WG v HG [2018] EWFC 84 Family Court, 30 July 2018, Francis J

In categories:

WG v HG [2018] EWFC 84

Family Court, 30 July 2018, Francis J

The couple met in 2004, shortly after the husband’s first marriage had come to an end, when the wife was employed as a nanny for the husband’s son from his first marriage. In the financial remedy proceedings arising out of the first marriage, the husband’s net realisable assets were £15.278 million, of which he was required to pay £2.5 million to his first wife (in addition he provided support for his son, who suffered from a rare genetic disorder resulting in severe developmental delay and various physical disabilities; this support was costing over £200,000 pa by the time of the couple’s own financial remedy proceedings).

The husband and wife thereafter lived in the husband’s previous family home and married a few years later, having two children together, now aged 13 and 10. They had a very expensive lifestyle, funded in the main from the income generated by the husband’s existing resources, which had been gifted to him by his father.

In November 2014 and 2015 the wife consulted with specialist divorce lawyers; and in May 2015 the husband issued divorce proceedings. However, this petition was withdrawn and there was a trial reconciliation. The husband claimed that the reconciliation ended in October 2015, the wife that it ended only in the autumn of 2016. This was said to be relevant because in late 2015 the wife had a riding accident which required her to have an emergency craniotomy, involving part of her skull being replaced with a titanium plate. In 2016, she had a seizure and underwent further procedures, including the insertion of a shunt into her brain. She also suffered a significant period of post-traumatic amnesia from which she emerged only after her transfer to an acute neurological rehabilitation unit. She had various therapies to assist her recovery, which ended only in the autumn of 2017. The husband provided considerable financial and other support throughout this period.

The evidence from the wife’s treating clinical psychologist was that a brain injury was a disability that affected people for the rest of their lives; the wife still reported difficulty with her short-term memory. The husband raised concerns about the wife’s capacity in mid 2017, which resulted in a substantial delay; the capacity assessment established that the wife did not lack capacity to conduct the proceedings.

The husband disclosed assets of £17.143 million, arguing that all the increase since 2004 represented passive economic growth from his portfolio. By the time of the hearing, a building project initiated by the husband, which so far had cost £5.8 million and which was not yet finished, had reduced the husband’s assets considerably. The husband claimed that he did not intend to live in the property he was remodelling, but was expecting to sell it; it had been valued at £1.5 million if sold now, so on current values he had lost £4.4 million on the project. If he finished the project he was expected to spend an additional £3.1 million, with an eventual loss on any sale of £4.3 million. The husband’s mother had died in 2016 and he was the sole beneficiary of a £4 million trust created by her will; this provided him with a net annual income of £50,000 and the trustees had a power of appointment of capital. The husband and the wife jointly held three properties, purchased for the three children of the family, using money gifted by the husband’s father.

The husband argued that this was a needs claim and offered £2,369,126 on a clean break basis. He claimed that the wife’s accident meant that she had an impaired life expectancy, reducing her Duxbury award. He also argued that she had made a complete recovery and no longer required full-time assistance at home. Finally, he argued that the wife was cohabiting with a new partner, relying on a covert surveillance report.

At a very late stage the wife acknowledged that hers was a needs rather than a sharing case; she offered to accept £7.715 million, over half the net assets in the case. In particular she argued that she required staff (ideally a live-in couple) at an estimated cost of £36,000 pa, which on a standard life expectancy basis would mean a total lifetime cost, unindexed, of £1.36 million. She had produced no expert evidence in relation to this need. She referred in her s 25 statement to the fact that the husband’s father’s family wealth was in the region of £400-£500 million. She explicitly abandoned an ‘add-back’ claim in relation to the building project but still referred in her submissions to the money that would have been available had that project not gone ahead. The wife had spent £625,000 in the financial remedy proceedings, and £151,000 in the separate Children Act proceedings, which had resulted in the children dividing their time equally between the parents, and she sought an indemnity in respect of all her costs, on the basis that without this her needs would not be met.

At the pre-trial review the wife asked the husband to fund the purchase of a property worth £1.55 million (about £250,000 more than the husband was proposing as a housing fund) but did not disclose that she had already made arrangements to borrow the money required. Shortly afterwards she exchanged contracts on the property, with completion dates after the final hearing.

The High Court judge awarded the wife £4.05 million.

Although cases did not necessarily and automatically fall into category of either a) sharing or b) needs, this was a quintessential case where there had been little or no marital acquest or where, if there had been an acquest, this was a consequence of the passive growth of pre-acquired resources. All of the resources in the case had been brought into the marriage by the husband and this was a contribution unmatched by the wife. The wife did not need to be defensive about this nor did she need to see it as a criticism. Given that this was a needs case and the near agreement as to the value of the assets and liabilities, save the one significant area of dispute about alleged over-expenditure on the husband’s building project, it was worrying if not shocking to note that the parties between them had spent considerably more that £1 million on these financial remedy proceedings. In a case such as this where there was substantial wealth, absent extraordinary features, the court could not see how a needs case could entitle the applicant to more than half of the assets.

The wife’s schedule of assets and liabilities had included the three properties intended for the children until late in the day, even though it was obvious that the husband and wife were holding the properties for the children, albeit not within the formal environment of a trust. The wife had never suggested that the husband would not honour the lifetime gift from his father for the children and it had been an unnecessary diversion to spend any time at all on this issue. The three properties were to be transferred from the joint names of the husband and the wife into the sole name of the husband. No formal undertaking was required, but it would be recited on the face of the order that the husband acknowledged that these properties would be transferred to the names of each respective child when the time was right to do so. The wife was, of course, entitled to be consulted about the overview as to when the transfers to the children should take place. The husband should provide the wife with an indemnity in respect of any income that might have been received in respect of these properties and which should properly appear on the wife’s tax return.

The court did not agree that the wife had an impaired life expectancy; indeed, the wife’s condition could result in her needing care earlier into old age than would be the case for somebody without the injuries that she had suffered. There was something of a tension between the husband’s assertion that the wife had made a full recovery and the assertion that she had an impaired life expectancy. It would be quite wrong to speculate; the court would deal with this case on the basis of the evidence. It was surprising that no expert report had been put before the court in relation to the wife’s claimed need for ongoing care. The wife had to prove her claim on the balance of probabilities; the burden of proof was no different in the Family Division from other civil courts. The medical reports filed in the Children Act proceedings, which were out of date, did not establish that the wife needed carers for the rest of her life. The court accepted that the wife did need some help in the house, but that was not the same as saying that she needed a live-in couple to help with her care for the rest of her life.

Both parties had known by the spring or summer of 2015 that the marriage was more or less over. By the time of the wife’s accident in late 2015, the marriage was more or less over. Equally, at the time the accident occurred the parties were not divorced and the wife was still completely financially dependent upon the husband. The court was satisfied that this accident had taken place during the marriage, but that it had occurred after the parties had more or less come to terms with the fact that the marriage was in terminal decline. However, it was not possible to draw a line in the sand and say that if something happened after a fixed point in time, it was nothing to do with the husband or this court. If the court found that the wife had a financial need as a consequence of her accident or indeed any other need, and that the husband was able to meet that need, then he should do so. The court could not, in some artificial or arbitrary way, reduce the amount of support that the husband should provide for the wife on account of the fact that the marriage was almost over at the date of the accident.

On any basis, the project had been a wasteful extravagance, but the wife might have found it difficult to establish that this expenditure had been wanton, in the sense of conduct that it would be inequitable to disregard. More importantly, the court questioned the wisdom of running an add-back argument in what was, essentially, a needs case. Seeking to put this figure into the schedule of assets and liabilities seemed to be add-back by another name and was a practice that needed to be deprecated in the light of the wife’s concession as to add-back. The assets were what they were and there was no pot of gold buried at the end of garden like a dog’s bone with almost £4 million inside it, ready to be dug up and retrieved for a later day. However, the cost of the project might be relevant as to a) the wife’s housing need and b) perhaps a more general indication on the part of the husband of his confidence about his financial position. In relation to the project, the value could be no more and no less than the figure put on it by the jointly instructed valuer, in the absence of any other evidence. Speculation about what the property might be worth at some future date when works had been done and monies had been spent on it were pointless. The judicial task was to put a value on the assets at the date of the hearing.

In relation to the trust established under the husband’s mother’s will, the court could invade non-matrimonial capital in order to meet the wife’s needs claim if it needed to, indeed any lump sum which the husband paid to the wife would necessarily be paid from ‘non-matrimonial’ resources in this case. The will trust, however, had an even less matrimonial character to it that the rest of the resources, since it had fallen in post separation. It was plainly wrong to include a specific figure or indeed any capital figure at all in the asset schedule for a resource which only generated income at the moment. Similarly, while recognising that the husband was likely to receive further sums by way of gift or inheritance, it would be quite wrong to let this prospect affect the court’s assessment now of the wife’s needs or of the husband’s obligation to meet them.

The wife should have told the husband and the court about the fact that she had borrowed money to effect the exchange of contracts on a new property; her failure to do so was a serious act of non-disclosure. In behaving in this way, the wife had been attempting to crystallise her housing need but if the court took the view that she had spent more on a property than it would have awarded her, it would have no hesitation in saying that she would have to use some of her lump sum for capitalised maintenance to fund the difference. The court was not prepared to be presented with some sort of fait accompli.

As far as co-habitation was concerned, what the husband needed to establish, to put it bluntly, was that the wife would need less or should have less money because she was co-habiting. If she and her partner were living together, then the court would expect her partner to be paying, for example, half of the running costs of the property and it might also affect the wife’s need for staff. However, although it was clear that there was an important person in the wife’s life, someone to whom she referred as boyfriend or partner, on the balance of probabilities, the court could not find that he was or would be making a financial contribution to her life in a way that would significantly alter the provision that she needed from the husband.

The court assessed the assets in this case as being about £12.25 million, plus the husband’s £50,000 a year income stream from the trust. The wife’s proposal equated to a little over 64% of this. This open position was completely unrealistic and totally outside the bracket of possible outcomes in this case. Parties knew when litigating that there was always considerable judicial discretion in these cases and it was never easy to predict which judge on which day was going to produce what outcome. This was why parties needed to be realistic in settling. Even if the wife were had persuaded the court to include in the assets the value of the will trust and to add back almost £4 million on account of monies spent on the building project, she would still have been seeking a disproportionate share of the assets.

The wife’s purchase of her new property, although covert and less than honest, was within the bracket of likely outcomes in respect of her housing need. The court regarded it as an inappropriate purchase for a number of reasons, but set the wife’s housing need at £1.65 million, taking into account stamp duty land tax and other purchase costs. If the wife wished to spend further money on the property then she would need to dip into her Duxbury fund and then consider releasing equity in the property in later years or perhaps selling it and trading down to a less expensive property.

The husband had asked the court to approach this case on a Fournier basis, that is to randomly select a term during which the maintenance would be payable and then capitalise that term into a lump sum. That approach would not be fair to the wife. She had income needs which needed to be met, she had no earning capacity, and she had some disabilities. On the evidence available a clean break required the court to use the Duxbury tables. Duxbury was not in any way a rule that had to be followed and had been subjected to considerable criticism, not least in the return that it assumed would be made. However, it was still the tool used by judges and family lawyers alike in these cases and nobody had sought to argue that there was a better way of assessing the capitalisation of lifetime maintenance. Assessing the wife’s income needs, it was clear that neither the wife nor the husband could afford to live at the rate contended for by each of them in their respective budgets. There was simply not enough money for that to be possible. The statute contained the words ‘can adjust without undue hardship’; hardship was a relative concept but there was no compulsion to maintain the marital standard of living. The court agreed with the comment in SS v NS (Spousal Maintenance) [2014] EWHC 4183 (Fam) that ‘it is a mistake to regard the marital standard of living as the lodestar’ and observations in BD v FD [2016] EWHC (Fam) 594), that, “the use of the standard of living as the benchmark emphatically does not mean that, as referred to above, in every case needs are to be met at that level either at all or for more than a defined period . . .”

The appropriate lump sum award sufficient to generate an income for the wife was £2 million. On a Duxbury basis, this would generate approximately £90,000 a year for life. Accordingly, the total lump sum payable by the husband to the wife in respect of housing and capitalised maintenance would be £3.65 million. The husband’s open offer, seeking as it did a step-down in maintenance and starting from a low point in maintenance terms was obviously too low. However, the wife’s claims were manifestly too high, and the husband’s position had been far closer to the likely outcome at trial.

The court was then faced with the vexed question of what to do about the wife’s litigation loan. In addition to the costs of these proceedings there was also a significant debt in respect of the earlier Family Law Act proceedings and the Children Act proceedings. As difficult as the proceedings must have been for the wife, people could not litigate on the basis that they were bound to be reimbursed for their costs. Her legal representation had, at all times, been of the highest quality, but no one entered litigation simply expecting a blank cheque. The court faced the invidious position of seeing its order undermined by the extent of litigation loan or costs liability. If no provision was made for the wife’s costs or litigation loan, then half the Duxbury fund would be wiped out and she would be left with insufficient money to manage. Recognising that the wife’s costs were excessive, that she had presented an unreasonable case in the financial remedy proceedings but also that her Duxbury fund could not be completely undermined and that the husband’s offer had been too low, the court would add to the lump sum an additional £400,000, less than half the total sum still due.

The wife would, therefore, have to find some £500,000 in order to fund the remaining costs. This would deplete her Duxbury fund. Although the court had assessed the wife’s needs at a given figure, and was now leaving with a lower sum which, by definition, would not meet her needs, people who engaged in litigation needed to know that it had a cost. The wife had a number of options: she might choose to sell the property at some point in the future, converting part of the value of it into a Duxbury fund; she might decide to use the property to generate some income rather than simply installing her own staff into it. She would have to make decisions about budget managing, but people who adopted unreasonable positions in litigation could not simply do so confident that there would be an indemnity for the costs of the litigation behaviour, however unreasonable it might have been. The wife would have a Duxbury fund not of £2 million but of about £1.5 million. This would generate for her less than £75,000 a year net, for life; this was a small fortune for most people. Parties could not spend £1 million on their representation without being prepared to face the consequences of their decision to incur that level of expenditure.

Accordingly, the total amount which the husband had to pay pursuant to this order was £4.05 million, leaving him with resources in the order of £8 million, plus his income from the will trust of £50,000 pa plus the possibility of appointments of capital in due course from that fund.

In relation to child support, the court had no jurisdiction in relation to child maintenance, absent a consent order. The court had invited the parties to consider whether they would agree to a nominal order which could then be varied, but the husband had declined, which was the end of the matter, at least for the time being. It was open to the wife to make an application to the CMS, although as this was a shared care arrangement the outcome was uncertain. There would be a school fees order