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Home > Articles > 2019 archive

Financial Remedy & Divorce Update, December 2019

Naomi Shelton, Associate, Mills & Reeve LLP considers the important news and case law relating to financial remedies and divorce during November 2019.

 









Naomi Shelton
, Associate, Mills & Reeve LLP


As usual, this update is provided in two parts:

News

Admin backlog skewing divorce statistics


Using statistical figures produced by the ONS, the Ministry of Justice's Family Court Statistics Quarterly 2018 report indicates that as a result of divorce centres processing a backlog of work last year, divorce petitions increased by 8 per cent in 2018. This is more in line with the number of petitions seen prior to the low number in 2017. The 2018 backlog of work also resulted in a five-week increase to the average time taken from date of petition to decree absolute in 2018 (to 54.3 weeks). As a result, the ONS expect this to translate into a higher number of completed divorces in 2019 compared with 2018.


No fault divorce bill for the Isle of Man

Whilst the no-fault divorce bill has been on and off the political table over the past few months, the Manx government is now consulting on its own draft legislation to amend the grounds for divorce, dissolution of civil partnerships and judicial separation. The Bill, based on the Westminster Divorce, Dissolution and Separation Bill, aims to introduce a simpler administrative process in place of the detailed judicial scrutiny which is associated with the fault-based process currently used in the Isle of Man.


Shortfall in District Bench judges


The Lord Chief Justice's annual report had highlighted a worrying shortfall in the number of salaried members to the District Bench in 2019.  It notes that the shortfall will have adverse consequences for both family and civil cases.  Whilst the number of High Court judges is on the rise, more magistrates are needed and the Recorder Appraisal Scheme will be extended to family cases.


Financial Remedies Court protocol published

The Financial Remedies Courts have been established as a subsidiary structure working within the Family Court. The operation of these courts, and the creation of "FRC zones" with lead judges, is now recorded in the "Overall Structure of the Financial Remedies Courts" whilst the aims and objectives of the courts is set out in the accompanying good practice protocol. 


First registration of opposite-sex civil partnerships set for New Year's Eve

With couples being able to give 28 day notice of their upcoming opposite-sex civil partnership registration from 2 December, the first registrations will take place on 31 December. 


Reporting in the Family Courts


Sir Andrew McFarlane has issued further guidance on reporting in the Family Courts.  In particular, the guidance addresses the circumstances in which a reporter may wish to apply to vary existing reporting restrictions in a case.  Alongside this, two new standard order templates have been published dealing with the reporting of appeal hearings.


Cases

Pontanin v Potanina [2019] EWHC 2956 (Fam)

In this case Mr Justice Cohen considered the husband's application to set aside a previous order, of Cohen J, granting the wife leave to apply for financial relief pursuant to Part II Matrimonial and Family Proceedings Act 1984.  Cohen J had granted the wife leave at an ex parte hearing in accordance with FPR 18.11.

The couple, both Russian nationals, married in Russia in 1983, lived only in Russia throughout their marriage and were divorced in Russia under Russian law in 2014.  By the time of the divorce, the husband was very wealthy. 

It was agreed that the husband had transferred to the wife about $71million under their Russian divorce settlement.  This, however, was only a tiny fraction of the husband's wealth.  His wealth was structured in shares in companies or other businesses held by nominees in trusts or corporate vehicles.  The wife claimed that the husband was worth about $20billion.  She sought a further $6billion to meet her "reasonable needs". 

Having already issued proceedings in Russia, Cyprus and several US states, the wife then brought proceedings here.  Mr Justice Cohen acceded to the husband's application, thereby dismissing the wife's application for leave to bring a claim under Part III Matrimonial and Family Proceedings Act 1984.  Cohen J stated, "It seems clear to me that in every instance the Russian courts have consistently and properly applied Russian law". 

Cohen J was unpersuaded that she had any genuine connection to England either by presence or business assets and was seeking to take advantage of the more generous approach of the English courts in circumstances where she felt she had suffered a significant injustice in Russia. 

Cohen J, at the request of the wife's leading counsel, stated "I point out that W is very disappointed at the outcome of this case and wishes to seek permission to appeal the judgement.  It should therefore be read as not necessarily being the last word".


Shokrollah-Babee v Shokrollah-Babee [2019] EWHC 2975 (Fam), 19 September 2019

This case concerned a long marriage, followed by protracted financial remedy proceedings.  The husband had failed to comply with a final order.  The wife issued a judgment summons seeking his committal for non-payment of maintenance along with a host of other orders to help her to enforce the maintenance award.  Husband meanwhile cross-applied to vary the maintenance downwards.  (At the time of this hearing before Cohen J, the husband was £117,500 in arrears.)  This hearing was before Mr Justice Cohen who summarised the development of the proceedings. 

In summarising the proceedings to date, Cohen J referenced the abortive hearing before Mr Justice Holman in July 2019.  Holman J found halfway through the case that he had to recuse himself because of a previous involvement.  Before Holman J, the wife was acting in person and the husband was represented by counsel who had had no previous involvement in the case.  However, whilst the husband was giving evidence, he revealed that Holman J had conducted the parties' FDR.

r.917(2) FPR 2010 states that the judge hearing the FDR "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 immediately halted the case.  Both parties wanted the judge to continue and waive the rule. 

Holman J concluded that the FPR does not allow for r.9.17(2) to be waivered and provides no exceptions.  It was clear that r.9.17(2) applied to enforcement and variation applications following the final financial remedy order; as held in Myerson v Myerson [2008] EWCA Civ 1376, the FDR judge is prohibited from hearing enforcement or variation applications because privileged matters may influence the judge in those later proceedings. 


BB v Secretary of State for Work and Pensions and another (CSM) [2019] UKUT 314 (AAC)

This appeal concerned the question – 'is a redundancy payment treated as part of a non-resident parent's current income for the purposes of assessing his child support liability'? 

The Upper Tribunal clarified that, for the purposes of assessing child maintenance, current income does not include redundancy payments.  When the father was made redundant, he was entitled to a gross redundancy payment of £110,300 of which £30,000 was tax exempt.  He received a net payment of £75,323. 

The Upper Tribunal concluded that redundancy payments do not count as current income, although the taxable component of a redundancy payment counts as historic income.

This is because redundancy payments are not payments of earnings or income, but are akin to payments of capital: they are compensation for the loss of a job. They are not subject to income tax as "earnings" (s.309(1) Income Tax (Earnings and Pensions) Act 2003 and Mairs (Inspector of Taxes) v Haughey [1994] AC 303). However, they are liable to income tax as a type of "termination payment" (ss.309(3) and 401 2003 Act) to the extent they exceed £30,000.

Specifically, a redundancy payment is not income constituting taxable earnings within the meaning of section 10(2) of ITEPA (regulation 38(1), CSMCR). Redundancy payments are a form of "specific employment income", falling within section 10(3) and not 10(2) of ITEPA.

A point to note though.  This case related to a child maintenance assessment made in 2016.  In December 2018, a new ground of variation was introduced for notional income to be ascribed to assets exceeding £31,250 which will in effect fill the lacuna in the definition of current income relating to redundancy payments.


EB v Secretary of State for Work and Pensions and CW (Child support – calculation of income) [2019] UKUT 321 (AAC)

The Upper Tribunal took the opportunity to clarify how to assess income where the non-resident parent has suffered a significant reduction in income as a result of no longer earning income from both employment and self-employment.

The father's income had been calculated on the basis of historic income from both employment and self-employment.  When his employment came to an end (in December 2017), he notified a change (in January 2018). However, a supersession was refused because he had failed to evidence his self-employed income. 

When assessing child maintenance, current income applies rather than historic income if this differs from historic income by at least 25% of historic income (regulation 34(2)(a) Child Support Maintenance Calculation Regulations 2012). Current income is the sum of income from employment, self-employment and pension but not social security benefits. A reduction in historic income triggering the application of current income is a relevant change of circumstances (regulation 17(1)(a)). Either historic income or current income applies; employment income cannot be historic and self-employment income current, or vice versa. The 25% minimum change provision applies to the sum of historic income. Once the 25% threshold is satisfied, gross weekly income must be based on current income as a whole.

The non-resident parent's employment income was "nil" in current income. His self-employment income was his current income. However, the First Tier Tribunal had erred in using income for the 2017/18 tax year. Current income from self-employment must be calculated at the effective date, here January 2018. The tribunal should have used "profits… for the most recently completed relevant period". The relevant period was the 2016/17 tax year, used in the November 2017 calculation. There, it was historic income, but under regulation 39 it now became current income.

The First Tier Tribunal had also incorrectly considered rental income: there was no variation application. It made a finding for the 2017/18 tax year, as there was "no objection by any party", but the parties had no power to confer such a jurisdiction on the tribunal (Rydqvist v Secretary of State for Work and Pensions [2002] 1 WLR 3343).


P (Transgender Applicant for Declaration of Valid Marriage) [2019] EWHC 3105 (Fam)

The applicant ("AP") had undergone gender reassignment surgery in 1990, transitioning from female to male.  In 2009, he had married a woman.  However, he had not obtained a gender recognition certificate and his birth certificate recorded him as female.  In 2017, AP was advised by the Department of Work and Pensions that his marital status could not be recognised as he had been legally female when he married.

His application for a declaration that the marriage was valid (under s.55(1)(a) Family Law Act 1986) was refused by Mr Justice Cobb.  Without the gender recognition certificate, AP's legal sex had, and always had been, female.  The marriage was between two women and had taken place at a time when same-sex marriage was void.  The Marriage (Same Sex Couples) Act 2013 did not change the position because it had no retrospective effect. Neither was the position in domestic law altered by anything in the jurisprudence of the European Court of Human Rights or the European Court of Justice.

Cobb J suggested the parties consider applying for an order declaring their marriage a nullity, which would provide them with certainty about their position and allow them to remarry.  However, this is not straightforward.  Section 11 Matrimonial Causes Act 1973 (as amended) does not allow the court to make a declaration of nullity where a marriage has been entered into between a same-sex couple.  No transitional provisions were made for same-sex couples marrying before the 2013 Act came into force.  If they do make an application, the court will likely need to consider whether s.11 can be read compatibility with the ECHR.