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Finance and Divorce Update, February 2018

Naomi Shelton, Associate and Frances Bailey, Principal Associate with Mills & Reeve LLP, analyse the news and case law relating to financial remedies and divorce during January 2018.

Frances Bailey Principal Associate and Naomi Shelton, Associate, with  Mills & Reeve LLP

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

A. News in brief

The President of the Family Division sets out his vision for Financial Remedies Courts

In his 18th View from the President's Chambers, Sir James Munby sets out his vision for the financial remedy procedure – what he terms the "Cinderella of family justice".

The President states that his 'core ambition for financial remedy work is to improve significantly both the application of procedural justice and the delivery of substantive justice'. He considers that procedural justice will be bettered by the appointment of a cadre of specialist judges to the Financial Remedies Court (FRC) and by a process of early allocation of a case to the right judge at the right level at the right place, so as to ensure maximum efficiency. It will be bettered by the application and enforcement of standard directions and interim orders and by ensuring that FDRs (where the majority of cases settle already) are conducted with consistency, with sufficient time being allowed not only for the hearing but also for judicial preparation.

The basic concept of the FRC, which builds on both the Family Court and regionalised Court of Protection models, is as follows:

The FRC will be piloted in three areas, starting in February or March 2018: London, the West Midlands and South-East Wales. Further pilots will follow after Easter 2018.

The Family Procedure Rule Committee at its meeting on 6 February 2018 will be presented with a paper prepared by Mostyn J and HHJ Hess indicating proposed amendments to the FPR and a draft revised Form A (attached to the View), designed to be used for all types of financial remedy application.

In relation to the de-linking of divorce and 'money', the President recognises the concerns expressed by many in response to the suggestion that the question in the petition relating to financial claims should be removed. What is now proposed as the appropriate way forward is:

For the full text click here.

Changes to evidence requirements come into effect from 8 January 2018

The changes form part of a series of reforms the government is making to support victims of domestic violence.  There is no longer a time limit of five years on abuse evidence and the range of evidential documents has been widened. The fact sheet setting out the evidence of domestic violence that will now be accepted by the LAA  for the purpose of accessing family law legal aid can be found here.

HMCTS introduced five new forms for the application in the Family Court.

They comprise new forms: Form B, Form A1, Form A and C100 (which took effect on 8 January 2018).

Consultation launched on transforming the family court estate

The MoJ is seeking views on how the court and tribunal estate is to be transformed, to make access to justice quicker, easier and fairer.  The consultation follows the introduction of facilities for claims, including divorce, to be made online.  Fully virtual options (where a case is heard by on an online video hearing) are also being tested for some cases.  Five separate, regional consultations have been launched to seek opinions following numerous closures of courts across the country, where it is thought that court work can be better allocated to other courts in close proximity.

DWP publishes figures in which 85% of parents with family-based child maintenance arrangements say it works well

The findings show that out of 55,900 parents that had contact with Child Maintenance Options between May and July 2017, 75% had a child maintenance arrangement at the time of the survey (translating into 41,800 child maintenance arrangements).

The President of the Family Division re-issues Practice Guidance: Standard Financial and Enforcement Orders [2018' Fam Law 89, with related orders, (as corrected since their first issue in November 2017)

The re-issued Guidance and corrected forms are available online here.

B. Case Law Update

Yedina v (1) Yedin (2) Skelling Ltd (A company incorporated in the BVI) [2017] EWHC 3319 (Ch)

The case concerned a couple who married in the Ukraine in 1986 and had had two children. The wife ("W") had become resident in the UK in 1998. The relationship broke down in 2008 and W "sought to secure her position in relation to property ownership and maintenance".  At that time, it was agreed by the couple that several properties would be transferred to her.  They entered into a deed which set out the husband's ("H") promise to pay the mortgage on two of the properties being transferred to W as well as detailed maintenance arrangements of £220,000 a year. 

W sought to enforce that agreement, claiming that H had repudiated the agreement and that she was entitled to damages as a result.  She also sought to enforce a judgment concerning the proceeds of sale of a London flat sold by the second defendant.  A freezing order was in place. She claimed that the flat was held by the company as nominee for H or, alternatively, that H was the beneficial owner of shares in the company held by his business partner.  H argued that, insofar as the two properties were concerned, it had been agreed that they were merely to be held in trust and he counterclaimed for a declaration that various properties vested in W were held on a family trust (for himself, their two children and Mrs Yedina). 

H sought to rely on a wide range of defences to convince the court that the deed as a whole was invalid as well as medical evidence relating to his mental health which he claimed had affected his ability to understand both the content and effect of the deed. 

After complex consideration of the many properties and offshore companies involved in the history of the case, and consideration of H's range of defences as to the purported invalidity of the deed, the judge held that the deed was a valid and enforceable contract.  W was entitled to damages given H's repudiation. 

Mr Justice Mann found that H had known the effect of the document he was signing. He had not thought that it was merely a statement of intention; he had understood its nature and contents, known exactly what financial provision for W meant and known exactly what he was signing.   To the contrary, H's asking for amendments to be made demonstrated he had understood what he was signing.  Whilst unfamiliarity with a language could amount to a disability, here H was found to had sufficiently competent English to be able to understand what he was signing.  There was no evidence that his mental state had disabled him in any material respect from understanding what he was being asked to do.  Indeed, Mr Justice Mann concluded that H was "not the sort of person to sign anything without understanding what he was being asked to sign". 

H had sought to rely on both actual and presumed undue influence in order to argue that the deed should be set aside.  Regarding actual undue influence, he argued that W had had the capacity to influence him as his former wife responsible for raising their children.  However, Mr Justice Mann pointed out that for actual undue influence to be found, there must be "overt acts of improper pressure or coercion such as unlawful threats" and this was simply not present. The judge highlighted in particular the amendments that Mr Yedin made to the agreement and explained that these acts were "inconsistent with the application of improper pressure".

The judge also went on to find that the there was no successful claim for presumed undue influence. The main argument put forward by H was that W "had acquired a degree of "dominion" over him".  The judge explained that, to prove presumed undue influence, H had to "establish a relationship of confidence and a transaction which calls for an explanation for which no explanation is forthcoming". He had failed to establish either and it was stated that the couple were actually "independent of each other".  The maintenance in the deed was "not so extravagant" that it called for an explanation because H was an extremely wealthy individual.

Rejecting unconscionability too, Mr Justice Mann noted that it appeared that H had not had separate legal advice on the deed; however, none of the other requirements of the doctrine were met.  Mr Justice Mann found that H was in no sense a poor or ignorant person; he was a seasoned businessman and politician who had acquired considerable wealth in the Ukraine in the post-communist era.  The deed had been a fair and reasonable transaction, which he had entered into of his own free will, and W had in no way imposed oppressive terms or behaved in a morally reprehensible manner.  Neither could the deed be said to be void for uncertainty. 

Mr Justice Mann came to the final conclusion that the deed was valid and enforceable. He stated that it had been repudiated and that the repudiation had been accepted by H.  As a result, the judge awarded W over £2 million in damages, demonstrating the court's unwillingness to set aside a contract without good reason.  The deed had been a "fair and reasonable transaction" and H had entered into it willingly. There was therefore no good reason to set aside a perfectly valid contract.

Insofar as the ownership of the second defendant company was concerned, Mann J found that it was effectively H's company.  His business partner's purported interest in the company had been contrived to resist W's claims.  However, there was no evidence that the company held the flat as pure nominee for H.

H's counterclaim was dismissed. 

Whittingham v Whittingham [2017] EWHC 3318 (Fam)

This case concerned 'protracted and highly contentious proceedings' following the parties' divorce in August 2013, the antagonism of which was added to by the fact both parties worked in the same area, as training pilots, and were in commercial competition with each other.  The final financial remedy order was made in March 2015 and was followed by enforcement applications in November 2015, which resulted in the application of a receiver in May 2016.  The husband appealed the order appointing the receiver.  His appeal failed.  Following that the husband was "assiduous in his attempts" to have the receivership discharged.

The application before the Court on 24 October 2017 was the husband's application, made pending a full appeal against an order of March 2017 where the District Judge refused his application to discharge the receivership, for permission to appeal an interim order dated 14 August 2017.  That 14 August 2017 interim order had (a) granted a stay of payment of the lump sum but (b) refused to suspend the receivership pending the full appeal against the order refusing discharge (albeit it had been agreed that the receivership would be held in abeyance pending the full appeal hearing).

The appeal court found the husband's application was without merit, ill-founded and a wholly disproportionate misuse of procedure.  Ms Justice Russell commented that the husband was essentially seeking to argue the substance of the pending appeal and that to say it was 'disproportionate' bordered on euphemism.  The husband's application was refused.

O'Connell v Lovell (divorce: property) [2017] EWFC B99

O'Connell v Lovell also involved an enforcement application, following a divorce in February 2017 and a final financial order made following a final hearing in April 2017.  A key feature of the order for the purpose of this judgment was the order that the wife could remain in the flat she occupied but which was owned by the husband (the first floor flat) until the earlier of (a) 24 October 2017 or (b) completion of the sale of the ground floor flat of the same property (which was in the joint names of the parties).  She gave an undertaking to vacate and the relevant warning notices were given and forms signed.

Upon sale of the ground floor flat, the wife was due to receive substantial sums (£1.4m to £1.5m) in addition to having already received sums approaching £250,000 from the husband, which the wife said had been used to discharge her indebtedness.  The parties had not been successful in their attempts to sell the ground floor flat but it was always envisaged, pursuant to the wife's undertaking, that she may have to move out of the first floor flat before receiving those funds.

The wife refused to move out on or following 24 October 2017.  The husband applied on 14 November 2017 for her committal to prison for breach of her undertaking.  The hearing of the husband's application came before HHJ Hess.  At that hearing the wife did not seek to challenge the fact there had been a breach, rather she asked that the judge exercise his discretion not to enforce it.

HHJ Hess commented that, firstly, a person who gives an undertaking should comply with it.  Second, he turned his mind to whether there was a 'human and practical answer' which would allow the wife to use the ground floor flat instead but found that that was not possible given the intention of the original order was for the husband to have complete control over who occupied that flat pending sale.

He therefore concluded that, breach being proved, he should make a committal order but that the wife should be given a reasonable length of time to comply and move out.  He therefore ordered that the wife be committed to prison for a period of two months, suspended for two years to effectively prevent the wife from moving back in within that period, and also suspended on the condition that within 28 days she vacate the first floor flat.

On the question of costs, he noted that this was a 'clean sheet' case.  Applying the general principle of costs, and on the basis the husband had been successful, he made a costs order in the sum sought by the husband (£24,085.20) noting that committal applications are very serious and have to be prepared properly, hence the level of costs being justified.  The husband had agreed that those sums should be taken out of the wife's share of the ground floor flat sale proceeds.

Whitlock v Moree [2017] UKPC 44

Whitlock v Moree
is a Privy Council decision (and as such only of persuasive authority in the English courts), on appeal from the Court of Appeal (Bahamas) in relation to the treatment of joint bank accounts.

Two friends (Mr Lennard ("L") and Mr Moree ("M")) had been the account holders of a joint account with First Caribbean International Bank ("FCIB").  The funds in the account ($190,000 at the time of L's death) had all been contributed by L alone.  He died in 2010. 

When setting up the account, the friends had signed a form containing the following provision ("clause 20"):

"JOINT TENANCY: Unless otherwise agreed in writing, all money which is now or may later be credited to the Account (including all interest) is our joint property with the right of survivorship. That means that if one of us dies, all money in the Account automatically becomes the property of the other account holder(s). In order to make this legally effective, we each assign such money to the other account holder (or the others jointly if there is more than one other account holder)."

The purpose of the account was "to pay utility bills".

Following L's death, M converted the account into a joint account with his wife.  Meanwhile, the legally qualified executor of L's estate obtained information about the account and included it in the assets of the estate.  M, as the second executor, signed the executor's oath.

Under L's will, there were three residuary beneficiaries, who included M. 

In July 2013, the two other residuary beneficiaries sought declarations that the balance held in the FCIB account was held by M on trust for the beneficiaries rather than having passed to M alone by survivorship.  At first instance, and in the Court of Appeal, it was treated as common ground that a resulting trust of the money in the joint account was presumed in favour of L's estate unless M could discharge the burden of proving that L intended to make a beneficial gift of that money to him.  At first instance, it was found that he had not discharged that burden. The Court of Appeal, reviewing the same evidence, came to the opposite conclusion.

The residuary beneficiaries appealed, their main submission being that the Court of Appeal had been wrong to interfere with a fact finding exercise by the Judge.

The Privy Council framed the issue quite differently than the lower courts, identifying the two key questions as being whether (a) clause 20 dealt with beneficial ownership as well as bare legal title and (b) whether a written application containing clause 20 was determinative of beneficial ownership of the account on death.

The Privy Council upheld the Court of Appeal decision and dismissed the appeal.  Lord Briggs gave the majority judgment (Lady Hale and Lord Sumption agreed).

The majority thought that, as the previous cases on this subject in many common law jurisdictions could not be reconciled, the Privy Council had to go back to basic principles to resolve the problem.  They reviewed the jurisprudence, noting that where a written instrument includes a statement as to beneficial ownership, that instrument is usually conclusive and the identification of the beneficial interests will depend upon the construction of the document.  In those circumstances, recourse to constructive, resulting or implied trusts is impermissible and the quantification of those interests is a question of law, not fact.  They found that those principles were not confined to beneficial interests in real property, and applied equally to monies in a bank account where the account opening document was akin to a TR1.  They commented that the principle that a statement as to beneficial ownership was binding was not impacted by whether the attention of the account holders were drawn to the declaration (absent mistake, fraud, duress etc.).

In relation to these account opening documents, the majority were satisfied that they contained a "pellucidly clear declaration" that the survivor was to have the beneficial interest in the joint account, regardless of contributions.  As such, they dismissed the appeal.

Lord Carnwath (with whom Lord Wilson agreed) dissented from the majority.  He considered that joint bank accounts could not be treated in the same way as real property.  Joint bank accounts were often held, he said, as a convenient way for one person (the funding account holder) to facilitate payments. The account opening documentation often stated the surviving account holder would be solely entitled to the account simply to allow the bank to safely continue to deal with that account holder.  In his view, to allow bank forms drafted to protect the bank to dictate beneficial interests (which were irrelevant to the bank) between account holders was to superimpose upon those documents a purpose for which they were never designed. He thought it was absurd to think ordinary people would normally document a gift of substantial funds by signing bank account opening forms rather than in some more appropriate fashion.

Turning now to two Inheritance (Provision for Family and Dependants) Act 1975 cases.

Lewis v Warner [2017] EWCA Civ 2182

Mr Warner ("W") was an elderly but financially comfortable cohabitant of Mrs Blackwell ("the deceased") and they had lived together for some 19 years in Mrs Blackwell's property at the time of her death.  The sole beneficiary of her estate was her daughter Mrs Lewis ("L").

On Mrs Blackwell's death, W wished to remain in the property.  L refused to allow this unless he purchased it from the estate for £425,000.  W rejected that offer (considering it an overvaluation) and L therefore brought possession proceedings against him.  W filed a defence and made a separate application under the 1975 Act, seeking an order permitting him to continue living there under the amended subsections 1(1)(ba) and 1(1A), which permit a claim by someone who had been living in the same household as the deceased or as husband and wife of the deceased for a period of two years ending immediately with the date of death.  Of note is the fact that this was the first time the Court of Appeal had had to consider a claim under those subsections.

At first instance, Recorder Gardner QC found that (a) W had been being maintained by virtue of being provided with a roof over his head (b) the deceased's Will failed to make reasonable financial provision for him (c) taking into account a number of factors, a requirement on him to move should be avoided if possible (d) it would be unreasonable for L to have to wait for W's death to sell the property and realise its value and (e) W should therefore be given an "option to purchase" (framed as a transfer of property under s 2(1)(c) of the 1975 Act) for £385,000 (£45,000 more than the single joint expert valuation) so he could continue living there for the remainder of his life.

L appealed and her appeal was dismissed by Newey J.  She appealed again and her appeal came before the Court of Appeal (Sir Geoffrey Vos, The Chancellor of the High Court, Lord Justice McCombe and Lady Justice Asplin).  Sir Geoffrey Vos gave the unanimous judgment of the court.  By the time of the Court of Appeal's judgment, the Supreme Court's judgment in Ilott v Blue Cross [2017] UKSC 17 had been published which the Court of Appeal was therefore able to rely on.

L argued that (a) W could not demonstrate that he needed financial provision, merely that he would 'like' to remain in the property and (b) in any event an order that W were to pay more than the expert valuation for the property did not amount to reasonable financial provision as the court had no jurisdiction to make an order that did not move value from the estate to him.  In response, W relied on the Recorder's findings that he needed to stay in the property due to his age, disability etc.

The Court of Appeal identified that they needed to answer two questions.  Namely, (1) whether the Recorder was right to conclude that the deceased's Will failed to make reasonable financial provision for W and (b) whether the Recorder was entitled as a matter of law to make the order that he did.

In relation to the former, they found the recorder was fully entitled to reach the conclusion he did on the evidence.  They relied on the broad concept of 'maintenance' in the judgment of the Supreme Court in Ilott and noted that the Recorder had found that W needed that maintenance to continue, rather than requiring him to move house.

While taking into account the Supreme Court's strictures as to testamentary freedom, the Court of Appeal found that the Recorder had correctly balanced the interests of the beneficiary (L) and the applicant (W). The fact that W had had no expectation or understanding that he would be able to continue living in the property was, in their view, immaterial and did not impact on the fact he was being maintained at the date of the deceased's death and needed that maintenance to continue.  The need to preserve the status quo for an old and infirm person, outweighed the fact that it was accepted that there was no 'moral claim' by W.

In these circumstances, the Court of Appeal found it was proper for the Recorder to have made the order he did to transfer the property for full consideration.  In relation to the question of jurisdiction, they found that it was not a requirement of the 1975 Act that, in any particular method of reasonable financial provision for maintenance, consideration should move away from the estate.

Sargeant v Sargeant & Another [2018] EWHC 8 (Ch)

In Sargeant, HHJ David Cooke had to consider a 1975 Act claim brought by a widow against her late husband's estate, some ten years out of time.

Mr Sargeant (H) died in May 2005, leaving a Wil dated 20 February 2002.  A grant of probate was made on 30 March 2006 to Mrs Sargeant (W), her daughter and the family solicitor (the first and second defendants).  Mrs Sargeant, however, did not issue her claim until 20 July 2016.  She therefore required the court's permission to proceed.

The permission application was, by agreement, dealt with on the basis of written evidence only.  The first defendant, the daughter, opposed the application.  The second defendant, the family solicitor, adopted a neutral stance to both the question of permission and the claim itself.

W and H had been married for 45 years.  He was a farmer and had inherited a share in a family farm from his own parents.  At the time of his death, H was the owner of substantially all the assets in the family (the value of his estate being c. £3.2m).  W and H had two children, Jeff and Jane (Jane being the second defendant).  Due to a falling out, little provision had been made for Jeff in H's Will, the proceeds of a life policy and personal chattels were left to W and the balance on a discretionary trust of which the beneficiaries were W, Jane and Jane's children.  W and Jane were the trustees

In the period since H's death, the estate grew in value. Planning permission was successfully obtained in relation to part of the farmland and that land was now valued at £8millon.  In addition, an additional portion of land passed to Jane outside of the Will (thanks to her being a partner in the farming partnership) worth a further £2million. 

H had left two letters of wishes, indicating that he wanted to make sure that W was well-provided for during the rest of her life using the income from the various assets in the estate and that he wished a property known as Grafton House to be left to her.

Subsequent to his death, steps were taken to minimise the IHT charged to the estate be way of a transfer out of Grafton House (and other land/properties) to W, with Jane living in one rent free (and indeed it subsequently being transferred to her).  In addition, W was admitted to the farming partnership, again for tax reasons, but on the basis that she would have a fixed salary but no interest in the capital assets.

However, despite the intention in the letter of wishes to ensure W was well provided for, the reality was that the assets in the estate did not produce very much by way of income – like many farms, it was asset rich but income poor.  As a result, from about 2009 W started getting into financial difficulties. She insisted that she needed more income but Jane said her mother was overspending.  When there was a re-structuring of the partnership and a re-designation of the principal place of business, Jane obliged W to sign loan notes for the excess over her salary she was spending from the partnership account.

When the professional advisers suggested in 2012that land should be sold to raise funds for W (conscious of H's wish to make sure W was well provided for), both W and Jane resisted (perhaps conscious of H's desire to see the farm kept as one – or perhaps because the land would become more valuable in the future).  Mary was however concerned about her financial position and that the loan notes would be a debt on her estate and would reduce the assets she could pass on to Jeff and his children (making up for the fact that Jeff had received little on H's death). 

Eventually, in 2016, after years of trying to resolve the situation, W brought a claim against the estate.  W acknowledged that her claim was brought a very long time after the expiry of the initial time bar (indeed, longer than in any reported case in which permission had been granted).  She, however, explained that she had not understood her position as a discretionary beneficiary or the financial implications of her situation until much more recently.  She believed that she had been the owner of half of all the matrimonial assets, she had not understood the discretionary trust arrangements and whilst H had been alive, he had dealt with all the finances.  She had not been prepared for the costs that would be incurred in financing her lifestyle after his death and she had deferred to her daughter's wishes, or placed them above her own, which she felt Jane had abused.  She had also not been alerted to the fact she could make a I(PFD)A claim until 2016 – all the professional advisers had given advice to the family in general and none, she said, had considered her own separate position. 

Jane meanwhile asserted that W had known from the start the effect of the Will and how the discretionary trust operated both as an executor and trustee.  W had been in financial difficulties since 2009 and had resisted repeated advice to sell assets or charge rent, knowing that there was no other available source of cash.  Jane said she regarded Jeff as the driving force behind the claim which, she argued, would not generate any more income for W but would instead see assets transferred to W which would then be passed to Jeff enabling him to benefit from the development value now and thereby evading H's wishes that Jeff should be excluded. 

HHJ David Cooke reviewed the authorities relating to the exercise of the court's discretion to permit an out of time application, and found that, on the evidence, W had not made out a sufficient case for such permission.  He relied on the fact that W had decided to work within the provisions of the Will for a very long period, while knowing she was in financial difficulties and that she could have sought independent legal advice, and indeed had been advised to do so by the family solicitor, but did not take that step for many years.  He considered it difficult to imagine that she had not understood the effect of the Will: she had always been present when professional advice had been taken on the Will drafting, previous Wills had all provided for discretionary trusts insofar as they could keep assets away from Jeff and there had been numerous discussions where W had been advised that the professional advisers were supportive of assets being sold to realise cash for benefit.

The court further found that it unsurprising that there was a reluctance in the family to sell the land: not only had it been against H's wishes but there were hopes that the development value could be realised. 

T v Secretary of State for Work and Pensions and A (CSM) (Child support - variation/departure directions: other) [2017] UKUT 492 (AAC) 8 December 2017

The unsuccessful appeal, heard by the Upper Tribunal Administrative Appeals Chamber ("AAC"), was brought by a NRP ("Non-Resident Parent") against a decision to refuse his variation application on the grounds of the classification of a debt.   The NRP argued that no account of monies he had allegedly made to the PWC ("parent with care"), nor the sums he had spent renovating and improving one of the parties' properties, had been taken into account.  Regulation 12 Child Support (Variation) Regulations 2000 provides for when prior debts can be a category of "special expenses".  However, because the debt was found to have been incurred for the purposes of a trade or business, it fell outside Regulation 12 and could not be taken into account on a variation application. 

CJ v Secretary of State for Work and Pensions and VW (CSM) (Child support - calculation of income) [2017] UKUT 498 (AAC) 15 December 2017

This was an unsuccessful appeal brought by a NRP concerning his child support liability.  The NRP challenged a maintenance calculation from November 2012 (which took effect from 21 April 2009).  The challenge was on the basis that the CSA had closed the case in 2007 and that he was no longer habitually resident in the UK after mid-2006.  He claimed that any assessment of his income had been fundamentally flawed.  It was found that the case had been closed but because the parties had not been notified in accordance with the statutory requirements, the decision was inchoate. 

AO v Secretary of State for Work and Pensions and JA (CSM) (Revisions, supersessions and reviews - late applications) [2017] UKUT 499 (AAC) 17 December 2017

The case concerned the amount of a NRP's income that should be taken into account on an assessment of child support.  The unsuccessful appeal was brought by the NRP on the grounds that the notional sums that he needed to run his business had been wrongly calculated and were not feasible.  A variation was applied for on the grounds of diversion of income in the form of retained profits.  At first instance, it was decided that the company could have and should have paid out half its profits to H without risk. The AAC reiterated that both the money has to be realistically available and the variation has to be just and equitable.  The decision was upheld on the basis that the tribunal had taken into account business sense in ensuring some funds were retained within the business; an appropriate balance had been struck between business prudence and the obligation to pay child support.