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Finance and Divorce Update October 2017

Naomi Shelton, Associate with Mills & Reeve LLP, analyses the news and case law relating to financial remedies and divorce during September 2017.

Naomi Shelton, Associate, Mills & Reeve LLP

Naomi Shelton, Associate for Mills & Reeve LLP 

As usual, this month's update is divided into two parts: News in Brief and Case Law Update.

A. News in Brief

Two million married couples missing out on tax break
Nearly half the couples eligible to claim marriage tax allowance are still failing to do so, according to HMRC.  The tax allowance, worth £230 a year, can be claimed by married couples or those in a civil partnership if they meet certain conditions. For the BBC News coverage of this item, click here

President encourages profession to embrace technology
At the inaugural YRes Conference, the President of the Family Division spoke of the need for the family justice system to recognise that people increasingly expect to access services online.  Whilst acknowledging that not every case was suitable for online hearings (particularly care cases), the President said that more cases would be resolved using digital technology in the future. 

Elsewhere, Sir James Munby and Kevin Sadler (Deputy Chief Executive and Courts and Tribunals Development Director) published a joint paper updating the profession on the future for e-working within the family courts. 

Labour-backed Bach Report calls for more generous legal aid system
The study focuses criticism on the coalition government's LASPO Act 2012 and recommends that an additional £400 million a year should be spent restoring access to a more generous system of legal aid.  In particular, the Bach Report states that a right to legal representation in court should be restored in large areas of family law, especially cases involving children. 

Flexible court hours pilot is postponed
The controversial flexible court hours pilot has been postponed until February 2018. Susan Acland-Hood, HMCTS Chief Executive, confirmed in a blog post on 21 September that it had been agreed to delay the start of the individual pilots until satisfied that there is a robust, independent evaluation system in place; and until the HMCTS has taken more time to engage and discuss the pilots, picking up on comments made on how they could be improved.

Proposed McKenzie Friend fee recovery ban to be reviewed
The judiciary is set to reassess some of its proposals for regulating the fast-expanding 'McKenzie friend' sector after a consultation on banning fee recovery received 'large numbers of responses'.  The Judicial Executive Board has decided to set up a further working group to review its original proposals in light of the 'large number of responses, covering a broad range of issues'.  In February last year, the judiciary proposed banning fee recovery by McKenzie friends and recommended that unqualified advisers sign up to a code of conduct.  It also suggested that the courts' approach to McKenzies should be legally codified. For coverage in The Law Society Gazette, click here.

Launch of International Family Law Arbitration Scheme
Professor Patrick Parkinson and David Hodson OBE, launched IFLAS at the 16th Australian Family Lawyers Conference.  The website has details of the arbitrators participating and the forms to start the process. 

President of the Family Division issues circular in respect of revised Practice Direction 12J – Domestic Abuse
The revised Practice Direction 12J came into force on 2 October 2017. 

The Children and Social Work Act 2017 (Commencement No. 1) Regulations 2017
The Commencement No 1 Regulations bring specified provisions of the Children and Social Act into force on 31 October 2017. For the Regulations, click here. For the Act itself, click here.

Civil partnerships in England and Wales rise by 3 per cent in 2016
Figures published by the Office of National Statistics show that civil partnerships rose by 3.4 per cent compared with the previous year.  Resolution has urged professionals and Parliament to consider all types of modern families affected by relationship breakdown, including civil partnerships and cohabiting couples.

B. Case Law Update

Hart v Hart [2017] EWCA Civ 1306
(Lord Justice Lloyd Jones, Lord Justice Beatson and Lord Justice Moylan)

The husband ("H") (aged 80) and wife ("W") (aged 59) had been married for 23 years and had two adult children. At the start of the marriage, H had substantial wealth, having built up his own businesses. W had no assets except a Porsche. By the time they divorced, the parties' combined capital resources were £9.4 million comprising:

(1) assets in their joint names of £1.64 million;
(2) assets in H's name of £490,000;
(3) assets in W's name of £1.75 million; and
(4) a family trust worth £5.5 million.

At the final hearing of W's financial remedy application, HHJ Wildblood QC concluded that an equal division of the assets would be unfair because of H's pre-marital wealth.  In considering how that wealth should be reflected in W's award, he sought to apply the formulaic approach taken in Jones v Jones [2011] EWCA Civ 41, [2011] 1 FLR 1723. However, he was unable to apply the approach with any degree of precision because there was no reliable evidence of H's pre-marital worth.  In part, that was because H had taken an obstructive approach to the proceedings and had provided incomplete disclosure. 

HHJ Wildblood therefore took a ''multi-faceted" approach which provided him with a "bracket".  This involved four alternative analyses of the basis for W's award:

(1) the conventional ''needs" analysis produced the lowest figure – £3.47 million;
(2) a "mingled assets" calculation was based on providing W with half of the assets in the parties' joint names, half the assets in W's sole name, W's own non-matrimonial assets and 25% of the trust funds.  It produced a figure of £3.53million;
(3) the "non-matrimonial" calculation sought to remove both parties' non-matrimonial property from the equation before dividing the remaining figure equally to produce an award to W of £3.85million; and
(4) finally, the highest award of £3.94 million was produced by equal sharing of the parties' joint assets, and W's retaining her own assets and 25% of the trust assets, but this ignored the origins of the capital.

HHJ Wildblood found that the conventional needs analysis was both the most scientific and principled approach and he based his award on it, with W receiving £3.56 million, including maintenance arrears of £92,000.  He found that the "needs" figure and the one obtained using the "mingled" approach were, in reality, no different.  However, he was clear that the figure coming out of the "non-matrimonial" calculation was "thoroughly unreliable" because it presumed a figure of £2.6million for H's pre-marital wealth and that "equal sharing" was also on a "shaky foundation" because it ignored the origins of the wealth that it included. 

W appealed. She argued that to justify an unequal division, the court had to undertake a detailed evidential inquiry, clearly identifying H's pre-marital assets, assessing their value at the start of the relationship, and determining whether they had become matrimonial in character. She argued that because H's litigation misconduct had made such an inquiry impossible, those assets should be treated as matrimonial property and she should receive half. Further, she argued that the judge had erred in basing the award on the needs analysis when that had produced the lowest figure.  His decision to adopt that approach had been arbitrary and, moreover, incorrect, denying her a greater award.  She sought £5.1million, being half of the assets plus her own non-matrimonial property.  This left H with £4.3 million.

H argued that the award had been justified by the agreed fact that H had been wealthy at the start of the parties' relationship and it had not been necessary for the judge to undertake a full accounting exercise.  The approach adopted had reflected his conclusion that a sum calculated by reference to W's needs was fair. 

In the Court of Appeal, Moylan LJ gave the leading judgment and dismissed W's appeal.  In doing so, he endorsed a broad, flexible approach to determining the application of the sharing principle to cases involving non-matrimonial property.

HHJ Wildblood's inability to use the formulaic approach did not mean that he should have awarded W a half share of the assets. Litigation misconduct or evidential deficiencies do not mandate a particular outcome. The judge had had to use the available evidence to make findings about the scale of the resources, drawing inferences where appropriate.

The judge had been entitled to find that H had substantial wealth at the start of the relationship, and that an equal division would be unfair to him. His inability to make findings about the value of H's pre-marital wealth, the course of his businesses during the marriage and the extent of any mingling, did not prevent him concluding that an unequal division was fair. Moreover, he had not erred by basing the award on a needs analysis. He considered the alternative calculations to be unreliable, and he had performed the exercise of cross-checking for overall fairness endorsed in Jones. The judge had been entitled to conclude that anything higher than a needs-based award would not be fair. That decision was within the bounds of his discretion. 

And that, of course, was the issue to be decided in this case.  How do you reflect the existence of non-matrimonial property in the overall award?  Should the court always adopt a formulaic approach or should it always take a broader view? 

In his considerations, Moylan LJ highlighted that it was necessary in all sharing cases to work out what is and what is not matrimonial property; otherwise the sharing principle cannot be properly applied.  Here it had been necessary to determine what element of the parties' assets had its origins in pre-marital wealth, what was the product of active and passive management, and whether the pre-marital wealth had become matrimonial in character. However, this inquiry could have varying degrees of specificity and a detailed evidential inquiry is not always required.  The formulaic approach does not have to be followed in every case. 

Moylan LJ went on to say that it was not always clear whether property was matrimonial or non-matrimonial, and in some cases it could result partly from marital endeavour and partly from a source external to the marriage. In these cases, it would be artificial to seek to identify a sharp dividing line, and the costs could quickly become disproportionate. 

Practitioners may now be left with questions about how to advise clients as to the court's likely approach, beyond a broad assessment to achieve overall fairness.  Moylan LJ advocated the following approach when faced with arguments over non-matrimonial property: