Adding back – but when and how? Christopher Tromans reviews the court’s powers when family assets have been dissipated.

If a party to a marriage squanders part of the family assets before the final hearing of an ancillary relief application, what can the court do to compensate the other party?

As always, the starting point is section 25 of the Matrimonial Causes Act 1973 as amended. In the words of Mr Justice Coleridge in Charman v Charman [2006] EWHC 1879 (Fam), [2007] 1 FLR 593 ‘..section 25 rules the day’. Section 25(2)(g) requires the court to take into account conduct which it would be inequitable to disregard. However, this criterion does not take any priority over the other criteria in the sub-section and even very serious misconduct will not necessarily deprive the offending party of a share in the assets. In H v H [2005] EWHC 2911 (Fam), [2006] 1 FLR 990, the husband had attempted to murder the wife. Mr Justice Coleridge (again) held that the misconduct should merely be treated as a potentially magnifying factor which colours the court’s approach and awarded the husband 25% of the assets.

In Tavoulareas v Tavoulareas [1998] 2 FLR 418 the Court of Appeal further refined the significance of financial misconduct. Lord Justice Thorpe defined conduct within section 25(2)(g) as conduct prior to separation which he described as marital misconduct. If the misconduct took place after separation and during the course of ancillary relief proceedings it should be categorised as litigation misconduct. Conduct of the latter type should not affect the quantification of the award but could be reflected in any orders for the costs of the application. However, the Court of Appeal did not give any guidance as to the practical interrelation of marital misconduct and the quantification of the award.

A difficulty arising from that distinction will emerge in cases where, during the course of the application but before judgment, a party disposes of family assets of high value. While an adverse costs order can still be made under FPR 2.71(3)(b) as an exception to the general rule that no inter partes costs orders will be made, such an order would provide inadequate compensation to the other party, and if the asset dissipated had been money, the other party would be unable in practice to obtain relief in the form of an order under section 37(2)(b) of the act.

One solution to the problem can be the process of adding back, or, in RCJ-speak, reattributing the value of the asset dissipated to the party in default when calculating the division of the assets. In Vaughan v Vaughan [2007] EWCA Civ 1085, [2008] 1 FLR 1108, H had spent large sums on gambling and extravagant living, including making cash withdrawals of some £80,000 in a single month. H’s excuse was that he was suffering from a form of mental illness. W argued that she should not be prejudiced by H’s irresponsible behaviour. District Judge Jenkins found that, objectively, H’s behaviour had been profoundly irresponsible but held that, because of the illness factor, no moral culpability should be attached to it, and declined to reattribute to H any of the money which he had spent.

In giving the judgment of the Court of Appeal, Lord Justice Wilson identified two earlier authorities on adding back which should have been considered.

In Martin v Martin [1976] Fam 335, Lord Justice Cairns had held that: ‘A spouse cannot be allowed to fritter away the assets by extravagant living or reckless speculation and then to claim as great a share of what was left, as he would have been entitled to if he had behaved reasonably.’

The more recent authority was Norris v Norris [2002] EWHC 2996 (Fam): [2003] 1 FLR 1142. In that case, H’s expenditure greatly exceeded his income and W’s case was that £350,000 spent over a two-year period should be added back. Mr Justice Bennett found that the scale and extent of the overspend had been reckless and that a reattribution of £250,000 would be fair on the facts of the case. At 77 he says: ‘A spouse can, of course, spend his or her money as he or she chooses, but it is only fair to add back into that spouse’s assets the amount by which he or she recklessly depletes the assets and thus potentially disadvantages the other spouse within ancillary relief proceedings.’

However, Lord Justice Wilson identified two important caveats which limit the usefulness of the principle. Firstly, before making any reattribution, there is a need for clear evidence of what must amount to wanton dissipation. Secondly, the sum reattributed must in no way be treated as cash which can be deployed in meeting that party’s needs, in particular housing needs.

On the facts, and after reattributing £100,000 to H, the Court of Appeal held ([2008] 1 FLR at 1123) that W should receive 62% of the non-pension assets and H 37%.

It follows that, even when the evidence of extravagance is of sufficient quality to meet Lord Justice Wilson’s first criterion, the practical value of the reattribution exercise will be limited. If, at the time of the hearing of the application, the offending party has real and identifiable needs which can be met from the assets still available, provision will be made for those needs and that party will not be deemed to have cash to the value of the sum reattributed.

In practice, the real value of reattribution to the other party will be, in the words of the President of the Family Division, Sir Mark Potter in Charman v Charman [2007] EWCA Civ 503, [2007] 1 FLR 1246 at 65, to indicate a ‘good reason’ to depart from the principle that property should be shared in equal proportions. An imbalance in percentage terms in the division of the remaining assets in favour of the other party will appear less unfair arithmetically if a sum is reattributed to the assets of the offending party.

Furthermore, the authorities indicate that the amount to be reattributed should be determined by a broad-brush approach rather than by any more complex or precise formula.

As was stated by Lord Nicholls of Birkenhead in Miller v Miller: McFarlane v McFarlane [2006] UKHL 24: [2006] 1 FLR 1186 HL at 4: ‘Fairness is an elusive concept. It is an instinctive response to a given set of facts.’

As things stand, the broad-brush approach rules the day.

District Judge Tromans sits at Plymouth Combined Court Centre