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Case Information
Filed
2022-10-17
Docket
66 entries
Parties
Defendant
Zc
Lawyers
Docket Entries
- This case concerns the financial remedies proceedings arising from the divorce proceedings between Mrs C (to whom I shall refer in this judgment as "the wife") and Mr C (to whom I shall refer in this judgment as "the husband").
- This final hearing in the financial remedies proceedings came before me over three days on 4th, 5th and 6th October 2022.
- The Husband appeared before me by Counsel, Mr Peter Newman (instructed by Osbornes Solicitors). The wife appeared before me by Leading Counsel, Mr Justin Warshaw KC (instructed by JMW Solicitors).
- Both parties were legally represented before me at a high level in terms of forensic skill and assiduous hard work; but it has come at a huge cost. The wife has incurred total legal fees of £463,331. The husband has incurred total legal fees of £159,044. The total amounts spent by the parties, but in particular by the wife, in this not particularly large or complex case, are depressingly disproportionate and I shall make some further comments below on this subject.
- I shall first set out in a little detail a history of the events which have led up to this hearing.
- The husband was born in April 1962 and is, therefore, now aged 60. He is a businessman and entrepreneur. My impression of him is that he is a driven character with an addictive personality - his character carries with it the plus side of entrepreneurial energy (and he has had some success in this regard) and the minus side of a tendency to engage in addictive activities and to take personal and financial risks and live life 'close to the line'.
- The wife was born in October 1963 and is, therefore, now aged just 59. Her role in the marriage was largely as a home-maker and she has not had paid employment for a very long time (save in a largely notional capacity within the husband's business in a way which provided tax advantages). My impression of her is that she is a colourful, generous and expansive character, but with a tendency to financial indiscipline and poor decision-making.
- The parties met in 1983, became engaged in 1985, began cohabiting in early 1988 and married in May 1988. On any view this was a very long relationship and marriage.
- There are two children of the marriage (who are both adopted, but nothing here turns on this fact and both children are dearly loved by both parties). They are:-
- Until July 2019 the parties were living with the children in the family home. .
- Both parties have suffered some apparently quite serious health problems:-
- On 28th July 2019 the wife discovered a 'burner' mobile telephone which, on inspection, revealed that the husband had very regularly been secretly visiting prostitutes in the months and years leading up to that point. This discovery very understandably caused major distress for the wife and the shadow of the discovery and its consequences continues to this day to resonate in the parties' acrimonious dealings with each other. The husband immediately evinced a degree of remorse for his behaviour and quickly sought to remedy the situation by leaving the family home and attending a month long general addiction programme at the Priory Clinic followed by a shorter sex addiction programme at the Paula Hall Clinic, although the wife was later convinced that these attendances were no more than insincere 'window dressing'. A brief attempt at a reconciliation in October/November 2019, following these attendances, was not successful and the parties have lived separately since then, the wife remaining in the family home, initially with the children and then on her own. The husband rented accommodation in London for some time, but more recently has occupied the parties' holiday home in Spain. The husband has a new non-cohabiting partner who lives in London. The wife remains single.
- In the immediate aftermath of the July 2019 'burner' mobile telephone discovery the wife transferred the entirety of the £450,000 out of the parties' joint account into a mixture of her own account and accounts of the children. In the period after that, all this money has been dissipated. These events, and the allegations and counter-allegations arising out of them, have made the prosecution of the financial remedies proceedings yet more acrimonious than they might otherwise have been.
- The wife issued divorce proceedings on 29th July 2020.
- Decree Nisi was ordered on 29th January 2021. Decree Absolute awaits the outcome of the financial remedies proceedings and is not, in itself controversial.
- On 3rd November 2020 the husband issued a Form A.
- The proceedings have not gone as quickly or as smoothly as they should have done.
- There have been four hearings dealing with, essentially, First Appointment type directions (on 5th February 2021, 11th May 2021, 1st September 2021 and 2nd February 2022).
- There have been three abortive attempts to conduct an FDR (on 1st October 2021, 14th January 2022 and 25th May 2022). In each case the FDR did not take place largely because of positions or actions taken by the wife.
- I decided on 25th May 2022 that enough was enough and that the case really needed to be determined and thus listed the case for trial. As is recorded on the face of my order for that day, I urged the parties nonetheless to engage in some form of non-court dispute resolution such as a private FDR before trial; but these thoughts appear to have fallen on deaf ears and a depressing feature of this case is that it has reached trial without any of the normal structured attempts at settlement.
- It would be right and fair for me to acknowledge that, to some extent, the wife's health issues have contributed to this depressing chronology, including the aborted FDRs. It is part of the picture and I do not make light of it. I do not accept, however, that this adequately excuses or explains the wife's failure to engage properly in negotiation over a long period. Having seen her giving oral evidence I have the very clear impression that her mindset is that she has preferred to incur a grossly disproportionate level of legal costs pursuing combative litigation without any real care for the effect of this on the remaining pool of assets and its ability to meet both parties' future needs. I have the clear impression that she feels justified in conducting herself in this way, seeing it as a just punishment for the sins of the husband; but she cannot expect fully to escape from the financial consequences of this decision-making.
- I shall mention one incident in this context. On 19th April 2022 an order for sale of a property owned by the parties was made by consent. This was an obviously sensible step to take because this property was standing empty and its sale enabled a sum of more than £1,000,000 to be used to reduce the mortgage on the family home, the interest on which was having a draining effect on the parties' resources. A buyer was found and was ready to proceed, but the wife actively sought to renege on the previous consent order at the hearing before me on 25th May 2022 and, even after I ruled against her on that, she was sufficiently slow in executing the documents on the sale that I had to sign them on her behalf under Senior Courts Act 1981, section 39. Her issues with anxiety/stress/depression may have contributed to her failures here, but, again, it is not an adequate explanation or excuse.
- To add to this depressingly self-destructive picture, both parties and their legal teams have engaged in relentless and destructive warfare against the other in terms of conduct allegations. I do not exempt the husband from this criticism; but one egregious example of the lack of restraint is the inclusion in the wife's narrative section 25 statement of large tranches of allegations of coercive and controlling behaviour by the husband during the marriage, notwithstanding the consensual prior directions orders which made clear that this issue was not being pursued. The comments of Peel J in WC v HC
- [2022] EWFC 22
- Against this litigation background I have dealt with the case at a PTR hearing on 5th September 2022 and a final hearing on 4th, 5th and 6th October 2022. At the conclusion of submissions, I indicated that I would produce a written judgment at the earliest opportunity, which I now do.
- In the course of this hearing I have been invited to use an electronic bundle running to 1,421 pages. Amongst the documents in the bundle are:-
- I have also heard oral evidence from Ms Kate Hart and from both the wife and the husband, all subjected to cross-examination.
- I have also had the benefit of receiving full oral and written submissions from both Counsel.
- In dealing with the financial remedies applications, I must, of course, consider the factors set out in Matrimonial Causes Act 1973, Sections 25 and Section 25A, together with any relevant case law.
- Matrimonial Causes Act 1973, Section 25, reads as follows:-
- Matrimonial Causes Act 1973, Section 25A, reads as follows:-
- I shall refer to certain case law as I consider the different factors which arise here; but propose to deal with the section 25 factors as follows.
- In relation to the "property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future" a significant number of issues are agreed, but I need to comment upon or determine a number of important disputed subjects.
- The first topic here is the value of the business. In essence it is a business which is the entrepreneurial initiative of the husband and is run by him as managing director.. The legal structure of the business has a number of complications (with a number of dormant companies); but for present purposes it is unnecessary to go further than to note that the wife and the husband own 50% each of the shares in a holding company which itself owns 100% of the shares in the company which is in essence the trading operation and where any value which exists actually lies. It is common ground that all the holding company shares (together with the other shares she holds in dormant operations) should be transferred to the husband from the wife under a property adjustment order such that, whatever else happens, the husband will become the sole owner of the business.
- Ms Kate Hart has carried out a careful valuation exercise of the trading operation and concluded that if it was sold as a going concern its value would be based on an asset based valuation of £317,262. I note that £144,408 out of the £317,262 worth of assets on the balance sheet consists of the husband's Director's Loan Account so, to him, that would rather depress the value of the shares. Further, Ms Hart accepted that to a significant extent the husband's personal presence in the business was an important part of its success, such that selling it on his retirement as a going concern may have its difficulties. A valuation on an EBITDA x Multiplier basis would, in Ms Hart's view, produce a lower result, hence her reliance on the asset based valuation. Her EBITDA calculation produces a relatively low figure, notwithstanding an estimated maintainable turnover of £2,230,000 per annum – the business appears to exist on fairly modest margins with high business expenses. There was no credible evidence of any serious attempt by the husband to sell the business as a going concern and, on a balance of probabilities, my view is that it is likely that he will continue to run the business for the foreseeable future such that it is more appropriate for me to treat it in my analysis here as an income producing asset rather than as a capital asset. I shall build into my assessment the income the business is likely to produce (and, of course, it may perform better or worse than expected). I do not ignore the possibility that, one day, he may be able to sell it as a going concern, but for the present and foreseeable future it is in my view not appropriate to treat this business as a realisable asset.
- The substantive challenge by Mr Warshaw to Ms Hart's analysis was not to query any of her accountancy methodology or conclusions, but to assert that her findings were of no particular help because the husband has routinely 'skimmed' cash from the business for many years, perhaps to the extent of £20,000 per month, and that the husband's presentation of the real business income figures to Ms Hart, as well as his presentation of the profit figures to HMRC, were hugely fraudulent. This assertion is vehemently denied by the husband. I have given this matter very careful consideration and, it must be said, there is some evidence which points in the direction of Mr Warshaw's case. It is clear that the household did operate on 'cash' for many purposes for many years – for example it was accepted that there was c £40,000 in cash in the house when the marriage finally broke down, it was accepted that one of their daughter's school friends in 2013 discovered more than £10,000 in cash in her school gym bag in 2013 which was placed there in error by the husband and it was accepted that the parties paid private school fees in cash for some years (apparently and understandably to the alarm of the school bursar). The question I have to answer, however, is whether (having heard both parties' written and oral accounts of this) this was cash which was legitimately drawn for spending from properly accounted places or was cash 'skimmed' from the business in a dishonest way amounting to unlawful tax evasion. Ms Hart found nothing in her investigation to enable her to conclude that tax evasion was occurring, though accepted that her investigation fell short of an 'audit'. Mr Warshaw pursued an argument to the effect that the parties' lifestyle (private school fees, large mortgage, expensive holidays, Bentley and Land Rover motor cars etc.) pointed in the direction of dishonest conduct, and I found some force in his submissions to this effect; but on the other hand the danger in this approach is that there were better years in the business when a high lifestyle was affordable and there was also use of capital (pension drawdowns, director's loan account drawings, borrowings) the combination of which perhaps makes it difficult to draw a clear conclusion from a lifestyle versus tax return declared income comparison in any particular year. Further, as we discussed in the course of oral submissions, a conclusion that the cash lifestyle was part of a fraudulent and long-standing tax evasion scheme might lead to a reference by me of this business to the HMRC (I have received helpful submissions on this from both counsel, citing cases such as A v A; B v B [2000] 1 FLR 701, S v S [1997] 2 FLR 774 and Y v Z [2014] 2 FLR 1311) under which the husband may be the main target, but the wife might also be tainted, causing her not to be immune from recoupment by HMRC of unpaid tax in the civil or even criminal courts, representing the benefits that she has gained from what has happened. On balance, whilst there are areas of uncertainty here, I have concluded that it has not been established on a balance of probabilities that the unorthodox use of cash by this family fell into the category of dishonest tax evasion and I therefore propose to accept the evidence of Ms Hart about the business and to reject the case advanced by Mr Warshaw to the effect that the parties were engaged in longstanding and substantial fraudulent tax evasion.
- The next topic I have to cover relates to the removal by the wife of the £450,000 health insurance monies from the parties' joint account into her own account and the children's accounts and the subsequent dissipation of this money.
- The removal of all of the £450,000 from the joint account came within 48 hours of the discovery of the 'burner' mobile telephone and the bitter dispute which ensued, in which the marriage was left in tatters, leading to the husband's departure from the family home on 28th July 2019. It was plainly an emotional time for both parties. The wife told me (and I accept her evidence on this) that the husband told her that he had spent £300,000 on prostitutes and, in a damage-limitation exercise, invited her to take £300,000 out of the account as compensation – indeed I accept that his text message of 30th July 2019 supports this version of events. It may be that he had in fact spent rather less than this on prostitutes (the nature of the transactions and lack of records making it very difficult to come up with an accurate assessment of the sum), but I am satisfied that this was what the husband told the wife at the time when he was in a state of emotional turmoil and remorse and hoping the marriage might be saved. Plainly, whether it was £300,000 or a lesser sum, he spent a substantial amount of money on prostitutes prior to 28th July 2019.
- The argument pursued by Mr Newman is not so much targeted at the initial movement of £450,000 by the wife from the joint account to elsewhere, but more at what happened to it afterwards. Having read the written material on this, and heard the oral evidence, I have reached the following conclusions about this on a balance of probabilities:-
- I accept the wife's evidence that she has borrowed money from her mother over a period of time in order to meet her living expenses and now owes her £102,400. I am satisfied that the wife does have to repay her mother and that this cannot be properly regarded as a soft debt.
- I should say that in analysing whether the debts referred to above are hard debts or soft debts, and in deciding whether they should be included in the asset schedule for redistribution, I have had in mind the factors which I discussed in my judgment in P v Q (Financial Remedies)
- [2022] EWFC B9
- I have considered whether it would be appropriate to make any adjustments to the asset schedule in one direction or another to reflect the events discussed above by way of a 'Norris Add-Back', following the jurisprudence of Norris v Norris
- [2002] EWHC 2996
- I now turn to the analysis of legal costs spending:-
- I now turn to the topic of pensions:-
- Having made these determinations I am now able to set out my assessment of the assets and debts for potential distribution in this case as follows:-
- In relation to "the income, earning capacity…which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire" and in relation to "whether it would be appropriate to require periodical payments to be made or secured only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party", I have the following observations:-
- I want to say something at this stage about the sharing principle. As a starting point in the division of capital after a long marriage it is useful to observe that fairness and equality usually ride hand in hand and that (save when an asset can properly be regarded as non-matrimonial property) the court should be slow to go down the road of identifying and analysing and weighing different contributions made to the marriage. After this very long marriage there are no assets here which can be identified as non-matrimonial.
- In the words of Lord Nicholls in White v White
- [2000] UKHL 54
- In the words of Mostyn J in JL v SL
- [2015] EWHC 360
- One obvious reason to depart from equality is that one party needs more capital for a particular reason and, in this context, I shall consider the parties' needs.
- In relation to the "financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future", which of course have to be considered in the context of the standard of living that the parties jointly enjoyed during the marriage, the ages of the parties and the duration of the marriage, I have the following observations:-
- Accordingly, I now turn to the parties' respective open positions.
- The husband's open position is that:-
- It is immediately to be noted that this would leave the husband with significantly more capital overall, with the benefit of a valuable guaranteed annuity on his larger pension fund and an ongoing earned income of £100,000 per annum gross (compared with the wife's zero income). Buying a property at the bottom end of the range discussed above, the wife would be left without adequate income. This seems a long way from meeting the test of fairness.
- The wife's open position is that:-
- It is immediately to be noted that this leaves the wife with substantially greater capital and with the husband both unable to house himself and subject to a long term spousal maintenance order. Again, this seems a long way from meeting the test of fairness - in the opposite direction.
- I propose to bear in mind all of the above principles and factors in analysing what orders the court should now make to promote a fair outcome in this case.
- For me, the guiding principles relevant here are as follows:-
- Weighing all of these matters up, I propose to make an order which includes the following provision:-
- Using my asset schedule above, and treating PCP as an income producing asset and therefore leaving it outside the schedule, this would produce the following outcome:-
- I have been asked to determine a number of specific questions about the detail of my order:-
- I am sending out this judgment to the parties on 17th October 2022 by email. I am hoping and expecting that the lawyers will, without very much delay, be able to turn the contents of this judgment into an order whose form is agreed. In case this is not possible I shall list the case for a mention by way of CVP/Teams at 9.45 a.m. on Tuesday 8th November 2022. I am not expecting the parties to be represented by Counsel at this hearing (though they can be) but I will need to be told why the drafting process has not been completed. Of course, if I have received an approved an order in the meantime then this hearing can be vacated.
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