When the end is not the end…. Until clean break do us part!

by Maria Scotland of 5St Andrews Hill Chambers, London

When I was asked to write a short article for the Get Legally Speaking website, I spent ages wondering what to write, and then it occurred to me – let me share with you what I did yesterday. Yesterday I appeared in the Central Family Court, situated on High Holborn, before a diligent ferociously intelligent and sharp Judge in cross applications to vary the maintenance orders that were made in the parties’ financial order which was made 4 years ago, ancillary to their divorce. I was for the Husband, a 56-year old property investor. The Wife was a 49-year old full-time mum and ex-radio presenter and media personality. The parties enjoyed a 7-year relationship but had been married for only a short period, 2½ years. During the marriage they had a son who was only 7 years old at the date of yesterday’s hearing. Their marriage ended acrimoniously with allegations and recriminations on both sides, and thereafter followed lengthy and costly court proceedings which culminated in a final financial Court Order in February 2016, in it stating that the Husband would transfer one of his 16 properties to the Wife and pay her maintenance for herself and their son, who lived with her after their separation, for the next 14 ½ years, and until their son finished secondary education. The parties fought using lawyers on both sides for 3 years to achieve their final financial Court Order, and that’s where the story ought to have ended. But sadly that was not the case, and hence my involvement leading in a 2-day Final Hearing listed to start yesterday. What many may not know, and I feel ought to know, is that any Court Order for maintenance in a Financial Order can be varied and/or discharged before the term prescribed under the Court Order, and such was the case with yesterday’s divorced couple who only 18 months after their final Financial Court Order of February 2016, where they found themselves embroiled yet again in Court proceedings, with the Husband seeking to reduce the maintenance payments to the Wife down to nil, £0. In yesterday’s case the parties agreed in February 2016 that my client, the Husband, would pay the Wife maintenance for herself and their son at rates varying between £42,000 per year reducing to £26,400 per year over a 14½ year period. Four years after the date of that agreement, at yesterday’s hearing, the Husband obtained a ‘Clean Break’ and an end to all future payments to the Wife, on the basis he will pay the Wife a one-off lump sum and child maintenance at the Child Maintenance Service rate. The Wife, in her own words, felt she had to fight the application and resist all attempts to vary her maintenance. She told the judge she felt that the application was ‘…financial abuse…’ and that she had felt ‘…tortured…’ by the Court proceedings. The reason for this short article, is to address the Wife’s sentiments, for I can empathise with the Wife …. However, she should have been made aware in 2016 or before, and everyone should know, that the maintenance in a Financial Court Order is not set in stone, and it can be varied at any time before the term stated in the Court Order. Ignorance of the law is no defence. So when and why, and how can a party vary their obligations to pay maintenance to their ex-spouse, which were agreed/ordered in the finances and stated in a Court Order? I summarise below –

“USUAL” MAINTENANCE ORDER -

There are commonly two forms of maintenance obligations in a Financial Court Order – maintenance for the Wife (so called “periodical payments” or “pps”) and payments for the benefit of a child/children. The order will prescribe the date for the first payment, the rates of pps and the date for termination of those pps. Termination of pps are commonly the first to occur of:

• the death of either party
• the receiving party’s remarriage
• the youngest child completing secondary education or attaining 18 years of age, whichever is the later or
• Further order of the court.

THE APPLICATION TO VARY THE PPS ORDER:

At any time during the life of the pps order, that is before the first event of those listed above, either party can apply to vary the amount paid and/or the term of the payments. Yesterday my client applied to end the pps order (10½ years “early”). The power to vary or discharge a Court Order for pps is contained in statute under section 31 of the Matrimonial Causes Act 1973 (“MCA”). The person seeking to vary makes an application to the Court, in which their original Court Order was made, on the same form they used to make the original application (Form A). and the process starts de novo, yet again!, with the Court ordering exchange of Forms E, listing the case for a First Directions Appointment hearing (“FDA”), timetabling the application to a Financial Dispute Resolution hearing (“FDR”) and then either the matter resolving at the FDR or proceeding yet again to trial.

LEGAL PRINCIPLES IN THE APPLICATION

The Court may either increase or decrease the rate of payment or discharge the Order. The Court additionally has the power to substitute a lump sum or property adjustment Order, when it discharges a pps order. This in effect allows the Court to capitalise maintenance. When substituting a lump sum order on discharging a pps order, the Court is not limited to a mathematical calculation of the capital equivalent of the ongoing pps. The Court may also consider what lump sum would be fair in all of the circumstances.

The principles which govern the exercise of the Court’s discretion are contained within section 31(7) MCA 1973:

(1)     The Court shall have regard to the circumstances of the case, first consideration being given to the welfare while a minor of any children of the family who has not attained 18 years of age,

(2)     The circumstances of the case shall include any change in the matters to which the Court was required to have regard to when making the order to which the application applies and

(3)     The Court shall have regard to whether in all of the circumstances and after having regard to change, it would be appropriate to vary the Order so that payments are required to be secured only for such period as will in the opinion of the Court be sufficient to enable the party in whose favour payments are made to adjust without undue hardship to the termination of those payments.

In respect of any change in circumstance, the Court starts from the point that the original Court Order made was correctly made, and as such it will not entertain an application from a disgruntled party who simply wishes to use the application as a mode of appealing the existing Court Order that was made. As such there must be a palpable change in circumstance since the date of the Court Order.

THE LEADING CASES (GUIDING PRINCIPLES)

McFarlane v McFarlane and Pearce v Pearce [2003] 2 FLR 1144 are leading cases in these applications and provide the Court with guidance on how to determine each application to vary. The relevant guidance to vary/ discharge pps is as follows:

• The Court’s function is not to re-open the capital claims in the divorce, but to substitute the pps order if appropriate for an Order that the Court think is fair
• In surveying what substitute Court Order or Court Orders, to make first consideration will be given to the option of carving out of the payor’s pension funds a pension for the payee equivalent to the discharged pps order.

So, what does this mean? At any time after the final Court Order for pps and the end of the term for payment, either party can apply to vary up or down or end payments. The application to vary/ capitalise pps is made back to the Court that made the Final Order in Form A and the party applying must prove that there has been a “palpable change in circumstance” (i.e. something tangible), that would mean it is right and appropriate for the Court in all of the circumstances to vary the pps order. The change can be in either the payer or the payee’s circumstance. My client/ the Husband yesterday asserted that his income had dropped and his expenditure had gone up. We achieved a clean break/ end of all payments to the Wife on the basis of a one-off final lump sum payment. As I said the Wife, who appeared without legal representation because she could not afford it, told the Court she had no idea in 2016 that it was possible for the Husband to vary payments in the future… be aware! Payments can be varied up but are by the most part varied down. A clean-break in the Final Order provides certainty. Where this is not possible on the maths know that the pps order is not certain.

A FINAL WORD - Waggott v Waggott [2018], Court of Appeal

Finally, it is worth knowing or being reminded that there has been a sea change in the law recently, in particular the treatment of pps in financial orders.

In the case of Waggott the Court of Appeal replaced a joint lives order made at first instance with a term Order of three years with a s28(1A), MCA 1973 bar, on the basis that:

1. the wife's needs could be met from using her capital; and
2. the sharing principle did not apply to earning capacity, despite the wife's claim that she had helped build the husband's earning capacity over the 21 years of her ongoing contribution in taking care of the children, an approach that many thoughts to be discriminatory.

The guiding principle is now that post separation income is not an asset to be shared on exit from marriage, and so, pps orders if made, are limited to the shortest period possible to assist the receiving party to adjust to independence.

In C v C [2019], Roberts J Ordered a clean-break in line with Waggott. The parties in that case were both investment bankers, with the wife at one point earning more than the husband. During the marriage, given the level of the husband’s huge income, the parties had built up assets of over £25m. Part of the husband's bonus was made up of deferred equity participation (stock units), for which he realised the funds when they vested. However, as is usual in the banking industry, these awards were susceptible to a claw-back over a fixed period in the event that performance targets were not met. The Court provided the wife with just over 50% of the assets on a clean-break basis, and allowed the husband to retain his post-separation bonus. The outcome was that the wife would have her housing and income needs met, however, unlike the husband, whose income needs would be met from his significant continuing salary and bonuses, the wife had to rely on her capital. Again, the Courts do not view income generated post separation as an asset to be shared, which is now also a factor the Court considers in an application to vary pps.  

End note – be aware that your Final Court Order may not be the end of the road!

Maria Scotland

5 St. Andrew’s Hill

Chambers of David Josse QC

London