BJ v MJ (Financial Remedy: Overseas Trusts)

The central question that arises in this case is how trusts should be treated in the division of assets following divorce. Trusts have always aroused controversy in this exercise. This is because assets held in trust are not legally owned by either party. They are owned by third parties – the trustees.

An interest under a trust may be fixed or discretionary. A spouse who is a beneficiary may have an indefeasible life interest, a fixed interest in remainder or he may be a discretionary object of capital and/or income. In the former instance, the spouse has identifiable property which belongs to him, is capable of being valued and included in the pool of assets to be divided, without further consideration of the position of the trustees. In the latter instance the spouse has no more than the right to be considered by the trustees in the exercise of their discretion.

Analysis of the authorities shows that the Family Division has always brought to these cases a “a judicious mixture of worldly realism and of respect for the legal effects of trusts, the legal duties of trustees and, in the case of off-shore trusts, the jurisdictions of off-shore courts” (per Sir Mark Potter P in Charman v Charman (No.4) [2007] 1 FLR 1246, CA at para 57).

I will now examine the various types of trusts which are commonly encountered in proceedings for a financial remedy following divorce.

If the trust is obviously a “Dear Me” trust (an aphorism memorably and aptly coined by the late Mr James Comyn QC when at the Bar), that is to say a purportedly “discretionary” trust set up by a spouse where the trustees (either because the settlement is a sham, or because they act in breach of trust, or because the trust is the husband’s alter ego) have historically been totally compliant to his wishes and where he has had unfettered access to the capital and income of the trust in a way indistinguishable to assets in his direct ownership, then the assets are properly to be regarded as his, and the trustees to be seen as mere ciphers. Here the court simply ignores the trust structure. An example of this phenomenon is Minwalla [2005] 1 FLR 771.

Equally, when the trust is a fixed trust such as a trust of land (or an old “trust for sale”), where the parties are the only beneficiaries and their interests are defined, the task for the Court is uncomplicated. Examples of such cases include Brown v Brown [1959] P 86 and Smith v Smith [1970] 1 All ER 244, [1970] 1 WLR 155, CA where the husband had deserted the wife and gone abroad to work; the sole asset was the matrimonial home which was in joint names, and which constituted a post-nuptial settlement. The Court of Appeal varied the settlement by extinguishing the husband’s interest in the house as if he were then dead and the wife had survived him, but ordered that she should forego any claim to future maintenance, lump sum, or secured provision. The trust asset (as one would expect with a trust of property in joint ownership) was to all intents and purposes in the direct ownership of the parties.

For bona fide trusts, a key distinction is between nuptial and non-nuptial settlements. If the trust is a nuptial settlement then notwithstanding that the assets are legally held by third parties as trustees, and that yet further third parties may be beneficiaries along with the husband, the trust assets fall within the court’s dispositive powers under s24(1)(c) Matrimonial Causes Act 1973. This power to vary is one of the oldest in the canon finding its origin in s5 Matrimonial Causes Act 1859. The trustees are entitled to be heard (FPR 2010 r9.13(1) and (4)) and any children beneficiaries must be represented (r9.11). The variation powers extend to making outright provision to the applicant, and may even be exercised where the trust is offshore, although, following well-established principle, the court will be unlikely to make a variation order where both the trust and its assets are overseas unless it is satisfied that the order would be implemented by the court exercising effective control over the trust (Goff v Goff [1934] P 107, Hamlin v Hamlin [1986] Fam 11). If, however, the Court is satisfied that the variation order will be effective against the husband in personam, then the order is more likely to be made (Razelos v Razelos [1969] 3 All ER 929).

It has been said that the court will exercise caution before making a variation order. The authorities were summarised by Munby J in Ben Hashem v Al Shayif [2009] 1 FLR 115:

The statement in (iv) is surely of wider application than cases about variation of settlement alone. A respondent’s property rights obviously should not be interfered with by way of lump sum or property adjustment order in favour of a claimant further than is necessary to achieve a fair and just result. So I do not read this proposition as importing an extra degree of caution specifically for variation of settlement cases.

The statement in (v) must surely be read in the light of the new distributive régime mandated by the House of Lords in White [2001] 1 AC 596 and Miller and McFarlane [2006] 2 AC 618. If the court has decided that the assets of a nuptial settlement amount to matrimonial property which falls to be shared then that sharing may very well be in the form of outright provision which deprives a contingent or discretionary beneficiary down the line of the chance of benefit. In Charman the Dragon Trust’s beneficiaries from its inception in 1987 were the spouses, their now adult children, the future children of the husband, his remoter issue, such charitable objects or purposes as the Trustee may determine from time to time, and, finally, such other person(s) or class of persons added under the relevant power to the class of beneficiaries. Accordingly, the class of beneficiaries was not closed. The Trust Period lasted until 2067. There was no protector of the Trust, albeit Mr Charman retained a fiduciary power (subject to the usual strict duties) to remove and appoint new or additional trustees. In 2004 the trustee resolved to appoint the income of the trust for life to Mr Charman. His wife was “relatively fortunate” in that she could make her claim against the non-trust assets (see the discussion about off-setting below). It was argued on behalf of Mr Charman that had she in fact been forced to apply for a variation of settlement she would not have been awarded more than a life interest in part of Dragon, so as not to disturb the rights of other beneficiaries, and that therefore her sharing right to the assets of the trust should be limited to the capitalised value of such a life interest. This was firmly rejected, Sir Mark Potter P stating at para 56(b):

On the other hand, if a trust with authentic third party beneficiaries is set up during the marriage then that may well have been as a result of an agreement, express or tacit, between the parties. In Miller at para 153 Baroness Hale stated:

I have mentioned above that on a variation application the trustees are entitled to be heard (FPR 2010 r9.13(1) and (4)) and any children beneficiaries must be represented (r9.11). I take the reference to “a child” in r9.11 to be a living minor child. The scheme of the rules assumes that the interests and views of adult children and the interests of the unborn will be represented by the trustees. However, those interests and views may not be best voiced if the trustees, as here, have, notwithstanding their joinder to the proceedings, refused to participate in the proceedings. In such circumstances I suggest that it is incumbent on the applicant to draw the claim to the attention of any significant beneficiaries explaining that they are at liberty to apply to intervene, or otherwise to make representations. In this case the parties’ adult son is a beneficiary and following my suggestion on Day 2 of the trial he was able on Day 4 to make written submissions to me having taken legal advice for that purpose.

As with so many aspects of financial remedy law, the decision whether to vary a nuptial settlement, and if so how, is both fact-specific and discretionary.

If the trust is not a nuptial trust then the Family Court is left with what has been described as “judicious encouragement” under the Thomas v Thomas [1995] 2 FLR 668, CA line of cases, which I attempted to summarise in my decision of TL v ML [2006] 1 FLR 1263. Since that decision there have been a number of further important authorities including Charman v Charman No.1 [2006] 2 FLR 442, CA; A v A & St George Trustees Ltd [2007] 2 FLR 467; Charman v Charman (No.4) [2007] 1 FLR 1246; SR v CR [2009] 2 FLR 1083; B v B (Ancillary Relief) [2010] 2 FLR 887; D v D [2011] 2 FLR 29; and Whaley v Whaley [2011] EWCA Civ 617. The question is whether all or part of the trust assets can be attributed to the beneficiary spouse.

Although the test has been variously stated it is most directly and clearly expressed by Wilson LJ (as he then was) in Charman v Charman No.1 at para 13:

The law on this subject was summarised by Lewison J (as he then was) in Whaley at paras 113 and 114:

Importantly, in SR v CR Singer J recognised that a Court is not hidebound by the say-so of the trustees. At para 60 he stated:

In this field the Court is therefore engaged in a fact finding exercise as to whether the trustees will likely benefit their beneficiary if called on to do so. Of course, the court is not making a judgment about facts which have happened; it is making a judgment about the likelihood of the eventuation of future facts. It is undertaking the task specifically set for it by Parliament in s25(2)(a) MCA 1973 of judging what resources the party in question “is likely to have in the foreseeable future”. It will make its judgment on the available evidence, which will include evidence deriving from the trustees. If the trustees have refused to participate meaningfully or helpfully in the inquiry then neither they nor their beneficiary can complain if the court draws robust conclusions as to the likelihood of future benefit. In Whaley, as it happens, I conducted the pre-trial review and recorded in the preamble to the Order a recital expressing the Court's expectation that the principal trustee, Mr Hess, attend in person to give oral evidence at the final hearing. Mr Hess did not do so, and Baron J found that “Mr Hess was/is prepared to do the husband's bidding”. In her judgment at para 35 Black LJ stated:

To similar effect Moylan J stated in B v B (Ancillary Relief) [2010] 2 FLR 887 at para 77:

I am aware that overseas trustees sometimes take a highly defensive and limited position in their participation in the court’s inquiry for fear that anything more active will be construed as a submission to the court’s jurisdiction. In Mubarak v Mubarik [2009] 1 FLR 664, Birt DB sitting in the Royal Court of Jersey stated at para 67:

I can therefore see why overseas trustees may not want to submit to the jurisdiction of the English Court. They may prefer to keep their powder dry and to wait to see what judgment emerges before deciding whether or not to resist enforcement proceedings in their local court. I have to say, however, that I find it hard to see why participation by the trustees in a helpful or meaningful way in this court’s inquiry qua witness could be construed as a submission to the jurisdiction.

Once the judgment as to the likelihood of future benefit has been made the scale of the resources will be established, which will then be divided in accordance with the familiar distributive principles of needs, sharing and compensation.

Although the exercise is said to be one of “judicious encouragement” this is often a misnomer. In two trust scenarios the court can find the facts and apply the distributive principles and then make an award effectively expressing its decision. The first scenario is where the trust is nuptial and an effective order for variation can be made, for example where this court is satisfied that its variation order will be enforced by the overseas court, or where the trust assets are within the jurisdiction of this court and are subject to its enforcement powers. In this latter situation the trustee is likely not to be criticised by his local court for “bowing to the inevitable by complying with an order of the court in whose jurisdiction the real property in question is situated” (see Mubarak v Mubarik at para 79).

The second scenario is where there are sufficient assets outside the trust, but within this court’s powers, for it to be able to make its full award out of the non-trust assets by offsetting. In this way the majority, sometimes the overwhelming majority, of the non-trust assets go to the claimant, leaving the respondent to collect the benefit from the trustees which the court has judged he is likely to receive. Thus in Charman 87%of the non-trust assets were awarded to the wife (£48m). In SR v CR 80% of the non-trust assets were awarded (£6.25m). In Whaley the court awarded 94% of the non-trust assets to the wife (£3m). In this scenario the court is not judiciously encouraging the trustees to make money available to the claimant; rather, it is by its award indirectly encouraging it to provide for its own beneficiary. But it can make an effective award.

The only truly problematic situation is where the trust is not nuptial and where there are no or scant assets outside the trust. In such a circumstance the court might find that its findings as to the likelihood of advancement are frustrated by a refusal by the trustees to do what the court expects them to do. In such a case a deal of worldly realism is called for.

The facts are largely agreed. I have drawn on the written submission of both counsel in setting out the background.

The husband (H) and the wife (W) are both 65. They married on 16 August 1980. They are Mauritian by birth but have lived here for many years. H asserts that he is domiciled in Mauritius for income tax purposes, but he accepts he is deemed domiciled here for inheritance tax purposes because he has been resident here for more than 17 of the last 20 years. W’s domicile is less clear. She may or may not be domiciled here for income tax purposes but will certainly be deemed domiciled here for Inheritance tax purposes. They have one child, C, who is 25. H was the main breadwinner during the marriage and is now retired. W’s role during the marriage was principally that of mother and housewife.

The former matrimonial home, known as “Green Farm”, is a substantial property set in 72 acres in Kent which was purchased in April 2000.

W moved out of Green Farm in May 2009 into a flat which she is renting.

C and his girlfriend live in the annex at Green Farm. C and his parents are involved together in a leisure business, CJ Ltd, although W’s participation is passive. H and W jointly have 48.56% of the shares; C has 46.7% and a third party has 4.74%. The business owns two premises in Kent which were purchased in December 2006 for £675,000 which was provided by means of a loan in the joint names of H and W from HSBC but which was marked in the books as a directors’ loan from H. The loan has been reduced to £439,747 by payments from the business, although at present the business is only covering the interest. The director’s loan now stands at £645,391.

H has in recent years suffered serious ill health, suffering a stroke in 2005 and undergoing two major operations recently. He has been afflicted by periodic severe ill health during these proceedings.

The family’s wealth derives predominantly from H’s former interest in a company called ABC Ltd (ABC).

In 1990 H and two fellow directors achieved a management buy-out of ABC. Each of them acquired a 33.33% shareholding.

In 1994 an IPO of ABC was proposed and riches were on the horizon. In anticipation of the floatation H and his two fellow shareholders made arrangements to mitigate tax on future capital gains which may accrue to their respective shares of the proceeds. In H’s case, being non-domiciled, the arrangements were perhaps less necessary than for his partners, as (subject to any change in the law) he would have been able to have put his money offshore and suffer no tax on the gains save insofar as they were remitted onshore. The arrangement involved the creation on 27 February 1994 of two Jersey trusts (No.1 and No.2) and a company incorporated in the British Virgin Islands – Giloch Investments Ltd, later renamed Giloch Ltd (Giloch). I shall examine later the trusts and their interests in Giloch to explain how the tax avoidance scheme was designed to work.

At the same time that the trust structure was established an off-the-shelf company (Driveany) was acquired. H subscribed personally for about 20% of its shares and Giloch for about 20%. Each of the members of ABC then sold their shares in ABC to Driveany which changed its name to DEF. DEF’s shares were then floated in about 1996 on the Stock Exchange with a placing of 25% of its share capital. Giloch provided about 3.2m shares towards that 25% placement; H did not provide any personally. The placed shares sold well and large sums, around £3m, flowed into Giloch. The shares in DEF of which H was a direct owner outside the trusts were subsequently lost when DEF later went into insolvent liquidation.

As originally created on 27 February 1994 the No.1 Trust was a discretionary trust for a class of beneficiaries comprising H as settlor, W as his spouse, their child C (then aged 8), H’s siblings, any employee of ABC and the Charities Aid Foundation. The trustees are now HSBC in Jersey.

In August 2000, by a deed made in exercise of the trustees’ power of appointment, the whole of the capital of the No.1 Trust was re-settled to provide the income to H for life (with power to appoint capital to him) and thereafter to W, as his spouse, for her life (with power to appoint capital to her), and thereafter their child, siblings and siblings in law and the Charities Aid Foundation. I was not told why this change was made, but it is obvious that it was for fiscal reasons. Perhaps it was to avoid the Inheritance Tax treatment of discretionary trusts.

In a letter of wishes dated 12 July 2006, H stated that the trustees should look to H as the principal beneficiary during his lifetime and then W during her lifetime and then after their deaths C should benefit from the remainder.

The No.2 Trust was also created on 27 February 1994. H and W and C are specifically excluded persons from the class of beneficiaries. The beneficiaries are grandchildren, remoter issue, the Charities Aid Foundation, siblings and siblings in law and employees of ABC. The purpose of the No.2 Trust was fiscal, and forms the key element of the capital gains tax mitigation arrangements.

Giloch has two classes of shares. There are 10 ordinary shares all owned by the No.1 Trust and 1,000 deferred shares all owned by the No.2 Trust. The ordinary shares belonging to the No.1 Trust are entitled to all of the declared dividends of Giloch which can include a dividend in specie of all of the assets of Giloch. The deferred shares belonging to the No.2 Trust are not entitled to a dividend but are entitled to the capital of Giloch on a winding up. Neither class of shares carries voting rights applicable to the potential benefits of the other. Put another way, the No.2 Trust cannot vote on the question of a dividend and the No.1 Trust cannot vote on a winding up.

This structure represents a very clever piece of architecture which has the effect of sheltering from tax capital gains made by Giloch. This is best explained by a note of a conference held with tax counsel on 28 June 1995. It states:

Although ingenious and effective from a fiscal point of view this share structure has caused considerable problems in this divorce case when analysing to which trust the valueof Giloch should be attributed.

The conference with tax counsel was to discuss a reordering of the trust structure, although in the event nothing was done.

No-one should criticise H for seeking to mitigate the impact of tax, even if his scheme has come home to roost in these proceedings. As long ago as 1934 Justice Learned Hand stated “anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes” (Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934)). To similar effect Lord Tomlin stated in 1936 “every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax” (IRC v. Duke of Westminster (1936) 19 TC 490, [1936] AC 1). But what is unacceptable is reliance in divorce proceedings on ingenious avoidance schemes to obscure the reality of the scale of a party’s resources.

In her evidence, under cross-examination, W stated to me that she was aware of H’s intention to put the ABC shares into trust. While she thought that it was to avoid IHT she admitted that the objective was “to pass on as much money to C as possible after our deaths”. She went on to state, however, that H told her that “whenever we need money from the trust it will be available”. W’s admission was inconsistent with what she had stated in her principal affidavit:

H stated in his evidence that the reasons for the arrangements was to “was to set up a family trust for me, my wife and my son”. This was consistent with what he had stated in his principal affidavit:

In his written submission C stated:

Having considered the matter carefully I conclude that while the primary focus or objective of the arrangements was to avoid CGT there was a clear collateral understanding between H and W that the trust arrangement was established to benefit all of the members of the family, including C, and for future generations.

Although W states that in her mind the marriage was breaking down from 2003 it is invidious to examine the quality of a marriage prior to actual separation, which in this case occurred on 14 May 2009. The first solicitor’s letter was written on her behalf on 8 July 2009 and her petition was issued on 13 July 2009, followed by Form A on 15 July 2009. Decree Nisi was pronounced on 24 November 2010. The First Appointment was held on 11 January 2010 when the trustees were joined to the proceedings (Footnote: ¹). The FDR was held on 7 December 2010 when H was ordered to pay the costs thereof by virtue of his very late disclosure of Dr Masters’s first report (see below). The PTR took place on 18 July 2011. The final hearing commenced before me on 17 October 2011 with a time estimate of 5 days.

On 1 July 2009 H gifted C £18,000 and this was followed by further gifts of £57,010 on 3 July 2009, £50,010 on 10 July 2009 and £15,010 on 12 August 2009; a total of £140,030. W seeks that these sums be added back to the pool of divisible assets as a wanton dissipation. I attempted to summarise the principles applicable to this technique in my decision of N v F (Financial Orders: Pre-Acquired Wealth) [2011] 2 FLR 533 where I stated at para 39:

Although intellectually pure, the problem with this technique is that it does not re-create any actual money. It is in truth a process of penalisation. In my judgment it should be applied very cautiously indeed and only where the dissipation is demonstrably wanton. I am not satisfied that here the gifts to C are to be characterised in this way. True, the timing is suspicious, but other than that there was no evidence that the gifts were anything other than bona fide. They would represent sensible IHT planning anyway. I therefore decline to add the gifts back. Generally speaking, I suggest that it would be altogether better where a reversal of a transaction is sought, that it is made pursuant to s37 MCA 1973, where the disponee can be heard and where strict statutory criteria must be met.

On 14 June 2009 H’s financial adviser Mr M wrote to W setting out H’s then proposal that W should receive a home costing £400,000 and an annual income of £36,000. In that letter Mr M wrote:

On the most recently available figures the assets of the No.1 Trust are as follows:

On 20 August 2009 HSBC in London wrote to Dr Colin Masters, a tax specialist, sending him a deal of documents and asking him specifically for advice in these terms:

The report from Dr Masters in the court bundle is dated 20 December 2009, which is a Sunday. It is likely that this is a date generated by the word processing program automatically and that H had the report considerably earlier. In an email from Dr Masters to a lady at HSBC dated 9 November 2009 Dr Masters speaks of his “November 2009 report”. It is likely that this is the same report which is in my papers and dated 20 December 2009. In that report Dr Masters wrote:

On the balance of probabilities I find that H had this report (but had not shown it to his solicitors) when he swore his Form E on 15 December 2009. In Box 2.14 the Form seeks the following information:

It is a sorry state of affairs that H should have suppressed Dr Masters’s advice when making his Form E, which was of course, that all the value in Giloch could be elevated in a tax-efficient way to the No.1 Trust and made available to H and W. The obligation to fill in Form E truthfully is absolute. The integrity of the system depends on it. The obligation is not just to tell the truth, but the whole truth and nothing but the truth. H’s default in suppressing this key advice was delinquent. But it gets worse, for when asked in questionnaire to produce documents containing advice about his financial affairs H stated in reply on 18 May 2010 “[H] has obtained legal advice in relation to the trusts from his solicitors and Masters Tax. Such advice is subject to privilege”. The report only emerged on 30 November 2010 when a letter was written by H’s solicitors in the following terms:

The accounts of the two settlements have been all over the place in their representation of the value of the money held in Giloch. Mr Southgate has prepared a table showing the varying treatment:

Dr Masters was later instructed as a SJE. His final report is dated 26 August 2011. It identifies 11 different ways in which value may be extracted from the two settlements and Giloch. He explained that the Trustees have a number of alternative routes by which to enable the resources of Giloch to be made available to the parties, but:

In my judgment, the No.1 Trust is unquestionably a post-nuptial settlement. H, W and C are all excluded from benefit of the No.2 Trust but it is an integral, indeed key, component of the overall scheme. It is the left hand to the No.1 Trust’s right hand. In Parrington v Parrington [1951] 2 All ER 916 Pearce J held that two separate but contemporaneous deeds by which a husband and wife divided up their hotel business between themselves was in substance one transaction which qualified as a nuptial settlement between spouses within the meaning of s25 of the Matrimonial Causes Act 1950. Pearce J stated:

By way of analogy I would refer to the very well known line of tax cases exemplified by Furniss v Dawson [1984] 1 All ER 530, HL where the court, for the purposes of the taxing statutes, looks at a series of transactions as a composite whole rather than at them individually. In that case Lord Brightman stated:

Lord Roskill vividly warned against anachronistic historical principles being deployed to impede the journey on the path of justice:

In this case I have no hesitation whatever in finding that the three entities “viewed as a whole” constitute a variable post-nuptial settlement. It would be absurd and arbitrary for me not to do so, for the question of whether the value of Giloch ends up in the No.1 Trust or the No.2 Trust is just a question of the timing of a particular meeting. If the Trustees of the No.1 Trust cause a directors’ meeting of Giloch to be held which then votes all the assets of Giloch as a dividend in specie then all the value goes to No.1. If the trustees of No.2 Trust (who are the same as for No.1) cause a general meeting to be held and vote to wind up Giloch then all the value goes to No.2. The result of W’s claims for a financial remedy surely cannot hang on the fortuity of which meeting comes first.

It can be seen from the table at para 53 above that the overall trust assets (ignoring internal loans) comprise about £4.31m, of which about £1.87m, being the value of the two houses, is within the jurisdiction and therefore my dispositive powers. I have no evidence as to whether any order of mine dealing with the £2.44m held outside this jurisdiction would be enforced by the Jersey Court.

The trustees were joined to the proceedings on 11 January 2010. They have declined to submit to the jurisdiction of this court: see the letter from their Jersey lawyers dated 2 March 2010. Nonetheless, they have complied partially, but not fully, with certain orders for disclosure. Although the direct question as to whether they would or would not benefit H or W in whole or in part has not been specifically put to them, it is clear that they will do so. On 7 July 2011 their Jersey lawyer wrote “the trustee remains concerned to provide whatever support it reasonably can to [H] and [W]”.

On 11 October 2011 the trustees wrote a letter to both firms of solicitors in which they stated “it has always been the trustees’ stated wish to assist the parties to the proceedings to the extent that it is able taking into account its fiduciary obligations to the beneficiaries of the trusts as a whole as well as the position as a matter of Jersey law.” But they went on to state “it is quite improper for the parties to treat the assets of the trusts in the same manner as assets which they hold personally, for the purposes of ancillary relief proceedings”. In that letter the trustees made an offer to provide for W by making available either directly from Giloch, or by means of loans on trust assets:

Plainly this offer shows that that funds can and will be made available to both parties.

I tabulate the assets as follows. My presentation of the trust assets disregards internal loans and a loan to H.

This list does not include the asset and liability referable to C’s business referred to above at para 30. Nor does it include, contrary to Mr Castle’s arguments, the tax that H would pay were he to receive all the assets and remit them here. This is completely unreal. The whole point of the structure is to avoid paying tax, and H has never remitted any offshore income. Mr Castle argues that not to include it would result in an unfair imbalance as W would be able to remit onshore and would therefore have more freedom with, or at least fewer strings attached to, her money. But in order to have the benefit of the money here H does not need to remit income. Consider Green Farm. This was acquired by the No.1 Trust borrowing from Giloch and then buying the property here. The same issue arose in an unreported case in which I appeared in 2005. There Baron J stated:

This case, like all others, will be decided by considering the distributive principles of needs and sharing. The compensation principle is not applicable in this case.

In her Form E dated 10 December 2009 W put her housing and associated costs at £1m - £1.2m. Her budget, excluding the rent presently being paid by her, was put at £61,715. When W came to make her principal affidavit on 10 October 2011 she put her housing need at £735,000 and her budget at £87,694.

In her evidence W was not able to give any plausible explanation for why her budget had shot up. Mr Castle was also able to point out that one of the properties, the particulars of sale of which were exhibited to her affidavit, and which was said to justify her ambition of £735,000, was on the market at £600,000 - £675,000.

I judge the wife’s housing need to amount to £700,000 inclusive of costs of purchase. I judge her reasonable annual income need to be £65,000.

Were W’s interest in her new home to be only a life interest (as H proposes) then funds will be needed to pay trustees’ expenses and the anniversary IHT charge (the entry charge will not be payable as this is a divorce settlement). I would, on this footing, allow a further £50,000 for these purposes, having estimated that the anniversary charge would amount to about £25,000.

It is common ground that Wife will receive a pension share of 50%. There will be a pension credit in her favour of just over £650,000. Mr Southgate argues that I should assume that W will buy an annuity with her share. I decline to make that assumption. No-one nowadays seriously would think of buying an annuity. Rather, they would likely drawdown on the pension within the prescribed GAD limits. I calculate that some £26,300 would be available annually in this way on the basis that the full 25% tax free element of £162,500 is now taken (Footnote: ³).

A Duxbury calculation on a revenue need of £65,000, assuming gross pension income of £26,300 and a full state pension, produces a capital requirement of £626,759. Towards this W would be able to put the £162,500 from her pension share and her own assets of £153,000, leaving a residual capital need of just over £310,000.

It can therefore be seen that the trustees’ proposal, when taken with W’s pension share and her own assets, while being £50,000 light in the housing fund, is £190,000 in excess of the sum required to meet W’s revenue needs.

In her evidence W frankly conceded that she did not want, at all, for H to have to sell Green Farm. Given his frail condition and obvious attachment to the property this was both kind and reasonable. I have not undertaken a needs calculation for H on the basis that he lives elsewhere as the order I intend to make will allow him to live at Green Farm with sufficient income to meet his needs.

In my judgment, all of the assets in this case, including all of the trust property, amounts to matrimonial property and should, in principle, be shared equally. But the implementation of that equal sharing should reflect the clear arrangement made during the marriage, assented to by W, to set up a trust ultimately to benefit C and future generations.

An equal division of the assets gives W an entitlement of £2,957,269. The value of the trustees’ proposal, when aggregated with W’s own assets and her 50% pension share is as follows:

In her evidence, in answer to questions from me, W accepted that she would give careful thought to an arrangement where any such shortfall would be charged in her favour on Green Farm and released to her on H’s death or earlier sale of the property. Actuarial tables and H’s medical condition suggest that W has a much longer life expectancy than H. I judge it to be likely that W would receive such a deferred share during her lifetime, were I to go down this route.

My decision and award is as follows:

I have allowed for the possibility of enforcement of the charge by an order of this court. This is to cater for unforeseen future events which may well militate in favour of a sale, such as H leaving the property to live in a care home or in Mauritius (which he told tax counsel in 1995 was his ultimate intention).

The effect of my award is to make available to W £2,957,269 as follows:

Mr Southgate argues that the arrangements in para 82(ii) and (iv)(d) are not compliant with the clean break principle and cause messy long term inter-connections to be endured between H and W. Sometimes in order to achieve fairness the court has to reach for Wells sharing, or contingent lump sums (as in Charman), or deferred interests by way of a charge. These are commonplace. The court has to strive to make the break as clean as is reasonably possible, but I emphasise the qualification. Fairness is not to be sacrificed on the altar of finality.

By this structure I have, I believe, fairly balanced the equal sharing principle; the trust arrangement made during the marriage; the existing interests of C as an innocent third party; and the parties’ respective needs. I have not recited mechanically all the provisions of s25 MCA 1973. The matters stated therein are all, where relevant, reflected in what I have written above. Overarching all this is my complete satisfaction that what I have ordered is fair.

The trustees’ offer is that the sum of £1.2m (£500,000 + £700,000) will be made available from the funds in Giloch of £2.217m. In the light of my judgment I am expecting that £1.25m will be produced. If I am wrong about this, then H and the trustees should understand very clearly that there are sufficient funds within this court’s powers to make available the whole of W’s entitlement by other means. W already has assets of £153,307. Thus a further £2,804,232 is due to her. There is within this court’s powers the sum of £3,318,630 as follows:

I will hear counsel as to costs and as to the form of the order.