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Finance and Divorce Update, June 2017

Claire Molyneux of Mills & Reeve LLP analyses the news and case law relating to financial remedies and divorce during May 2017.

Claire Molyneux of Mills & Reeve LLP

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

A. News in brief
B. Case Law Update

A. News in brief

The President of the Family Division calls for the de-linking of divorce and money claims
In his 17th View from the President's Chambers, Sir James Munby has called for a "complete de-linking – separation of divorce and 'money', so that they are started and pursued by completely separate processes, albeit, of course, that the timeline for ancillary relief is determined by the progress of the divorce".  His view on the matter is, he says, unequivocal and emphatic.  The march towards a digital court demands such a severance, he concludes.  Under the new system proposed, there would be a formal, legal and procedural de-linking with all money claims (including, for example, TLATA claims and Part III MFPA 1984 claims) being dealt with under a single set of rules, a common application form, a common process and a common procedure. 

This, the President highlights, can be achieved without the requirement of primary legislation.  Other reforms, such as those to remedy the issues highlighted by the case of Owens v Owens [2017] EWCA Civ 182 and Resolution's Campaign to "allow people to divorce without blame" do require legislative change. 

Supreme Court hears appeal on application of s.31 Matrimonial Causes Act 1973
The Supreme Court has heard the appeal by the (former) wife against the Court of Appeal's judgment in Birch v Birch [2015] EWCA Civ 833. The case involves consideration of whether, when varying a consent order, the court should apply s.31 Matrimonial Causes Act 1973, or whether it is constrained by Court of Appeal authority to apply a narrower approach, even if that is inconsistent with the children's interests.  The wife was seeking the variation of an undertaking to release the husband from the mortgage by using s.31 MCA 1973, which would require the court to take into account the children's best interests.  She has been unsuccessful so far. 

Italy ends divorcees' rights to automatic indefinite maintenance payments
The Supreme Court of Cassation in Italy has delivered a landmark judgment, stating that parties who divorce and have independent means or the capacity to work should not expect to receive indefinite maintenance payments on the basis that they were entitled to retain the same tenor of life as when married.  The judgment was handed down in proceedings between Vittorio Grilli, Italy's economy and finances minister from 2012 to 2013, and his US-born wife, Lisa Lowenstein.

Divorce reduces expected retirement incomes by more than £3K per year
According to new research from Prudential, divorcees planning to retire this year expect annual retirement incomes of up to 16 per cent, or £3,000 lower than those who have never divorced, and they are also more likely to be in debt.  The insurer's annual study – which for the past ten years has tracked the finances, future plans and aspirations of people planning to retire in the year ahead – shows that for those retiring in 2017, expected annual retirement income is £16,300 for those who have previously divorced, compared with £19,400 for those who have never suffered a marriage break-up.

In addition, around one in three people who have been divorced expect to retire with debts (32 per cent), compared with just one in five (21 per cent) of those who have not been divorced.  Those who have been divorced are also more likely to have retirement incomes below the annual minimum income standard for single pensioners set by the Joseph Rowntree Foundation.

A link to Prudential's document, entitled Till Debt do us Part, is here

B. Case Law Update

WM v HM [2017] EWFC 25 (Mr Justice Mostyn)
Mr Justice Mostyn considering the various approaches to assessing the historic value of a business. 

The husband ("H") and wife ("W") had been in a relationship for 29 years including their pre-marriage cohabitation.  Prior to the relationship starting, H had established a business ("XG") with a business partner in 1978, whom H had bought out in 1989.  The business had gone on to be very successful and was now valued at £221million.  The family had enjoyed a high standard of living. 

H sought a departure from equality on the following grounds:

• the business was founded prior to the relationship commencing; and
• that he had made a special contribution.

Mostyn J considered the issue of a historic valuation by reference to the percentage change in the relevant FTSE all-share sector, a linear time apportionment and a discounting approach (or Lockean method), which means taking 5% and working backwards from the current value of XG.  He ultimately adopted the linear time approach despite it being based on an artificial assumption of straight-line growth up to an eventual sale of XG (following Jones v Jones [2011] EWCA Civ 41).  He justified its use as it reflected the latency of the business when the relationship formed, and that, intrinsically, value is as much a function of time as it is of work or market forces. 

The decision highlights that the formation of a value judgment about the historic value of an asset is subjective but has to have some evidential basis.  The evidence is not confined to a strict black-letter accountancy exercise.  It involves a holistic, retrospective, appraisal of the facts and the application of a subjective conception of fairness, overlaid by a legal analysis. 

Using this approach, His Lordship determined that £44million of the business could be attributed as "non-matrimonial" in nature.  However, whilst making £145m over the course of a long marriage was a highly creditable achievement, it did not meet the standard of rarity ("as rare as a white leopard" [28]) that is needed to justify a highly discriminatory unequal division of the product of the matrimonial partnership. 

As a result, the judge concluded that it was appropriate for W to receive an equal share of the £182million matrimonial resources i.e. £72,876,484 or 40% of the total asset pot.  H had planned to sell the business on his retirement which was envisaged to be in about 7 years. The minority of W's award (26%) would be met with an enlarged shareholding of the business (she currently had a 1% shareholding; this would increase to 17.5%).  Although a Wells v Wells [2002] approach "should be a matter of last resort" [24], Wells sharing is not unreasonable where it only applies to a minority element of the overall award, as it did here. 

In calculating the net assets, the latent tax had to be assessed on the basis that a very large dividend would be paid in order to give H the means to pay W a substantial lump sum, while at the same time allowing him to continue working in and on the business. The dividend tax rate of 38.1% was higher than the capital gains tax rate of 20%. That meant that the overall net value of the assets was slightly less than it would have been on a notional immediate sale, and that the value of W's share was correspondingly less, but in all the circumstances, that was not unreasonable.

Roxar v Jaledoust [2017] EWHC 977 (Fam) (Mr Justice Baker) 
This was an unsuccessful appeal by a husband ("H") who was ultimately seeking to discharge a spousal periodical payments order and achieve a clean break. 

The appeal before Mr Justice Baker concerned with how the lower court had treated the couple's incomes, earning capacities and liabilities.  Given the paucity of evidence, and H's own rather "frank and revealing" statement ("it is totally right to say that I've taken my foot off the throttle.  I don't see why I should pay my ex-wife what I do.  I don't see any benefit to myself . . . ") as to his motivations for reducing his hours, the lower court had been entitled to base H's likely future income on his historic pay as well as conclude that he had an unexploited earning capacity.

AAZ v BBZ [2016] EWHC 3234 (Fam) (Mr Justice Haddon-Cave)
This Russian couple had married in Moscow in 1993 before moving to London in 1996. They had two sons. The husband ("H") worked as an oil and gas trader and became very successful pursuing business interests in the Russian energy sector. In 2012, he sold his shares in the Russian company for $1.375bn. The majority of the family's assets were now held in trust and the total pot was valued at over £1billion.  During the marriage the wife ("W") had been a full-time mother and home maker. 

Following W issuing her divorce petition in this jurisdiction, matters were far from straightforward.  There were disputes over the length of the marriage and jurisdiction as well as H being both a reluctant discloser and a reluctant participant in the proceedings.  There were two other respondents to the financial proceedings, being two companies and one of which was a Panamanian company that H alleged held the bulk of the family's wealth.

W contended that all the family's assets were matrimonial and should be divided 50:50 in line with the sharing principle.  As H did not attend the final hearing, it was left to W's legal team to identify the points which H might have made.  Broadly, these were:

• H had brought wealth into the marriage;
• The marriage was far shorter than W alleged;
• Special contribution.

Mr Justice Haddon-Cave rejected these attempts to depart from equality and agreed with W as to the overall value of the assets and their liquidity.  However, difficulty was added by H's assertion that the assets were held in a discretionary trust structure including the Panamanian company.  The judge made a number of findings meaning that whatever the corporate structure of the "trust" assets, they were resources readily available to H to meet an award as well as the Panamanian company being H's nominee and holding all of its assets absolutely for H on a bare trust. 

Therefore, as all of the wealth was matrimonial, built up over a long marriage and with equal contributions being made by H and W, there was no reason to depart from equality. 

W was awarded £350million plus chattels worth £2.5million, an Aston Martin and a modern art collection.  Keen to ensure that the order was enforceable in Switzerland under the Lugano Convention 2007, the judge separated out those parts of the award that compromised "maintenance" - which totalled £224.5million.

Interestingly, following the hearing, H's long standing solicitor was called to give evidence.  The solicitor gave evidence that, not long before the trial and in March 2015, H had moved the art collection and £600million out of the Panamanian company and into a new company - a trust structure.  A supplementary judgment merely confirmed that these entitles were no more than ciphers and the alter-ego of H.  The transactions were set aside under s.37 Matrimonial Causes Act 1973.

This judgment has been widely reported in the press as being one of, if not the biggest divorce settlement ever made by the London courts.  This judgment also serves as another example of the courts rejecting an argument run on the basis of a special contribution.

Assoun v Assoun [2017] EWCA Civ 370 (Lord Justice Beatson and Sir Ernest Ryder)
A post-script to the Assoun cases which were covered in last month's update.  The wife ("W") successfully applied for payment-out of £30,000 (together with accrued interest) that had been ordered to be paid into court in the earlier proceedings.  The basis of the application was that W was still owed more than that sum by the husband ("H") and that H had lost his appeal against the Hadkinson order to which the £30,000 related.  H's objections were roundly rejected.

Christoforou v Christoforou [2016] EWHC 2988 (Fam) (Mr Justice Moylan)
This is an unusual judgment where much of the final order is still awaited because of various uncertainties, not least an as yet unquantified tax liability. Instead, Mr Justice Moylan (as he then was) addresses issues between the parties, providing a framework for the application of the sharing principle.  This was a big money, long marriage where the resources were valued at £50-55million and the marriage was 30 years plus. Despite the fact that neither party had any wealth when they married, both were seeking to justify a departure from a 50:50 division. 

Early on, H's conduct was described as "contrary to the duty placed on parties to help the court to further the overriding objective".  Full disclosure was one of the issues Moylan J had to address, along with beneficial ownership of shares, add-back arguments, responsibility for tax liabilities, identification of non-matrimonial assets, third party interveners and, finally, the allocation of certain assets.  A very fact-specific case which provides a detailed analysis of applying the law to the facts. 

Marr v Collie [2017] UKPC 17 (Lord Neuberger, Lady Hale, Lord Kerr, Lord Wilson, Lord Sumption)
Here, we have a Bahamian case where the Privy Council provided clarification of Stack v Dowden and Jones v Kernott and guidance as to the circumstances where a resulting trust analysis will be appropriate in a domestic-commercial relationship. 

To recap, Stack v Dowden established that where a domestic property is conveyed into the joint names of cohabitants, without any declaration of trust, prima facie both the legal and beneficial interests in the property are joint and equal. That position could only be displaced if the parties' whole course of conduct in relation to the property showed a common intention that their beneficial interests were to be different from their legal interests. The same principle arose in Jones v Kernott [2010] UKSC 53 concerning the beneficial interests in a family home acquired in joint names by an unmarried couple.

M and C had been in a relationship for some 17 years.  They had acquired several properties, a boat, a truck and an art collection.  Whilst one property had been purchased as their home, the others had been investments and buy-to-lets.  The agreement between the couple was that M would pay for the property and C would carry out the redevelopment works. 

The properties had been put into joint names without specifying the parties' respective beneficial interests. And when the relationship ended, M sought a declaration as to the beneficial ownership.  He claimed that the presumption of a resulting trust in his favour should be upheld without him having to prove it.

At first instance, the judge ruled that all the properties and other items were held on trust for M.   The trial judge relied upon the analysis of the Court of Appeal in Laskar v Laskar [2008] 1 WLR 2695 that the Stack v Dowden presumption (that beneficial ownership follows the legal ownership) only applied to properties acquired as the domestic home, and that investment properties even if acquired by cohabiting couples were to be treated by reference to "classical" resulting trust principles.  The burden had been on C to rebut the presumption of a resulting trust in M's favour and he had failed to discharge it. 

C, largely successfully, appealed.  The Bahamian Court of Appeal found that there was sufficient to show that there had been a common intention that M and C would share the beneficial interest in the investment properties equally as well as in the boat and truck.  M appealed to the Privy Council. 

The Privy Council found that both lower courts had failed to properly consider and make findings on the parties' intentions at the time of the acquisition of the investment properties.  It accepted M's evidence that he had not intended to confer an equal beneficial interest in the investment properties on C, and that the decision to have the properties conveyed into joint names was on the basis that C would make an equal contribution to their development – a contribution that never fully materialised.  M's appeal was allowed.

Significantly, the Privy Council emphasised that it did not regard the Stack v Dowden judgment to be limited to the "purely domestic setting", and that it applied also to investment assets.  The implications are potentially broad given the reduced role of the presumption of resulting trusts in relation to a couple's assets. 

The case has been remitted back to the Supreme Court of the Bahamas for a determination of ownership of the investment properties.