Robson

Robson v Robson

[2010] EWCA 1171

Ward, Hughes and Patten LJJ

Big money – inherited assets guidelines – admission of fresh evidence – clean break

Facts

This was a long marriage big money case in which the big money was inherited by H.

The inherited assets were derived from the product of H’s father’s professional and entrepreneurial skills. The main accumulated inherited assets were an estate in Oxfordshire and in Scotland. H was found to have mismanaged these estates. The parties’ standard of living during the marriage was such that it could only be maintained by eroding the inherited capital. Any increase in the value of inherited assets since the marriage was essentially based on general increases in the value of land and not through the parties’ joint efforts in their different ways of creating, enhancing or preserving the value of the assets.

Charles J assessed W’s housing needs at £5 million and then capitalised her income needs at £3 million. A lump sum of £8 million was ordered to be paid on a clean break basis out of an asset base of c. £22.5 million. In assessing her income needs, the learned judge based his figures on the standard of living enjoyed by the parties during the marriage.

One month after handing down judgment at a hearing dealing with the mechanics of the order and thus prior to its perfection; Charles J was informed by W’s counsel that she was to re-house at £4 million. H did not make application at the hearing to revise downward the needs based award in light of the disclosure made about W’s housing needs.

H appealed and applied to introduce the new evidence of H’s revised housing needs. The main grounds of appeal were that the provision of £5 million for W’s housing fund was excessive and the finding in respect of W’s income needs had also been excessive. H also sought to avoid a clean break and argued that an order for secured periodical payments should have been made.

Held

The application to introduce the fresh evidence about W’s purchase of a property was admitted. The evidence related to the specific factors set out in section 25(2)(a) and was therefore required to be taken into account. Furthermore the evidence was such that it could have an influence on the result of the appeal.

The appeal was upheld on the basis that the judge failed to have regard to a relevant fact, namely that W’s housing needs would apparently be satisfied in the sum of £4 million and the award he intended to make was in fact £1 million more than she actually needed. Ancillary relief proceedings are by their very nature more inquisitorial than adversarial and the court was required to have regard to all material factors in arriving at a fair result; even if not expressly invited to do so. 

The appeal was also upheld on the basis that the learned judge had excessively assessed W’s income needs. W’s needs had been assessed against the standard of living of the parties during the marriage; a standard which had been criticised as being beyond the parties means without depleting the inherited assets. It was unfair to require H to continue to plunder his inheritance at a rate found to be beyond his means. The learned judge fell into error in that he failed to have any or any sufficient regard to the extravagant way that the parties had depleted the inheritance indulgently to enhance their lifestyles beyond what was reasonably affordable.

H’s appeal in respect of the imposition of a clean break was dismissed. H argued that the clean break left him carrying all the risks of the vicissitudes of life ultimately impacting on the fairness of the final award. On the facts of the case H’s argument was trumped by the requirement to consider the obligation of a clean break and to encourage the parties to put the past behind them and begin a new life not overshadowed by the relationship that had broken down. The extent and nature of the assets was such that a clean break could be imposed without affecting the fairness of the outcome.

W had ultimately spent £4.3 million on her home including refurbishment. This was taken into account. W’s income needs were reduced by 10% and a lump sum of £7 million was ordered to be paid.

Comment

This case is essential reading for every practitioner who is involved in a case with inherited assets. Helpfully, Ward LJ proffers guidance as to the approach that should be taken by the court. The guidance is likely to be cited in case after case and is worthwhile setting out in full. The guidance offered is in the following terms:

1.  Concentrate on section 25 of the Matrimonial Causes Act 1973 as amended because this imposes a duty on the Court to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of 18; and then requires that regard must be had to the specific matters listed in section 25(2).  Confusion will be avoided if resort is had to the precise language of the statute, not any judicial gloss placed upon the words, for example by the introduction of "reasonable requirements" nor, dare I say it, upon need always having to be "generously interpreted".

2.  The statute does not list those factors in any hierarchical order or in order of importance.  The weight to be given to each factor depends on the particular facts and circumstances of each case, but where it is relevant that factor (or circumstance of the case) must be placed in the scales and given its due weight.

3.  In that way flexibility is built into the exercise of discretion and flexibility is necessary to find the right answer to suit the circumstances of the case. 

4.  Like every exercise of judicial discretion, the objective must be to reach a just result and justice is attained when the result is fair as between the parties. 

5.  Need, compensation and sharing will always inform and will usually guide the search for fairness. 

6.  Since inherited wealth forms part of the property and financial resources which a party has, it must be taken into account pursuant to subsection 2(a). 

7.  But so must the other relevant factors.  The fact that wealth is inherited and not earned justifies it being treated differently from wealth accruing as the so-called "marital acquest" from the joint efforts (often by one in the work place and the other at home).  It is not only the source of the wealth which is relevant but the nature of the inheritance.  Thus the ancestral castle may (note that I say "may" not "must") deserve different treatment from a farm inherited from the party's father who had acquired it in his lifetime, just as a valuable heirloom intended to be retained in specie is of a different character from an inherited portfolio of stocks and shares.  The nature and source of the asset may well be a good reason for departing from equality within the sharing principle. 

8.  The duration of the marriage and the duration of the time the wealth had been enjoyed by the parties will also be relevant.  So too their standard of living and the extent to which it has been afforded by and enhanced by drawing down on the added wealth.  The way the property was preserved, enhanced or depleted are factors to take into account.  Where property is acquired before the marriage or when inherited property is acquired during the marriage, thus coming from a source external to the marriage, then it may be said that the spouse to whom it is given should in fairness be allowed to keep it.  On the other hand, the more and the longer that wealth has been enjoyed, the less fair it is that it should be ringfenced and excluded from distribution in such a way as to render it unavailable to meet the claimant's financial needs generated by the relationship. 

9.  It does not add much to exhort judges to be "cautious" and not to invade the inherited property "unnecessarily" for the circumstances of the case may often starkly call for such an approach.  The fact is that no formula and no resort to percentages will provide the right answer.  Weighing the various factors and striking the balance of fairness is, after all, an art not a science.

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First published in Resolution's The Review

Trusts as a resource – whether a trust of which spouse was not a beneficiary could be treated as resource – dividing line judicious encouragement and improper pressure on trustee

Whaley v Whaley

[2011] EWCA Civ 617

LJJ Black, Mummery and Lewison J

Facts

H was 60 and W 47. The parties married in 1987 after two years cohabitation and separated in 2008. The trial of the ancillary relief proceedings was heard by Baron J. At trial there was a fundamental difference between the parties as to the extent of the assets. H contended for net assets of c.£3.2 million. W contended that the figure should be c.£11.9 million. The main difference between the parties turned on whether assets held in F Trust and Y Trust, with an approximate value of £7 million should be treated as a resource of H. The non-trust assets, had a total value of nearly £4 million net of accrued debts, of which H held around £3 million and W the balance of just over  £1 million.

The settlor of the F Trust was H’s father, who settled his company and the profits made by the company into the Trust. The beneficiaries were originally H’s father and mother, H and his 2 elder brothers and their remoter issue. H’s parents were subsequently excluded from benefiting under the trust. The original trustee, Mr W was a professional trustee. He was also found to be H’s personal friend/trusted advisor. When Mr W retired he was replaced by Mr H. On his retirement as a trustee, Mr W became the trust protector. The trustees were to hold the fund on trust to pay the income as they might in their discretion think fit to or for the maintenance or otherwise for the benefit of one or more of the beneficiaries. They were also given power to pay capital to one or more beneficiaries as they should in their discretion think fit. The terms of the trust included authorisation of the trustees in exercising any of their powers conferred in favour of any particular person to ignore entirely the interests of any other person interested or who may become interested. The trust fund was subsequently allocated to three separate funds for each of the settlor’s sons. The settlor signed a number of letters of wishes. The last of which made clear that he wanted each of his sons to have a separate fund over which they exerted power; which lead Baron J to conclude that the settlor was not ‘averse to his children deploying … in such manner as they deemed appropriate the funds which had been allocated to them’. Baron J found that the trustees were accustomed to doing H’s bidding in respect of his fund and that whilst the trust was not a sham, H knew and expected all of his wishes would be followed.

The Y Trust was created by the trustees of the F Trust on the same terms as the F Trust and there was an overlap between the F Trust trustees and protectors and those of the Y Trust. However H was not a beneficiary of the Y Trust. The beneficiaries were the grandchildren of H’s father. Baron J found that the impetus for the transfer of the assets into the Y Trust was originally an anxiety on the part of H in respect of a potential tax liability. She also found that there was no real expectation that H’s brother’s children or H’s children would benefit and that it was appreciated by all that it would be possible to add H as a beneficiary at some future date. Baron J also added that she expected that H also appreciated that the creation of the sub-trust had the added advantage that it might be seen as distancing the trust asset from him in the event of divorce.

Baron J held that the trustees of both the F and Y Trust were likely to do whatever H asked including making capital available to him. In those circumstances she had no choice but to treat the trust assets as part of H’s resources. Amongst other matters a lump sum of nearly £3 million was ordered to be paid as part of a clean break. Such an order was to effectively give W 36% of the total assets including the assets held in the F and Y Trust. H appealed on a number of grounds; the most fundamental and far reaching of which related to the judge’s treatment of the trust assets. H did not challenge the judge’s finding that the assets within H’s portion of the F Trust were a resource. Neither was a challenge made to the findings made by the judge about the compliant attitude of the trustees/protectors or the way in which the trust assets had been made available to H. A challenge was however made to treating the assets of the Y Trust as a resource. It was also argued that the judge fell into error in making an order that placed undue pressure on the trustees since the order made could not have been satisfied without H having recourse to trust assets in order to meet his most basic needs such as housing. Furthermore the pressure placed on the trustees to assist H was also said to be improper because it required them against their stated intentions and ignoring their duties to other beneficiaries to realise assets at a time which would be unpropitious commercially.

Held

The Court of Appeal had little difficulty in dismissing the appeal; both in relation to the trust issues and on the other issues raised by H. Baron J had asked herself the proper question; namely whether the trustee would be likely to advance capital on request immediately or in the foreseeable future. Such a finding was required to be made on the balance of probabilities; there was no requirement of something close to certainty of advancement. The argument that the judge’s findings did not add up to the necessary finding that the trustees were likely to be compliant and advance funds was ‘doomed’. It was abundantly clear that the judge considered and found that the trustees/protectors could be expected to comply with H’s requests and this applied to both the F and Y Trust, notwithstanding that in the case of the Y Trust the advancement of capital would require the additional step of H first being added as one of the beneficiaries. The judge had been correct therefore to include both the F and the Y Trust as a resource of H. Insofar as the argument that the line between permissible judicious encouragement and improper pressure had been crossed, the Court of Appeal noted that since the trustees/protectors were likely to do whatever H asked, the pressure was not therefore upon the trustees but upon H.

Comment

This case made legal headlines when the judgments were handed down. By itself the suggestion that a trust can be a resource when a spouse is not even a beneficiary suggests that the Family Courts were once again riding roughshod over pre-existing third party proprietary rights. However on a closer examination of the facts of the case, it is plain that this was not the case. Besides which, this was a Court of Appeal that included two judges with a chancery background. Section 25(2)(a) of the Matrimonial Causes Act 1973 requires a court to have regard to not only property but of course other financial resources. Financial resources is a flexible concept; requiring consideration both of the legal structure of the resource and the mechanisms by which such financial resources can be made available to one or other party. A finding that a trust of which a spouse is not a beneficiary is a resource to be taken into account is not therefore so contentious; especially when viewed against the background of a finding that the spouse would be added as a beneficiary and an advance likely to be made.

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First Published in Resolution's The Review