I Appeal!

It is well known that the starting point for division of matrimonial assets on divorce is a 50 / 50 split. It is similarly well known that there can be reasons to depart from such a split of the assets. Often the reason for such a departure is to ensure that both parties’ needs are met on divorce.  For example, one party may not have an income (or a limited one) meaning that raising a mortgage will be very hard or impossible, whereas the other party may be able to raise a mortgage to re-house with relative ease given their greater income. Therefore the former may receive a greater proportion of the capital assets than the latter to meet their housing need. However, it is important that any financial settlement still allows for a sensible balance in terms of income.

It was therefore with some surprise that the original decision in the case of CR v SR [2013] EWHC 1155 (fam) was met. Indeed the husband in that case appealed the decision, arguing that the District Judge had gone too far in her award of 100% of the capital assets to his former wife together with substantial (income based) maintenance payments to her. He was left with the debts and on the wrong end of an imbalance in income. In short, the wife had done “too well”.

This case is significant as it sets out guidance as to the test to be applied when seeking permission to appeal a decision, together with how the principle of equality in financial remedy proceedings should operate.

The facts

The parties married in 1995 and separated in 2011. They were both in their mid-forties and had three children together aged between 6 and 14 years old.

There was one substantial capital asset, the former matrimonial home. That had an agreed value of £975,000 but was subject to a mortgage of £600,000 which was also in arrears of approximately £13,000. Less costs of sale, the property had net equity of around £330,000.

The husband suggested that the home be sold with the wife receiving the total net equity (less £39,000 needed to clear credit card debts and school fees arrears). However, in return the wife would not be entitled to any spousal maintenance payments (he proposed £1,250 per month in respect of maintenance for the children).

The wife proposed that the house should be transferred into her sole name and that the husband should pay to her £2,000 per month and £1,000 per month for the children.

There was a dispute as to the husband’s level of income. The husband claimed that he could probably draw £4,000 per month from his business. The accountants’ report said he could reasonably draw £5,700 per month (albeit based on possible growth rates).

The wife had a net income of £2,157 brought about by a combination of salary from two jobs plus some benefits.

The District Judges’ Order

The District Judge ordered that the former matrimonial home should be transferred to the wife. This left the husband without any capital assets at all (the partnership having no value according to the expert), together with the credit card debts and school fees arrears of around £39,000.

In terms of income, the District Judge ordered that the husband pay to the wife maintenance for her and the children at the rate of £2,750 per month. The spousal element of that maintenance was on a joint lives basis.  The maintenance plus her income meant that the wife would have an income of £4,907 per month.  After deducting mortgage repayments and the arrears, the wife was left with just over £2,700 per month (£33,000 per year). If one accepted the husband’s income at £5,700 per month, he was left with £1,200 per month (£14,400 per year) after subtracting costs of rented accommodation and the maintenance payments. Subtracting the credit card debt repayments, it was likely that the husband would be left with approximately £400 per month.

Appeal

Moylan J allowed the husband’s appeal stating that the District Judge’s order, and in particular the combination of capital and income orders, were outside the bracket of reasonable orders a court could make. It had not reached a balanced outcome.

In terms of capital assets, Moylan J stated that the District Judge had given too much weight to the husband’s ability to re-establish a capital asset pool. She had ignored the fact that his partnership account was £300,000 in debt, as well as the credit card debts and school fees arrears.

As to income, the District Judge had relied too heavily on the husband’s estimated future income and had overlooked the expert’s explicit view that the future income “may” have been achievable. What had been achieved was a significant imbalance of income. He continued by stating that when making orders based on potential future income a reasonable degree of caution must be exercised to ensure that the resulting order is affordable, does not result in an undue imbalance as to income and is not based too heavily on estimated future income that may not ultimately be achieved.

Moylan J urged the parties to reach an agreement rather than continue their litigation and it remains to be seen if such advice will be heeded.

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