Updates for Chapter 7: Finance and property on divorce (and on the dissolution of a civil partnership)
May 2014 update
7.3 Financial orders that can be made
7.3 (c) (i) A transfer of property order (section 24(1)(a))The Supreme Court decision in Prest v. Petrodel Resources Ltd  UKSC 34,  2 FLR 732 was applied in the High Court in M v. M and Others  EWHC 2534 (Fam),  1 FLR 439. Applying Prest, King J held that English properties (worth £14m and held in complex off-shore companies) were held on a resulting trust for the husband and she ordered them to be transferred to the wife. She was satisfied that the husband was a shadow director and a ‘shady puppet master’ of the companies and that he had kept ‘absolute control over his empire’. She was also highly critical of the husband’s ‘appalling litigation misconduct’, holding that he was in contempt of court ‘many times over’ for his breach of court orders and repeated failures to disclose his assets. M v. M and Others is therefore a good example of the willingness of the family courts to draw adverse inferences (post-Prest) from a director’s failure to make proper disclosure, attend court or give evidence; and which may convert a ‘prima facie powerful case into a prima facie overwhelming case.’
7.9 Agreements about property and finance
7.9 (a) Consent ordersA consent order can be the result of the parties making an agreement about finance and property on their divorce or agreeing to give an arbitrator the power to make the decision for them. In S and S  EWHC 7 (Fam), for example, Sir James Munby P approved a financial settlement between a divorcing couple which was made under private arbitration.
7.9 (c) Pre- and post-nuptial agreementsIn AH v. PH (Scandinavian Marriage Settlement)  EWHC 3873 (Fam) Moor J held that, even where an agreement does not determine the outcome of a subsequent financial claim, it may still be a relevant factor in the circumstances of the case.
In BN v. MA  EWHC 4250 (Fam) Mostyn J, rejecting a wife’s argument that a pre-nuptial agreement should be disregarded, held that ‘the law adopts a strict policy of requiring the demonstration of something unfair before it will open the Pandora’s Box of litigation where there has been an agreement of this nature’. He went on to say that:
Where there has been a prenuptial agreement, the court should seek to apply the terms of the prenuptial agreement as closely and practically as it can, unless the evidence of the wife in support of her application demonstrates, to a convincing standard, that she has a prospect of satisfying a court that the agreement should not be upheld.
A similar decision was reached in SA v. PA (Pre-marital agreement: Compensation)  EWHC 392 (Fam) where Mostyn J, upholding a Dutch pre-marital agreement, described the case as one which ‘ought to have been easily resolved’ as ‘the parties plainly intended the agreement to apply wherever they lived and wherever they might divorce.’
In Luckwell v. Limata  EWHC 502 (Fam), on the other hand, Holman J rejected the wife’s argument that a pre-nuptial agreement should be upheld. The parties had been married for eight years and had three children, and neither party worked. Holman J stated that:
There is no doubt that very great weight indeed should be given to the agreements in this case. There are no vitiating factors such as duress or non-disclosure. They were entered into freely by a mature man after expert legal advice.
However, Holman J took account of the Supreme Court's comments in Radmacher v. Granatino  UKSC 42,  1 AC 534 on the importance of fairness, and concluded that the husband was now in a ‘predicament of real need’.
7.9 (d) Reform to make marital agreements bindingThe Law Commission’s project on marital agreements In February 2014, the Law Commission published its final report on the status and enforceability of marital property agreements, financial needs and non-matrimonial property (Matrimonial Property, Needs and Agreements, Law Com No 343, see http://lawcommission.justice.gov.uk/). In the report, the Law Commission sets out the following three main options for reform: (i) clarifying, through the provision of written guidance by the Family Justice Council, the meaning of ‘financial needs’ (para .3.88; (ii) investigating the possibility of whether an aid to calculating financial needs’ could be devised (para. 3.159); and (iii) enacting legislation to introduce ‘qualifying nuptial agreements’ (para. 5.40).
‘Qualifying nuptial agreements’ would be enforceable contracts which would enable couples to make binding arrangements about the financial consequences of divorce or dissolution. For an agreement to be a ‘qualifying’ nuptial agreement, certain procedural safeguards would have to be met. Qualifying agreements could not, however, be used by parties to contract out of meeting the ‘financial needs’ of the parties and of any children (para. 5.84). In addition, such agreements would be legally binding only if both partners had disclosed all material information about their financial situation (para. 6.91) and had received legal advice at the time the agreement was formed (para. 6.125). The Law Commission has not made any recommendations about reform relating to non-matrimonial property, stating that the better solution – as in so many areas of family law – is for them to be resolved by agreement (para 8.82).
The Ministry of Justice has accepted the first of these recommendations and is considering the feasibility of producing numerical guidance and next steps on pre-nuptial agreements. An interim response to the Law Commission’s report is expected in August 2014.
Further reading and referencesCooke E, ‘The Law Commission’s report on matrimonial property, needs and agreements’  Fam Law 304.
Murray A, ‘Pre-nuptials, LSPs and compensation guidance before and after the Law Com report’  Fam Law 491.
January 2014 update
7.3 Financial orders that can be made
An 'order for payment in respect of legal services’This new order is laid down in section 22ZA of the Matrimonial Causes Act 1973, which came into force in April 2013. This section enables the court to make an order (or orders) requiring one party to the marriage to pay to the other an amount for the purpose of enabling the applicant to obtain legal services. The orders were brought in by the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Part of the rationale behind them was to make up for the Act’s abolition of legal aid for most private family law matters. The orders may be made in proceedings for divorce, nullity of marriage or judicial separation and also as part of proceedings for financial relief. Under section 22ZA(3) courts must be satisfied that, without the payment, the person would not reasonably be able to obtain appropriate legal services. The court must be satisfied that -
(a) the applicant is not reasonably able to secure a loan to pay for the services, and
(b) the applicant is unlikely to be able to obtain the services by ‘granting a charge’ over any assets recovered in the proceedings (in other words, use property as collateral to borrow).
There is also a list of matters (see section 22ZB(1)) which the court must take into account when deciding whether to make the order, such as the means and needs of both parties, the subject matter of the proceedings and whether the person applying has taken any steps to avoid the proceedings, for example by proposing mediation. The court must also consider the effect of the order on the paying party including whether an order is likely to: (a) cause undue hardship to the paying party, or (b) prevent the paying party from obtaining legal services for the purposes of the proceedings.
The same new rules apply in the case of civil partnerships.
The following case was the first reported case to feature this new order on divorce:
7.3 Financial orders that can be made – property adjustment orders (section 24)The following case, heard by the Supreme Court, was an interesting case for family lawyers and company lawyers about whether properties vested in several private companies could be treated in financial relief proceedings on divorce as belonging to a party to the marriage (or to a civil partner):
As a result of the decision in Prest, it is now clear that the family courts have no greater powers to pierce the corporate veil in financial relief cases than the courts in non-family cases. In other words, an order like that sought by Mrs Prest can now only be made in very specific circumstances. Thus, although the existence of assets vested in companies owned by one party to financial relief proceedings will still be a factor to be taken into account under section 25 MCA 1973, orders for outright transfers of company assets are likely to be rare.
7.4 How the court exercises its jurisdiction: the section 25 factors
‘Big money’ casesThe following case was a big money case which attracted considerable media attention. In Moor J view, it was ‘about as bad an example of how not to litigate as any I have ever encountered’.
Another very ‘big money’ case!M v. M  EWHC 2534 (Fam)
The wife was awarded £53.5 million in financial relief proceedings, which was believed to be the biggest ever divorce award in a contested claim by a court in this country. Mrs Justice King described the husband’s minimal engagement in the proceedings, which included failing to attend hearings and failing to comply with orders. She concluded her judgment by stating that: ‘The case has been a fantastic charade with the husband a shady puppet master in the background’.
7.9 Agreements about property and finance - separation agreements
A divorce settlement achieved by arbitration before a Jewish court in New York was endorsed by the High Court in England and WalesIn AI v. MT  EWHC 100 (Fam) the High Court approved a divorce settlement agreed by a couple privately under Jewish law following rabbinical arbitration before the Beth Din (a Jewish court) in New York. All the issues, including arrangements for the children, had been referred to the Beth Din. The case shows that agreements made in arbitrations can be endorsed by the family courts provided the terms of the agreements are in accordance with the principles of English family law.
7.11 Protecting matrimonial property pending an application for financial relief
Guidance on freezing and search ordersIn the following case, Mostyn J provided guidance on the use, safeguards and form of freezing and search orders in financial remedy cases. The guidance was subsequently approved by the President of the Family Division:
back to top