An unusual finding of conduct affecting a settlement

finances and divorce

As I’m sure most readers will be aware, section 25 of the Matrimonial Causes Act 1973 sets out the factors to which the court ‘shall have regard’ when deciding upon a financial settlement following divorce. One of those factors, contained in section 25(2)(g), is: “the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it”. It is generally referred to simply as ‘conduct’.

Now, conduct is something that is often raised in connection with financial settlements, but in reality it is quite rare for the court to find that the conduct of one of the parties is so bad that it would be “inequitable to disregard it”. Conduct usually doesn’t have any effect on the settlement.

So, when a case in which conduct is found to be relevant is reported, it is worth noting. Such a case was R v B & Others, the judgment in which was handed down by Mr Justice Moor on the 17 March, but has only just been reported.

The judgment concerns the hearing of a financial remedies application made by the husband (‘Mr R’) against his (former) wife (‘Ms B’). It does not begin well for either party, in particular the husband. In the very first paragraph Moor J says of the case:

“It is one of the most remarkable cases I have heard. There are several clear lessons to be learned from it by spouses in general relating to the ownership of property and the payment of tax. First, if you own property, you should ensure that the ownership structure is transparent and legitimate. Second, if you earn money or have a financial benefit, you must declare it to HMRC and pay the tax.”

He goes on:

“The costs of this litigation have been completely out of control. The issues have been numerous and complicated. There has been significant satellite litigation, including a ten-day trial of a preliminary issue before Mostyn J which achieved absolutely nothing apart from the waste of over £2 million in costs. At the beginning of this litigation, there was a dispute as to the beneficial ownership of just about every property connected to these parties. I am quite satisfied that this was entirely because of the irresponsible way in which Mr R has conducted the family finances.”

And then it get even worse for the husband:

“Despite a high standard of living for over twenty years, Mr R has not paid so much as a penny in tax. He has pretended to all and sundry that he has had absolutely no income during that time. Not only was that a complete fiction, it has come at a very heavy price to Ms B and her family. He has raided her family finances with no consideration to the fiscal consequences of doing so. His claim that everything was entirely above board because he noted the loans in a Sage spreadsheet was, quite frankly, palpable nonsense. I am going to have to make some very serious findings of fact. Very unusually, I have come to the clear conclusion that this is a case where section 25(2)(g) is engaged, namely there has been conduct that it would be inequitable for me to disregard.”

The above quotes, which I have purposely set out in full, tell us much of what we need to know about the case. To go into a little more detail, the parties were married in 1993, and have two children, now aged 22 and 20. The marriage broke down in January 2005 and the children now live with the wife. Divorce proceedings were commenced by the wife in 2010, and the divorce was finalised in February 2011. There has been litigation over finances for much of the time since.

The overriding factor in the case was the complexity of the financial arrangements, involving numerous dealings over many years with various companies, properties and trusts. I could not possibly set them out in full here, but essentially the family wealth originated when the wife’s grandfather established a property business, in the 1950s and 1960s. The business passed down to the wife’s father and, when he died in 2010, it passed into the control of the husband (although he had effectively been running it since the early 1990s), until he was dismissed by the family in 2013.

Mr Justice Moor found that the husband had made substantial contributions towards the marriage. However, these were largely offset by the ‘financial catastrophe’ that he had brought down upon the family as a result of his behaviour, illegitimately taking money from the business, in the wife’s name, for his own purposes. Instead of agreeing a salary and living within his means “he was quite happy to spend whatever he wanted even though he had absolutely no entitlement whatsoever.” As a result, the wife was left owing the business some £5.8 million. In addition (for reasons I need not explain) his actions led to the wife incurring a tax liability of £4.02 million.

Unfortunately, because of the financial complexities involved, it is a little difficult to summarise the effect of the husband’s behaviour upon the financial settlement. Suffice to say that the husband was not awarded anything like the substantial sums he was seeking. Mr Justice Moor rejected his proposals and instead awarded him only what the wife had offered.

Mr Justice Moor concluded his judgment with the following:

“I sincerely hope this is the end of this litigation. It is the worst example of how not to deal with the division of finances following marital breakdown that I have encountered. It is made more striking by the fact that, so far as the litigation is concerned, I absolve Ms B of virtually all responsibility.”

Although unusual, conduct can affect financial settlements.

The full report of the judgment, all 176 paragraphs of it, can be found here.

Photo by Zechariah Judy via Flickr under a Creative Commons licence

John Bolch

John Bolch often wonders how he ever became a family lawyer. He no longer practises, but has instead earned a reputation as one of the UK's best-known family law bloggers.

View more from this author

1 comment

Andrew - June 22, 2017 at 9:40pm

Yet another case which cries out for the return of Calderbank.

Leave a comment