A financial disaster

Divorce|October 8th 2014

All family lawyers will have come across cases where divorcing couples appear to be determined to dissipate their assets, rather than divide them in a sensible fashion. Usually the dissipation comes in the form of unnecessary court proceedings which increase the legal costs, thereby leaving less to divide between the parties.

In Mekarska v Ruiz & Another, however, it was not just legal costs that ate into the assets, in a case of dissipation more profligate than virtually any other I have come across. The case was decided by the Court of Appeal in December 2011, but has only just appeared on Bailii.

Mekarska was not a high-money case (a fact which makes it all the more poignant), with the parties at the outset having assets worth about £300,000. By the end of the Court of Appeal hearing, however, Mr Justice Mann (who gave the leading judgment) was unsure whether there was any money left at all. How did this come about?

The case began when the marriage broke down in 2006 and divorce proceedings were commenced. In December 2006 the husband proposed that the former matrimonial home, which was in his sole name, be sold and that most of the net proceeds be given to the wife to purchase a two-bedroom flat for herself and the child of the family. Unfortunately, the wife did not accept the proposal and the court therefore had to sort out the financial settlement.

Meanwhile, in 2006/7 the husband ran up large debts at banks and on credit cards, amounting to some £66,000. He admitted that he squandered the money. Unable to make the repayments, he made himself bankrupt in December 2007. As Mr Justice Mann said: “If steps had been taken at that point or shortly thereafter to realise assets to pay that debt, or those debts, the balance could have been saved and applied for the benefit of the parties. Alas, it did not happen.

The wife was not told about the bankruptcy, and only discovered it in March 2008. Eventually, in September 2009 she applied to the court to annul the bankruptcy, although by that time the amount required to discharge the bankruptcy had risen to some £117,000.

The husband’s trustee in bankruptcy proposed that the house be sold. The wife agreed and a buyer was found at the price of £270,000.

On the 7th of November 2008 the divorce court made its order in the financial settlement proceedings. It awarded the wife the house and the husband’s capital, less the bankruptcy debt. If that order had been implemented and the house sold, this would have left the wife with about £150,000.

Unfortunately, the house was not sold. The economic crash took place and the purchasers dropped their offer to £250,000. The wife, believing the property to be worth £300,000, stopped cooperating with the sale process.

By this stage, as Mr Justice Jackson was later to say, it will have been apparent to everybody that the assets were haemorrhaging as a result of the ongoing dispute.

That did not, however, stop the wife from litigating further. In May 2009 she applied to appeal out of time against the divorce court’s order, followed, as I have said, by her application to annul the bankruptcy in September 2009.

The two applications went before Mr Justice Jackson in the High Court. He gave a detailed judgment in May 2011, in which he dismissed both applications. The wife applied to the Court of Appeal for permission to appeal against both decisions.

The Court of Appeal found no grounds for either appeal and therefore refused both applications. Mr Justice Mann concluded his judgment by expressing the hope that the waste of money in the case should come to an end, although I prefer Mr Justice Jackson’s earlier and rather stronger words:

“The events in this case are a financial disaster for a divorced couple and their child. On separation in 2006, they might with good sense and co-operation have just about stretched their modest means to meet their overall housing needs. Instead, by 2011, a combination of dissension, misfortune, improvidence, and over-lengthy litigation in three courts, has wiped them out financially and they will now lose their only significant asset, the home occupied by the wife and child. After five years, almost nothing remains of assets once valued at £300,000. A family that had difficulty supporting itself as a single unit cannot afford to dissipate limited assets in litigation, and certainly cannot support the professional expenses of lawyers and accountants over a period of years.”

If only those words were read and heeded by all couples embarking upon financial remedy proceedings.

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

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Comments(3)

  1. Nordic says:

    This disaster illustrates what happens when you dump families, just as they are splitting up and emotionally at their most vulnerable, into a complete legal vacuum. This could not happen in Denmark, Norway, Sweden, France, Germany etc. etc. This kind of nonsense happens here because judges think they should have discretion over matters which are far better resolved through legally binding regimes for division of matrimonial assets and a more mature and modern approach to spousal support. In other words by anchoring financial remedy proceedings in real law.
    .
    Setting judges up as were they kings in a medical court, guided only by imprecise and vague case references, ought not to qualify as “law” in a modern society. It amounts to a lawless chaos in which the legal industry has a free hand in creating conflicts of interests between mums and dads (all in the interest of the children, of course).The almost unlimited uncertainty created in this chaos impacts all cases, not just those that end up in a final hearing. Only lawyers emerge as winners and for the parties and their children, the financial and emotionally collateral damage is often huge.
    .
    John, I find your moralising conclusion, which blames the parties themselves, highly disingenuous. The absence of law is what allowed this to happen and what has created a family law industry which is obscenely bloated and profitable by the standards of most countries which surround these islands. As a representative of this industry, I guess your desire to excuse the industry and deflect attention from the root problem is understandable. However, as a blogger a bit less faux moralisation and bit more honesty (and genuine analysis) would be becoming.

  2. Nordic says:

    “Setting up judges as were they kings in a medical court” was obviously meant to say “medieval court”.

  3. Luke says:

    “John, I find your moralising conclusion, which blames the parties themselves, highly disingenuous.”
    ===========================================================================
    .
    I have to agree Nordic, the parties in this case cannot be regarded as free of blame by any stretch of the imagination, but the fact that John apportions no blame at all to the lawyers in this case is nothing short of extraordinary.
    .
    If Justice Jackson had the ‘stones’ to make a just decision he would have recommended to the lawyers (with the threat of future enforcement) that they should refund a significant portion of their fees due to their negligence in protecting the interests of their clients.
    .
    Of course Justice Jackson won’t do this because it is a nice cosy cabal where the only guarantee is that the lawyers win…

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