Tuesday, December 09, 2014

AM v SS: The proper weight to give to valuable resources which do not belong to one of the parties

Mr Justice Coleridge
"The perennial and intractable problem of the proper weight to give to valuable resources which do not belong to one of the parties to the litigation but to e.g. a parent or family trust has dominated the debate in this case". So began Mr Justice Coleridge's judgment in AM v SS, handed down on the 31st of March this year. The following four paragraphs explained the position:
"In a nutshell the husband maintains that he has assets amounting to only a few hundred thousand pounds, including a flat in Maida Vale worth about £1m (but with equity of only about half that sum) and a reasonable salary of about £100,000 p.a. net. He says that is all there is and that is the whole story so far as the exercise of the court's powers is concerned.

The wife on the other hand says that the husband's assets are the merest tip of a huge family financial iceberg. She says that the husband's father has wealth in the stratosphere, measured probably in billions, and that he can reasonably be expected and predicted, given his past generosity, to make capital available to meet a reasonable claim by the wife based on the wealth at that sort of level. In short if I make an order against the husband, his father will meet it.

Accordingly, the wife aspired at the outset of this hearing to a lump sum of some £3m and a global income order of some £10,000 per month, plus a nanny and a maid full time. By the end of the hearing the wife, it is true, had moderated her claim to a capital payment of only £2m.

The husband has, on the other hand, offered to make available his flat in Maida Vale for the period whilst the child is a minor after which he says it should be sold and the wife should receive a small portion of its value absolutely with the balance being payable to the parties daughter. That is all he can afford he says. Accordingly, there is a huge divergence of approach and the court has to do the best it can to resolve it."
The facts of the case can be set out very briefly for the purposes of this post. The marriage lasted only about two years and there is one child, now five years old. The wife lived with the child in a rented flat. Apart from the husband's flat in Maida Vale there were few assets, and both parties had run up considerable costs. It was, however, conceded that the husband's father is very wealthy and that he is, and has been in the past, generous to his children and grandchildren. The issue of the husband's father's financial 'assistance' therefore dominated the case.

Mr Justice Coleridge set out the legal principles applicable to this situation. Firstly, quoting Waite LJ in Thomas v Thomas [1995] 2 FLR:
"There will be occasions when it becomes permissible for a judge deliberately to frame his orders in a form which affords judicious encouragement to third parties to provide the maintaining spouse with the means to comply with the court's view of the justice of the case."
And then:
"I ... collect, from the authorities to which I was referred, that the general practice or philosophy in this situation is that even if the court is prepared to proceed on the basis that a relative or trust is likely or can be reasonably expected to "backfill" to compensate for a share of the visible assets removed by the court order, it is very unusual indeed to make an order that the outside person or entity produce fresh money directly to meet an award to a former spouse claimant. In other words, the availability of these external resources may enable the court to be more generous with the visible resources if it has sufficient confidence that the hole thereby created in the payer's resources will be made up or "backfilled"."
He then set out his findings and conclusions, as follows:

1. The husband's father is hugely wealthy, probably worth in excess of £1bn. However, it would be highly dangerous for the court to proceed in this, or any other similar case, on the basis of crossing its fingers and hoping that such a rich parent would pay up more or less at any level.

2. The husband's father has indeed helped his son in the past, including by way of making considerable provision for his legal fees, to the tune of £250,000. The husband's father has also demonstrated his generosity and concern for his children and grandchildren by providing homes for them and paying generous allowances and school fees.

3. Taking into account all the evidence of past payments and the oral evidence which he heard, he was satisfied that the husband's father will help out, but only to the minimum necessary to relieve his son from visible financial hardship.

4. Accordingly, he ordered that the Maida Vale property be transferred to the wife, with the aim that it should be mortgage free either now or as soon as possible in the future (the wife was actually to have two-thirds outright and a life interest in the other third, which should then pass to the child).

5. The husband is to be responsible for redeeming the charges on the property, by way of a lump sum or lump sums: "That lump sum provision will be received, I conclude, either from the father or other members of the respondent's family. Failing that it can be discharged, absent receipt from those sources, by continuing to pay off the current mortgage or new borrowing up to the same amount on the same or a different property."

6. As to the 'assistance' of the husband's father, Mr Justice Coleridge said: "I think it is a reasonable estimate that when the dust has settled and the court orders are known, the husband's father will be prepared at the very least to lend his son the necessary sum to redeem those charges ... even if he requires his son to pay him interest at a reasonable rate. I think it is more than a fanciful possibility that he will in fact give him the money but I have not assumed that or proceeded solely on that basis."

7. The transfer of the flat was to take place within 3 months, after which the husband was to pay £4,000 per month maintenance, split 50/50 between the wife and the child.

8. If the wife, at the end of the 3 months, moves into the Maida Vale flat and the mortgages have not by then been redeemed, as hoped by the husband's father, the husband will have to continue to meet the monthly mortgage repayments by way of additional periodical payments. If in due course the wife decides to sell, there will be a lump sum payable to her of the amount of the outstanding mortgages, but which again the husband can discharge by way of meeting new mortgages up to that amount.

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