Notes - Financial Orders PDF

Preview

Summary

FINANCIAL ORDERSGeneralThe courts may make a variety of orders.An application cannot be heard until the decree nisi has been granted and they will not take effect until the decree absolute has been obtained.In most cases arrangements are finalised after the divorce proceedings have concluded.INCOME ...

Description

FINANCIAL ORDERS The courts may make a variety of orders.

General

An application cannot be heard until the decree nisi has been granted and they will not take effect until the decree absolute has been obtained. In most cases arrangements are finalised after the divorce proceedings have concluded. INCOME ORDERS p50 Order for regular payments to be made to provide for a spouse in the short term until the divorce is determined.

Maintenance Pending Suit

-

This will grant upon the grant of the decree absolute. The spouse will be required to make a reasonable payment, this is not done in forensic detail as it is an interim order. They are rare in practice.

These normally take the form of monthly or weekly payments. Periodical payments

-

All periodical payments terminate upon death or remarriage of the recipient. The court may limit the term of the payments if they believe that the recipient should become independent after a period of adjustment.

The court can make PPO’s in favour of a child and they will generally terminate upon the child reaching 17. A party may be ordered to secure a payment payable to another party.

Secured periodical payments

This is to ensure that the party will continue to receive the payment if they payer’s income is likely to fluctuate, or they anticipate that there may be enforcement issues. Secured PPOs terminate in the same way as PPOs, however they do not terminate upon death of the payer.

CAPITAL ORDERS p52 Prest v Petrodol The court can only make orders in respect of assets which one or both of Resources Limited the parties have a legal or beneficial interest in. & Others Lump sum S23(1)(c)&(f) MCA 1973 – The court can order a party to pay the other, or a orders child in the family a cash lump sum. The two main reasons for this are 1. adjust the division of the parties assets 2. To recompense the applicant for expenses incurred prior to the application as a result of inadequate support from the respondent for

the applicant or a child of the family Roberts v Roberts – although the payment does not have to be made immediately the case should not be adjourned for longer than 5 years. Michael v Michael – Application was refused for adjournment as it was too uncertain when inheritance would be received. Property adjustment orders

S24 MCA 1973 – the court has the power to redistribute family property.

S24A MCA 1973 – The court has the power to order the sale of property which either party is beneficially entitled to but may only do this where they have made a secured PPO, lump sum order or a property adjustment order. Orders for sale

 Cannot take effect until the decree absolute. The court may add conditions onto the order or may defer the sale to allow one party to raise the funds.

Pension sharing orders

S24B MCA 1973 – The court may make an order for one party’s pension to be split between the parties.  The split is to be determined at the time of the divorce, however will not be paid until entitlement to pension conditions have been met. CONSIDERATIONS WHEN MAKING AN ORDER (s25 MCA)

General p54

The court has a wide discretion as to what order they can make. s25 MCA 1973 - It shall be the duty of the court in deciding whether to exercise its powers under sections 23, 24 or 24A above and, if so, in what manner, 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 eighteen. Radmacher v Granatino – A pre-nup may be considered to be ‘in all the circumstances’.

Provision for Spouse 8 FACTORS

S25(2) MCA 1973 sets out the following 8 factors to be considered by the courts: (a) The income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future [but see s 25B and 4.7.2.1], including in the case of earning capacity any increase in that capacity which it would be in the opinion of the court reasonable to expect a party to the marriage to take steps to acquire; (b) the financial needs, obligations and responsibilities which each of the

parties to the marriage has or is likely to have in the foreseeable future; (c) the standard of living enjoyed by the family before the breakdown of the marriage; (d) the age of each party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage; (f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family; (g) 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;

(h) in the case of proceedings for divorce or nullity of marriage any benefit which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring. White v White – Before this case the courts had the approach that the weaker party was to have her needs met and nothing more. T  This was abandoned and stated that the courts’ objective should be to achieve a fair outcome. Mrs White was awarded 40% of the net assets.

The courts’ approach p55

Earning capacity

Miller v Miller & McFarlane v McFarlane - The House of Lords said that the general principles to be applied when financial awards were ‘needs, compensation and sharing’.  It was recognised that in many cases, of necessity, achieving fairness did not go beyond the stage of dividing the assets so as to try to meet the parties’ housing and financial needs, and that often those assets were insufficient to provide adequately for the needs of two homes.  However, in appropriate cases fairness demanded that the court should exercise its discretion so as to compensate one party and redress the economic disparity between the parties arising from the way in which they had conducted their marriage. The courts will take into account any fringe benefits, along with any potential earning capacity.

Other income p57

If both parties are on welfare benefits the court is unlikely to make an order. Barnes v Barnes – A spouse cannot free himself of responsibilities to maintain his family by casting the burden to the tax payer Income from a new partner or an older child will be taken into account when assessing the means of a party. - If one partner is not in a new relationship the court won’t speculate on this.

Non-

N v F (Financial orders: pre-acquired wealth) - Some judges appear to take

Welfare benefits

a scientific approach, attributing a value to the non-matrimonial assets and then excluding them from the resources available for division, with the result that such assets are kept by the spouse who acquired or inherited them.

matrimonial assets p58

Robson v Robson - treat the nature and source of the assets as an unmatched contribution by one party or as one of the circumstances of the case to be taken into account when determining the requirements of fairness and which may provide a justification to depart from equality The courts may conclude that the non-matrimonial assets should not be treated in any different way as they have become so intermingled with the other assets it is not possible to distinguish them.

Lost assets

Standard of living p60 Ages of the parties and duration of the marriage Disability

Evans v Evans – The court held in order for the assets to be added back, there must be evidence that one party had wantonly dissipated assets and the reattribution must be necessary in order to enable the court to achieve a fair settlement. The courts will seek to preserve the standard of living on the breakdown of the marriage as far as is possible Where the same standard of living cannot be sustained, each party should bare the losses equally. A shorter marriage with younger parties will generally attract fewer financial orders.

If one party is disabled the financial award may reflect that they may have a less or no earning capacity. S25(2)(f) - Past and future contributions will be taken into account. Extensive contributions in kind may be enough to establish a constructive trust in the property.

Contributions p61

Cowan v Cowan - Special contributions should be taken into account (entrepreneurial flair, inventiveness and hard work) E v E (financial provisions) – Negative contributions can also be taken into account.

Conduct

S2(2)(g) - The court should consider any conduct it would be inequitable to disregard. Examples include: -

The husband frittered away joint assets in recklessly hopeless business ventures (Martin v Martin)

-

The husband had a serious drink problem, which contributed to his

refusal to obtain employment and his neglect of the house, which ultimately forced its sale. Although the husband succeeded in obtaining a lump sum, his application for periodical payments was dismissed (K v K (Conduct)) -

Husband subjected the wife to a vicious knife attack and was subsequently convicted of attempted murder. As a result of the attack the wife could no longer continue with her career as a police officer. The court considered it fair in all the circumstances that the wife should receive the greater share of the matrimonial assets, including the entire sale proceeds from the former matrimonial home. The husband’s conduct had had the effect of placing the wife’s needs as a much higher priority than the husband’s in the court’s consideration of s 25 of the MCA 1973, because the situation in which the wife found herself was clearly the husband’s fault (H v H (Financial Relief: Attempted Murder as Conduct))

-

The court discharged a maintenance order made in favour of the wife after she was convicted (and imprisoned) for inciting others to murder the husband (Evans v Evans)

-

The conduct does not have to have a financial bearing (K v L)

-

Adultery will not be sufficient enough on its own unless there are aggravating factors, in this case the petitioner’s father was the corespondent (Bailey v Tolliday)

Misconduct may also relate to the proceedings:  T v T (Interception of Documents) - the wife intercepted the husband’s mail and broke into his office in an attempt to ascertain his true financial position. The court’s approach was that, whilst this misconduct would not be brought into the reckoning of the substantive award, it was relevant in respect of costs.  P v P (Financial Relief: Non-Disclosure) - the court found the wife guilty of misconduct when she concealed a number of assets and the presence of a cohabitee. Again, although she was not penalised by a reduction in the overall provision, she was ordered to pay her own costs (estimated at £40,000).

Potential Financial Loss Provision for children p65

Veluppillai v Veluppillai - Costs orders can be made due to conduct S25(2)(h) – requires the court to consider any potential benefits a party might lose as a result of the termination of the marriage. S25(1) - The court must have consideration for any child of the family when making a financial order. Lord Linford v Glynn – it is unusual for the court to make capital orders in favour of the children.

S25(3) - The court must consider: a) the financial needs of the child; b) the income, earning capacity (if any), property and other financial resources of the child; Financial Orders: The Law 63 c) any physical or mental disability of the child; d) the manner in which he was being and in which the parties to the marriage expected him to be educated or trained; e) the considerations mentioned in relation to the parties to the marriage in section 25(2)(a), (b), (c) and (e). S25(4) additional factors: The court can make an order in regards to step children, however the following will need to be considered:

Step-children

a) whether that party assumed any responsibility for the child’s maintenance, and, if so, to the extent to which, and the basis upon which, that party assumed such responsibility and to the length of time for which that party discharged such responsibility; b) whether in assuming and discharging such responsibility that party did so knowing that the child was not his or her own; c) the liability of any other person to maintain the child. CLEAN BREAK p66 The court is under a duty to consider the appropriateness of a clean break, however the judiciary considers this to be the preferred outcome – s25A(3)

General

It will never be appropriate to impose a clean break between a parent and a child. The most extreme clean break will occur when a judge dismisses an application and places a bar on any further applications.

Income orders p67

A clean break may be deferred for a number of months whereby the party may have the benefit of an income order to allow them to find a job or re-train. S31 MCA 1973 – In the event that the above does not go to plan it may be possible to extend the income order.

Capital orders Options

There may be a lump sum ordered for dismissal of all claims if there are sufficient capital assets available. PENSIONS p68 a) the traditional approach of adjusting the other matrimonial assets to take account of pension rights (‘off-setting’); b) an order which allows for all or part of any pension or lump sum arising at retirement to be ‘earmarked’ for the other spouse (‘pension attachment’);

c) splitting the pension so that the pension benefits are physically subdivided at the time of the divorce; the parties will then have two entirely separate pensions which they can contribute to in the future in the normal way (‘pension sharing’). There are no obligations for the court to make an order regarding pensions.

Offsetting

There may be a trade off at the time of the divorce so one party will receive more upon divorce but will lose entitlement of the pension.

Attachment

An order may be made so that a proportion of the pension will be payable to the spouse upon retirement.

Pension Sharing

s27 MCA 1973

Income Tax

CGT

A pension may be split at the time of the divorce (any solicitor advising a client on this matter should be aware of FSMA 2000)  PROFESSIONAL CONDUCT During Marriage The court may make an order for financial provision during the marriage if the respondent has failed to provide reasonable maintenance or a proper contribution for a child of the family TAX There is no tax relief available on payments of:  Maintenance  No married or single parent relief  No tax relief on mortgage payments CGT and the home There are two exemptions for capital gains tax and the home: 1. The private residence exemption: to qualify for full exemption, an individual must have occupied the home as his only or main residence throughout the period of his ownership.  If he has occupied during part only of his ownership then the relief will be proportionately reduced, except that he is deemed to have occupied during the last 18 months of ownership whether or not this is in fact so. 2. Extra-statutory concession D6 will apply where: a) a husband and wife separate or divorce and one of them moves out of the home whilst the other continues to live there; b) under the subsequent financial settlement the non-occupying spouse transfers the home or an interest in it to the occupying spouse; and c) the non-occupying spouse has not elected to treat another property as his only or main residence. If these conditions are fulfilled Sale of the home to a third party - If the sale is made within 18 months of the separation any gain is exempt.

Transfer of the home between spouses - The transferor’s gain may be exempted under the following rules: a) where the transfer takes place in the tax year of separation, the rule relating to interspouse disposals; b) where the transfer takes place within 18 months of separation, the deemed occupation rule; or c) extra-statutory concession D6 if later Future sale of home subject to a deferred trust or deferred charge - The nonoccupying spouse’s position will be different depending on: Deferred trust of land - As the court order created a settlement, it would appear that the non-occupying spouse will avoid CGT liability completely because of rules exempting gains on property occupied by a beneficiary entitled to do so under a settlement (Taxation of Chargeable Gains Act 1992, s 225). Deferred charge - Where the charge is expressed as a proportion of the proceeds, for example, one-third, the value of that share may have increased by the time the property is sold. In this situation, the non-occupier is likely to be liable to CGT, the redemption monies being a capital sum derived from an asset, ie the charge (Taxation of Chargeable Gains Act 1992, s 21). The annual exemption, may help to reduce the bill. However, if the deferred charge is for a fixed sum (rather than a proportion of the proceeds), there is no charge to CGT when the debt is paid (Taxation of Chargeable Gains Act 1992, s 251) CHILD MAINTENANCE p88 S11 – Each parent of a qualified child is responsible for maintaining him

Child Support Act 1991

s55(1) CSA 1991 – A child is an unmarried person under 16 or under 20 in full time education.  The father of the child must be certain in order to bring an action against them.  All parties must be habitually resident in the UK. S8 CSA – DWP rather than court has almost exclusive jurisdiction.

Jurisdiction of the court p89

Other options

The court will only have jurisdiction where the CMS do not. The court will have jurisdiction where:  Income of one parent is over £3,000 per week s8(6)  Education fees s8(7)  If the child is disabled s8(8) Parents may decide to enter into an agreement (this is not a court order but is an enforceable contract) Consent orders – Couples may apply to have a consent order. This will only be binding for a maximum of 1 year.

Segal order – an order combining maintenance for the spouse and a child

CALCULATING MAINTENANCE Number of Children The Basic Rate p94

1 2 3+

Proportion of gross income up to £800 per week 12% 16% 19%

Proportion of gross income over £800 per week 9% 12% 15%

Gross income over £3,000 will be ignored. If the none resident parent has other children living with him, his weekly income will be reduced by the following:

Number of Children 1 2 3+

Reduced rate Flat rate Nil rate Apportionmen t Shared care No of nights per year 52-103 104-155 156 – 174 175 or more

Proportion of gross income reduced 11% 14% 16%

Applies where the non-resident parents gross weekly income is more than £100 but less than £200. If the weekly income is less than £100 or he is in receipt of certain benefits the flat rate is currently £7 per week If the weekly income is less than £7 there will not be an amount payable. If the non-resident parent has children being cared for by different people the amount payable will be apportioned. Where both parents share care the amount will be reduced: Fraction to subtract One seventh Two sevenths Three sevenths Half The amount can be varied in certain circumstances where non-variation would lead to a harsh result:

Special expenses

(a) costs incurred by the non-resident parent maintaining contact with a qualifying child; (b) costs attributable to a long-term illness or disability of another relevant ch...