The law on reattribution used to be fairly clear and (importantly) unequivocal
Martin v Martin [1976] 3 All ER 625 at 629 per Cairns LJ
“another question which arose was as to whether the husband’s conduct in relation to financial matters after the separation was relevant. … Such conduct must be taken into account because a spouse cannot be allowed to fritter away the assets by extravagant living or reckless speculation and then to claim as greater share of what was left as he would have been entitled to if he had behaved reasonably”
Norris v Norris [2003] 1 FLR 1142 per Bennett J
“[77] In my judgment, there is no answer that the husband can sensibly give to the question, ‘Why should the wife be disadvantaged in the split of the assets by the husband’s reckless expenditure?’ A spouse can, of course, spend his or her money as he or she chooses, but it is only fair to add back into that spouse’s assets the amount by which he or she recklessly depletes the assets and thus potentially disadvantages the other spouse within ancillary relief proceedings.”
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- Some equivocation could be found in some dicta: such as
Norris v Norris [2003] 1 FLR 1142 per Bennett J
“[77] … a modest overspend in the context of a rich man would be understandable and could not be classified as reckless ….”.
- However, the Court of Appeal case of Vaughan v Vaughan [2007] 3 FCR 533 presented a real stumbling block in the path of the “innocent” spouse who sought to reattribute sums spent by the “guilty” spouse:-
Vaughan v Vaughan [2007] 3 FCR 533 per Wilson J
“[14] … the only obvious caveats are that a notional re-attribution has to be conducted very cautiously, by reference only to clear evidence of dissipation (in which there is a wanton element) and that the figure does not extend to treatment of the sums we attribute to a spouse as cash which he can deploy in meeting his needs, for example in the purchase of accommodation”
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- Thus, somewhat perversely, it was in cases involving the most extreme examples of reckless expenditure – where the “guilty” spouse had depleted their assets to such an extent that they were left with insufficient to meet their needs (usually, for accommodation) – the less the principle of reattribution applied! In those cases, the “guilty” spouse could still look to the “innocent” spouse to ensure their needs were met – even if, as a result, the “innocent” spouse might have to suffer a diminution in their standard of housing as a result of eking out 2 homes from what was left of the assets.
- This anomaly has been addressed and seemingly rectified by the recent Court of Appeal case of TT v CDA [2021] 1 FLR 996
The Facts
- The husband and wife lived together for 20 years and were married for 10 years before a highly acrimonious divorce in 2016.
- The two children, aged 13 and 9, had suffered considerably due to the marriage breakdown and had particular needs. They lived with the mother in the USA and had only limited contact with the father.
- During the marriage the parties built up a successful business which provided the family with a very good standard of living.
- After the parties separated there had been destructive litigation on a massive scale including proceedings under the Hague Convention on the Civil Aspects of International Child Abduction 1980, Chancery proceedings to determine the beneficial ownership of the family business and properties and the financial remedy proceedings which took nearly 3 years to determine.
- In total the legal costs were well in excess of £1m.
- Both parties alleged litigation misconduct which should be taken into account for the purposes of s 25(2)(g) of the Matrimonial Causes Act 1973 and the husband accepted that a number of the wife’s claims in relation to him were not without merit.
Held
The judge determined that the husband would not provide for the wife and children and, therefore, the only way of enabling the wife to be able to provide for them was for her to retain ownership of the business. The wife would receive £1.73m and the husband would have £634,000 providing his mother did not want repayment of a loan amounting to £610,000. The judge found that the departure from equality was necessary to meet the children’s needs and to meet the wife’s debts, which the husband had, in part, caused.
The husband appealed on the basis that the judge had not taken his needs into account.
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- In giving the judgment of the court, Moylan LJ helpfully and succinctly reviewed the history of cases concerning litigation misconduct (i.e., those cases where a party had been responsible for the incurring of wholly unreasonable amounts of legal costs on both sides – whether within the financial remedy proceedings themselves or within satellite litigation e.g., children proceedings) and how such conduct should be reflected in an award within financial remedy proceedings. In particular, whether such misconduct should be limited to a costs award or whether, in appropriate cases, the award itself should be adjusted to reflect the issue of misconduct in relation to costs.
The Court of Appeal firmly reminds practitioners that the incurring of unreasonable costs may, of itself, be a s.25 factor which justifies a different award being made in favour of the “innocent” spouse rather than simply making an adverse costs order (see, for example, the decision of Moor J in R v B and Others [2017] EWFC 33). Moylan LJ continued:-
“[78] The depletion of matrimonial assets through litigation misconduct will plainly not always be remedied by an order for costs. As I have said, such an order simply reallocates the remaining assets between the parties and does not necessarily remedy the effect of there being less wealth to be distributed between the parties. What is important is that, whether by taking the effect of the conduct into account when determining the distribution of the parties’ financial resources (both income and capital) and/or by making an order for costs, the outcome which is achieved is a fair outcome which properly reflects all the relevant circumstances and gives first consideration to the welfare of any minor children.”
- As for the dicta of Wilson J in Vaughan (para 3 above) Moylan LJ said this
“[80] However, in saying this, he did not mean that the financial effect of litigation conduct cannot impact on a needs-based award. I agree with Moor J in R v B when he said that, if required to achieve a fair outcome, the court ‘must be entitled to prioritise the [needs of the] party who has not been guilty of such conduct’. It is clear from the outcomes in M v M and B v B, as referred to above, that the financial consequences of the litigation misconduct, perhaps combined with other factors, might be such that it is fair that the innocent party is awarded all the matrimonial assets. In this respect, I also agree with Moor J’s observation that an order can be made which does not meet needs because to exclude that option ‘would be to give a licence … to litigate entirely unreasonably‘.
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- Although the case referred to litigation misconduct – this author sees no reason why the same principle would not apply to any form of financial misconduct found by the court.
- Conclusions
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In egregious cases the practitioner representing an “innocent” non-dissipating spouse should not shy away from seeking an order which has the effect of reducing the “guilty” spouse to a level where they cannot even meet their accommodation needs.
Similarly, practitioners should not hesitate to rely on this authority when faced with a spouse whose expenditure on costs (whether in the financial remedy proceedings themselves or in relation to other [children] proceedings) is overwhelmingly disproportionate to the issues involved in the case. Many solicitors will have the experience of seeing an opponent’s Form H which is eye wateringly excessive in comparison to their own. This case provides some means of seeking to rectify that disparity.
Stephen J. Murray
27 May 2021
Known for his robust and thorough approach to cases, Stephen Murray originally pursued a career with the Derbyshire Constabulary. After two years in the police service he left to go to university; graduated with a law degree from Leicester University in 1985 and was called to the Bar in 1986 by Inner Temple having come in the top 8% in the Bar Finals and won two separate scholarships.
In his early years at the Bar, Stephen had a mixed common law practice. For many years now Stephen has specialised in matrimonial finance (with a particular emphasis on complex financial remedy cases for high net worth clients involving issues such as trusts and company valuations) and related fields, particularly applications under the Inheritance (Provision for Family and Dependants) Act 1975 and cohabitation disputes.
For more information on Stephen Murray please contact Chambers Director James Parks or Senior Clerk Camille Scott by phone 0161 278 8263 or email family@18sjs.com