It is often said that fault no longer plays a part in divorce. That is correct so far as getting divorce is concerned.
Since April 2022, a party to a marriage can apply for a divorce without blaming the other party for the breakdown of the marriage. Where fault lies as to the marriage problems is no longer relevant in England & Wales.
The same can be said for most financial settlements following a divorce. A party’s conduct does not often feature as a relevant issue. But sometimes a spouse’s conduct is so bad that a court will take such behaviour into account and penalise the spouse so that he or she recovers less in terms of the split of the matrimonial assets.
S25(2)(g) Matrimonial Causes Act 1973 requires the court to have regard to ‘the conduct of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it’.
So, how bad does the husband’s or wife’s conduct must be for it to be relevant? And what sort of bad behaviour has been taken account of in the past? The cases suggest courts are reluctant to penalise personal financial misconduct.
In the various judgments there is reference to whether or not a court should ‘add back’ the sum of money which is alleged to have been misspent by a party. What the process of ‘adding back’ actually entails in practice, is that, say, a H & W have £1.5m in assets to be divided and the sum to be added back is £250,000, it follows that H would receive a notional £250,000 as part of his assets (that is, it is added back) but in reality, of course, the £250,000 does not exist as it has been spent. Thus, ultimately, H ‘s award is reduced by this sum.
Let us have a look at some of the cases.
In Martin v Martin [1976] Fam 335, the husband (H) passed marital savings to his mistress to invest in two unsuccessful business ventures. The court found 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 is left as he would have been entitled to if he had behaved reasonably’.
In Norris v Norris [2003]1 FLR 1142, W sought to ‘add back’ to the H’s share of the matrimonial assets the sum of £323,000 relating to H’s ‘overspending’. The judge added back the lion’s share of the overspend in the sum of £250,000 as the spending was ‘reckless’.
Four years later, the court in the case of Vaughan v Vaughan [[2007] EWCA Civ 1085 introduced a requirement that the expenditure in issue had a ‘wanton’ element. That is, there had to be an intention to put the money in question out of reach of the opposing spouse to deny his or her claim for ancillary relief.
Would a H’s expenditure of a large sum of money on prostitutes and cocaine lead to an ‘add back’ judgment?
Well, these facts were present in the case of MAP v MFP (Financial Remedies: Add-Back) [2015] EWHC 627. The couple, both in their 60s, separated after a 40 year marriage. H had been a very successful businessman and the matrimonial assets to be divided amounted to £25 million. W sought half the assets and an additional £750,000 in respect of what she claimed was ‘wanton and reckless expenditure’ over the preceding two years, in which H indulged in prostitutes together with cocaine resulting in a period of expensive rehabilitation. However, the judge did not add back the sum that W sought since H had not overspent with the intention of reducing his wife’s claim.
Again, in the case O v O [2023] EWFC 161, we see a reluctance on the part of the court to penalise financial misconduct. H & W are in their 50s. They separated after 16 years of marriage and W petitions for divorce. They had accumulated £2.5 million in assets during the marriage.
W alleged that H had engaged in financial misconduct which resulted in losses that H should bear by himself.
First, H had taken tax mitigation advice in 2010 and invested in a film scheme later successfully challenged by HMRC.
H had withdrawn from a company in which he was a shareholder £950,000 on which he paid no tax. This resulted in a tax liability of £500,000.
Secondly, between 2020 and 2022, H had lost just over £400,000 spread betting on the stock market.
The court refused to add back the £500,000 tax liability since W had benefited from the £950,000 and, therefore, it would not be fair for him to have his award reduced.
With regard the spread betting, the court only added back £40,000 as that money had been gambled post separation. With regard to the rest of the money gambled away, the court took into account there was no evidence of wanton dissipation so as to put the money beyond the reach of W.
In addition, the court took the view that H had made a valuable contribution to the marriage over the years and to penalise him for reckless behaviour over a two year period would not do justice to the situation.
The recent cases illustrate a reluctance on the part of the courts to penalise poor behaviour leading to financial losses. Surprisingly, drug taking, prostitution and gambling have escaped being penalised by the courts.
