014, increasing by 56% to 313,000 households.

Click here for the full bulletin.

Family Drug and Alcohol Courts to be extended in England
London has had a Family Drug and Alcohol Court for seven years, and courts have opened more recently in Gloucestershire and Milton Keynes. More will now open in areas including East Sussex, Kent and Medway, Plymouth, Torbay and Exeter, and West Yorkshire. Funding for the expansion comes from the Department for Education. The London FDAC only sits once a week, and deals with a relatively small number of cases, about 30 a year at the moment.

Unlike the traditional family court, the FDAC has its own team of experts and doctors - it is often described as a "therapeutic" process. Parents come up before the court every fortnight, seeing the same judge every time. Usually, their children are placed temporarily with other family members or in foster care, while the parents concentrate on their detox, therapy and treatments - an intensive programme usually taking 26 weeks. They undergo regular testing to make sure they are not secretly drinking or taking drugs.

An evaluation last year of the London FDAC by Brunel University, funded by the Nuffield Foundation, found 35% of mothers managed to kick their addictions, so their children could be returned safely to them, compared with 19% of mothers who go through ordinary family courts.

Online courts could increase access to justice and reduce court costs by 2017, according to report
A new Online Dispute Resolution system should be developed in England and Wales to increase access to justice and to streamline the court process, a report has recommended. The report, by a working group of the independent Civil Justice Council, calls for a dedicated state-run 'Online Court' to operate alongside the traditional court system, and invites the support of all political parties.

The proposed scheme would diagnose and resolve disputes by applying principles similar to the ones used by eBay. According to the report, around 60 million disagreements amongst traders on eBay are resolved through ODR. The report's principal author, Professor Richard Susskind, said:

"This report is not suggesting improvements to the existing system. It is calling for a radical and fundamental change in the way that our court system deals with low value civil claims. Online Dispute Resolution is not science-fiction. There are examples from around the world that clearly demonstrate its current value and future potential, not least to litigants in person.

On our model, an internet-based court would see judges deciding cases online, interacting electronically with parties. However, our suggested online court has a three tier structure, and we expect most disputes to be resolved at the first two stages without a judge becoming involved."

The report recommends that Her Majesty's Courts and Tribunals Service (HMCTS) set up a pilot as soon as is practicable with a view to rolling out an online court based on the findings.

Marriage tax allowance registration opens
A scheme to offer tax breaks to some married couples and civil partners has opened for registration. The marriage allowance, unveiled by David Cameron in 2013, could reduce a couple's annual tax bill by up to £212. It only applies to couples with one basic rate taxpayer and the other earning less than the personal allowance. For more, see: BBC News

Resolution calls for sweeping changes to laws on divorce and separation
Resolution has published its manifesto which calls for sweeping changes to the laws surrounding divorce and separation. Resolution's manifesto identifies six key areas where changes are needed to our family justice system:

The manifesto sets out that a family justice system should:

provide support through relationship breakdown
put children first, helping separating / separated parents to work together in the child's best interests
provide fair and lasting outcomes on relationship breakdown
protect all those at risk of harm and sufferers of domestic abuse

Case law update

ZA v AS [2014] EWHC 2630 (Fam) (Mr Justice Moor) 31 July 2014
In brief: An unusual set of cross-applications for financial orders because they were brought under the MFPA 1984 following an overseas divorce (although both husband ("H") and wife ("W") agreed the case should be dealt with as if it had been brought under MCA 1973).

Both parties made allegations of financial misconduct against the other. Moor J made various findings of fact regarding the ownership of a Qatari property worth over £1million (which W asserted she had transferred to her sister), ultimately concluding that W had fabricated her evidence regarding a transfer and that the property was a resource still available to W.

Moor J found that H needed a property in this country and ordered the transfer of the couple's Putney property to H. A second house in St John's Wood would be sold when the youngest child finished university; until that time, W and the children could live there. Despite having a good earning capacity, H had no pension provision or mortgage raising capacity; it was ordered that, when the St John's Wood property was sold, he would receive £500,000 from the sale proceeds (c.68% of the property's current value) to provide him with a pension pot. The balance would go to W to help her purchase a London flat (with the help of a mortgage given her own "generous" pension provision). W retained the Qatari property which could be used to provide her with an income if she so chose. There was no order as to costs given that both parties had conducted their litigation on such a basis.

BD v FD [2014] EWHC 4443 (Fam) (Mr Justice Moylan) 3 October 2014
Summary: An unsuccessful application by a wife ("W") for MPS where she was found to have no "immediate need".

The parties had married in 2002, had had four children (now aged between 3 and 8) and had separated in 2013.
There was a significant family pot of assets:

the husband ("H") had non-trust assets of £49million and trust assets of £100-130million with an income of £1.7million; and
W had assets of £2.9million (property) and £1.4million in cash and investments. Of this £1.4million, H had transferred £1million to her during the course of the separation. He had made clear that he did not expect W to use the sum to fund her legal costs or her living expenses.

W applied for MPS in July 2014. At the time, H was (voluntarily) paying a global sum of £202,000 a year in spousal and child maintenance plus he was also paying W's legal fees. W sought an increase to £280,000 a year but this was her bottom line; in reality, (and on her interim needs budget) she sought £392,000 a year. She argued that, without MPS at that level, she would not be able to meet her reasonable income needs. She submitted that the court should not take into account the £1million she had received from H as being monies available to meet her income needs given H's clear indication to her solicitors that the money should not be used for those purposes and that, as she was in the middle of selling her present home and buying a property worth £5.5million, she needed the £1m to help finance the purchase. She also contended that her budget had been reflective of the standard of living enjoyed during the marriage and that where she sought additional sums for holidays and other expenditure it was where she no longer had use of H's estate or trust assets. Finally, by the time of the hearing, H had indicated that he would withdraw legal costs funding, so W also argued that she might need to use some of her funds towards her legal costs.

Meanwhile, H's case was that as a matter of fact, the family had lived on £230,000 - £265,000 a year including school fees (c. £40,000). He produced evidence from his accountants demonstrating the family's expenditure from 2011 to 2013 and assessing W's needs at £156,000 a year. He submitted that W's case was manifestly exaggerated and unrealistic, her application did not stem from "need" and that the MPS application was a pure litigation tactic to ensure her long term maintenance claim would be pitched high.

Held: Mr Justice Moylan agreed with H and ordered that the current level of MPS should remain in place.

He reminded practitioners that the purpose of interim maintenance is to ensure that a party has sufficient resources to meet their immediate interim needs and to meet them in a way which does not prejudice their longer term position or place them at a significant disadvantage (for example, if the wealthier party was seeking to erode the resources located in this jurisdiction when enforcement might be an issue). The question the court must ask itself, he said, was whether, on a broad assessment, there is a need which manifestly requires the court's intervention. He found that in this case the court's intervention was not justified. Indeed, the sum sought by W was substantially in excess of the marital standard of living and, whilst standards of living are not necessarily a "ceiling", to exceed that standard on an interim basis needs "specific, powerful justification".

The application had (of course) been a disproportionate use of the parties' (and the court's) resources where the combined costs totaled £80,000 - £90,000.

JL v SL (No 2) [2015] EWHC 360 (Fam) (Mr Justice Mostyn) 18 February 2015
Summary: Mr Justice Mostyn looks at the treatment of inherited assets and spousal maintenance.

The case was an application for permission to appeal the first instance final FR order. There were three grounds of appeal:

the judge had erred in not properly reflecting the non-matrimonial origin of part of the capital available for distribution;
the spousal maintenance figure was wrong in providing for a step down when the children completed university education; and
the judge had erred by failing to order spousal maintenance to be index linked.

Towards the end of the marriage, the wife ("W") had received £465,000 from her mother which in turn had come from W's late father's estate. The funds came to W in two instalments - £100,000 in 2009 and £365,000 in September 2010 – ten months before the marriage ended. W transferred £190,000 into the husband's ("H") name and at a time she believed H was having a relationship with another women. She explained that she and H had structured their finances to gain the maximum amount of interest – this meant most joint assets were in her name as she was a lower rate tax payer. She had transferred the monies to H, she said, so that he could access "free" monies (i.e. they were not tied up) as his savings had been depleted through meeting the family's expenditure and other business costs. The arrangement would also allow H access to funds in the event of W's premature death.

W's appeal on the first ground was allowed. This in turn impacted on the level of spousal maintenance as an unequal division of the assets would lead to W having more money to invest and consequently a reduced need for spousal maintenance. The third ground of appeal was rejected.

Rather than exercising the appellate court's discretion, Mostyn J ordered a retrial because of two significant events that had taken place after the final hearing:

H had given evidence that his shareholding in his employing company was worthless – in fact, it was extremely valuable. The company had been taken over by venture capitalists and H's shares had been purchased for £1.1million. He had received net sale proceeds of £586,334; and
H had been made redundant, receiving £100,000 net as a termination payment.

H had purchased (for the nominal sum of a penny a share) the first tranche of 40,000 shares in March 2013 and the second tranche of 40,000 shares in September 2013. He revealed he had purchased the first tranche of shares shortly before the final hearing in October 2013. He failed to reveal his purchase of the second tranche of shares until re-examination by the judge during the final hearing.

At the retrial (which was also heard by Mostyn J), the question for the court was whether W's inheritance and H's post-separation accrual should be ring-fenced as non-matrimonial property.

Held: Mostyn J found that W's inheritance of £465,000 and H's share sale proceeds of £586,334 were both non-matrimonial property and, as such, were deducted from the total pot of assets. This left just the former family home to be divided and this was split equally between the parties.

Matrimonial and non-matrimonial property
Mostyn J's identifies two schools of thought on how the existence of non-matrimonial property can be reflected in a final award:

adjust the percentage from 50%; and
identify the scale of non-matrimonial property to be excluded, leaving the matrimonial property alone to be divided in accordance with the equal sharing principle.

The first he describes as being "intuitive" reflecting, as it does, an individual judge's own gut instinct. However, the approach risks being a "lawless science". Instead, practitioners and the court need to at least attempt to determine the partition between matrimonial and non-matrimonial property. Once that has been done, the matrimonial property should usually be divided equally and there should usually be no sharing of the non-matrimonial property. Unless (and until) the full extent of the "pot" of matrimonial property is known, that pot cannot be divided equally.

Of course, as we know, whilst matrimonial property is usually divided equally, this is not always the case. Non-matrimonial property can become matrimonial property during the course of the marriage usually because it is "mingled" with matrimonial property and become part of the economic life of the marriage. The most common example is where the family home was provided solely by one spouse. In those cases, the matrimonial property may be divided unequally to partially reflect the origin of the property.

Referring to N v F [2011] 2 FLR 533, Mostyn J advised practitioners to bear in mind these points:

whether the existence of non-matrimonial property should be reflected at all (this will depend on questions of duration and mingling);
if reflecting non-matrimonial property is fair and just, how much of the non-matrimonial property should be excluded? Should it be the actual historic sum? Or less, if there has been mingling? Or more, to reflect a springboard and passive growth?; and
the remaining matrimonial property should then normally be divided equally.

Inherited property
Mostyn J set out the following propositions to be treated as good law "that inherited wealth should be treated differently from the matrimonial property depending on:

its source;
its nature, particularly whether it is a particularly valuable or personal item;
the duration of the marriage and for how long the wealth has been enjoyed by the parties, and the more and the longer it has been enjoyed, the less it should be ring fenced;
the extent to which the non-matrimonial property has become mixed with matrimonial property, to the extent that identifying its separate current value is difficult; and
if invested in the former matrimonial home, the extent to which this home has become treated as a central item of matrimonial property."

Post-separation accrual
The principles Mostyn J first espoused in Rossi v Rossi [2006] EWHC 1482, remain good law.

The MCA 1973 requires all the assets to be valued at the date of trial.
The value of assets brought into the marriage by gift and inheritance (other than the former family home), together with passive economic growth on those assets, should be excluded as non-matrimonial property.
Assets acquired or created by one party after (or during a period of) separation may qualify as non-matrimonial property if it can be said that the property in question was acquired or created by that party's personal industry and not by use of an asset which had been created during the marriage (in respect of which the other party could validly assert an unascertained share).
Passive economic growth on matrimonial property that arises after separation does not qualify as non-matrimonial property.
Where the post-separation asset is a bonus or other earned income, if the payment relates to a period when the parties were cohabiting, the earner cannot claim it to be non-matrimonial; or if it is immediately following separation, it is too close to the marriage to justify categorising it as non-matrimonial. Mostyn J suggests that a post-separation bonus should not be classed as non-matrimonial unless it relates to a period that began at least 12 months after separation.

The preferred approach to adopt where there is significant, active post-separation growth of a matrimonial asset is to:

determine the share of the pot of assets in the absence of that growth (usually an equal share); then
determine the share of the growth (usually an unequal share).

This can then be cross-checked for fairness by using the overall percentage technique.

Applying the above to the particular facts of this case.
W's inheritance was non-matrimonial and had to be excluded from the divisible pot of matrimonial property – despite there having been some mingling of monies and some having been placed in H's name. That "mingling", Mostyn J found, did not mean that the non-matrimonial source of the monies had been destroyed as a relevant consideration in this case.

Meanwhile, H's net sale proceeds from his shareholding was also found to be non-matrimonial property. The first tranche of shares had not been received until March 2013, 20 months after couple had separated. The shares were in a new company deriving from a new job which H had taken 11 months after separating from W. The remaining tranches of shares had been received over two years after the separation. H's new employment (and therefore the related benefits) were a new venture. It no doubt helped that his new job was not even in the same sector as his old job.

AB v JB (EU Maintenance Regulation: modification application procedure) [2015] EWHC 192 (Fam) (Sir Peter Singer) 3 February 2015
In brief: A judgment which deals with the question of whether a Form A issued on behalf of a husband in a county court validly seises that court with competent power to make an application for a periodical payments order. Sir Peter Singer also take the opportunity to clarify the procedural requirements for initiating an incoming modification application under the Maintenance Regulation.

Sir Peter confirms that the only route for an incoming variation application (i.e. an application from another Member State to England and Wales) is through Chapter VII Maintenance Regulation. No direct approach to a court without involvement of the relevant Central Authority is allowed.

Here, a German national ("H") was trying to vary a German order. The couple had divorced in Germany in 2000. The wife ("W") was now living in England. H filed and served a Form A in Slough County Court believing that this was sufficient to confer jurisdiction onto the English courts under Chapter VII. (More concerning perhaps was the fact that Slough County Court - apparently oblivious to the workings of the Maintenance Regulation - had issued the application and had given standard directions which included the filing of a detailed financial statement,). W successfully struck out the Form A on a number of grounds including that Chapter VII is the "only conceivable" route through which an English court gains jurisdiction to vary a foreign maintenance order. Sir Peter expressly disagreed with Mostyn J's interpretation in EDG v RR [2014] EWHC 816 (Fam) where he considered that there were two available routes for enforcement – directly under Chapter IV of the Maintenance Regulation and through the Central Authority under Chapter VII.

Arif v Anwar [2015] EWHC 124 (Fam) (Mr Justice Norris) 26 January 2015
Summary: For the full background, see Arif v Anwar [2013] EWHC 624 (Fam)
The wife ("W") had petitioned for divorce in June 2011; the husband ("H") had made himself bankrupt in October 2011. H was living in the 8-bedroomed former family home at 68a Burkes Road, Beaconsfield ("the Property"), with his son (the second respondent), his son's wife and their child. The Property was valued at £1.75m. W was living in a small rented flat with the child of the marriage. The son was claiming a 50% interest in the Property as well as monies owed to him by H as the result of "dealings" – repayments of borrowings on a further property, the net result of which would be to reduce the size of any surplus in the bankruptcy and therefore the size of any surplus in the estate sufficient to make some provision for W.

Held: The judge made a number of findings of fact in relation to the beneficial interest in the Property and concluded that the son had a 25% share in the Property. Since the borrowings appeared to have been properly applied originally, this argument would only succeed if the son could demonstrate that those borrowings had already been paid off by him, and that the remaining borrowings represented money taken for H's personal benefit. Mr Justice Norris made various findings but concluded that there was no claim against H.

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