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Should I spend a lot of money before I reach a financial settlement in divorce?

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Generally, the answer most likely will be ‘No’ – you should not spend your money before doing a deal in your separation and divorce.

Reputable divorce lawyers would explain that divorce settlements for most people are based on ‘reasonable needs’ and that the pool of resources at the time of disclosure will be shared, starting at the assumption that 50/50 of that aggregate might represent the starting point for a fair deal.

We need to look at what a ‘fair deal’ might be and the principles that go into one.

What is the history of ‘a fair deal’ and what did the law do about divorce centuries ago?

As divorce was very rare and exceedingly complex until the 20th Century, throughout much of legal history in England, family law was very much subservient to property law as, strangely enough, it was people of wealth who had the means and influence to use the courts.   As a point of interest, 1189 is sometimes considered the ‘start’ of English legal history because Magna Carta (1215) and the Statute of Westminster (1275) needed to refer back to a year.  Obviously neither statute is in everyday use by family lawyers so needed to be researched for this article and our mention should not be relied upon as more than an honest indication as to what the writer believes to be the case.  History is bunk, apparently.  More or less…

Following the reign of Richard I, the rights known to law at the start (1189) were considered after ‘time immemorial’ and ‘time out of mind’ i.e. the law was saying that legal memory did not run back further than that date and could not be used to recall customary law or rights from before that date.

The Law was not just the statutes, which is why the lawyers needed a base-date to deal with the whole law, not just the statutes – made by the legal establishment and ‘signed off’ by the head of state – the monarch.

Out of that legal history comes a helpful legal maxim (big principle in few words) from the Law of Equity, which is the non-statute ‘common law’ which aims to put a layer of fairness on top of the black-letter written laws.

‘Equity is Equality’ has been part of English law for centuries, but how does that work in divorce?

Whilst 50/50 is a starting point as the law traditionally says that ‘equity is equality’ with ‘equity’ meaning ‘fairness’ that has often not applied in family law.

First we look at an exception to that – the Millionaires’ Defence.

What was the Millionaires’ Defence in family proceedings?

The 1985 case of Thyssen-Bornemisza v Thyssen-Bornemisza – [No.2] seems to be the origin of that short-hand, but the idea that financial disclosure did not need to be ‘full and frank’ pre-dates the adoption of that expression when applied to requesting provision from spouses controlling wealth.

For many years, the very wealthy were able to say to the court at the time of divorce – in words that would not sound out of place with Harry Enfield’s entrepreneur character Stanley ‘I am considerably richer than you…’ –

‘Order whatever you assess are my spouse’s reasonable needs and I will pay it, as I have so much money that whatever you decide will be affordable to me!’

By saying that and agreeing to pay whatever the court – or the lawyers – thought ‘reasonable’ based on the lifestyle that the couple/family enjoyed, the wealth of the person paying remained private and they were not obliged to set out their assets as part of the divorce process.

It was almost impossible for a person’s ‘reasonable needs’ to exceed affordability, so they got either what they asked for, or a modified version of that amount.

Stanley’s wife Pammy would have been allowed to budget for considerably more plastic surgery than you, as part of her ‘reasonable needs’ based upon his public boasts that he was a self-made made and she a ‘man-made woman’.

How come the super-rich did not need to share on divorce?

Provision for wives and children were based entirely on need and it did not matter to the law that not sharing might not be ‘fair’ or ‘equitable’.   It might be that a spouse had made significant contributions to the wealth, in supporting businesses or otherwise assisting the ‘breadwinner’ or entrepreneur get on with business instead of looking after the family.

Surely the rich have a household staff to do everything in the house, so why should the pampered stay-at-home spouse get a share over needs?

It might be thought that when a family have ‘staff’ such as housekeepers, maids, cleaners, nannies and drivers, the actual household support might not be very hands-on, but the reality of managing a household team on behalf of the person in business, was not unfairly regarded as a significant contribution to the welfare of the family.

A lot of well-paid work involves ‘management’ so why should domestic management be an exception?

That might indeed be a better question.  Regular studies seek to calculate the ‘cost’ of the work of a home-maker, but such figures have no place in family law, just the recognition that managing the home can amount to a real contribution to the financial situation in which the family finds itself at the time of divorce.

What changed?  When did people start needing to share rather than the wealthier give the other person just what they needed?

In 2000-2001 the case of White v White made a seismic change to financial provision under English family law and dealt with both contribution and sharing.

Whilst not astronomical by the standards of 2023, the assets exceeded £4.5m which was deemed more than either needs for their reasonable requirements.

It was held that the absence of financial need did not mean departing from a more generous settlement for a less wealthy spouse in ‘big money’ cases.

Although quite clearly in keeping with the words used in s.25 of the Matrimonial Causes Act 1973 (as amended) the decision explaining that ‘sharing’ principle encouraged courts to make settlements reflecting the wealth of the parties, not just their ‘reasonable needs’.

Lord Nicholls’ leading speech said that in all cases, a judge would always be well advised to check the  possible distribution of assets against the “yardstick of equality of division”.

This was not to introduce a presumption of equality in all cases, but ‘to ensure the absence of discrimination’, for instance, between a wage-earner and a child-carer, recognising the non-financial contribution of the parent caring for children.   It was not good law that following separation, the dependent spouse should manage just on what they needed as that meant that having enabled a spouse to earn a very high salary and sacrifice any career of their own, projected forwards, there would be considerable inequality long-term.    Putting away a portion of earnings into assets held in the wealthier person’s sole name would not put them out of the matrimonial pool of assets, nor would the idea of ‘just enough’ be the dominant principle for provision.

There were many cases that were needed to clarify that sharing and in what became very rare cases, in cases where with a lack of savings due to expenditure on the high-life meant that the exceptional earnings – say of a professional footballer at the top of his game – might need to be ‘shared’ along with the capital.   Such decisions were very rate, but for a while caused discussion as to whether the earnings potential was a ‘resource’ to be shared.  It almost never is, as the principle of spousal support is generally to permit re-adjustment and financial independence.

Remind me – What is a ‘sharing case’?

A ‘sharing’ case is one where the resources of the couple exceed their reasonable needs, so the excess over needs must be allocated without it depending on a requirement for the resource to be used to meet ‘reasonable needs’.

That starts at 50/50, but in sharing cases, the source of those funds can be regarded.

Pre-relationship assets, inheritances and post-relationship assets can all be looked at outside a strict 50/50 regime BUT that does not mean that assets are automatically ‘ring-fenced’ for the person holding them at the point of separation.   Allocating resources at separation and divorce is not ‘pass-the-parcel’ and considerably less fun.

So how do the s.25 factors apply to me spending money in anticipation of divorce?

It never hurts to start with the basics when thinking about what might be taken into

(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

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

So just about anything that a rational person might think worthy of inclusion is there in black and white.

I needed to give myself a present to cheer myself up, so what is wrong with an Aston-Martin or a Bentley?

It is not at all uncommon for people to upgrade their vehicle before sorting out their finances on divorce – some people get a new vehicle, deplete capital and create an income need of the repayment instalments when under the same roof, ostensibly with the agreement of their spouse, ignorant of the plan to separate.

That money often cannot be recovered by an early sale of the vehicle, which would crystallise the loss of value, but putting it in the schedule of assets at the cost price goes a little way to redress that potentially unfair decision.   With instalments, were there a need to look at monthly budgets, it could be argued that the ‘reasonable’ level should be lower than the actual level IF the change of vehicle did not appear necessary or appeared to be excessively indulgent to the acquirer.    Car companies are not falling over themselves to get onto a list of ‘unnecessarily ostentatious’ brands for divorce cases and what would be reasonable (under (b) )is related to (c) the standard of living they had when together.

The principle goes for all expenditure – ‘needs’ are related to what was ‘normal’ for that particular family and although people are expected to ‘cut your coat according to your cloth’ and budget so far as possible, that does not mean that something being expensive is inherently unreasonable.   Doubtless Bernie Marsden, who credits certain songs with paying for his divorce on-stage, would have had collecting guitars (he reportedly has over 200) deemed a reasonable element of expenditure, contrary to the £39,000 provision that non-drinker Heather Mills sought in her ‘reasonable needs’ budget during her very public divorce finance case against Sir Paul McCartney and rightly ridiculed by Sir Justice Bennett.

If my husband has been Giving it All Away, what can I do?

Well, even if he is just a boy at heart and hands over tens of thousands to his dear old mum rather than spending it on handbags and glad-rags for you, all is not lost.   The law allows transactions to be set-aside if done with the intention to defeat valid claims.   That power comes from several sources, depending on who needs to recover the money, but in divorce finance proceedings it comes from S.37 of the MCA (a few sections down from setting out the mandatory considerations).

However, where the money has just been changed in form – say put into property or used to purchase assets, the value has not disappeared, so it is rarely necessary to undo transaction or indeed to freeze resources to preserve them.

If some loss has been incurred by the spending, the easiest remedy is to have the value included in the calculation at its previous level.

I think he might do something prejudicial – should I try to freeze his assets?

People often forget that a very significant portion of assets is held in pension rights that cannot be disposed of or into property.  Providing that there are assets which cannot be lost and can be used to compensate for frivolous or reckless expenditure such as betting £20,000 on Gateshead to win the European Cup within the next 3 years then the expense of a freezing injunction is not cost-effective for normal people.

Making a judgement about such things requires careful consideration and it is best to speak to an experienced divorce finance solicitor to understand how your particular circumstances might be looked at on divorce.

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