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Financial Remedy Update, September 2019

Rose-Marie Drury, Principal Associate, Mills & Reeve LLP analyses the news and case law relating to financial remedies and divorce during August 2019.

Rose-Marie Drury, Principal Associate, Mills & Reeve LLP

As usual, this update is provided in two parts:

A. News

Money Purchase Annual Allowance loophole

Royal London is reporting that a little-known exception to Money Purchase Annual Allowance rules could benefit those going through a divorce.  Since the introduction of "pension freedoms" in April 2015, savers aged 55 or above have been able to take money out of their pensions in chunks rather than turn the whole pension pot into an income for life by buying an annuity. To prevent people from repeatedly taking money out, benefiting from tax free cash, and putting money back in again with the benefit of tax relief, HMRC introduced a limit (known as the Money Purchase Annual Allowance) on the amount people could put back in to pensions once they had started drawing taxable cash. The limit is currently £4,000 per year.  However, the rules permit the withdrawal of the entire fund of a 'trivially' small pension pot under £10,000 without triggering the allowance. 

Royal London are advising that if an individual has two pensions and wants to withdraw less than £10,000, they should consider cashing in a small pension pot in full rather than taking a partial withdrawal from a larger pot, so avoiding triggering the allowance.  As a result, they retain the ability to put up to £40,000 into a pension each year in future, rather than having this slashed to £4,000.

Christian Institute claim no-fault divorce is a "marriage-wrecker's charter"

The charity says that divorce is already at epidemic levels and that the Divorce, Dissolution and Separation Bill will make this worse.  The Institute's director said: "We are already seeing a deeply worrying shift in young people's attitudes, away from Christian marriage and lifelong commitment to your husband or wife. Forty-two percent of marriages already end in divorce but the Government is carrying on as it wants it to be 100 per cent."

Cohabiting couple families continue to grow faster

The number of cohabiting couple families continues to grow faster than married couple and lone parent families, with an increase of 25.8 per cent over the decade 2008 to 2018. The number of same-sex couple families has grown by more than 50 per cent since 2015, with more than four times as many same-sex married couple families in 2018 compared with 2015.  The figures were revealed by the Office for National Statistics which has published its latest survey of trends in living arrangements within the UK.

In 2018, there were 19.1 million families in the UK, an increase of 8 per cent from 17.7 million in 2008. There were 27.6 million households, an increase of 350,000 on the previous year and 1.7 million since 2008. The number of people living alone in 2018 has surpassed 8 million, up from 7.7 million in the previous year, driven by increases in women aged 45 to 64 years and men aged 65 to 74 years. In 2018, one in four young adults (3.4 million) aged 20 to 34 years were living with their parents.

B.  Case Law Update
Lomax v Lomax [2019] EWCA Civ 1467

The matter came before the Court of Appeal as to whether or not, pursuant to rule 3.1(2)(m) of the Civil Procedure Rules (CPR) 1998, an Early Neutral Evaluation (ENE) hearing could only take place if all the parties agreed or not.

Rule 3.1(2)(m) CPR 1998 states that the court may ' take any other step or make any other order for the purpose of managing the case and furthering the overriding objective, including hearing an Early Neutral Evaluation with the aim of helping the parties settle the case.'

The issue arose in Inheritance (Provision for Family & Dependants) Act 1975 proceedings. The Claimant sought an ENE. The Defendant opposed one and considered mediation would be more appropriate. Parker J determined that the court did not have the power to order an ENE when one party refused to consent to the same, although she made clear that the case 'cries…out for a robust judge-led process' which might lead to a resolution by agreement.

Giving the lead judgment of the Court of Appeal, Moylan LJ noted that there is no express requirement in rule 3.1(2)(m) for the parties to consent before an ENE was ordered. If the intention had been to require parties to consent it would have been made expressly clear in the rules. He concluded that to imply consent was required to an ENE would be inconsistent with the overriding objective, in particular the saving of costs and court resources. 

Moylan LJ rejected the argument by the Defendant that pursuant to Halsey v Milton Keynes the court did not have the power to order parties to submit their dispute to ENE as this would be ordering a party to engage in ADR. He commented that in any case the court's engagement with mediation had progressed since Halsey was determined. However, he declined to deal with the question as to what Halsey had determined and the extent to which it remained good law noting that Halsey dealt with mediation whereas an ENE was part of the court process. An ENE did not prevent the parties from having their disputes determined by the court or obstruct their access to the court. In so far as an ENE included an additional step in the process it was one which could assist with the fair and sensible resolution of cases.

Moylan LJ further considered as a comparison to ENE the success of FDRs in financial remedy cases, noting that benefits were demonstrated in cases not only where the parties were willing to resolve the dispute by agreement but also where they were resistant to doing so. The result of requiring parties to attend such hearings could and often would achieve a great deal including saving costs. 

Shokrollah-Babaee v Shokrollah-Babaee [2019] EWHC 2135 (Fam)

The matter came before Holman J in July 2019 for a final hearing of enforcement proceedings by the Wife with a cross-application by the Husband to vary the substantive financial remedy order. W was acting in person and H was represented by Counsel who had not previously been involved in the case.

In the course of the financial remedy and subsequent enforcement proceedings there had been at least 15 hearings and W and H had spent over £2.2m on costs.

On the second day of the hearing, during the Husband's evidence in chief the Husband revealed that Holman J had in fact conducted the FDR in December 2017. Holman J immediately stopped the Husband's evidence to consider this issue.

Holman J was clear that whilst he had no recollection of the FDR had he been aware he conducted the FDR he would not have commenced the hearing. Both the Wife and the Husband urged that Holman J should continue the hearing. The Husband argued that using the overriding objective rule 9.17(2) Family Procedure Rules (FPR) 2010 could and should be interpreted to permit this on the basis both parties sought for Holman J to continue the case, the hearing was well under way and costs had been incurred.

Rule 9.17(2) states that 'The judge hearing the FDR appointment must have no further involvement with the application, other than to conduct any further FDR appointment or to make a consent order or a further directions order.'

Holman J considered the use of 'must' in rule 9.17(2) meant that it was mandatory and excluded discretion. Whilst noting that 'application' was not defined in rule 9.17(2), rule 9.1 FPR 2010 stated 'The rules in this Part apply to an application for a financial remedy'. Financial remedy was defined in rule 2.3 FPR 2010 as including a 'financial order' which included a variation order. Holman J concluded therefore, a judge who heard privileged matters at an FDR could not hear subsequent applications in the case, including enforcement applications.

Holman J further considered the authority of Myerson v Myerson. Whilst noting that the case did not deal with issues of enforcement or variation and so was obiter on the issue, he was persuaded by Thorpe LJ's clear indication that issues of enforcement and variation could not be listed before the FDR judge. Whilst there had been some discussion of the issue of waiver in Myerson that was again obiter and the comments were in the context of subsidiary issues rather than conflicted and polarised issues such as an enforcement and variation application. Holman J concluded that if there were to be any suggestion that waiver were permitted, that it should be written into the FPR.  

Holman J ordered the matter be listed afresh before another judge for hearing.

Joy v Joy [2019] EWHC 2152 (Fam)
The matter came before Cohen J to be reheard following the death of Sir Peter Singer prior to giving judgment in the case.

The Husband was age 60 and the Wife 53. The parties had cohabited from 2003, married in 2006 and separated in 2011. The parties had three children age 13, 12 and 8. Divorce proceedings were protracted as a result of the Husband denying the jurisdiction of the courts of England and Wales.

At the conclusion of the final hearing in 2015, Sir Peter Singer had adjourned the Wife's capital claims and ordered the Husband to pay periodical payments of £120,000 per annum and £334,263 towards the Wife's costs.

Three months after the 2015 order was finalised the Husband applied to vary the periodical payments. In a judgment dated 11 August 2017 Sir Peter Singer declined to vary the order.

The Wife's capital claims were restored for hearing. Following the death of Sir Peter the matter was allocated to Cohen J.

By the time of the hearing the Wife's financial position was dire. There were very substantial arrears of maintenance, the Husband had not paid the costs order and she had significant debts.

The Husband argued that the Wife's capital claims should be dismissed. He argued that there was no evidence the trust would provide him with any money, a continued adjournment offended the clean break principle and the overriding objective - an adjournment - was against the body of authority on the adjournment of claims and  was contrary to the European Convention on Human Rights (ECHR).

Cohen J took into account that the case had to be seen against its factual background and Sir Peter Singer's previous judgments in the case. In particular:

1. The judge found that the Husband settled a trust with a very large sum of money.

2. The Husband and his children were the sole beneficiaries of the trust until the Husband was irrevocably excluded in November 2013 after the marriage had broken down. Although the children were not currently beneficiaries they could be restored as beneficiaries and were not excluded. There were no other beneficiaries of the trust.

3. The judge found the Husband's evidence to be blatantly dishonest and designed to obscure the past, present and future.

4. The judge was confident that in some manner, and at some time which he could only surmise, the Husband would benefit again from the trust.

5. The Wife had nothing and was destitute or near to it.

6. The Husband, through the assistance of his friends, continued to enjoy a comfortable life.

Cohen J noted that whilst the statutory requirement was to seek to achieve a clean break the Husband did not seek to challenge the periodical payments order and that goal was therefore unachievable.

Although the Husband argued the Wife's capital claim could be maintained by her ability to apply to capitalise the maintenance award in the future he was satisfied that her lump sum should not be limited to a capitalisation of a periodical payments order.

Cohen J was satisfied that the authorities to which he was referred by the Husband did not deal with an expectation of inheritance or of a bonus or gratuity. He found that against the factual background dismissing the Wife's capital claims was a matter of last resort. He was not so pessimistic about the future ability or likelihood of the Husband receiving funds to take that step. He therefore adjourned the Wife's capital claims on the basis that they were to be dismissed unless an application to restore them was made by 31 July 2022. Cohen J ordered the Husband to provide financial disclosure to the Wife on an ongoing basis to enable her to form a view as to whether or not to restore her claim.

Moher v Moher [2019] EWCA Civ 1482

The Husband was age 53 and the Wife age 45. They married in 1995 and separated in 2016. They had three children aged between 10 and 21 who were all financially dependent. 

At the conclusion of the final hearing before HHJ Wallwork sitting at a Deputy High Court Judge the judge concluded that the Husband had failed to comply with his obligation to provide financial disclosure. The Husband was ordered to pay the Wife a lump sum of £1.4m with interest to accrue at the judgment debt rate if all or any part was unpaid. The Husband was further ordered to pay periodical payments at the rate of £22,000 per annum until the later of the grant of a Get or the payment of the lump sum and any interest accrued and £52,000 towards the Wife's costs. The Husband was further prohibited from applying for decree absolute until a declaration had been filed by the parties that they had taken steps to require the dissolution of the marriage by a Get.

The Husband appealed to the Court of Appeal and argued the judge had failed to undertake an evaluation of the parties' resources by failing to quantify the scale of the undisclosed resources. He also claimed that the judge had failed to provide a reasoned explanation for his award, which he sought to argue was in excess of the Wife's needs and did not have sufficient regard to the impact of the award on the Husband.

He further argued it was wrong in principle and it was not a proper use of the court's powers to order periodical payments and interest should be paid until the grant of a Get. This was imposing a financial sanction on the Husband if he did not grant a Get and in effect the element of compulsion meant he would be unable to obtain or grant a valid Get. 

Giving the lead judgment of the Court of Appeal Moylan LJ dismissed the Husband's appeal.

Moylan LJ noted that the circumstances in which a party might fail to comply with their obligations regarding disclosure varied significantly. He did not consider that when faced with non-disclosure the court must give a figure or a bracket for the undisclosed wealth. There were a number of authorities to support the proposition that the court was not required to do so. He reached the following broad conclusions as to the approach the court should take to a failure to comply with disclosure obligations:

i) Generally, as required by section 25 Matrimonial Causes Act 1973 the court should seek to determine the extent of the financial resources of the non-disclosing party.

ii) When undertaking such a task the court was entitled to draw such adverse inference as were was justified, having regard to the nature and extent of the party's failure to engage property with the proceedings. This did not require the court to engage in a disproportionate enquiry or speculation. Inferences should be properlty drawn and reasonable (Baker v Baker) and 'the court is entitled to draw such inferences as can be properly drawn from all the available material, including what had been disclosed judicial experience of what is likely to be being concealed and the inherent probabilities, in deciding what the facts are' (Lady Hale, Prest v Petrodel).

iii) The court was not required to make a specific determination either as to a figure or bracket. There were cases where the exercise would not be possible because the manner in which a party had failed to comply with their disclosure obligations meant the court was unable to quantify the undisclosed resources.

iv) When faced with uncertainty consequent on non-disclosure the court was entitled in appropriate cases to infer the resources were sufficient or such that a proposed award represented a fair outcome.

Such an approach was necessary to prevent a 'cheat's charter' as the court must be astute to ensure the non-discloser did not obtain a better outcome than that which would have been ordered had they complied with their disclosure obligations. The judge was entitled to reach the conclusions he did, that there were sufficient resources both to meet the Wife's needs and to meet the Husband's needs.

Having considered the parties' submissions Moylan LJ was further satisfied that the judge's award was based on a sound assessment of the Wife's needs and was not outside the bracket of permissible awards.

As a general observation Moylan LJ commented that as a matter of course every financial remedy judgment should:

i) Clearly set out the judge's conclusions in respect of the relevant s25 factors so that the parties and anyone else reading the judgment could easily understand the conclusions.

ii) Provide a schedule of the parties' visible net assets.

iii) Set out how the award has been calculated.

The award of periodical payments and the imposition of judgment debt interest was permissible. The award was intended to provide the Wife with periodical payments to meet her additional income needs pending receipt of the lump sum and it was not double counting.

The court had jurisdiction to make a periodical payments order which continued until the grant of a Get even where the capitalisation lump sum has been paid. The judge was entitled to give effect to his determination by making a financial award. There was no evidence before the judge as to the impact of the order on the Husband's ability to obtain a Get.

Finally, Moylan LJ considered that whilst there was a potential argument that the Wife's outstanding costs were included in the judge's calculation of the lump sum award it was not a sufficient sum to justify interfering with the judge's order.