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Divorce & Financial Remedy Update, October 2018

Naomi Shelton, Associate, Mills & Reeve LLP considers the news and case law relating to financial remedies and divorce during September 2018








Naomi Shelton
, Associate, Mills & Reeve LLP

As usual, this update is provided in two parts:

Part One: News

"No-deal" guidance note reveals how family law could work post-Brexit

Amongst the recently published "no-deal" Government guidance notes, is one relating to the handling of civil legal cases that involve EU countries.  Insofar as family law is concerned, where Hague Conventions (which the UK is already a signatory to) cover the same areas as Brussels IIa or the Maintenance Regulation, it is intended that the existing EU laws will be repealed and replaced with the provisions in the Conventions.  The note advises that where there are differences between the EU rules and the Conventions, the Conventions provide "an effective alternative". 

Insofar as divorce jurisdiction is concerned, it is intended that the different bases set out in Article 3 Brussels IIa will be replicated in English, Welsh and Northern Irish law (except for joint application) along with sole domicile of either party; the Scottish government is still considering the best approach for Scots law.  The lis pendens rules would be repealed and replaced by forum conveniens. 

For cases involving jurisdiction for maintenance, the government plans to adopt the position prior to the introduction of the Maintenance Regulation, with jurisdiction varying depending on the type of maintenance being sought and in which part of the UK the case was brought. 

The EU Service Regulation and the Taking of Evidence Regulation would both be repealed, being replaced with the equivalent Hague Conventions.  The Mediation Directive and Legal Aid Directive would also both be repealed. 
Insofar as transitional provisions are set out, cases already running on 29 March 2019 will proceed under the current rules although there is no guarantee that the EU courts will follow the same principle nor accept or recognise judgments stemming from those cases. 


Ministry of Justice consultation on no-fault divorce opens

On 15 September 2018, the Ministry of Justice published the consultation paper "Reform of the legal requirements for divorce". The consultation will close on 10 December 2018.  It asks for views on replacing the current requirement to establish one or more of the five facts to show that a marriage has broken down irretrievably, with a process based on notification. The Government is proposing to remove both the ability to allege fault and the ability to contest or defend a divorce.

In his Ministerial Foreword, David Gauke, Lord Chancellor and Secretary of State for Justice, referred specifically to the Owens case, and said that it had generated broader questions about what the law requires of people going through divorce and what it achieves in practice.


National Family Mediation publish submission to LASPO post-implementation review

Highlighting that proper enforcement of the court's existing powers is all that is needed to improve the take-up of family mediation, the submission notes that MIAMs are being bypassed at every stage and that the courts are failing to embrace changes which encourage mediation. 


Divorce rate falling amongst newlyweds

The Marriage Foundation has reported that divorce amongst newlyweds is at its lowest level in 30 years.  The proportion of couples divorcing after three years has more than halved since rates peaked in 1993.  For couples married for five years, divorce is down by 39%.  The drop appears to be the result of fewer women filing for divorce, said the charity. 


Part Two: Case Law Update

LKH v TQA Al Z (Interim maintenance and pound for pound costs funding) [2018] EWHC 2436 (Fam) (Mr Justice Holman) 24 July 2018

Previously, Mr Justice Holman had ordered that the husband pay the wife interim maintenance at the rate of £29,500 a month plus a cost allowance of £40,000 a month (see [2018] EWHC 1214 (Fam)). 

The husband failed to comply with either order; however, in one month he had paid £95,000 to his new solicitors despite claiming he had no money with which to support the wife or the children.  With arrears totalling £230,000, the wife applied for a "pound-for-pound" order – for every £1 the husband spent on his lawyers, she sought £100 – with a debarring order if he failed to comply. 

Whilst Holman J was willing to make the pound-for-pound order, he didn't do so in the terms the wife sought.  The judge noted that the purpose of a pound-for-pound order is to create "an equal or level playing field"; so, for every £1 the husband spent on his solicitors, £1 was to be paid to the wife.  Holman J refused to make the debarring order stating that the court should always give maximum encouragement to litigants to participate and co-operate in proceedings; it is a strong sanction to debar a litigant and is not always a helpful step where, as in this case, the husband had yet to provide financial disclosure. 

However, Holman J stated that there was an alternative approach available to him.  The Judge decided to injunct the husband from paying any money over to any solicitors he instructed unless he paid an equivalent amount to the wife's solicitors.  This did not prevent the husband from obtaining legal advice and representation; it merely required him to ensure that the same was available to the wife. 


A v A (His Honour Judge Booth) 6 July 2018

This judgment (reported with neutral citation) considers the court's approach to "needs" when either party is raising issues of conduct and / or non-disclosure. 

The couple, both aged 50, separated following a long marriage.  There were three children – 20, 18 and 8 – all of whom lived with the wife.  The youngest child was at a fee-paying school. 

The couple had run a successful rental property business which had afforded them a high standard of living but there was little net equity in either the 30 rented properties (net equity £75,000) or the family home (net equity £301,000). 

They were both looking for a clean break; however, there were also allegations that the husband had deliberately hidden or not disclosed assets to keep them from the court's reach and both ran add-back arguments. 

H's position was that everything should be sold, with the first £699,000 coming to him and the rest being shared 50:50.  On the valuation of the assets accepted by the court, this left the husband with everything (plus his earning capacity as a qualified accountant) and the wife with nothing and no earning capacity.  W sought the transfer of the family home to her together with a sufficient number of the rented properties to provide her with an income.  She also wanted child maintenance and the husband to pay half of the school fees. 

Drawing a number of adverse inferences against the husband, HHJ Booth concluded that the husband had indeed deliberately put assets beyond the reach of the court and that the value of those assets was likely to be substantial given the lengths he had gone to hide them.  The value put on those assets was a minimum of £485,000 plus a pension of undisclosed value. 

In the circumstances, HHJ Booth dealt with the assets to give the fairest possible outcome to the wife. The family home was transferred to the wife (subject to mortgage with suitable indemnities), together with 18 out of the 30 rental properties.  17 of those were already in her sole name; the husband was ordered to transfer the 18th to allow the wife to be able to sell it and use the proceeds to finance the financial restructuring of the portfolio.  The husband retained the other properties.  On the figures in front of the court, this resulted in the wife being awarded £1.4million and the husband with £160,000 plus his undisclosed assets and investments.  No child maintenance nor school fees orders were made.


R v K [2018] EWFC 59 (Mr Justice Baker) 4 September 2018

This was a case in which the judge considered whether the husband's liabilities had been fabricated or exaggerated in an attempt to defeat the wife's claims.

The couple, both aged 52, had been married for 25 years.  There were three children (all in their late teens or early twenties). 

The family's assets had been accumulated during the course of the marriage.  The husband had been a successful property developer and his success had given the family a luxurious lifestyle which had included a holiday home in France, private charter jets, a yacht, an art collection, expensive cars and domestic staff. 

When the couple initially separated in 2016, the husband had disclosed that he had surplus assets of almost £22million. 

The husband had not engaged with the proceedings.  His financial disclosure had been piecemeal, he had failed to provide information to the single joint expert instructed to value his business interests and he had failed to comply with an MPS order meaning arrears of up to £485,000 were outstanding.  He alleged that both his business and the lifestyle the family had previously enjoyed had been sustained only on borrowed money and that the couple had lived beyond their means.  He pointed to significant debts that he owed (£20million) and that HMRC had presented a petition for bankruptcy against him earlier in the year. 

The wife calculated that there were total net assets available of £3.4million taking into account some, but not all, of the liabilities the husband had pointed to.  She also sought to run an "add back" argument based on the husband's spending post-separation.  In total, she claimed that the husband had spent £4.2million in the two years since they separated and sought an add-back of £1.2million. 

Accepting that the finances no longer allowed the couple to maintain their previous lifestyle, the wife sought (i) the sale of the family home with the net sale proceeds being transferred to her together with the three French properties (which she planned to sell to alleviate her immediate financial position), (ii) 50% of the net sum received by the husband on the completion and realisation of three London development projects (payable in a series of lump sums), (iii) child maintenance of £3,000 a month and (iv) interim periodical payments of £10,000 a month until the wife had received a minimum of £1.6million (and thereafter nominal payments until the final lump sum had been paid).  The husband would retain his business interests and a flat in Knightsbridge. 

The husband put a negative value on the pot of assets, being -£8.1million.  He did not accept he had deliberately or wantonly dissipated assets but rather he was a "flawed character" who had spent irresponsibly.  He proposed that the family home be sold with the net sale proceeds being split equally, he would retain the Knightsbridge flat, two of the three French properties, the art collection and his business interests.  The wife meanwhile would receive the sale proceeds from the third French property and 50% of the sale of the contents of the family home. 

The main issue before Mr Justice Baker was the extent to which the husband had exaggerated the level of his debts.  Finding the husband to be an unreliable and, at times, untruthful witness, Baker J concluded that particular debts of the husband (totalling £8.9million) were a fiction created to defeat the wife's claims.  The judge also accepted that the husband had other undisclosed business ventures and had spent money on himself whilst at the same time failing to comply with the MPS order. 

Baker J ordered that the family home and one French property be sold with the net sale proceeds being transferred to the wife; she would also receive a lump sum of £2million (payable by 1 September 2021).  The other two French properties and the Knightsbridge flat would be transferred to the husband, with the cars, contents of the family home and artwork being divided by agreement.  The husband was also ordered to pay child maintenance of £3,000 a month and spousal periodical payments of £10,000 a month until the payment of the lump sum. 

Baker J reserved the issue of costs pending written submissions from the parties' counsel on, it is presumed, the issue of the husband's litigation misconduct.

27.9.18