Looking around, I noticed an Ebenezer Scrooge quotation in a shop window: “I will honour Christmas in my heart, and try to keep it all the year”. The phrase, from Charles Dickens’ A Christmas Carol, is a great one – but how often do any of us pay anything more than lip service to “the season of goodwill”? This year, as I shall explain, my firm decided to honour the Christmas spirit in quite a dramatic way.

BJ v MJ

In October 2011, Mr Justice Mostyn issued a judgment in the case of BJ v MJ (Financial Remedy OverseasTrusts) [2011] EWHC 2708 (Fam). These were financial remedy proceedings where the central question was how trusts should be treated in the division of assets following divorce. By way of introduction to the case, Mr Justice Mostyn took the opportunity to give his readers an easy to understand law lecture in the various types of trust commonly encountered in financial divorce cases. He distinguished between the trusts where a party has a fixed identifiable interest in trust property which can be valued and belongs to him; and where the trust in question purports not to give one spouse an absolute interest and therefore cannot immediately be regarded as that spouse’s property. This is known as a discretionary trust, because the party’s interest in the trust assets is only identifiable when it is paid to him by the Trustees, who in law are the owners of the trust assets.

1. Cipher Trusts

More accurately named, “Dear Me” trusts, these are supposed to be discretionary trusts – but in reality are a sham, since the trustees of the trust do whatever the settlor wants. In my experience it is often the husband who has set up a Cipher Trust, and he has unfettered access to the capital and income of the trusts indistinguishable to the assets in his direct ownership. In such cases, the court will ignore the trust structure, as it did in the case of Minwalla (2005) 1FLR 771.

2. Trusts of Land

These trusts are very common and the parties probably don’t realise that their ownership of a house has created a trust. They are simply homeowners or people who own properties in their own names, or jointly with the other parties or third parties, and their interests are therefore defined. Those interests can still be varied on divorce. So if the marital home is owned jointly or by one person alone, the court still has power to vary their ownership and transfer the property in such proportions as it deems fit.

3. Nuptial Settlements

Where there is a genuine trust, not a “Dear Me” trust, the court distinguishes very carefully between nuptial trusts and non-nuptial trusts, because under Section 24 (1) (c) Matrimonial Causes Act 1973, it has power to vary settlements which do have a nuptial element, even if there are other beneficiaries named in the trust who are not the divorcing parties.

For example, a trust may have been set up shortly before the marriage and a property may be placed into a trust by worried parents of the husband, who are trying to protect their offspring.
They don’t want to make an outright gift; instead they create the trust for the benefit of their child and also for future grandchildren, but carefully exclude the future wife.

They hope they have protected their child. They probably have not. With nuptial settlements, the court may hear from the trustees and any child beneficiaries must be represented. Yet the court has wide powers to vary the terms of the trust, including making outright provision for the applicant, even if the trust is offshore. However the court will most likely only make a variation of an overseas nuptial trust if satisfied the trustees will co-operate. If the court is also satisfied the order will be effective over the husband, it can also make the order.

Mr Justice Mostyn went into some detail in his mini-lecture about the issues the judges take into account when deciding to vary the terms of a nuptial trust. He reiterated that they “exercise caution before making a variation order” and quoted Mr Justice Munby (as he then was) in Ben Hashem  v Al Shayif (2009)1FLR115:

“The objective to be achieved is a result which as far as it is possible to make it, is one fair to both sides looking to the effect of the order considered as a whole. The settlement ought not to be interfered with further than is necessary to achieve…justice between the parties…the court ought to be very slow to deprive innocent third parties of their rights under the settlement.”

The decision to vary is fact-specific and discretionary.

4. Non-Nuptial Settlements.

This is a type of trust that has not been set up shortly before, or after, the marriage. Typically it will have been created many years beforehand by one of the parties’ parents or grandparents and payments will be made out of the trust to the beneficiaries on a discretionary basis. The trust will include a number of potential beneficiaries, such as children and grandchildren of the Settlor but may also include spouses of the parties, who are brought into the trust by virtue of the marriage. The trust may be onshore or offshore.

This type of trust poses more complex problems for the court. The assets are all locked away, and as the Judge confirmed, the Family Court is left with what has been described as “judicious encouragement” in the case of Thomas  v Thomas (1995) 2FLR668, followed thereafter by Mr Justice Mostyn’s own judgment in TL  v  ML (2006)1FLR 1263,  Charman v Charman (No 1 and No 4), and various others.

The court has to consider whether in dealing with the parties’ assets, some of which will be outside the trust, how much of the trust assets it can also take into account. Would it be fair in such circumstances to award the non-trust assets to the wife, on the basis the deficit will be made up out of trust assets then paid to the husband? Effectively, how far can the court go in unlocking trust assets, in genuine non-nuptial trusts where the settler may never have thought this would happen and it was never his intention?

So the first question for the court is: can all or part of the trust assets actually be attributed to the beneficiary spouse? The next question centres upon the likelihood that the trustee would be likely to advance the capital immediately or in the foreseeable future to the spouse. Should the husband ask the trustees to advance him capital, would they be likely to do so?

The court needs to look at the facts realistically. The court will not put “undue pressure” on trustees. What that means has never been defined. However it is not considered to be undue pressure if other beneficiaries would not be “appreciably damaged” and the court decides it would be reasonable for the husband to seek to persuade trustees to release more capital to enable him to make proper financial provision for the wife.

Note however that even if the court makes such an order, the trustees are not bound to comply – even though it is “plainly proper for the trustees to take it into account…and commonly it will be decisive”. Even if the trustees are not being co-operative, the judge is not bound by the trustees to accept, “what will or will not come the Husband’s way if an award leaves him with limited resources”.

So in such cases, the wife is awarded most or all of the free assets, the court being satisfied that the deficit caused to the husband, will be made up by the trust. In Charman for example, the wife received 87 per cent of the non-trust assets, (£48 million); SR v CR, 80 per cent (£6.25 million); and in appointment-what-you-need-to-know/”>FDR failed – as we knew in our hearts that it would – and the client was left facing a week-long hearing in the High Court.

So the choice was ours and ours alone – and it was far from easy. There was no legal aid and no bank funding for the client. The client had nothing with which to pay substantial legal fees – but surely, the client should not be left to fend as a litigant-in-person? Should the client go into court without legal representation and “have a go”… or would we act truly in the spirit of Charles Dickens and continue support them anyway, despite knowing there was likely nothing in it for us? We took a deep breath, and did just that.

The result: the client came away with a fairer settlement – and head held high.

My firm came away with nothing. Many law firms in this country, with the best will in the world, simply do not have the resources to be able do what we did. We helped our client to the best of our ability, putting the client’s interests first. I’m proud that I can read the words of Charles Dickens, and know that for my firm, those words do have a genuine meaning.

In meeting the needs of each party, the court will apply the various relevant factors of section 25 of the Matrimonial Causes Act 1973, which are as follows:

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

(d) the age of each party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage;

(f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;

(g) 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;

(h) in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit. . . which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

That’s the theory… but what happens in practice? How does a court carry out the exercise of meeting the reasonable needs of the parties?

A reader of this blog, Julianna, recently wrote to me for advice about her partner. His former wife was pursuing a financial settlement, even though the former wife had already received the lion’s share of the parties’ capital, which was about £27,000. Julianna wanted to know whether her partner’s ex could, aged 50 and following a long marriage, still expect to receive ongoing maintenance and a share of the husband’s pension. Their incomes were very different. The former wife was earning around £10,000 per annum – possibly with some additional income besides, which was not being declared to the taxman, but the existence of which could not be proven. She was also in receipt of certain state benefits. The husband, on the other hand, was earning about £52,000 before tax and had a good pension.

The answer I gave probably wasn’t the one that Julianna wanted to hear: I told her that if these facts were taken at face value, then the former wife was almost certainly entitled to pursue her claims. Of course, the court would take into account assets she had already received and “add them back” if it felt she had squandered them. But the court would want to ensure that the wife’s reasonable needs were met, probably without a cut-off date, given her apparently low income, her age and the length of the marriage. It seemed to me a strong possibility that maintenance might continue up to pension age, and that the pension would then be shared between them. Even in a case where there isn’t a great deal of capital or income, the court will still consider the ongoing needs of both parties and share income and capital between them to try and meet each of their needs.

“When does enough become enough?” asked Julianna. The answer, probably, is never. In my reply to Julianna, I suggested that she might wish to consider her own position too. Given that she wasn’t yet living with this man, did she still want to do so, if his own finances were taken up maintaining his former wife? It’s an issue that arises quite frequently. If she did still want to move in with him, I suggested that she should take legal advice, not least because the husband’s ongoing claims might not necessarily end on his death. His estate could also be subject to a claim, unless he insured his liabilities with a suitable life insurance policy.

The requirement to deal with the reasonable needs of the parties also applies to larger cases too, where the assets are very substantial. In those cases however, there can usually be a “one-off” lump sum payment of capital to cover reasonable needs. Thereafter, what happens to the surplus once needs have been met?

In White v White, the House of Lords held that there should be an equality of division where the assets were purely matrimonial, i.e. they had been acquired by the parties endeavours during the marriage. It found that no distinction should be made between the parties, even if one stayed at home and did not work. But what happens to the rest of the assets, for example those acquired before the start of the marriage? Should these be shared too? In lesser value cases, where there is no surplus, the distinction is irrelevant as needs trump assets, regardless of where they come from.

In my last post concerning the case of Z v Z we saw how limited wriggle room in the prenuptial agreement had permitted Mr Justice Moor to ensure that the wife’s reasonable needs were met. The agreement excluded future sharing of capital, but had not excluded income-based settlements. Therefore, Mr Justice Moor was able to provide both a housing and a capitalised income fund for the wife. So she left the marriage after a long legal battle, but with her reasonable needs met.

During the case reference was made to “sharing” the assets, which had all been accrued during the marriage. On that basis, they were classed as “matrimonial” assets and as Mr Justice Moor made clear, would have been divided equally between them had there not been a valid prenuptial agreement in force.

What happens where there are both matrimonial assets and non-matrimonial assets – such as inherited, gifted or pre-owned assets?

Increasingly, reported cases are very much highlighting the distinction a court may make between matrimonial assets and non-matrimonial assets. As such, where there is a distinction – particularly where the assets have been kept separate and not “mingled” with matrimonial assets – the court will firstly share the matrimonial assets. Then it will stand back and cross-check whether the outcome looks acceptable by reference to the entirety of the assets, both matrimonial and non-matrimonial. Where there are hardly any matrimonial assets at all, the court will most likely provide only for the reasonable needs of the other party – albeit they will be “generously assessed.”

These calculations by the court can produce some interesting results for spouses.

Consider the recent case of AR v AR [2011] EWHC 2717. Following a 25-year marriage there was an estimated total of between £21 and £24 million in assets, and all but £1million were in the husband’s name. The source of the wealth was the husband’s family business, bought by his father shortly after the Second World War. The court rejected the argument for sharing, but said that the application of a strict Duxbury award was too low. The wife’s budget requirements of £115,000 per annum produced a Duxbury calculation of £2.5 million, but this was eventually increased to £3.2 million, so that she could have additional security during her lifetime. Her housing needs were assessed at £1.1 million and the total therefore was some £4.3 million, with the husband retaining the balance of £20million, or thereabouts.

In another recent case, Grubb v Grubb [2009] EWCA Civ 976, the assets amounted to circa £10 million. In this case the wife left the marriage with a similar sum. Her needs had been assessed and the rest of the money was retained by the husband because it was non-matrimonial.

Similarly, the Court of Appeal held in the case of K v L [2011] EWCA Civ 550, that the husband’s needs could be fully met for the sum of circa £5 million. The wife’s inheritance, worth some £57 million, remained with her.

The principle of needs trumping assets also applies in larger cases. In J v J [2011] EWHC 1010 (Fam) the court awarded the wife 46% of the assets in order to meet her needs. Could her needs have been met at a lower figure? The judge, Mr Justice Moylan, said he would have done so to take into account the non-matrimonial assets.

Reasonable needs are just that and sharing takes place when needs have been met. If the assets are mainly or all non-matrimonial, and needs have been met, the rest of those assets will remain with the party who owns them.

The exception to all of the above in big money cases might be assets where the source was originally non-matrimonial but have become “mingled.” They cannot be easily distinguished from the matrimonial assets. In these cases, the party who seeks to share might have more chance of success with those assets.

This is my latest post for The Times, which appears on The Experts blog.

Spousal maintenance is the most contentious area in family finance. Ex-husbands bitterly resent paying it and ex-wives fight tooth and nail to keep it. It is a tax-free income that some see as a continuing windfall and others a hard-earned necessity.

I wholeheartedly support the fact that judges have flexibility in deciding how to settle financial matters during a divorce, because a system based upon rigid percentage divisions can make for grave injustice.

However, every so often, judges dig themselves into holes. We have seen it with capital settlements to wealthy wives and also with pre-marital agreements.

Now we are seeing it again.

There is little judicial guidance on the correct period of time for maintenance payments to continue for less wealthy ex-wives. At what point should maintenance cease – if at all – during the joint lives of the parties, assuming the wife never remarries?

It all depends on the facts of each case and the opinion of the judge. Only if the judge is “plainly wrong” is his or her decision subject to appeal.

This problem becomes particularly acute when children are involved. Take a wife whose income prospects, unlike her husband’s, have been damaged following years of full-time childcare. Should she have her maintenance terminated before or even after the children have flown the nest? Should a poorer wife (unlike her wealthier sister, whose income claims have been bought off by a lump sum) be required to go to work, irrespective of the additional pressures it places upon her and her children? Should the husband or the father be entitled to keep everything he earns, despite the permanent disadvantage to the mother of his children?

The recent Court of Appeal case of N v N, innocuous at first glance, raises some very important issues to this extent.

Mrs N agreed to a fixed term of maintenance when she divorced in 2005, despite having two young children. When the fixed term was due to end, Mrs N’s circumstances and those of her children were such that she applied for an extension.

She represented herself, while her husband was able to afford solicitors and counsel. The district judge ordered that the term to be extended by little more than two years, to April 2012, by when her youngest child would still be a minor.

Mrs N appealed. The circuit judge set aside the original order, substituting a further term to August 2015.

A written application to appeal to the Court of Appeal was made by the husband’s lawyers and refused by Lady Justice Black. Mr N was then able to fund an oral hearing of the application at the Court of Appeal. Mrs N, representing herself, attended.

Lord Justice Thorpe granted permission for the husband to appeal. The judge praised Mrs N’s abilities in court, but then re-imposed the April 2012 order.

At least four judges have wrestled with the facts of this case so far. Each judge has their own opinion as to whether or not Mrs N’s maintenance should continue and for how long.

Mrs N is seeking permission to have her case heard by the Supreme Court, and perhaps – if this innocuous case advances that far – their Lordships will seize the opportunity to clarify the law.

Marilyn Stowe is the senior partner at Stowe Family Law

This is an area of the law frequently highlighted by advocates of legislation for prenuptial agreements. They cite the uncertainty of “judicial discretion”. They argue that it shouldn’t be up to the judiciary to decide, but that it should be for Parliament to legislate in statute form.

Critics of this inflexible stance, myself included, would argue that if prenuptial agreements are upheld, reasonable needs should be met. Nobody should be required to leave a marriage destitute. I would argue that ideally, the criteria from section 25 of the Matrimonial Causes Act 1973 should still be taken into account and considered by the court.

If this didn’t happen, I predict that we would see cases challenging the validity of prenups. Although the nature of the risk would alter, there would still be a likelihood of litigation from litigants who were desperate to be released from the agreements. What then? Prenuptial legislation would have become law, but there would be a need to avoid satellite litigation. Then there would be arguments about how prenups could circumvent such litigation, and how reasonable needs should (or shouldn’t) be taken into account. Round and round we would go…

In his recent speech to the charity Care, Mr Justice Coleridge called for a Royal Commission, the first since 1950, to consider changes to the law in relation to divorce, prenuptial agreements, cohabitation and ancillary relief.

He said: “The world we inhabit today is not the same world as we inhabited in 1950. Socially, society is unrecognisable. The norms of behaviour, the stigmas and the taboos have all changed or evaporated…When the last major reform was introduced there was no such thing as cohabitation outside marriage.” The current law is “a dead parrot” – it is “no longer fit for purpose”.”

Then again, inadequate legislation doesn’t seem to have put off Sir Paul McCartney or Prince William, both of whom apparently have no need of prenups, despite having a great deal that could be lost in the event of divorce.

As a practising family lawyer, I am satisfied with what we have. I am a great believer in our current requirements for fairness and discretion. Far from being out of touch, our judiciary has a strong grasp of the situation.

Consider the elegant judgment, reported in The Times on Saturday, of the newly-appointed Supreme Court Judge, Lord Justice Wilson. This was possibly his last Court of Appeal judgment; for this blogger, it was a pleasure to read. The case, which was also heard by Lord Justice Laws and Lord Justice Jacob, concerned a divorce and a wife’s inherited fortune of £57 million. Her husband argued that he should be given £18 million, but the judges dismissed his appeal.

Straightforward, comprehensible and mercifully brief (“in the light of the general need for the delivery of much shorter judgments upon applications for ancillary relief”), Lord Justice Wilson gave a reliable explanation of how applicants can expect to share in inherited wealth. He did so sensibly and without drama. The judgement gave a fillip to all those of us who believe that attempts to apply  inflexible statute law cannot work within our English system, which has fairness and judicial discretion at its heart.

In this case the husband was awarded 9 per cent of the total assets, a sum of £5 million. This was because all the assets had been inherited by the wife from her grandfather, and because during the marriage, the family had lived modestly on income derived from her inherited assets. It was decided that the sum of £5 million, which had already been openly offered by the wife, more than met his reasonable needs. The husband was also permitted to “share” in the assets of the wife, to the tune of an additional £1- 1.5 million.

Lord Justice Wilson did a swift, cogent, demolition job of the ingenious arguments put by the husband’s formidable counsel to share in a greater proportion of the wife’s wealth:

• He found it was not a discrimination to make such an award out of inherited, non-matrimonial monies.
• He found the importance of the source of the assets may diminish over time, in given circumstances, but that in this case, that had not occurred.
• He found that the argument as to “special contribution” did not apply to non-earned assets, and therefore did not fall to be shared in the same way.

In answer to the argument that the amount was “appealably [sic] disproportionate”, he pointed to the inability of counsel to show the court any reported decision at all, in which the applicant had received anything other than reasonable needs out of non-matrimonial assets, in accordance with the sharing principle set out in White v White.

And that was it. Clear. Concise. From now it will help all of us who advise on inheritance cases.

For those terrified of losing inherited assets to a “gold digger”, I suggest reading this case for comfort. Once needs have been met, even generously met, non-matrimonial assets can remain intact.

I think that sits very well with our system of justice, and I look forward to future judgments from the new Supreme Court judge. I think he is going to make a much-needed, real and reliable difference to the practice of English family law.

The Belgian case was brought to the European Court of Justice (ECJ) by consumer group Test-Achats. They argued that an exemption for insurance companies from the general European prohibition against gender discrimination was unlawful. The suggestion that young female drivers are in the lowest risk category, young male drivers are in the highest risk and that their insurance premiums should therefore differ seems to make perfect sense. Nevertheless, the court determined that using gender to differentiate between male and female insurance policies was in violation of human rights.

The ruling, which comes into force from December 2012, will mean that women have to pay higher premiums of up to 30 per cent more, and that insurance costs for men could fall by 10 per cent.

The impact on pensions

The impact of this will also be felt by those buying a pension annuity – a financial product that is supplied by insurance companies. In the UK many of us have what are called ‘money-purchase’ pensions, where we put money into a pension every month and the fund grows until the day we reach retirement. At this point we use that fund to buy an annuity, which supplies us with an income for the rest of our lives. At the moment, the cost of buying an annuity that provides £15,000 each year during retirement is higher for a woman than a man. This is because statistically speaking women live longer than men and therefore need a larger sum of money to buy the same annual income over the period of their retirement.

It is expected that unlike car insurance, the cost of buying an annuity will reduce for women and increase for men. And at the present time around 80 per cent of annuities are purchased by men. This reflects the fact that more men than women have traditionally had private pensions, a situation that will inevitably change as a greater number of working women make their own provisions for retirement.

In divorce cases we often see arguments on behalf of the wife that suggest she will need more than half the value of the pension scheme that she and her husband have accumulated during their marriage, to provide her with the same level of income during a longer retirement. Anyone not already very close to pension age has the right under the Pension Schemes Act 1993 to take a Cash Equivalent Transfer Value (CETV) to another registered pension scheme. The husband will often argue against this on the basis that it seems transparently unfair for his wife to receive more money. And to add to the confusion, the approach of the district judge to how a pension should be divided is unclear.

What does the law tell us?

The decision in the case of Martin-Dye v Martin-Dye [2006] EWCA 681 confirmed that it would be wrong to try to offset realisable assets against a pension, and also provided useful guidance on the distinction between the two. The court ruled that a pension is not equivalent to other forms of asset and should instead be the subject of a pension sharing order.

But ask twenty different judges whether they would split a pension based on its CETV, or by reference to an actuarial calculation which equalises the future pension income, and you will fail to get one consistent response.

There are uncertainties about actuarial calculations because, despite the thoroughness of the exercise, they are still based upon estimates, statistics and assumptions. Nevertheless, there are also compelling arguments for why a husband and wife, if the circumstances of their case justify it (a long marriage with both of them near retirement age for example), should have a fair and reasonable expectation that they will receive an equal income in retirement. That this could mean a larger financial award for the wife is often difficult to swallow during the emotions of divorce.

The ‘unisex pensioner’

Discrimination based on gender is nothing new for family lawyers. Mrs White successfully took her case to the House of Lords in 2000 where it was determined that women should no longer be discriminated against or stereotyped because of their gender  in divorce cases. That husbands and wives make different, but equally valuable roles and contributions to a marriage is now a well-established concept.

The European Court of Justice ruling means that the cost of purchasing an annuity will be the same whether you are male or female. So for simple money purchase pensions,  and in cases where both parties are invested in similar funds and are of equal age, the arguments about equality of income may become a little easier to resolve when the ruling comes into effect in December 2012. But where the parties are of different ages or the pensions are invested in substantially different funds (for example when comparing a Self-Invested Personal Pension (SIPP) invested in commercial property with a simple personal pension invested in a managed fund) advice from a pension expert should still be sought.

The ruling may also have an impact on pension sharing orders that involve private sector final salary schemes, especially if the spouse receiving the benefit of the pension sharing order has to take an external transfer into a private pension scheme, because annuity costs will again become relevant.

Paul Windle, Pensions Actuary at Actuaries for Lawyers, believes the ruling could open up a can of worms:

“If the European Court  ruling regarding the requirement for unisex premiums and benefits in the insurance services sector is interpreted to also apply to the calculation of Cash Equivalent Transfer Values (CETVs) in defined benefit pension schemes, this would have huge consequences for the UK Pensions Industry costing tens of millions of pounds. The impact on divorce settlements could be to push up CETVs for males as the life expectancy of a unisex pensioner would be higher than the life expectancy of a male pensioner, though this will be balanced to a degree by the fact that the cost of providing contingent spouses benefits to a unisex spouse will be cheaper than providing contingent benefits to a female spouse.

“Given that divorce solicitors and their clients have been subject to months of delays in waiting for public sector pension schemes to revise their CETVs in late 2010, to allow for the move to Consumer Price Index (CPI) linking from April 2011, it would be unfortunate if further delays are now introduced to reflect the impact of moving to unisex life expectancy assumptions for pension scheme members”.

A change to the Duxbury Tables

There will be other possible consequences for family lawyers. When working out capitalisation of maintenance, we use the Duxbury Tables to calculate the amount of capital required to provide a specific income over a person’s lifetime, on the basis that the fund will be exhausted at the end of their life. It is a difficult sum to work out as people’s life expectancies are different and rates of return on investment are uncertain, but the tables at least provide a point of reference and rough guide.

However, they do again differentiate between men and women. There use will therefore need to be reconsidered because any approach that discriminates, inadvertently or otherwise, by gender would be unlawful following the European Court of Justice’s ruling.

While all these changes will take some time to be fully understood and take effect, it is clear that they will have a profound impact on the financial arrangements of nearly every divorce in the future.

Julian Hawkhead became Managing Partner of the Harrogate office of Stowe Family Law in December 2009. Although Julian has a broad spectrum of expertise in Family Law, he is a Resolution accredited specialist in both Emergency Procedures in Financial & Property Cases and Complex Financial & Property Matters. He is known in particular for specialising in cases involving complex financial arrangements for high net worth clients, often with a corporate or trust element.

However when I wrote my article on the observations by Mr Justice Charles in Jones v Jones of the many ancillary relief issues, which are still at large in this area of the law, I did so with the intention that the judgment – while a difficult case for any busy lawyer to disseminate because of its substantial length – should nevertheless be made more accessible and understandable, if only by summary, because of the importance of many of the views expressed by this senior family law judge.

Of course the Court of Appeal has, not for the first time, emphasised that long judgments can be counterproductive for other reasons. Not least of these can be the additional costs occasioned thereby upon an appeal, which has to grapple with the many issues covered, most of which may not have been central to the decision under appeal before the Court.

As Marilyn recently pointed out in her post about Jones v Jones, the criticism of the Court of Appeal about the costs incurred (in the Jones case it was £1.7 million), in the pursuit of the “fair” judgment concerning the division upon divorce of the parties resources, has been a constant theme of judges at all levels for a number of years.

Within the profession, it is often privately observed that there is a feeling of hypocrisy engendered by such remarks, sometimes from senior judiciary whose own, often illustrious careers, attracted in fees no little financial reward themselves.

Indeed, once when in the company at lunch of a very eminent judge, I was obliged to enquire, when he made similar observations about the profession’s fees, whether I was right that he had previously appeared as counsel in certain well known “big money” cases and whether he had complained that his fees had been too high at the time. To be fair, he replied that he accepted his comments may be seen as somewhat hypocritical. This was at least a relief for my colleague, who was sitting between us and who appeared to be having, at this point, “severe indigestion” over his salad – or was he trying really to hide beneath those lettuce leaves?

Section 25

The elephant in the room in all of these debates is, I would suggest, the system itself and, in particular, the statutory divorce provision, section 25 of the Matrimonial Causes Act 1973.

Yes, the section in its language has been able to envelop nearly 40 years of change in a society which has moved from observing divorce as an admission of failure to, for some, a lifestyle badge or a ticked box. Indeed, it has remained able to take account of the increasing recognition of ante-nuptial agreements without urgent amendment being required.

However in reality, the section contains one of the widest discretionary exercises known to our law and requires divorcing couples not only to seek legal advice to explain the court’s approach under the statute. In many cases, it forces the parties with such advice to disagree as to the likely outcome of a trial on the issues between them.

Can it be right that the man and woman in the street, when reading section 25, will gain only a superficial understanding as to how the court is likely, eventually, to determine their resources distribution on divorce ? Is it fair that in any Court Centre up and down the land, the best that can be said to clients is that Judge A or Judge B could come to different conclusions about various fundamental issues, but that they, as clients, should rest assured that whichever judge determines their case, his or her decision will remain within a band of reasonable outcomes which either judge would have hit upon?

Of course, as practitioners, many of us have known for years that there has been a void in the system in certain areas of the country of an effective appeal route when the district judge has, in the decision reached, stepped outside that reasonable band of decisions that should have been made. Hopefully in this regard, the “Money Judge” scheme being tried on the Northern Circuit will finally address this problem and ensure that at the Circuit level, there are judges available with the required “recent experience” of ancillary relief work as practitioners. They can confidently take some of the heavier ancillary relief cases at first instance and a regular diet of appeals from district judge decisions, without the client having to incur the costs of appeal to the higher courts or having to just bite the bullet of a bad decision.

Returning to the theme of the costs from the lay client’s point of view…

Why cannot he or she understand the law on divorce by reading the section alone ? Why does the client have to obtain legal advice for an explanation? Why can there not be a presumption (see the Court of Appeal’s comments in Charman v Charman (2007) EWCA Civ 503) within the section as to the division of resources between the parties when there has been a marital breakdown? Is it really acceptable that it has been the position to date, by the process of case law precedent and not by statute, that rich people’s divorces shape the principles of the ordinary man and woman’s rights upon divorce? Indeed, is it acceptable that the wealthy have to fund the progression of our divorce law principles in the first place!

Like Lord Justice Wilson in Jones v Jones, I agree that the law may not be as complex as a first reading of Mr Justice Charles’ long judgment would indicate. Nevertheless, nor is the law in this area as uncomplicated as Lord Justice Wilson suggests. The fact is that the law of divorce resource distribution is not simple enough at its core, namely at the point of section 25 which, we are repeatedly reminded, is the source of every judicial journey when dividing divorce assets and incomes.

Furthermore there is now – with the absence of any Calderbank procedure of “without prejudice” offers, which can later be produced to the court or some other like procedure – no real incentive for the parties to present before any contest other than their respective “best case scenarios” under the “open offer” requirement at the 14 day and 7 day points before the trial.

What increased costs are thrown away by this inherent lack of incentive in the present system? Surely, it is time for any such required “open offers” to be moved from their present timing to no later than 14 days after the Financial Dispute Resolution hearing. It is also time for any final contest judge to be able to consider the reasonableness of such “open offers” in any costs order application made after judgment has finally been given.

Costs are rising

Certainly, my own experience in everyday practice has been that costs are increasing and, in certain cases, have indeed got out of control. In addition, there remains a lack of appetite at times for the court itself to enforce its own direction orders. Time frames ordered are slipping without costs penalty. There also appear to be a greater number of cases which are contested to a final hearing than previously. These factors, if not just local but reflected across the country, may well indicate that a more “root and branch” reform of our law on divorce is now required.

The client is entitled upon divorce not only to a fair outcome, but also a fair system which gets him or her to the judgment seat and a better assurance that, should the case be contested, the “fair” outcome is not just in the eye of the particular judge who beholds it. Let the client have, from the statute itself, some better clarity of what he or she is getting into, the likely outcome of the process and the confidence that if the other spouse acts capriciously, there are effective money penalties that will bite.

When the Court of Appeal points the finger at the practitioner or the judge at first instance about the costs position on divorce, as it has now developed, it should take a moment to reflect that there will be three other fingers of that same hand pointing back in its direction!

Ashley Murray is Barrister-at-Law at Oriel Chambers in Liverpool. One of the limited number of senior circuit specialists outside London with a recognised big money ancillary relief practice, he is known for his knowledge and ability in this area of the law.

This post was selected for the 25^th Carnival of Wealth – Valentines Edition, hosted by Personal Dividends.

Staircase image credit: courtneyBolton.

Reading of Ashley’s fame, I contacted him and he has kindly agreed to write a post for this blog about Jones v Jones. It will be a privilege to post his thoughts and I can’t wait to read them; his last post here, which was concerned with Radmacher v Granatino, remains popular.

In the meantime, let’s take a look at Jones v Jones. The case was heard in the Court of Appeal late last year, and the decision was taken to increase an award to Mrs Jones from £5.4 million to £8 million.

Coincidentally another judgement, Goldstone v Goldstone, was published at the same time. This case also featured a multi-million pound couple. The Goldstones enjoyed a very glamorous lifestyle, with properties in England, Switzerland and Monaco. This case was also heard in the Court of Appeal, with Mrs Goldstone arguing that she was entitled to a share of assets worth £7.5 million, allegedly deposited offshore by Mr Goldstone.

Judges, sitting and scratching their heads in the Court of Appeal, have criticised the amount of money being spent on the litigation.

“The bills incurred by the families mount to shocking summits”, notes Lord Justice Thorpe in the Goldstone case.  Lord Justice Wall, President of the Family Division, comments: “whether a wife ultimately gets £5 million or £8 million she will still be a very rich woman”.

Cue the banging of the drums and perhaps the familiar refrain: gold digger wives at it again….

But I would like to pose a question, and a potentially controversial one at that:

How much is £5 million to a woman accustomed to a bottomless piggy bank?

Will she still be a very rich woman? Most of us would be able to answer that question straight away, without a second thought. “In my dreams! £5 million is more than enough for anyone to live on. I wouldn’t even know what to do with half of it!”

Sadly, unless a lottery win is forthcoming, most people can only dream about such a sum.

But let us draw some wavy lines, and suppose for a second that you are the wife of a multimillionaire. You have been married for many years, but a divorce has been demanded. Your divorce lawyer will advise you how best to adapt to the situation. Meeting reasonable needs applies to you, the very rich lady, too.

First thing to consider: where would you like to live?

Monaco? Switzerland? London?

All three? Well, that’s certainly what you’ve been used to.

And how much would homes in all three places cost? You could exhaust £5 million before you’ve even started – and that’s just property.

Hmmm. Perhaps you need to set your sights lower. Perhaps from now on, Monaco and Switzerland would suffice for – dare I say it – holiday destinations?

Gulp. Ok.

But where would you like to live in London? Don’t even think about one of those amazing houses in Chelsea or Belgravia, where prices start at more than £10 million. And as for an apartment overlooking Hyde Park… Well, your housing budget wouldn’t fetch a single room in one of those new builds, would it?

You must set your sights rather lower, a little further out. Hampstead? Primrose Hill? Or are these  too highbrow, with all those socialists and politicians moving in? Certain streets are still out of reach, true, but some of the housing is more affordable. And on the plus side, Michael McIntyre and George Michael live in Hampstead… That could be quite fun!

So you plump for the Hampstead borders. Not exactly Hampstead but near enough to buy you a house within reach of  trendy cosmopolitan eateries. That’s going to cost at least £2 million for  a reasonably sized house. Then you have to add in the cost of the conveyancing, doing it up, furnishing and so on. And yes, it’s going to be smaller than any of your previous family homes. Not much change out of £2.5 million I’m afraid.

What income are you going to have?

What can you spend out of what’s left?

You begin to add up the monthly costs. Running your home. A sensible car for you and the children to run around in and maintain.  A cleaner. A babysitter. The regular holidays to which you and your children have become accustomed. Medical bills. Dental bills. Clothing. Social events. Entertainment.

A rich woman’s budget can run to hundreds of thousands a year. As for you: your budget has been suddenly and severely downsized. Your lawyer reaches for the Duxbury tables, and points to the figure that applies to you. Now you are going to have to cut down dramatically, to – dare I say it – around £4000 a month.

Relative values

Yes, £4000 is an awful lot of money to you and me. But consider how this wife has lived for decades. A new dress by her favourite designer might cost £1,000. Add in the coat, shoes, bag and the till is soon ringing up £2,000. That’s how this wife has always dressed.

She certainly doesn’t have to agree with a judge who describes her as a “very wealthy woman”. Her golden piggy bank has a new bottom, pushed firmly into place. There is no more to come.

She will have to manage, because she has no choice. However even if she walks away with £5 million, her lifestyle will not resemble the lifestyle she enjoyed as a wife. This is why divorcing wives will fight so hard for the difference between £5 million and £8 million. If they succeed, their lives will be transformed.

Meanwhile her husband still has his income stream from his businesses. He still enjoys the international lifestyle that they once shared. Life will improve for him, no matter how long and hard he complains during the divorce. His capital can be used to work for him, to invest and replenish his depleted asset base. His wife has no such opportunity.  Her money has to be spent on housing and meeting her income needs. And as we all know, children cost a small fortune. Maintenance payments for children rarely meet all their needs.

Neither party will give up without a fight – and in my experience, many of these super-wealthy husbands are extremely good fighters.  Indefatigable and armed with a phalanx of sophisticated financial advisers, they expect to outgun their wives financially, forcing them into as many pointless rounds of the most expensive litigation they can, as they fight to ring fence from a settlement the valuable assets they have transferred to secure offshore structures. They keep hoping their wives will surrender as legal bills mount as fast as a Swiss taxi meter, well into seven figures. And let’s not forget that legal bills are usually paid by each party. So the more the wife’s legal costs grow, the more her overall settlement will decrease. So the harder she has to fight.

Who is right and who is wrong? Different people have different opinions, and I will leave you to yours. But what is happening here is, in reality, no different to financial battles on a smaller, more familiar scale. All these wives know that in keeping up the fight to share in all the family wealth, they will make a real difference to the rest of their lives. I’m not so sure, therefore, that I would direct criticism to the wives who seek to make that difference.

Rather I would respectfully suggest that if these very wealthy husbands do not understand what a difference £3 million can make to a divorce settlement, it will have cost them very dear indeed when they eventually find out.

This post was selected for the 94^th Carnival of Money Stories, hosted by Invest It Wisely and the 26th Carnival of Wealth, hosted by Value Stock Guide.

Were the lawyers in the case he mentions blind to the dangers that bankruptcy might cause a divorce? The delay was caused by the solicitors on both sides trying to sort out the pension sharing annex: a form which accompanies a court order and permits the implementation of a pension sharing agreement. While the parties may agree a deal in principal, say an equal split of the pension, it is then up to the lawyers to agree exactly what that means in the annex. This process can take time. If bankruptcy is a possibility and no court order is in place the recipient may lose out.

In some cases though, the bankruptcy may not affect the bankrupt’s pension and the agreement can still be enforced after their discharge.

There will be lots of couples around the country who read this post and think, “Hey, that’s happening to me right now!” If it is, it is not necessarily the fault of the lawyers. Many court orders have been put on hold because the pension sharing annex cannot be completed. That is because in June and July, the Government announced that it was changing the measure of inflation used by state and statutory pensions from the Retail Prices Index to the Consumer Prices Index. However no new calculation factors are to be issued until October, meaning that at present it isn’t possible to obtain a relevant valuation for all state and public sector pensions. Furthermore, state sector schemes have stopped implementing pension sharing orders until then.

In the meantime, consideration could be given to deferring a pension share or offsetting until the implications in each specific case are assessed.

A renowned circuit Judge in the North of England used to make reference in semi-jocular fashion during family proceedings to what he called his BOGWIT order – the acronym (with a little licence) stands for B******* Get On With It! In practice, there are times when many family lawyers could really do with being made subject to one of these orders. A case in point has just been reported in the High Court, involving a divorce complicated further by bankruptcy.

The case – Warwick (Formerly Yarwood) v Trustee in Bankruptcy of Clive Graham Yarwood (2010) EWHC 2272) – is depressing. Mr Yarwood had a business that was in difficulties, with bankruptcy in the air. His marriage was also in trouble and divorce proceedings began in 2004, with negotiations about a financial settlement also commencing.

By 2006, Mr Yarwood’s solicitors were detailing his considerable financial difficulties to his wife’s legal team. After what can be best described as non-committal advice from her solicitors, Mrs Yarwood decided to accept a settlement that would have given her two significant benefits. One of these was a pension adjustment, which would have offered the two of them an equal income after retirement from Mr Yarwood’s pension fund (an expert would have to work out what percentage she would need to get for this to work). The second was that she would receive 75 per cent of the sale proceeds from their house, in place of the 50 per cent to which she was entitled as a joint owner. The 25 per cent extra would amount to more than £128,000. There were letters between solicitors about this, setting out the negotiations and noting agreement. Eventually, in September 2006, the solicitors agreed that there would be no need for a judge to decide what financial provision Mrs Yarwood should receive at a hearing; the solicitors simply needed to produce a draft order and a pension sharing annex, which would specify the amount of Mr Yarwood’s pension fund she would receive.

If bankruptcy is a threat – act quickly

Then things were left to drift. Perhaps the solicitors – especially Mrs Yarwood’s – could have done with a BOGWIT Order being served on them! There just did not seem to be any need to hurry. Everybody had agreed pretty much what was to happen, so where was the rush? The house had not actually sold yet and there did not seem to be any argument about the amount Mrs Yarwood was going to receive. However when bankruptcy is a real threat, action must be taken – and quickly.

It was 2007 before a buyer came along for the house and the exchange of contracts took place in March of that year. Unfortunately disaster struck between completion and exchange: Mr Yarwood had a bankruptcy petition presented against him. There was still no Court Order regarding his wife’s claim against him. The solicitors had not sorted it out yet and I suppose it was just seen as paperwork needing to be done. The conveyancing solicitors gave Mrs Yarwood her money, all 75 per cent of it, and presumably held on to the rest in case Mr Yarwood actually became bankrupt.

Eventually Mr Yarwood was adjudged bankrupt. That meant all his property instantly fell under the ownership of his trustee in bankruptcy, with bankruptcy taking effect from the time that the original petition was presented – before the house was actually sold and the money paid out. The trustee now challenged Mrs Yarwood’s extra 25 per cent. When the house was sold Mr Yarwood had been entitled to receive half of its value but had received only a quarter. The trustee now wanted the rest.

The agreement is not binding

Unsurprisingly, Mrs Yarwood argued that she was entitled to keep the extra 25 per cent. She said that a binding agreement had been reached the previous autumn and Mr Yarwood effectively held a quarter of the property in trust for her alone. She said that regardless of whether the money was received by Mr Yarwood or his trustee in bankruptcy, she was entitled to it. The Trustee disagreed. The first argument was that a binding agreement could not be made because contractual principles do not apply in divorce proceedings. Only a court has the power to finally determine who gets what.

At first instance the court agreed with this and Mrs Yarwood was ordered to return the extra cash. However, she appealed and the High Court decided that it was possible to reach a binding agreement, but that the Yarwoods had not actually done so. The reason for this was that it had not been decided at that stage, or indeed before the house was sold, exactly what percentage share of the pension fund Mrs Yarwood was getting. The High Court said that this was not some mere detail which could be decided at a later date – it was fundamental to the agreement. Because this had not been identified there was no binding agreement, and because there was no binding agreement Mr Yarwood could not be forced to pay over 25 per cent extra from the sale of the property. More so, if he could not, neither could his trustee.

If a pension expert had been instructed immediately, likely enough the correct percentage pension share could have been determined before Christmas 2006. This means that the pension sharing annex (which is not a complicated document) could have been completed and a consent order filed at court long before the bankruptcy petition was presented. It was decided some time ago that a court order, in most circumstances, will bind the trustee in bankruptcy and there is no reason to suppose that it would have been any different in these circumstances.

A sober warning

This case presents an awful and sober warning for family solicitors and perfectly describes the need for a BOGWIT order. It is so easy for a solicitor to relax once agreement has been reached and focus on the more difficult and contentious cases in their filing cabinet, thinking that an order can be made when they get around to it. This relaxed approach cost Mrs Yarwood a six-figure sum plus the cost of defending the trustee’s application in two different courts.

But could proper review systems have been put in place within Mrs Yarwood’s legal firm to avoid this situation? It is fundamental that each fee earner should have an understanding of the law – and if bankruptcy is even a minor possibility, every effort should be made to get a court order as quickly as possible. Every firm should have in place stringent file review systems; a process by which each file is regularly reviewed by someone competent to consider the law, the approach being adopted by the lawyer and client care matters until the file is finally closed. In our firm there are at least three failsafes to ensure that in the event that a file has come to a standstill (and it happens – a client can fail to give instructions as promptly as might be hoped for), it is resurrected and put back on track as quickly as possible.

I can only hope other firms are as careful, and that Mrs Yarwood’s horrendous experience is never repeated again. Perhaps all of us in the legal profession should remember this case and think of our own imaginary judge handing down BOGWIT orders every single day.

(Note: we are grateful to pension valuation specialists Bradshaw Dixon Moore Ltd for their insights. For more information on these issues take a look at their blog)

Stowe Family Law is the UK’s largest specialist family law firm, with offices and divorce solicitors in London, Yorkshire and Cheshire.

With an outstanding national and international reputation, the firm provides a full range of private client family law services. Our divorce solicitors are praised by clients, the media and legal guides for their knowledge and expertise.

Marilyn Stowe and members of the Stowe Family Law team

This week I read a fascinating piece in U.S. Marie Claire magazine, by Justine Musk. “I Was a Starter Wife”: Inside America’s Messiest Divorce describes her marriage to the fabulously wealthy entrepreneur Elon Musk. He is the co-founder of Paypal, co-founder of electric car company Tesla Motors and CEO of SpaceX, which manufactures space launch vehicles. His fortune was estimated at $328 million in 2005.

Elon and Justine Musk were married for 10 years and have five children. The divorce case has been “winding its way through the California divorce courts” for two years. Both parties have met new partners, with Elon’s coming in the form of the young British actress Talulah Riley. In his own editorial about the divorce, in the Huffington Post, he describes his new fiancée as “one of the most kind hearted and gentle people in the world” (and to whom is he comparing her, one wonders?).

At the heart of this unpleasant divorce is a postnuptial agreement and two very rich and determined adversaries.

The postnup

It is very interesting to see what has happened. According to Justine, her husband urged her to enter into a period of “mediation” before their marriage at the behest of his board. Later she signed a postnuptial agreement.

She has now accused him of not being wholly truthful within the mediation and of misrepresenting his financial position. Justine says that had she known the truth, she would not have signed. But she did – and she cannot reveal details of the mediation process due to the confidentiality agreement that governed it. Therefore under Californian law, and regardless what was said during the negotiations, she now appears to be bound by that postnup.

For his part, her former husband claims she has turned down a higher settlement of more than $40 million – twice what she received in the postnuptial settlement – to then lose in court. She is now appealing, although given the risk I would have advised her to take his offer. But I am a pragmatic sort and this is not my case.

So what would have happened to the Musks here in England? There are two angles that are worth considering.

Postnups and a couple’s entitlement to mediation privacy.

The first is the extent to which privacy would apply in this case. In other words, whether what happened in mediation could be subsequently revealed in court.

This is an interesting area, explored in this month’s Family Law by my favourite brainbox barrister John Wilson, and practising mediator Susan Tilley. Neither is happy with the possibility of a mediator being called to court to give evidence in relation to confidential discussions between couples. In the piece they take a look through the authorities, considering the debate through the eyes of without prejudice negotiations and the exceptions to that rule as set out in the leading case of Unilever plc -v-Proctor and Gamble (2001)1 WLR2436. (There is also a good article on the web by barrister Charlotte Black on a similar theme.)

The authors then look at the legal concept of confidentiality, which again would not prevent a court from ordering disclosure of documents or information in the process of litigation, if it is necessary for the fair disposal of the case and in the interests of justice.

They also consider whether there is such a thing as Mediation Privilege, and agree with Mr Justice Ramsey’s decision in one leading case that there is not.

So if an agreement has resulted, or is claimed to have resulted from fraud or misrepresentation, it could be set aside and evidence of without prejudice discussions can be given in court.

If the Musks had divorced in this country, it appears that Justine Musk could have issued a witness summons against the independent mediator. The court would have heard evidence of what was said during the negotiations that resulted in a signed postnuptial agreement.

I believe, however, that this procedure would have been unnecessary in English divorce proceedings. Let me explain…

A fabulous divorce settlement…and staying married

Postnuptial agreements, which provide financial arrangements to be put into effect both during and upon the breakdown of marriage, are becoming more common in this country. They are enthusiastically touted by some lawyers as a panacea for any broken marriage.

I don’t think they are a marriage saver at all. In many ways it’s like trying to apply a sticking plaster to a septic wound: useless. Not least because it can easily worsen the relationship and affect the parties’ own perception of their standing in the marriage. As Justine Musk said in Marie Claire:

This, and the vast economic imbalance between us, meant that in the months following our wedding, a certain dynamic began to take hold. Elon’s judgment overruled mine, and he was constantly remarking on the ways he found me lacking. “I am your wife,” I told him repeatedly, “not your employee.”

“If you were my employee,” he said just as often, “I would fire you.”

However if you, like Elon Musk, still want to enter into a postnuptial agreement, because you see it as a way of resolving issues in your favour, how binding will it be? Can you make provision for a divorce settlement and still stay married – at least for a short while afterwards?

Here we look at the stormy case of MacLeod  v MacLeod (2008) UKPC 64 heard by the Privy Council in the Isle of Man. The law is also applicable in England.

In this case a postnup negotiated by the couple was clearly detrimental to the wife. She regretted signing it, but as she was graphically told when the highest court in the land found against her, a bad bargain does not mean she could not be held to it.

The applicable law is found in sections 34 to 36 of the Matrimonial Causes Act 1973. Section 34 provides that a postnuptial arrangement may be ratified by the court. In that respect it is a very different animal to a prenuptial agreement, which has no such provision.

However under section 35 it states that such an arrangement may yet be varied by the court, if for example there has been a change in circumstances which affects the basis upon which any financial arrangements in the agreement were made. So the court still has the power to vary the postnuptial agreement, albeit in limited circumstances.

If there has been misrepresentation of the couple’s financial situation at the time the agreement was concluded, then the court has the power to set aside the agreement and refuse to ratify it.

So how can you bomb-proof a postnup?

• Firstly, the parties must be independently advised before they sign up, even if they have entered mediation and produced an agreement in principal. The problem at that point is neither party may have had independent advice. In order for a postnup to stand up to a court’s scrutiny, both parties should be sent off to their own lawyers to ensure they really do want to sign it and demonstrate that they have the opportunity to gain their own independent advice. Anyone trying to steal a march on the other side runs a risk of it not being upheld. It is essential to remain calm and cool throughout or it won’t work.

• Ideally there should have been full, frank and legally sworn disclosure of their financial positions incorporated into the post nuptial document, so it can be seen exactly what they are telling on another and what each party is relying upon. Again the less disclosure the greater the opportunity for argument.

• There should be recognition by the parties of the advice they have received, both as to the nature of the agreement itself and the law governing it. Both parties should agree that they intend to be bound by the agreement and will only be able to vary it by executing another agreement, which will of course require the consent of both parties. They should also agree to be bound by English law given that English law is governing the settlement.

• The agreed arrangements should be fully recited in the document so the parties know exactly what is going to happen to their own and joint property during the marriage and upon divorce. The more detail there is, including for example dealing with any taxation issues that may arise or provisions for the sale of property, the less likely it is to be set aside.

For a full belt and braces effect both lawyers should also sign the document, confirming the advice they have given to their respective clients and confirming that it was to their client’s advantage to sign the document, as well as fair and reasonable to do so.

If that document is signed and the information is substantially correct, it would be virtually “bomb-proof”.

So had Justine Musk been mediating in England, she would have a much better chance of turning over the postnuptial agreement in this country precisely because it appears none of the above happened.

Finally, lets speculate on her settlement in this country. She certainly wouldn’t have got half of his assets in England because of the assets owned by him before their marriage, which formed the basis of his business empire which grew so substantially during the marriage. Also his “stellar” contribution to the assets – available only to the very successful entrepreneur, would also come into play. I doubt also that she would have taken slices of his companies as she wants – but if he is illiquid she might have got shares, although  in order to avoid her causing trouble within the businesses he would probably still retain control of them, with the benefits accruing to her. Overall, she would certainly have had more than the $40 million that she has been offered. That she signed up to a bad bargain with her billionaire husband, who has substantially increased his fortune during the marriage, seems beyond doubt.

So the moral of this story is: if in doubt, always make sure you have three people in your marriage – you, your spouse and….your lawyer!

In the post, I touched briefly on the potential to restrain a lawyer who accepted and used information from a client who had improperly obtained documentation about the other spouse. Paul raises a similar point in his own case about the position of his ex-wife’s solicitor, who is in possession of improperly obtained information about his financial affairs and has used it against him.

Out of interest, I am currently in dispute with my ex-wife over her refusal to sell the family home (as agreed in the Consent Order), as well as trying to come to an agreement in respect of maintenance payments (I was made redundant a few months ago, and can no longer afford to make payments from capital).

Imerman v Tchenguiz is germane, as her solicitor has written to me alleging that I have capital that I have not previously disclosed. In her letter, she states that this information was gained by her client opening a letter addressed to me that was delivered to the former marital home in error. It is the second time that my ex-wife has opened my post and has failed to pass the letters to me – clearly, I cannot disclose information that I have never received!

Do you think that my ex-wife’s solicitor is in breach of any professional obligation, aside from this being a breach of confidence?

After the Court of Appeal decisions in the leading cases of White v Withers and Imerman v Tchenguiz, with both having stated the law, the position of family lawyers in terms of ethics practise and law is generally considered to be more complex than before in the overall aim of achieving fairness between the spouses.

Trying to understand the real-world implications of two of the biggest family law rulings of the past year is no easy task, but Paul’s question is an interesting one and provides me with a good opportunity to explore these judgements and find out exactly what they will mean for readers.

Issues such as Paul’s have been made more difficult because of the lack of clear guidelines from our own professional bodies. We have to extract guidelines from the judgements and advise our clients trusting our own judgement. This is by no means an easy task, because of the length and complexity of the case law and therefore not one that is fully understood and agreed by all.

To gain an understanding of these two cases I recommend reading both leading cases, White v Withers and Imerman v Tchenguiz, in that order. However in case you are not a lawyer and this task seems a little daunting, I have done the hard work for you.

Let’s divide my conclusion into blocks. First of all, let’s look at the legal position of the Paul’s ex-wife in relation to these two rulings.

Does Paul have a case?

His wife kept the information from him, so he did not even know of its existence. Can he prevent the information going before the court at all? Paul certainly appears to have a strong argument, given the comments in Imerman. But as that court also stated, allowing in evidence confidential to the husband and wrongly obtained will be all part of a balancing act, to be determined in the interests of fairness by the court. He should however, make his case.

Paul also appears to have a potential civil action against his former wife. She has not only improperly obtained information by opening his mail, but she has also withheld documentation from him on this and one other occasion. Before launching into civil proceedings, however, Paul should bear in mind that an important point was made in the White v Withers case. It is that a civil action by one spouse against the other for using improperly obtained documents in divorce cases would most likely not get off the ground at all, as damages in most cases would be de minimis (i.e. virtually nil).

Both leading cases centred upon extraordinary events. The White case involved the retention by the wife’s solicitors of a child’s correspondence, of which the father was completely unaware. In Imerman, an extremely large quantity of documents was ransacked and masses of computerised documentation were downloaded prior to disclosure.

So the important question is, would damages be any more than de minimis? If not, Paul’s case is likely to be struck out.

In real life, the majority of cases that come before the court are far less spectacular and usually involve the opening of letters belonging to the other spouse (as in Paul’s case), or finding bank statements in a drawer or other documents lying around the house or car. All of these things are unlikely to cause harm if produced during divorce proceedings, not least because they should have been produced in accordance with the duty of full and frank disclosure.

The former wife is also liable for her litigation misconduct in the ancillary relief proceedings, since she has improperly obtained, withheld and never returned the documents to Paul. I believe she would be sanctioned in costs and even potentially in the final award if there has been a demonstrable loss to him.

So he has a number of potential claims against her which I think could be pursued in court.

But Paul’s question is also about her lawyers. Let’s begin with the easiest part:

Do the lawyers have the original documents in their possession?

The legal position is straightforward. Irrespective of whether the situation occurred before or after those two leading cases, it is settled law that the lawyers have no legal right to retain the originals of any documents in their possession. If they are retaining Paul’s correspondence then they are liable to an order for delivery of the documents and possibly even an injunction to debar them from acting further. They also bear Paul a civil liability in damages for breach of confidence. Phew!

But Paul does not say whether they have them. Has he asked the question? I think it is now very important for solicitors or unrepresented litigants to ask, at the earliest opportunity, if the other spouse has any original or copied documents that belong to the other side – and ask for them to be handed over. The Hildebrand Rules are still good law. They require the disclosure of improperly obtained documents immediately on request by the other side, or at the latest post disclosure – but that is all they mean. They do not legitimise improperly obtaining documentation, or photocopying it and handing it to lawyers.

So the risk, of course, is that in replying the solicitors could be faced with an application to be injuncted and debarred from acting – but they have to answer the question honestly and forthwith deliver up the documentation. The intent of the Imerman judgement is clear: no original or copied documents belonging to one party should be in the improper possession of the other. (Do bear in mind however, that in replying the privilege against self-incrimination may apply if there is potentially a criminal offence involved)

Solicitors should be very careful not to know about or have sight of copies of documents obtained improperly by their client belonging to the other side, before an exchange of Forms E and with them financial disclosure.

I understand that they must decline to discuss any information improperly obtained with their clients. To put it bluntly the lawyers must be able to say, rather like Manuel in Fawlty Towers: I know nothing! If a lawyer does know something, and it comes to light as above, the lawyer could face civil action. This may specifically include an injunction to remove them from acting in the case – and I am going to look at this in more detail in my next post.

What if Paul’s former wife discloses the information post exchange?

What if after the exchange of financial information (i.e. after the parties’ Forms E had been exchanged) Paul’s former wife disclosed the information she had, as she knew in doing so it would show his disclosure to be  inaccurate?

In paragraph 169 of the Imerman v Tchenguiz judgement, the court considers the use of unlawfully obtained information and documents.

As the court put it in relation to Mrs Imerman:

After the husband’s Form E has been delivered…….if there is information…to suggest inadequate disclosure by her husband that is the time she can deploy it. There is no process by which her recollection of what she has learnt from the documents can be removed. And it is unlikely that the husband will be able to resist reliance by the wife on such evidence merely by saying that part of the information she relies upon had been culled from documents unlawfully obtained.”

After all, the use in court as evidence of material which has been improperly obtained (whether in breach of confidence, tortuously, or even criminally) is permissible though such use may be refused by the court or permitted only on terms…The common law does not normally concern itself with the way evidence was obtained when considering admissibility…..however just because it is admissible it does not follow that the court is obliged to admit it.

Thus in layman’s terms, it appears the solicitors will at that point but not before, be able to put the information they have been given to Paul with impunity. In doing so they will not, on the face of it, be acting improperly.

My answer for Paul: if the information has been disclosed by your former wife to her solicitors after the exchange of financial information, on the face of it there is a civil liability to you by her. There are also arguments about the admissibility of the information in the ancillary relief proceedings, and potentially a costs sanction in the family proceedings for litigation misconduct by your former wife. Her solicitors appear to be in the clear.

I hope this helps.