YC v ZC

A daughter, who is now aged 21.

A son, who is now aged 19.

Neither child remains in education and both are in work, though both continue to receive some (voluntary but generous) financial support from the husband.

The husband had some significant cardiac issues in early 2019. This triggered an insurance payout of £450,000 in June 2019 (the use of which has caused large arguments here – see below); but this does not appear to have prevented the husband from continuing with his work since then. I note that in answer to a formal question “In the event that the applicant seeks to rely on the health conditions identified at paragraph 1.11 of his Form E, please provide a letter from his treating physician, setting out his diagnosis, prognosis, treatment plan and the impact of his conditions on his ability to work” the husband replied on 22^nd November 2021 “The applicant will not be relying on his health conditions, save as it relates to the insurance payment that has been dissipated by the respondent” and (despite some comments made by him during the hearing) has not subsequently provided any independent medical evidence in support of any suggestion that he imminently needs to retire on health grounds.

The wife has suffered from some long term and difficult health issues and more recently has suffered with some cancer issues, some anxiety/stress/depression issues and most recently a seizure episode which is being investigated as a possible Transient Ischaemic Attack. Notwithstanding these difficulties she presented in the witness box as a person of some resilience.

A collection of applications and orders.

Material from the wife including her Form E dated 5^th April 2021, her Replies dated 10^th September 2021, conduct statements dated 10^th September 2021 and 22^nd December 2021 and a narrative section 25 statement dated 30^th September 2022.

Material from the husband including his Form E dated 1^st February 2021, his Replies dated 22^nd November 2021, a conduct statement dated 17^th September 2021 and a narrative section 25 statement dated 28^th September 2022.

Various property valuation evidence.

Material from Ms Kate Hart, the SJE Accountant from Quantuma Advisory Limited, including her original report and two supplemental contributions.

Various property particulars evidencing housing need.

A PODE report from Ms Caroline Bayliss of Excalibur Actuaries Limited.

It shall be the duty of the court in deciding whether to exercise its powers under section 23, 24, 24A or 24B above and, if so, in what manner, to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.

As regards the exercise of the powers of the court under section 23(1)(a), (b) or (c), 24, 24A or 24B above in relation to a party to the marriage, the court shall in particular have regard to the following matters:-

Where on or after the grant of a decree of divorce or nullity of marriage the court decides to exercise its powers under section 23(1)(a), (b) or (c), 24 or 24A or 24B above in favour of a party to the marriage, it shall be the duty of the court to consider whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable.

Where the court decides in such a case to make a periodical payments or secured periodical payments order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those 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.

All of the money has been spent and none is left. I have not been persuaded that other family members are secretly holding on to sums of money on the wife’s behalf or that the wife has significant cash held secretly in her home.

A significant portion of the money was taken by the wife from the bank as cash (c.£150,000) and spent. Some of the spending was on routine day to day matters. Other parts of the spending, I think probably the majority, was on luxuries and unnecessary purchases – expensive jewellery and clothes, expensive hotels and meals out, a huge number of taxi fares. The wife’s own oral evidence contained many examples of concessions on this and she was expressly unrepentant. She regarded the money as having been given to her in compensation for the husband’s behaviour and her mindset was, in her own words: “I was reckless, yes, but it was my money…I was an aggrieved wife. I spent a lot on clothes and indulged my children. I was pissed off with my husband…It was my money to do with what I thought fit…I stayed at the Hotel de Paris in Monaco at more than £1,000 per night…I spent £10,000 on bangles at the Harrods store at the airport….I spent £2,000 on a leather jacket”. It is not possible to inventorise this spending with any degree of precision, but a large amount of money was undoubtedly dissipated in the spirit of vengeance against the husband’s use of prostitutes. In reaching this conclusion I should also note that in the period since the separation the husband has also not obviously economised in his life-style spending. Whilst his spending was less scrutinised in the hearing than that of the wife, I think that he did make some spending decisions which were consistent with a fairly high post-separation life-style and it is also correct to note that he has not paid any maintenance to the wife since separation and has not (at all) honoured the obligation imposed upon him (by consent) in the order of Recorder Campbell KC dated 19^th April 2022 to pay maintenance of £1,500 per month subsequent to the completion of the sale of the property in June 2022.

A large amount of the money was spent by the wife on legal costs, either channeled through her brother or paid directly. I shall return to this issue below.

Some of the money (£150,000) was initially placed in the children’s accounts and later withdrawn from them and spent in exactly the same way as the other money. Mr Warshaw has sought to persuade me that I should regard the money taken back from the children as a loan of monies that should be regarded as binding and enforceable – and the wife has produced a pro forma loan agreement to support that argument. I do not accept the wife’s case on this. I have not been persuaded that the taking back of monies lodged in the children’s respective accounts amounted to the advance of a loan by them. My conclusion is that the money at all times remained the property of the wife and was parked in the children’s account as cover if she was pushed by the husband and the money was retaken as and when she felt she needed it. Even if I am wrong about, and that there is an argument for saying these are enforceable debts, I am satisfied that it is fanciful to think that the children will pursue legal proceedings against their mother for the return of the monies – the wife accepted in her oral evidence that such a scenario was highly unlikely and I agree, these are at best very soft debts which are very unlikely ever to be pursued. Whilst the children are not formally bound by this decision (since they are not parties to this case) I think it highly unlikely that they will ever seek to argue that the money parked fairly briefly in their accounts really was their property for which they can demand its return.

Some of the money (£103,000) was sent to the wife’s brother, , for safekeeping. He returned some of it to the wife when she needed it for ‘living expenses’. He then paid a large number of the wife’s Solicitors’ bills in sums which in total substantially outweigh what he was given for safekeeping. On the wife’s case a full account has been given by him in a document (p.614 in the bundle) which reconciles the transactions and concludes that the wife owes him £99,807. I have not been persuaded that this accounting document is inaccurate, indeed I find on a balance of probabilities that it represents a genuine and accurate assessment of the situation. I have not been persuaded that the wife’s brother retains any money by way of safekeeping. In the course of the evidence I heard a good deal about the wife’s purchase of a Patek Philippe watch for £63,000 from her brother. Mr Newman sought to persuade me that it was a sham transaction. Even if it was at the time a sham transaction, the wife’s case (which I accept) is that she returned the watch to her brother and, in effect, the transaction (if it ever existed) was cancelled and the £63,000 allegedly paid for the watch was diverted towards paying her Solicitors’ bills. My conclusion is that the watch purchase was, in the context of this case, something of a red herring; though the fact that it was ever contemplated does cast some light on the wife’s financial indiscipline. I am satisfied that the wife does have to repay her brother the money owed to him and that this cannot be properly regarded as a soft debt.

The wife has incurred legal costs of £463,331 to a sequence of Solicitors, including Mayfair Rise, Mishcon De Reya and JMW. Of this sum, £154,416 remains outstanding and due to Mishcon De Reya and there is no indication that they are minded not to enforce this liability.

The husband has incurred legal costs of £159,044, all to Osbornes Solicitors, all of which has been paid.

There is a difference in the spending on legal costs between the parties of £304,287. It is very difficult to see on the facts of this case why the tasks of the wife’s legal representatives were any more burdensome than those of the husband. Further, it is difficult to understand how a sensible decision-maker would elect to spend costs of £463,331 to contest a case of the size of this case, where the money really being argued about (i.e. the difference between the parties’ real cases) was in all probability less than this sum. On the face of it, it seems to be a grossly disproportionate level of costs for this case. That the task could properly have been done for a much lower figure is evident from the husband’s costs figures.

As ever in these cases, it is difficult for a judge looking from the outside (and thus without knowledge of privileged communications between Solicitor and client and without being permitted to read privileged attendance notes) to know whether the real fault for this grossly disproportionate spending lay with the wife or her Solicitors, or perhaps a combination of the two; but to the husband (who had no way of controlling the level of spending) the result is much the same – he has to look on, powerless and aghast, as the bills rise.

Mr Newman has powerfully argued on behalf of the husband that some adjustment should be made to the asset schedule to reflect that difference. In his words:-

There is, in my view, ample authority for Mr Newman’s proposition and I take the view that it is proper for a court so to adjust the asset schedule appropriately to achieve a fair outcome if the facts of a particular case point in that direction:-

From an analysis of these authorities I reach the following general conclusions as to how this sort of situation should be approached by the court:-

Applying this analysis to the facts of this case I have reached the clear view that the wife’s incurring of £463,331 in legal costs in the context of the level of assets in this case was grossly disproportionate spending and she must bear a burden for this poor decision-making. In the search for fairness, and taking a broad view, I have accordingly decided to add back the sum of £200,000 on to the wife’s side of the court’s asset schedule. I have not added the full sum (i.e. just over £300,000) in recognition of the fact that the wife has had some changes of Solicitor which may not entirely have been of her making (and the new Solicitors will have had to spend time reading into the case) and also in recognition that her health issues may have had some effect on this situation.

On the basis of the information in the PODE report from Ms Caroline Bayliss of Excalibur Actuaries Limited dated 16^th May 2022, the pension issues in this case had seemed relatively straightforward. All the pensions (the husband’s pension with Royal London then worth £413,820 and with Scottish Widows then worth £88,471 and the wife’s pension with Prudential then worth £57,832) are all Defined Contribution schemes and the PODE report had identified that a pension sharing order of c.45% on both the husband’s pension schemes (or c.55% on just the Royal London scheme, described by the PODE as being ‘more easily implemented’) would have produced an equal incomes outcome, giving both parties a total income of £20,484 at their respective age 67. Absent the further information referred to below I would probably have been inclined to follow this recommendation and to make a pension sharing order accordingly.

I might have made an adjustment to the figures, having been told at the hearing that the husband’s pension with Royal London was now worth £326,764, that his pension with Scottish Widows was now worth £79,796 (both down) and the wife’s pension with Prudential was now worth £62,158 (up slightly).

On the first day of the hearing, however, I was informed by Mr Newman that the husband had recently discovered that his Royal London pension has the benefit of an old style guaranteed annuity rate of 9.45% such that, if he converted the fund of £326,764 into an annuity now, he would receive an immediate income of £30,898 per annum on a single life level payment basis. At the time of the PODE report the purchase of a single life level payment basis would have produced, according to the report, an annuity return of 4.417% per annum; but this was before recent political/market events have caused a rise in gilt rates and a linked rise in annuity rates such that the equivalent figure now would be somewhere between 6% and 6.5% – it is of course anybody’s guess at the time of writing as to where these figures will move in the foreseeable future. Accordingly, in the search for fairness, my view is that I should enhance the value of the Royal London pension policy in my asset schedule by 1.5 times to reflect its real value, hence I shall enter a figure of £490,146 rather than £326,764.

The discovery of the guaranteed annuity rate has substantially undermined the conclusions of the PODE report. Not only is the figurework for the production of an equal incomes outcome largely redundant; but also it must be noted that making a pension sharing order against a pension with a guaranteed annuity rate is hugely destructive to its real value - the portion externally transferred to another pension scheme would simply lose the hugely advantageous guaranteed annuity rate in the transfer – and a pension sharing order is not thus an attractive option.

It is sobering to consider how much money would needlessly have been thrown away by my making a 55% pension sharing order against the Royal London pension. An investigation exercise independent of this case may be worth carrying out to discover why it was that the existence of the guaranteed annuity rate was not discovered by the PODE. I am unaware who was at fault. Should the PODE have been given this information by the husband? Should the PODE have been given this information by the pension administrators? What questions should have been asked of the pension administrators which were not asked? Whoever was responsible for this, for the purposes of this case the ‘equal incomes’ conclusions of the PODE report now have to be treated as largely unhelpful.

Mr Warshaw has suggested that in these circumstances I should consider making a pension attachment order; but I need to have in mind the downsides of such an order in terms of uncertainty. I have ultimately decided that its disadvantages outweigh its advantages. The wife would be dependent on the husband’s decision as to when an annuity was taken (there is no power to order that he takes it any particular time) and, if he died early, the annuity and the wife’s share of the annuity would die with him. Further, there may be tax issues if he took the annuity at the same time as he continued to earn above the higher tax rate threshold. Further, such an order would also be subject to future variation applications and, in view of the way this litigation has proceeded, I am wary of setting up a situation which might end up in more litigation. Mr Newman has suggested the payment of a lump sum in cash (or a different distribution of cash resources to create a Duxbury fund for the wife) may be the best way of dealing with this. I have in the end favoured this way forward, though not using Mr Newman’s suggested figure of £150,000 for these purposes.

The wife has not worked in paid employment for a considerable period of time and she has a number of health issues which I have mentioned above and is aged 59. It is not been a part of the husband’s case to argue that she has an earning capacity and it is appropriate for me to treat her as somebody without any or any significant earning capacity and she is some years away from being eligible for any state pension (her state pension age is 67 in October 2030).

The wife currently only has projected pension income at age 67 from her Prudential scheme of £2,274 per annum plus state pension.

The husband does have some health issues, but (as I have referred to above) he has expressly not sought to adduce any medical evidence to justify any inability to work in the foreseeable future and I think it is reasonable for me to assess this case on the basis that it is reasonably likely that he will be able to continue working as the managing director of the business until his state pension age of 67 in April 2029 and then retire at that stage. In my view the fairest way of treating Ms Hart’s report is for me to conclude that it is, on a balance of probabilities, likely that the husband could (if he so chose) pay himself a salary of £100,000 per annum gross within the business during the remaining years of his working life. There may also be some scope in due course for him to pay himself some dividends as well, but reducing the director’s loan account may be a priority. Using At a Glance figures an annual gross income of £100,000 should translate into a net income of c.£63,661 or c.£5,305 pcm net.

Absent an ongoing spousal periodical payments order or a suitable Duxbury fund created by a lump sum order or a pension sharing order, it is difficult to reach the conclusion that the wife will, at any time, be able to adjust without undue hardship to the termination of her financial dependence on the husband.

“…a judge would always be well advised to check his tentative views against the yardstick of equality of division. As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the parties and the court to focus on the need to ensure the absence of discrimination”.

and in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24:-

"This 'equal sharing' principle derives from the basic concept of equality permeating a marriage as understood today. Marriage, it is often said, is a partnership of equals…The parties commit themselves to sharing their lives. They live and work together. When their partnership ends each is entitled to an equal share of the assets of the partnership, unless there is a good reason to the contrary. Fairness requires no less. But I emphasise the qualifying phrase: 'unless there is good reason to the contrary'. The yardstick of equality is to be applied as an aid, not a rule." 

“Matrimonial property is the property which the parties have built up by their joint (but inevitably different) efforts during the span of their partnership. It should be divided equally. This principle is reflected in statutory systems in other jurisdictions. It resonates with moral and philosophical values. It promotes equality and banishes discrimination.”

Both parties have a need for a home. Housing needs barely featured in the course of the evidence and submissions in this case; but I can identify no reason why their housing needs should be any different from each other. Each have put forward property particulars and the range is £875,000 to £1,250,000 and SDLT and other purchase costs will be payable on their respective purchases. As ever, the range in these prices represents a range of factors such as size, location and attractiveness, but whilst the upper end of this range may be more representative of how the parties have lived during the marriage (though still well short of even that), it may be that each of the parties will have to be looking towards the bottom end of this range, or perhaps even a little lower, as a result of a combination of high legal costs and poor spending decisions in the past. I am satisfied that housing at the bottom end of the range, or even a little lower, would not fall short of meeting essential housing need for either party.

Both parties have an income need and there is no obvious reason for thinking that one party has a higher income need than the other. As is often the case in these disputes, the income needs figures advanced on each side bear very little relationship to the amount of income actually available. On my analysis the only earned income available going forward is (until 2029) the husband’s earned income (which I have assessed at £63,661 per annum net or £5,305 pcm net). The only income (from 2029 onwards) is the annuity income on the respective pensions, which will, on any view, be a significant diminution in the earned income figure. Yet the income needs figures put forward are, respectively, £76,860 per annum or £6,405 pcm for the wife and £108,000 per annum or £9,000 pcm for the husband. The simple truth is that neither party is likely to be able to live at the level which they may previously have enjoyed.

Given the respective earning capacities, the limitations on pension sharing orders here and the desirability of not leaving open income orders which are capable of giving rise to future variation applications, I think there is a strong justification for a departure from equality here based on the provision of an adequate Duxbury fund for the wife to use as her source of income in the years ahead, on top of her housing need, and I take the view that this is the solution which sits most easily here with the court’s duties under Matrimonial Causes Act 1973, section 25A to bring about a clean break. Whilst I could make a spousal periodical payments order, the acrimonious litigation spending in this case makes it unattractive for me to leave open a position where there could be further litigation, for example on a spousal periodical payments variation application or a future capitalisation argument. Using At a Glance Duxbury tables (the figures for a female aged 59) I have concluded that it is reasonable for me to say that the wife has a need for a Duxbury fund of something in the region of £421,000 providing an income for life (including her state pension) of £30,000 per annum on top of her housing needs. Part of this could be from pension funds (provided I avoid a pension sharing order on the Royal London policy). In assessing a division which meets the wife’s housing and income needs I have in mind my comments above about a litigant who overspends on legal costs having to meet needs at a lower level than might otherwise be the case and I am cognisant of the fact that £200,000 is included on the wife’s side of the asset schedule which is notional rather than actual. I am also cognisant that, as far as the figures allow it, part of the Duxbury fund can be treated as being provided for out of the wife’s notional half share of the assets – she “should be required to amortise, that is to say, to spend, her Duxbury fund”: see Mostyn J in CB v KB [2020] 1 FLR 795.

The family home shall be sold forthwith and the net proceeds (after deducting the costs of sale, the mortgage redemption, the SDLT liability, any CGT liability and the husband’s Level litigation loan) shall be divided equally.

The wife shall transfer to the husband all her interest in the Spanish property.

The joint bank accounts shall be divided equally.

The wife shall transfer to the husband all her interests in the companies.

The husband will pay a lump sum of £469,082 to the wife.

The chattels in the family home shall be divided by agreement.

There should be a clean break.

Using my asset schedule above, and treating the companies as an income producing asset and therefore leaving it outside the schedule, this would produce the following outcome:-

The family home at shall be sold (not forthwith, but commencing in January 2023) and the net proceeds (after deducting the costs of sale, the mortgage redemption, the SDLT liability and any CGT liability) paid into a ‘capital fund’.

The Spanish property should be sold and the net proceeds (after sale costs and tax) shall be combined with the family home sale proceeds in the ‘capital fund’.

The joint bank accounts shall be divided equally.

The wife shall transfer to the husband all her interests in the companies.

From the ‘capital fund’ the wife will receive the first £665,067, the husband the next £237,398, the wife the next £1,450,000 and the husband the balance (which on these figures would be £215,363.

The chattels in the family home shall be divided by agreement.

There will be RPI index linked spousal periodical payments at £20,000 per annum paid by the husband to the wife until the husband’s 67^th birthday, without a section 28(1A) bar on its extension.

There will be a pension sharing order of 100% of the husband’s Scottish Widows pension and a 44% pension attachment order in relation to the husband’s Royal London pensions.

Using my asset schedule above, and treating the companies as an income producing asset and therefore leaving it outside the schedule, this would produce the following outcome:-

In capital terms (having made the capital adjustments on the wife’s legal costs spending and the husband’s guaranteed annuity) I should have one eye firmly on a starting point of equality. I shall not attribute any immediate capital value to the business because I am treating it primarily as an income producing asset rather than an immediately saleable capital asset, albeit that it might be saleable some years down the line, albeit with the problem that if the husband retires he will not be part of an ongoing business; but all the wife’s interest in the business should be passed to the husband in the most tax efficient way.

Since the husband would like to have the Spanish property as his in a division of the assets I consider it is appropriate for me to allow him to do this. This solution avoids another complicated transaction and all the uncertainty that arises out of that. It will, in due course, be open to him to sell it if he so wishes and he will take any advantage from a sale at a better than expected value and any disadvantage from a sale at a worse than expected value. If he decides to sell the Spanish property and concentrate on an English house purchase then, perhaps with a little short-term borrowing, he should be able to meet his housing need at the level discussed above.

I think there is a strong justification for a departure for equality based on the provision of an adequate Duxbury fund for the wife to use as her source of income in the years ahead on top of her housing need at the level discussed above.

I take the view that there is enough capital here for me to adjust the received portions in order for me to make a clean break order. This is the solution which sits most easily here with the court’s duties under Matrimonial Causes Act 1973, section 25A.

I am not inclined to avoid making a pension sharing order against the husband’s Royal London pension because of the destruction that would cause to its value; but there is no reason why his other pension should not be subject to a pension sharing order to even out the respective pension funds as far as is sensible.

It is necessary for me to make some provision for the immediate future, pending the sale of the family home. I consider that the only way of meeting these needs is for me to require the husband to meet the essential outgoings on the family home and to give the wife some income pending the sale of the home.

The wife shall transfer to the husband all her interest in the Spanish property.

The family home shall be sold at the best price reasonably attainable and the net proceeds (after deducting the costs of sale, the mortgage redemption, the SDLT liability and any CGT liability) shall be divided as to 76% to the wife and 24% to the husband.

The joint bank accounts shall be divided equally.

The wife shall transfer to the husband all her interests in the companies.

The chattels in the family home shall be divided by agreement.

There will be a 100% pension sharing order in relation to the husband’s Scottish Widows pension.

There will be a clean break on the completion of the sale of the family home. Pending completion of the sale the husband will pay the monthly mortgage payments and the other utility bills as and when they fall due plus MPS/interim spousal periodical payments of £1,000 per month in advance, commencing on 1^st November 2022.

There will be no orders as to costs. In my view neither open offer came very close to being a fair outcome to the case and in this respect I cannot criticise or favour one party any more than the other.

I have been asked to consider whether the husband should give an indemnity to the wife in relation to an investigation into one of the businesses. I am not inclined to require that of him. Both parties stood to gain by the arrangement which then proved not to be lawful and, if any further obligations arise, which seems relatively unlikely as the impression I have is that the matter is probably now dealt with, the obligations should fall equally between the parties.

I have been asked to consider whether the husband should give an indemnity to the wife in relation to the transfer of the business to the husband. I consider that he should give such an indemnity for the payment of any Capital Gains Tax on the transfer, but only on the basis that the presentation to the HMRC is on the basis of the valuation report by Ms Hart. If she felt obliged to present a different picture to the HMRC, and the tax liability ended up being commensurately higher, then I consider that the parties should be equally liable for any additional liability. I consider that the husband should be responsible for meeting any unpaid tax on pre-transfer dividends attributed to the wife.

I have been asked to consider whether the husband should give an indemnity to the wife in relation to the insurance claim made by the wife in relation to a stolen motor car. I note that such a claim was made, and I have no reason to believe it was not genuine, but if anything arises in this category it should fall equally between the parties.

I consider it sensible for arrangements to be made for the wife to be able (if she continues to fund it) to have access to the benefits under the Aviva Health Insurance policy.