As family lawyers, many of us will have acted for clients who can tell you little to nothing about their finances. Some know nothing other than the allowance they’re given by their spouse.
Clients in this position are often embarrassed and self-critical for finding themselves in this situation but rarely is this by choice and as professionals we must be watchful for any signs that indicate economic abuse.
What is the legal definition of economic abuse?
Additional provisions came into force as part of the Domestic Abuse Act 2021 and for the first time economic abuse was included within the definition of domestic abuse.
The report states that “economic abuse” means any behaviour that has a substantial adverse effect on another person’s ability to:
- acquire, use or maintain money or other property, or
- obtain goods or services
Economic abuse can take a variety of forms, including restricting a party’s access to financial information and controlling how those financial resources are utilised.
In some cases, the alarm bells may ring early, particularly in the cases mentioned above in which a party has no knowledge of the financial resources and whose spouse has unilaterally controlled their financial resources for the majority of their marriage.
In other cases, concerns may not arise until the financial disclosure becomes available.
How does economic abuse impact divorce?
Where economic abuse is a factor, getting full and frank financial disclosure from the opposing party may prove to be a battle where, after withholding financial details from their spouse for many years, they may continue to attempt to conceal and control assets.
There are some legal tools to challenge inadequate disclosure, for example by raising a questionnaire, a schedule of deficiencies and in some cases obtaining a third-party disclosure order. There may also be a need to invite the court to draw negative inferences where the disclosure remains incomplete or questionable.
After the expense and effort of obtaining as clear and complete a picture of the parties’ respective financial positions as possible, to what extent will the abusive behaviour impact on the outcome at a Final Hearing?
Mostyn J outlines the four scenarios in which conduct may be considered in financial remedy cases in his judgment in OG v AG (Financial Remedies: Conduct) [2020] EWFC 52 as follows:
- Gross and obvious personal misconduct but only where there is a financial consequence. This will include economic misconduct provided the high evidential threshold is met;
- Add-back arguments where one party has ‘wantonly and recklessly dissipated assets’;
- Litigation misconduct which should be penalised in costs rather than affecting the substantive disposition;
- Drawing inferences over the extent of the asset base following a party’s failure to give full and frank disclosure.
Mostyn J adds that ‘Conduct should be taken into account not only where it is inequitable to disregard but only where its impact is financially measurable’.
Notable cases involving economic abuse
DP v EP (Conduct; Economic Abuse; Needs) [2023]
The recently reported case of DP v EP (conduct: economic abuse: needs) [2023] EWFC 6 appears to be the first case where economic abuse has been found to be conduct as defined by the Matrimonial Causes Act 1973.
An important factor in the case was that the husband (H) was functionally illiterate and had for the entirety of the lengthy marriage depended on the wife (W) to manage their financial resources for their joint benefit.
The husband’s position was that the wife had exploited his illiteracy by siphoning off joint funds which had in part funded assets which were then concealed from him, and the court. The husband invited the judge:
- To add back certain items that he alleged the wife had misappropriated on the basis that she had either recklessly or deliberately dissipated them from the parties’ resources;
- To draw negative inferences against the wife and to find that she had undisclosed assets which derived from the funds she had misappropriated during the marriage;
- To find that the wife’s conduct amounted to economic abuse under s 1(4) DAA 2021 and that it would be inequitable to disregard her conduct under s 25(2)(g) MCA 1973.
By comparison, the wife’s position was that there should be broad equality although she conceded that she should be solely liable for certain debts in her name.
It was held that the wife’s conduct fulfilled the definition of economic abuse under DAA 2021. The judge found that the wife held undisclosed assets and also ‘added back’ an additional sum in respect of misappropriated rental income from a jointly owned property.
Notwithstanding the observation by Mostyn J in OG v AG, that in order to impact on the ultimate distribution conduct must have ‘financially measurable’ consequences, the judge also made a small departure from equality to reflect the wife’s poor conduct.
The husband was awarded 53% of the total assets (as adjusted). The wife was also ordered to make a significant contribution towards the husband’s legal costs. In her judgement, Honour Judge Reardon states:
‘In my view, W’s conduct falls within the definition of economic abuse contained in DAA 2021. In the longer term, if not on a day to day basis, W’s conduct has had a substantial adverse effect on H’s ability to access and use his own money […] I appreciate that there are some forms of economic abuse, for example those that involve the coercive restriction of the other party’s day-to-day expenditure, that may be more familiar, and therefore more easily recognised as abusive. However, W’s conduct in this case involved the exploitation of a dominant position, which is the essence of all forms of abusive behaviour; and the fact that H was unaware of W’s behaviour at the time, and that it did not directly impact on his daily life during the marriage, has only made his subsequent discovery of it more shocking. I am in no doubt that H feels a profound sense of betrayal, and that the harm caused by W’s actions has extended well beyond the financial detriment they have caused.’
Traharne v Limb [2022]
The case of Traharne v Limb [2022] EWFC 27 addressed the closely linked issue of coercive and controlling behaviour as conduct. The case involved a post-nuptial agreement and the wife sought to argue that she was subjected to coercive and controlling behaviour and had not freely entered into the agreement.
The judge ultimately awarded the wife additional provision but her conduct arguments against the husband were unsuccessful. The wife was criticised for the time and costs spent on the conduct issue which was found to be ‘entirely unnecessary’. Consequently, the wife did not recover her legal costs in full. Whilst not persuaded that coercive and controlling behaviour was a factor in this particular case, Sir Jonathan Cohen was clear in his judgment that it may be a relevant factor in other cases.
‘In my judgment, Ormrod LJ’s words are as relevant now as they were when uttered over 40 years ago. They stand the test of time. Coercive and controlling behaviour would plainly be an example of undue pressure, exploitation of a dominant position of relevant conduct. It would be part of all the circumstances as they affect the two parties in “the complex relationship of marriage”. If Ormrod LJ were writing his judgment today, he might have employed words such as “coercive and controlling behaviour”.’
In summary, the inclusion of economic abuse within DAA 2021 and the decision in DP v EP has broadened the definition of conduct within financial remedy proceedings but the evidential threshold, in order to succeed with conduct arguments, remains high. The potential cost consequences of running an unsuccessful conduct argument must be borne in mind as is highlighted in the case of Traharne v Limb.
Related links
Stowe Guide – What is economic abuse?
