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Finance and Divorce Update, December 2016

Sue Brookes, Senior Associate for Mills & Reeve LLP analyses the news and case law relating to financial remedies and divorce during November 2016.

Sue Brookes
, Senior Associate for Mills & Reeve LLP

As usual, this month's finance and divorce update is divided into two parts:

A  News in brief
B Case law update

A. News in brief
Brexit may be the final straw for some couples, says Resolution

For partners who voted different ways in the referendum, the difficulty of reconciling opposing political views may be the final straw, said Nigel Shepherd, the chair of Resolution.  A similar phenomenon has been observed in the US among warring couples split between Donald Trump and Hillary Clinton.  Whilst unlikely to be the sole reason for the divorce, the divisive Brexit campaign has, anecdotally, contributed to couples separating the article in The Guardian reports. 

His comments come as a Dutch entrepreneur announced plans to set up a divorce hotel in the UK to help separating couples sort out their problems over the course of a weekend.  

Lady Justice Gloster appointed Vice-President of the Court of Appeal (Civil)
Lady Justice Gloster has been appointed as Vice-President of the Court of Appeal (Civil) by the Lord Chief Justice, Lord Thomas of Cwmgiedd. The appointment will take effect from 7 December 2016 on the retirement of Lord Justice Moore-Bick.

Government rejects recommendation that divorce fee rise should be rescinded
The Government has rejected the recommendation of the House of Commons Justice Committee that the increase in the divorce petition fee to £550 should be rescinded.  In a response to the Committee's recommendations concerning court and tribunal fees, the Ministry of Justice said that, in the context of making sure that the court service was properly funded, the £550 fee was reasonable and that it was "too soon" to draw any conclusions that the fee increase had led to a fall in divorce applications. 

Lord Chief Justice concerned by volume of public and private law cases before the Family Court
The Lord Chief Justice has laid his 2016 annual report before Parliament.  Within it, Lord Thomas draws particular attention to the volume of public and private law cases before the Family Court.  He commends the work progressing on the digitisation of divorce applications. For the full report click here.

Cohabiting couple families fastest growing family type over last 20 years
Figures published by the Office of National Statistics reveal that there are now 3.3 million    cohabiting couple families in the UK, with the number more than doubling over the last twenty years.  Cohabiting couple families were the fastest growing family type during that period.  Resolution has responded to the ONS figures by saying that the high growth in cohabiting couples is further evidence that the law needs to catch up with modern British society.

B. Case Law Update
Goyal v Goyal [2016] EWHC 2758 (Fam)
Claims for a pension sharing order have been reheard by Mostyn J, following the Court of Appeal having set aside an order of His Honour Judge Brasse (HHJB).

HHJB had previously ordered the husband (H) to pay the wife (W) a lump sum and joint lives maintenance and dismissed both parties' claims against each other save for W's application for a pension sharing order.  At the subsequent pension hearing, HHJB declared that H beneficially owned an Indian annuity, which he directed H to transfer to W.  HHJB had believed that he could not make a pension sharing or attachment order under MCA 1973 because the pension was in India.  Consequently, he purported to give financial relief to W by ordering H to transfer the annuity and pending the completion of the transfer pay to W all income it produced.  In doing so, as W's other claims had been dismissed, he relied upon the court having the jurisdiction, ancillary to its statutory functions under the Matrimonial Causes Act 1973, to make a mandatory injunction against H to transfer or assign the pension.

The Court of Appeal set aside this order on the basis that the court has no separate residual or inherent jurisdiction available to fill in any perceived gaps or to meet what the court may see as the justice of the case if that outcome cannot be achieved by an order within the statutory scheme.

It was agreed by both Counsel and the Court of Appeal that there is no territorial limit upon the court's jurisdiction to make a pension sharing order and that the judge had been wrong in that regard.  W's claim should therefore have continued to have been investigated and progressed under the MCA l973 and there was no legal basis for the judge to make the order that he did.  The Court of Appeal remitted the case for rehearing.

Mostyn J was therefore required to deal with the ownership of the pension fund, subsequent cross-applications to vary W's maintenance and her claims for a pension sharing order. However, as there was insufficient time for him to deal with the first two points, this judgment focuses on whether or not W's claims for a share of the pension should now be dismissed. Despite H's counsel accepting to the contrary before the Court of Appeal, H now argued that, regardless of the ownership of the fund, an order for pension sharing under section 24B Matrimonial Causes Act 1973 cannot be made in respect of an overseas pension; and/or that W had adduced no evidence that such an order would be enforced by the Indian court.

Mr Justice Mostyn invited written submissions from the FLBA and Resolution on the court's jurisdiction. He then reviewed relevant sections of the Welfare Reform and Pensions Act 1999, the Income and Corporation Taxes Act 1988, the Pension Schemes Act 1993, the Finance Act 2004 and, of course, the Matrimonial Causes Act 1973 and concluded that, contrary to the view of the Court of Appeal and both Counsel at the previous hearing, pension sharing pursuant to s.24B MCA 1973 is not available in relation to any foreign pension. 

He went on to highlight that, whilst the court does not have such powers over a foreign pension scheme, there are other routes to achieving direct sharing of a foreign pension. There could be an agreement, backed by undertakings, to obtain an order in a foreign jurisdiction to split a pension in that country, if the court is satisfied that the foreign pension provider would implement such an agreement. Alternatively, the court may be able to split an overseas pension by varying a nuptial settlement pursuant section 24(1)(c) of the 1973 Act. However, the potential arguments about the extent to which this power would be available were not explored in this case as W's claims for property adjustment had previously been dismissed.

It is well established that a property adjustment order can, in principle, be made in respect of property other than pensions situated overseas, provided there is clear evidence that such an order would in fact be implemented. As W had not filed any evidence to confirm that an order would be reciprocally enforced in India, her claims would not have succeeded even if the pension sharing order had been a possibility.

Sadly, this is not the end of the matter for these parties, who now face a further hearing before Mostyn J to deal with: the of ownership of the pension rights; W's deemed application for a variation of the periodical payments order to provide that thereby she receives all the benefits arising under the annuity; and H's application to vary the existing periodical payments order which he issued in February 2016 shortly before it was due to take effect.

Goddard-Watts v Goddard-Watts [2016] EWHC 3000 (Fam)
A consent order had been set aside in 2015 by Moor J due to non-disclosure by the husband (H) in respect of his interests in two trusts. The wife (W) had agreed a settlement in 2010 in circumstances where her legal advisers did not consider that she had a reasonable picture of the family's assets but she had wanted to resolve matters as soon as possible. There had not therefore been full disclosure by way of forms E. W was simply relying on what had been told to her in correspondence (at least some of which was incorrect) and during a meeting between the parties, their accountant and the family solicitor who had been asked to act as an "honest broker", as well as H's form M1. She was aware of the two trusts, but she had understood that they were for the benefit of their two children. H had not disclosed that he was in fact the primary beneficiary of the trusts, which held 6 million shares in a company (valued at around £3m in 2008) and £4.2m cash at the time of the consent order. He had indicated only that he was a potential beneficiary in a footnote to his form M1.
In 2012, the two trusts had received a further £22,940,000 as a result of a third party exercising an option which had been agreed back in 2008 to purchase the shares held by the trust. Their value had therefore increased significantly following the date of the consent order.

The case came before Moylan J for a rehearing in November 2016. W sought £14m plus 40% of any excess value over the current value of H's company. She argued that she should receive an equal share of the parties' current resources because the sharing in 2010 was no longer relevant due to H's non-disclosure and W was entitled to have her award determined by reference to the current position. H argued that W should receive £3.65m, being a third of the trusts' assets as at 2010 plus 15% "compensation" because the parties' other assets had been shared in a manner which was and remained fair.

Moylan J accepted that this was a rehearing but that did not mean that he had to give W a new award based on all current values. He must instead determine what is fair now by reference to all circumstances of the case, including the current assets but also the division at the time of the consent order and the fact that this had been procured by non-disclosure. The court has "enormous flexibility" in deciding how to determine such a claim.

Following Kingdon v Kingdon [2010] EWCA Civ 1251 and Sharland v Sharland [2015] UKSC 60, the non-disclosure was a discrete element, which generated a defect that could be cured by one simple solution. The court should therefore isolate only the resources which had not been disclosed and deal only with those, leaving the rest of the settlement as was, subject to the one caveat in this case that, had there been full disclosure of the cash available, W would not have agreed to her lump sum being payable over 8 years. As such, the remaining balance of that lump sum should now be accelerated, in addition to the balancing payment now due.

Moylan J ring-fenced the shares held by the trust which had been gifted by H's parents, as these were from a source external to the marriage and there was no justification in this case for any part of their value to be shared by the parties. The fact that H had benefitted from them, largely since separation, was not relevant.

His Lordship also found that the current value of the business was the product of post-separation endeavour, giving W no further entitlement than she would have had in 2010. It was therefore the 2010 valuation that was relevant.

The sharing principle applies with force to marital property and the assets in the trust (save the parents' shares) were marital assets, provided they were resources available to the parties, i.e. did H have real or effective control over the trust and were the trustees likely to advance some or part of the assets if he asked them to? (Charman v Charman [2005] EWCA Civ 1606).
If the trusts had been properly disclosed, 65% of their assets would be marital resources available to the parties and W would have received 32.5% of them. W was therefore ordered to receive £6.22m, (which Moylan J rounded up to £6.42m) and the accelerated balancing payment referred to above.  

H v H (maintenance pending suit) [2015] EWHC B30 (Fam) (His Honour Judge Booth) 3 December 2015
The wife (W) had issued divorce proceedings in England and the husband (H) had issued in Ireland. The High Court in Dublin had stayed the Irish proceedings, having concluded that the English court was first seized, and H was still considering whether or not to appeal.

HHJ Booth had to decide whether he should make any further order within the English proceedings before either H's Irish appeal had been determined or the time in which he could lodge an appeal had run out.

He considered Moses-Taiga v Taiga [2005] EWCA Civ 1013, which confirmed that the English court has jurisdiction to make orders for maintenance pending suit (MPS) unless the proceedings had been stayed. He ordered H to pay a total of £7,750 per month, as requested by W.

He also ordered H to pay £65,000 by way of a legal services order, based on W's estimated costs up to FDR. This was to be paid by lump sum to avoid H controlling the proceedings by drip-feeding payments.

Finally, he ordered H to pay £5,000 towards W's MPS costs on the basis that H's position had been more unreasonable than W's.

Answering the question about whether H's bonus should be treated as income available in the interim or capital available at the end of the day to be divided between the parties, the courts must look at how the bonuses have been treated historically, as well as the present and future expenses which will have to be paid.

H v H [2016] EWFC B81 (His Honour Judge Booth) 4 March 2016
The parties had met in 2012, began cohabiting in September 2013, married in December 2013 and separated in March 2014. The marriage was therefore 12 weeks or 24 weeks including cohabitation. The wife (W) alleged it had broken down because she had been anally raped by the husband (H), allegations which he denied and of which he had been found not guilty within criminal proceedings. 

The parties had a pre-nuptial agreement confirming that they would each retain what they brought into the relationship. H was relatively wealthy although the true extent of his wealth had been called into question and may have been exaggerated in the pre-nuptial agreement. W had no assets and a limited earning capacity. Notwithstanding her financial position, she agreed that she would have no claims against H in the event of a divorce.

Despite wanting the pre-nuptial agreement to be upheld, H had offered W £88,000, reducing on a pound for pound basis the costs that were incurred after the date of the offer. That offer was now worthless. W accepted the pre-nuptial agreement was valid but argued for a total of £361,000 to include provision for housing (outright provision or alternatively a life interest in a property), a Duxbury fund and for her debts (mainly outstanding costs) to be cleared. She argued that it was wrong to leave her with nothing and to throw her on the mercy of the state as to do so would allow H to profit from his wrong-doing when it was his conduct that caused the breakdown of the marriage.

The judge found that both parties believed their own evidence but obviously they could not both be telling the truth. He preferred H's evidence, taking into account various inconsistencies he found in W's allegations against H and her account of her financial position.

W had petitioned for divorce in January 2015 on the basis of the alleged rape and H had cross-petitioned in March 2015. HHJ Booth dismissed W's petition and allowed the suit to proceed on H's cross-petition.

In relation to W's financial claims, HHJ Booth found that her needs were exactly the same as they had been before the marriage. Despite W arguing that she could not work, she would be able to continue with her book-keeping business and could expect to earn at least £1,500 per month and then rely upon her own pension in due course. She could remain in her rented accommodation where she had lived prior to the relationship.

Relying upon the historical cases of Hyman v Hyman [1929] AC 601 and Minton v Minton [1979] AC 593, W argued that the court should look to the parties to support each other rather than leaving W to rely upon state handouts. HHJ Booth agreed with H that, although those cases were not considered by the court in Radmacher (formerly Granatino) v Granatino [2010] UKSC 42, the Supreme Court had made it clear that parties can regulate the extent of their obligations towards each other. Although it may be appropriate for the court to impose obligations upon the parties, that was not the case here.

W had voluntarily entered into the pre-nuptial agreement against her own solicitors' advice. She had previous experience of marriage and divorce and she knew what she was doing. With a short marriage, this was a paradigm case for upholding the terms of the agreement and the contingencies identified by the Supreme Court in Radmacher did not arise.

W's argument that a brutal act of rape should be enough to undermine the terms of a pre-nuptial agreement may be right, but it was an argument for another day due to the findings in this case.

Earlier in the proceedings, W had applied for a legal services order and, somewhat unusually, HHJ Booth had ordered H to pay her £1 for every £1 he spent on his own legal costs, to ensure that the parties had equality of arms and to help limit the overall expenditure. W's legal team had incurred an additional £50,000 which they now sought to recover from H as W had no other means to pay. However, HHJ Booth considered that they had incurred this cost at their own risk and HHJ Booth found it would not be fair for H to have to pay any more.

Taking into account the costs he had paid on these proceedings, the cost of his defence in the criminal trial and the two years of maintenance HHJ Booth had ordered under section 27 Matrimonial Causes Act 1973 at the outset of the proceedings, He considered that H had already paid approximately £300,000. W should have accepted H's offer of £88,000 when it was made and her failure to do so could have potentially resulted in a costs order being made against her. However, as she had no means from which to pay H any costs, he was strongly encouraged not to pursue such a claim.

Hogg v Crutes LLP [2016] EW Misc B29 (CC) (His Honour Judge Behrens) 1 November 2016
This case involved a negligence claim by a husband (H) against his matrimonial solicitors. It is another reminder of the importance of file notes and keeping detailed records on the solicitor's file of any advice given.

The parties had agreed a financial settlement at court, which had been drawn up and reflected in a consent order approved by the judge on the day. It included, amongst other provisions, a 100% transfer to the wife (W) of H's private pension. H had made this offer verbally at court within the overall negotiations. Earlier written offers had been made on different terms.

The parties had obtained an actuarial report advising that 58% of the pension should be transferred to W to achieve equality of income. Notwithstanding that report, H offered 100% of the pension which was accepted by W, leaving her with significantly more than an equal division.

H now argued that he had not agreed to making the offer and that he was not advised that he did not need to do so as it was more than a judge would be likely to award at a final hearing. He accused the solicitor of fabricating her file notes where they differed from his recollection of the advice he was given.

Following Gestmin v Credit Suisse [2013] EWHC 3560, which highlighted the importance of contemporaneous documents, the fallibility of human memory and the dangers of accepting oral testimony conflicting with contemporaneous documents, the judge found the solicitors' file notes and the contemporaneous correspondence were more reliable than either the individual solicitor's or H's witness statements some 8 years on.

From the notes, the judge concluded that it was clear that the offer reflected H's instructions and that he understood the settlement once the order had been drafted. However, there was no note confirming the solicitor or the barrister had advised H that the offer was more than the 58% the actuary had advised and therefore overly generous. The note referred to them querying whether H was serious about the offer, but not to any advice he was then given. The court found that any competent solicitor or barrister would have appreciated that the offer was over generous and should have given clear advice accordingly.

H therefore received damages of £57,192 plus interest, representing 42% of the value of the pension he did not have to offer less 5% to take into account a small risk that W may have been awarded a more generous order on maintenance.

Akester v Fitzgerald [2016] EWHC 2961 (Fam) (Sir James Munby (P)) 21 November 2016
Mr Fitzgerald (H) had been issued with an extended civil restraint order ("ECRO") barring him from bringing further proceedings concerning his aunt in the Court of Protection.  The order, which had been made by Sir James Munby, had not extended to financial remedy proceedings which were simultaneously running in the Family Court.

H made further applications to the court, this time to the Family Court, to quash previous orders made by the Court of Protection.  The applications were heard by the President who found that they were "misconceived and totally without merit" and that H's attempt to air his grievances through the Family Court was an abuse of process.  The applications should have properly been made in the Court of Protection, with H seeking permission to bring them in accordance with the ECRO. 

H was also seeking to have the solicitor acting as his aunt's deputy committed for contempt of court.  The President reiterated an earlier judgment made against H were he had found a previous attempt to bring this application to be "misconceived, devoid of factual merit, in major part legally groundless and totally without merit".  He found the current application to be "equally devoid of merit".

C v C [2015] EWFC B236 (13 April 2015)
An appeal before HHJ Booth on a small money case.

The husband (H) appealed an order which left W with all of the liquid capital (£58,000) as a deposit for a property for herself and the three young children and total maintenance of £1,250 per month, as it left him with only negative equity in the family home, his property portfolio (which was making a loss) and his four separate companies, all of which had no capital value.

HHJ Booth reiterated that he could only interfere with the original order if it was wrong and not just if it was not the order that he would have made.

There is nothing wrong in principle for one party to be ordered to pay a contingent lump sum. However, the court cannot order one party to indemnify the other, as this order had purported to do.

It is not necessarily unfair for one party to receive all there is and for the other party to be left with nothing, or even debts. It depends on the facts of the specific case. The order here could be categorised as harsh, but that did not mean it was wrong.

Leaving H with only assets that have no immediate capital value still allowed him to generate a significant income and to continue living a generous lifestyle. Giving W all of the available capital and releasing her from the joint mortgage on the family home was the only way she could rehouse herself and the three children. The children's needs are of course the first consideration in any case. The appeal was therefore dismissed.