How misconduct is dealt with in financial remedy proceedings on divorce
As practitioners in matrimonial law, we are frequently asked whether the other party’s conduct should be reflected in the ultimate financial settlement. Such is the nature of this area of practice, that emotions understandably regularly feature in our instructions with our clients often feeling that they are the party who has been “wronged”.
Generally, the law is slow to recognise such a factor but “conduct” is one of those which it can take into account in determining a fair settlement on divorce pursuant to s25 of the Matrimonial Causes Act 1973. S25(2) (g) of that Act requires the court to take into account the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it.
The impact of serious misconduct in a divorce
Case law confirms that it will generally only be very serious misconduct which will be taken into account and usually conduct which impacts on the parties financially. There have been cases, however, where conduct which has not had a direct financial impact has been brought into account to reduce the perpetrator’s ultimate award.
In one case, a high court judge confirmed that occasionally, the conduct may be so serious that it prevents the court from satisfying both parties’ needs, needs generally being the most important factor which the court has to consider pursuant to s25.
In the same case, however, the judge restated the principle that the court should not be punitive for its own sake and should apply its judgement as a legal institution and not a moral administration.
OG V AG Case
In the case of OG v AG this year, the Family Court had to consider the conduct of various types on the part of the husband and whether it should affect the size of the wife’s award.
The first was the setting up of a company which directly competed with the company owned by the parties in equal shares. This was considered to have reduced the value of the original jointly owned company by between 20% and 40%. The wife’s barrister argued that the top end of the range, i.e. 40% should be taken because he had behaved so shabbily in clandestinely setting up the company.
The judge felt that it did not matter whether the husband had acted openly and honestly or secretly and shabbily and applied a discount of 30% of the trading element of the valuation. In the final award, the husband was treated as having received one half of the discount.
Disposing of assets
Another aspect of financial misconduct in divorce which featured, in this case, was that the husband had sold marital assets, in particular, various investment properties in Dubai and siphoned off the proceeds by advancing or loaning them to a company which he had set up in Dubai.
This company in turn made loans to the competing company. The husband conceded that the monies loaned by him from the proceeds of the sale of the Dubai properties should be added back to the marital pot.
The jurisdiction on the part of the judge to add back assets only arises where one party has wantonly and recklessly dissipated assets which would otherwise have formed part of the divisible matrimonial property. The judge commented that it will only be in a clear and obvious, and therefore rare, case that the principle is applied.
Misconduct in divorce litigation
A third scenario where misconduct can be taken into account is in relation to the litigation itself. In the case of OG v AG, the judge stated that where this proved, it should be severely penalised in costs. However, he went on to say that it is difficult to conceive of any circumstances where this should affect the substantive award.
In this case, the husband’s failure to disclose the Dubai transactions and the loans made to the competing company was “not only dishonest but futile and frankly inexplicable” . The overall costs in the case were £1million, a large amount of which were referable to the husband’s conduct which had prevented there being a Financial Dispute Resolution Appointment at which matters might have been resolved.
However, since these transactions had come to light, the wife had adopted an unreasonable stance seeking a division of the marital assets in her favour of 2/3:1/3. The judge held that her position was untenable. The usual division after a long marriage such as this is equality.
The judge stressed that if, once the “financial landscape” is clear, a party does not negotiate reasonably, they will suffer a penalty in costs. Because the wife’s litigation conduct had not been faultless, she was awarded £328,020 towards her total costs of £617,126
Court inferences and failure to disclose assets
A fourth way in which conduct can be brought into account is by inviting the court to draw inferences that because a party has failed to disclose assets, there may be other assets which they are hiding.
In this case, the judge was invited to do this as a result of the husband’s failure to disclose his dealings with the Dubai properties and the setting up of other companies into which the proceeds of the sale were paid.
However, the judge was not satisfied that there was sufficient evidence that there were other hidden assets. He further commented that these would have been difficult to quantify, if he had been.
The case of OG v AG serves as a useful example of the restrictions on the court deciding that a party’s conduct should be reflected in the final division of the marital assets. In this case, the final division of the assets was approximately £7.3 m (44.7%) to the husband and approximately £9 m to the wife, therefore not a substantial departure from equality.
For more information or to discuss how misconduct can affect financial remedy proceedings during divorce, please speak to one of our expert divorce lawyers by contacting us today.