Discretion and uncertainty in the division of matrimonial assets. By Lindsey Randall

Divorce|March 30th 2012

By nature, human beings are fickle and emotional. Understandably, they are perhaps never more so than when embroiled in the divorce process. More often than not, divorce is an area of law prone to courtroom litigation, especially where there are substantial marital assets involved. Frequently, when cases come before a court, the relationship between the parties is usually acrimonious. An irretrievable breakdown of their relationship often leads the parties to adopt extreme positions with regards to finances and child care.

The facts in such cases are often inherently debateable and unclear. It is therefore the task of the court, within its wide discretion, to determine the middle ground. It bases its decision upon the overarching principle of “fairness” and a consideration of all the circumstances – guided by section 25 of the Matrimonial Causes Act 1973. The aim of the court is to meet the “reasonable needs” of the parties. Where these needs can be satisfied and further assets remain in the matrimonial pot, the court will apply the “sharing principle” to any remaining assets.

With this in mind, it may be logical to surmise that Mr Justice Charles was unrealistic in his judgement of X v X [2012] EWHC 538 (Fam), where he stated the need for evidential-based judgements i.e. decisions founded on the grounds of certainty. Such an approach would entail both parties reaching agreement as to facts, a situation where they themselves, to an extent, find the middle ground. However, his discussion of the issues surrounding the preparation and fact-finding process in litigation has merit, especially in light of flaws within our family court system. As he states, it is in the public interest that this be considered.

Let us briefly examine the situation in X v X to highlight what he refers to in his judgement.

The sharing principle

The case concerns an attempt to apply the principle of an equal division of assets – the sharing principle – to a hotel. When dividing assets, a court takes a starting point of a 50 per cent share for each party. It will then apply the various factors contained in section 25 of the Matrimonial Causes Act to establish whether there should be any departure from this equality. This exercise involves the application of the judge’s wide discretion to grant an award.

It had been previously accepted by both parties that the husband’s father had gifted the hotel to him. A company, in which the parties were both shareholders, had been a tenant of the hotel. It had run the business and sublet it to another operator. The issue therefore was whether the hotel, as both a property and a business, was a non-matrimonial asset and thereby available for division. After seven days of a final hearing, the matter had to be adjourned. There was a need to obtain and analyse further information on matters that had a central impact on the issues taken into account.

The parties had failed to obtain a proper figure for the value of the hotel. There had only been a valuation of the business and not of the property itself. Additionally, details relating to the hotel being a gifted asset had not been disclosed. The information was finally obtained following the adjournment, where it was revealed that the relevant transfer of the hotel had been not by the husband’s father, but by a company controlled by his parents. Mr Justice Charles stated that: “such matters could have significant impact on the section 25 exercise and, in particular, the sharing rationale”. It is likely that the hotel would be viewed as a matrimonial asset with the new information available; therefore the omission of the valuation had been a blatant oversight. He also stated that gathering such evidence is a “basic task”, which should be done far in advance of the hearing and he is correct about this.

In his judgement, he set out the exercises that should be carried out prior to any hearing and suggested that parties should write to the court after they have carried out their investigations, identifying:

i)                    the relief he or she seeks, or is likely to seek, and why, and

ii)                   the property (in the sense of ownership) and commercial issues he or she asserts arise, or are likely to arise, and why.

There are two possible strands with regards to missing information, which arise from a situation whereby information of central importance is absent: deliberate non-disclosure and non-disclosure arising from systematic failures related to the complexity of the matter. It is easy for the legal profession to be less thorough in its approach in relation to complex cases, and frequently, there is some degree of non-disclosure or delayed disclosure throughout the course of such cases that hinders progress. However, I believe that the omission of information due to the complexity of the case and non-disclosure is something that could be addressed by reform. Therefore the question is, what needs to be reformed?

Uncertainty and judicial discretion

Frequently, the particular facts of a case are liable to change and issues can crop up at any stage during the court process. It is often only the reality of courtroom proceedings that draws out all of the issues. Frequently, in “big money” cases, new facts will be added into the mix throughout the conduct of a case. This is largely due to disputes over the material facts, or the non-disclosure of assets on the part of one or both of the parties. This leads to the necessity for a forensic examination of available assets and this can drag on all of the way to a final hearing. The same is sometimes true in cases where assets are of lower value; however the impact at this level is inevitably limited where only needs can be met.

As we have seen, it is not always feasible to have all of the facts established at any one point in time prior to the commencement of the court process. In X v X, Mr Justice Charles detailed the way in which he believes a case should be prepared, and the importance of the court having all of the relevant circumstances identified in order to enable it to make a decision. It is against the backdrop of this information that the court is to exercise its discretion and carry out the section 25 exercise:

“In my view, the points that the court is exercising a broad discretion, and that in assessing the impact of a number of factors necessarily has to take a broad approach, do not support a conclusion that the nuts and bolts or building blocks of litigation should be approached broadly, or with a broad brush, leaving the court for example:

“…(iiI) to reach findings (a) on generalised assertions and evidence and inferences based thereon, and/or (b) without central points being covered by the evidence and/or (c) without appropriate disclosure in respect of the issues raised, and/or (d) from extreme positions adopted by the parties without proper attention being paid to the middle ground, and/or (e) by reference to a number of submissions or arguments directed at the client rather than the judge.”

His guidance for legal practitioners is therefore that the preparation of cases should be more thorough so that the issues at hand can be largely defined. There is however a reason why judicial discretion is, by necessity, wide. Even where an approach is as thorough as it can possibly be, it usually isn’t the case that all issues can be completely defined.  Furthermore, the discretion of the court allows for an objective solution to be imposed on the parties who are caught up in fraught subjectivity. The middle ground is all too frequently not within the contemplation of the parties. As a result, the broader approach is the only one that can be adopted in some instances. It is the duty of the court to consider all of the circumstances before arriving at a decision, and the uncertainty in a case may itself be one such condition.

While it is clear that Mr Justice Charles wants all possible circumstances to be defined, it is notable that uncertainty is factored into the course of the section 25 exercise, for example where there is an assessment as to the potential future earning capacity of the parties. As such, uncertainty is part of the legislation, which means that the role of the judiciary in arriving at a decision will always be, to a degree, inquisitorial. Due to an inherent element of uncertainty, a judge will always be a fact-finder, even if the system was to be reformed.

The inevitable question then is whether the section 25 exercise is in the public interest and whether statutory reform is necessary. We must ask whether it is possible to inject a greater degree of certainty into the calculation of “reasonable needs”, and therefore the “sharing principle”, through legislative reform. I believe that it would be difficult to do so as there is never any truly clear-cut decision that can be arrived at in a case. More defined and focused cases will only come about through reform of the process itself.

The barristers in X v X, in making submissions on the matter of case preparation, cited inconsistency with the way that the court determines the issues and quantifies awards. Again, this is indicative of the fact that each case before the court is unique. In the case at hand, it would seem likely that the omission arose from its complexity; court costs had already reached close to £1 million before a settlement was reached.

Public interest

It is clearly in the public interest for cases to be prepared as thoroughly as possible in order for a fair outcome to be reached. Mr Justice Charles stated in X v X that it should also be in the public interest to point out to the legal profession the frequent mistakes in their presentation and preparation of cases. It is true that the consequences arising from flaws committed by solicitors and counsel can be serious. However, is this entirely the fault of those conducting these types of cases? A large part of the blame surely should be attached to the legal system itself. In his judgement, Mr Justice Charles referred to his experience of commercial litigation, advocating the approach taken in cases dealing with tax and the valuation of assets. He also said that the sharing principle has created difficulties in addressing property and commercial issues:

“…in my view, the application of the sharing rationale, particularly in non-paradigm cases, and so where it does not apply with full force, has introduced into this field of litigation property and commercial issues which the present system was not designed to deal with…

“These property and commercial issues have introduced a need (a) to identify property interests by applying property, company ,trust and tax law, (b) to consider commercially and pragmatically viable options, particularly for private companies that are difficult to value, whose shares may not have a market, which it may be unfair to sell and which cannot provide funding to meet a clean break solution, (c) to consider, on an asset and case specific basis, apportionment and division of assets and their values at various times and (d) to identify relevant matrimonial choices.  This is a far cry from an approach based on the payee’s reasonable requirements and, it follows that, a system that has been developed against that overall approach…is highly likely to need significant adjustment…”

This makes it very clear that he does not believe that the present approach of the law in divorce proceedings, especially where there are substantial assets involved, is in the public interest. He also clearly acknowledges a problem with the system; it is not sophisticated enough to handle complex litigation in respect of assets.

Arbitration – the solution?

A trained arbitrator, Marilyn recently wrote about the advantages of arbitration in Solicitors Journal. As the piece highlights, the arbitration process has been successfully and extensively deployed to resolve commercial disputes. An arbitrator has wide-ranging powers to make case management and other directions appropriate to the case at hand.

The fact is that arbitration is a tightly governed process, which readily lends itself to dealing with asset distribution and determining issues involving tax and company law. It will hopefully prove to be the commercial and pragmatic solution to the issues raised in X v X, should divorcing couples engage with the process. Arbitration would examine assets very closely, which would be of great benefit in “big money cases” and where departures away from the sharing principle are essential. In just such cases, a broad approach is not always in the public interest.

Lindsey Randall studied at Trinity College, University of Cambridge, for an MA in English before deciding to pursue a career in law. She attended The College of Law in York before going on to study for the Bar at BPP Law School in Leeds. She is a barrister member of the Middle Temple, having been called to the Bar in 2010. She has now joined Stowe Family Law LLP where she is training to be a solicitor.

Author: Stowe Family Law

Comments(7)

  1. Churchill says:

    Lyndsey,
    The technical side of things is of passing interest to most currently embroiled in ancillary proceedings – except for their solicitors of course. I hear time and time again on Marilyn’s blogs, how annoyed litigants get with delays. I’m talking here of apparently unnecessary delays; tactical even!
    Late Form E’s, unanswered Questionnaires, failure to appoint SJE’s in good time – failure to provide SJE’s with documents as previously directed by the court. These delays often go by with little or no recourse.
    Why can’t the Court punish the types of delays I refer to above (without proper reason) in a meaningful way?
    Take a recent example I came across; a FDA directed the provision of documents to a SJE. The party with access to these documents decided, subsequent to agreeing access in Court, that they were subject to a Confidentiality Agreement. The Court subsequently disagreed and more than 3 months later at what should have been the FDR, again directed that the documents be provided. Ok, so it may well be that the wasted costs can be made good – but that’s not the point. For a party with pots of money with which to fund litigation, there appears to be little the Court is prepared to do to ensure Directions are adhered to. Let’s get the basics right before worrying too much about subtle changes in the process. Just enforcing FDA outputs would go a long way towards ensuring matters settle without unnecessary delays. Never mind the costs – the emotional stress caused by delays is massively more damaging.

  2. Rachel says:

    Churchill,
    I agree wholeheartedly with your comments.
    I found myself in the position you describe above and the delays and persistent non disclosure was not addressed by the court, except in passing. The DJ at the final hearing said he would look at the costs issue caused by non disclosure but ultimately it was not mentioned in the 20 page judgement handed down 4 weeks later! I guess he had enough to consider and it was small fry in the scheme of things.
    It did leave me with a sense that my ex had played the system and I simply do not understand why the courts are so relaxed about turning a blind eye to what is essentially a blatant disregard for the legal process!

  3. JamesB says:

    I think lawyers need to be investigated by someone other than lawyers. This proceedure I have found to be a rip off.

    My solution is not to get married. Bit sad really. Lawyers will not vote for Xmas and Arbitration is more of the same for that very reason.

    Alternatively get married with a pre-nup. Lawyers also need to look at the cost of those as they are also over-priced. Just like the cost of a divorce or anything involving lawyers.

  4. JamesB says:

    I take that back. Only Matrimonial and children law bills and charges are a rip off, inc. pre-nups.

  5. Emis says:

    The whole system seems to ‘punish’ the weaker od the divorcing couple, or the one who has principles and behaves honestly and fastidiously in preparation and disclosure.
    I am sure most judges can see these games that are played by the more cunning and creative partners but perhaps they are too weary of them to take note and respond.
    Often their hands are tied by the court process and they do not have recourse to do exactly as they feel would be just, as some technicality would lead to an appeal an their decision being overturned .

  6. Jane Sullivan says:

    Dear Marilyn,

    I am new to your site and may not be posting this in the correct place, so apologies.

    My husband and I are in the very early stages of discussing our divorce, which for several domestic reasons will not likely take place until the summer of 2015. Our divorce will be a complicated issue as we are a military family, posted abroad, with 3 children at exam stages of the education, in the US public school systems. This means that my husband will need to try to secure a posting (Aug 15) to the US in order for the children to stand a chance of having some continuity of education – we elected against the boarding school route – and allow my daughter to gain her US High School Diploma (she has already missed out on taking her GCSEs). Upon us separating I, obviously, will not be allowed to accompany my husband to the US which means I am likely to go back to my hometown in Scotland, but this gives me worries about abandonment issues. We will, of course allow the children to decide which parent they would want to live with but we realise that it would be in their best interests, educationally, to live with their father in the US.

    My husband has already expressed a preference to make a lump sum payment so that we can make a clean break and get on with our lives, but I have reservations about this, particularly with regards to his Forces Pension. I have no desire to fleece my husband but neither do I want to be in a position where I am not receiving my entitlement, particularly as I have not worked since having the children (17 years) and have no liquid assets, nor separate bank accounts or credit reference. I had never thought it possible, but with the talk of separation, I am hearing my husband now saying things which give me a concern that he may not be as equitable as he should be when we divorce.

    However, my most pressing issue at the moment is in relation to an imminent payment (tomorrow, Mon 25th Aug) to me of £40k from my late father’s estate. This is part payment of the estate, the remainder to be received when my brothers and I sell my late father’s property. The £40k is to be paid into my husband and I’s joint account imminently with the intention of paying off around £30k of overdraft debt we have in 3 accounts at that bank. We also have a debt of £21k in a separate bank. These debts have largely been accrued from our investments in property – we have 3, in joint names. Prior to our decision to separate, paying these debts off seemed to be a sensible thing to do with my inheritance but with the prospect of me having to fund my divorce and buy a property in Scotland without any liquid assets or earnings of my own I am not so sure now that the entire £40k should be used for this purpose.

    My question is, should I open a new account in my name only and deposit some of my inheritance into it, say £20k which would give me some liquid assets and, physiologically at least, give me a bit of a safety blanket? I would, obviously, do this with my husband’s knowledge.

    Thank you.

    Sincerely,

    Jane Sullivan

  7. Jane Sullivan says:

    * psychologically !

Leave a Reply

Close

Newsletter Sign Up

For all the latest news from Stowe Family law
please sign up for instant access today.

Privacy Policy