When considering the appropriate division of a couple’s financial resources upon divorce, the court takes into account the factors listed in s 25 of the Matrimonial Causes Act 1973. This includes “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” (s 25(2)(g)). However, that is all the guidance that the statute provides. It is therefore necessary to look to case law to establish how the courts apply this s 25 factor and assess what, if any. impact conduct might have on an overall award.
Although clients are often keen to raise matters which they consider to be “conduct”, the court will only consider conduct when it would be inequitable to disregard it. In practice, this is a high hurdle, as demonstrated by some of the examples provided below.
This column will consider both financial and non-financial conduct. A future column will consider litigation misconduct and the circumstances in which a failure to negotiate can constitute conduct.
Conduct which has the effect of dissipating the marital asset base is conduct which can be taken into account by the courts when determining how the assets should be divided. This principle was made clear by Cairns LJ in Martin v Martin  Fam. 335 where he stated at para 629:
“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 had he behaved reasonably.”
Where financial conduct is run as an argument by one of the parties, that party usually seeks for the dissipated funds to be “added back” to the asset schedule. The term “add back” was first used in the case of Norris v Norris  EWHC 2996,  1 FLR 1142 where Bennett J added back £250,000 of overspend to the husband’s assets.
“Why should the wife be disadvantaged in the split of the assets by the husband’s reckless expenditure? 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” (at para 77).
The concept was further considered by the Court of Appeal in Vaughan v Vaughan  EWCA Civ 1085,  1 FLR 1108 where the husband had dissipated wealth by gambling. The Court of Appeal considered the circumstances in which one party’s dissipation of assets should be taken into consideration by the courts and ultimately determined that £100,000 should be added back. However, Wilson LJ highlighted that caution should be adopted before the court adds back to the asset schedule money that no longer exists and stated that there must be “clear evidence of dissipation (in which there is a wanton element)”.
There is therefore a two-stage test; (i) there must be evidence of dissipation, and (ii) the dissipation must have had a wanton element.
Evidence of dissipation
If conduct is to be run as an argument by one of the parties, they should refer to it in s 4.4 of the Form E, even if full details cannot be supplied until the other party’s disclosure has been received. Full evidence of the expenditure will also need to be obtained. In a complex case, it may be necessary to instruct a forensic accountant if a tracing exercise needs to be carried out.
The case of F v F (Financial Remedies: Premarital Wealth)  EWHC 438 (Fam),  2 FLR 1212 demonstrates the requirement for wanton dissipation. In that case, the husband had made substantial lifetime gifts to four children from his previous marriage. Macur J held it was entirely reasonable for him to do so at a time when he was making provision for his younger children and his wife. The gifts did not adversely impact upon the high standard of marital lifestyle.
“For the avoidance of doubt I make clear that the wife has not discharged the burden of proving any alienation of matrimonial funds by the husband with the intention of defeating or reducing her claim, nor of wanton and reckless behaviour...”
Finally, even where conduct may appear to be wanton and reckless, the court may not consider it to be so, because of the particular characteristics of that individual. In the case of MAP v MFP (Financial Remedies: Add-Back)  EWHC 627 (Fam),  1 FLR 70 the wife alleged that the husband was spending £6,000 a week on drugs (cocaine) and further large sums on prostitution. Moor J held that whilst the husband’s spending, particularly on drugs and prostitution, was morally culpable, it was not deliberate or wanton dissipation within the meaning formulated by the authorities. He had not overspent to reduce the wife’s claim. It was down to his flawed character. A spouse had to take his or her partner as he or she found them. He said the following:
2Many very successful people are flawed. This is true of this husband. I have decided that it would be wrong to allow the wife to take advantage of the husband’s great abilities that enabled him to make such a success of the company while not taking the financial hit from his personality flaw that led to his cocaine addiction and his inability to rid himself of the habit. It may have been morally culpable. Overall, it was irresponsible. But I find that this was not deliberate or wanton dissipation.”
Add back and needs
The Court of Appeal in Vaughan (see above) made the point that if the money has been spent (not hidden), then it is an error to take it into account when looking at the offending party’s ability to meet his housing needs, as he does not, in fact, have access to those funds. Wilson LJ stated that when the court considers reattribution, it must ensure that the figure to be added back “does not extend to treatment of the sums we attribute to a spouse as cash which he can deploy in meeting his needs, for example in the purchase of accommodation”.
However, the court has taken a more robust approach to add back in the context of over-spending on legal costs (see for example YC v ZC  EWFC 137) and so it is important to bear this in mind when deciding whether or not to pursue conduct in a particular case.
Although non-financial conduct features less than financial conduct, there are examples of it impacting upon the division of a couple’s finances upon divorce in the authorities. Once again, the conduct must be inequitable to disregard as per the statute, and the following examples highlight the height of this hurdle.
In the case of H v H (financial relief: attempted murder as conduct)  EWHC 2911,  1 FLR 990, the husband had been convicted of attempted murder of the wife after he carried out a violent attack on her in front of children. The husband was sentenced to 12 years’ imprisonment. Coleridge J found that this was conduct at the very top of the scale. In deciding how to reflect this conduct when dividing the parties’ assets, the judge considered the conduct to be a magnifying factor when considering the wife’s position, thereby placing the wife’s needs as a much higher priority than those of the husband.
In the case of FRB v DCA (No 2)  EWHC 754 (Fam) the court considered whether, in allowing the husband to bring up a child in the belief that he was the natural father (when he was not), the wife was guilty of conduct that it was inequitable to disregard. Cohen J concluded that her actions did amount to conduct so egregious that it would be inequitable to disregard, but how it should be taken into account was a much more difficult issue. He accepted that it could have the effect of reducing the wife’s award and also that reflecting in financial terms the cost of the emotional damage to the husband of the sort inflicted by the wife was like comparing apples and pears. Ultimately, he found that the husband’s disclosure had been seriously deficient and that there were undisclosed, unquantified assets. He determined that he would not try to put a monetary figure on the husband’s undisclosed assets, but equally would not reduce the wife’s award by giving her a lower percentage of the disclosed assets as to do so would be a double jeopardy.
Most recently, in VV v VV  EWFC 41,  1 FLR 170, Peel J found that by communicating with the founder of the company for whom the husband worked in an effort to prevent or delay the release of units to the husband, the wife was guilty of gross and obvious conduct which the court was entitled to take into account. The wife’s conduct was a factor considered by the judge when assessing the wife’s needs.
When considering the appropriate division of a couple’s financial resources upon divorce, the court takes into account the factors listed in s 25 of the Matrimonial Causes Act 1973. This includes “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” (s 25(2)(g)). However, that is all the guidance that the statute provides. It is therefore necessary to look to case law to establish how the courts apply this s 25 factor and assess what if any impact conduct might have on an overall award.
Last month we considered both financial and non-financial conduct. This month we will consider litigation misconduct and the circumstances in which a failure to negotiate can constitute conduct, before touching on recent developments in relation to excessive spending on costs.
Litigation misconduct can also be taken into account under s 25(2)(g). It is usually penalised in costs but can, in rare circumstances, impact the overall award.
The general rule in financial remedy proceedings is that there should be no order as to costs (r 28.3(5) of the FPR 2010). However the court may depart from the general rule where it considers it appropriate to do so because of the conduct of a party in relation to the proceedings (see r 28.3(6)).
Rule 28.3(7) sets out the factors which the court must take into account when considering whether the conduct of a party during the proceedings justifies a departure from the general rule. Those factors include failure to comply with the FPR or court orders, unreasonably pursuing particular issues, or any other aspect of a party’s conduct in relation to proceedings which the court considers relevant.
Recent examples of litigation misconduct can be found in the cases of HD v WB  EWFC 2 in which the husband was penalised for unreasonably pursuing a case that a prenuptial agreement should be disregarded and DP v EP (conduct: economic abuse: needs)  EWFC 6, in which the judge found the wife’s presentation of her case to be dishonest. In the latter case, even though the wife had already been penalised for her conduct during the marriage by the unequal division of the assets in the husband’s favour, the judge also made an order for costs against her.
Rule 28.3(7) also requires the court to consider the financial effect on the parties of any costs order, but as stated by Moor J in R v B and others  EWFC 33:
“The conduct may be so serious that it prevents the court from satisfying both parties’ needs. If so, the court must be entitled to prioritise the party who has not been guilty of such conduct.”
The court must be entitled to prioritise the needs of the party who has not been guilty of conduct and in TT v CDS  EWCA Civ 1215,  1 FLR 996 the Court of Appeal held that it was not unfair for the party who is guilty of misconduct ultimately to receive a sum less than his or her needs would otherwise demand.
Failure to negotiate
For a number of years, judges have become increasingly frustrated at the costs incurred in financial remedy cases. In order to try and focus parties on settlement and limit the costs being incurred, in May 2019, McFarlane P amended para 4.4 of PD 28A, adding that when considering conduct during the proceedings, the court will generally conclude that refusing openly to negotiate reasonably and responsibly amounts to conduct for which the court will consider making a costs order.
Since its introduction in May 2019 a number of cases have considered the impact of this paragraph. One such example is MB v EB (No 2)  EWHC 3676,  1 FLR 1086. The parties were embroiled in litigation for 2 years. By the time of the final hearing the costs totalled circa £1.25m which was regarded as “grossly disproportionate” to the issues in the case. Cohen J considered the open offers which had been made by the parties. He was critical of the husband for failing to engage in open negotiations; had there been a sensible (or any) response to the wife’s offer there would have been a quick resolution of the case. Even though the husband’s claim was based on his needs, he limited the sum payable by the wife in respect of his costs, so that the husband had to meet some of his costs from his needs award.
Although para 4.4 of PD 28A does not strictly apply to interim applications, in LM v DM (Costs Ruling)  EWFC 28,  1 FLR 393 Mostyn applied the same principles when considering applications for maintenance pending suit and a legal services payment order. The applicant was successful in her applications, but she had made no serious attempt to negotiate reasonably on an open basis beyond setting out her position in a witness statement. The applicant was subsequently deprived of 50 per cent of the costs award that the judge would have otherwise made in her favour. In giving his short judgment, Mostyn J stated, “Litigants must learn that they will suffer a cost penalty if they do not negotiate openly and reasonably”.
Incurring excessive costs
Two recent decisions, the judgment of HHJ Hess in YC v ZC  EWFC 137 and the judgment of DDJ Hodson in P v P (treatment of costs in sharing cases)  EWFC 158 have considered the court’s approach where one party has unreasonably incurred considerably more in legal fees than the other.
In both cases, the court dealt with the unfairness that arose from the differential in legal costs spending by making an adjustment in the court’s asset schedule before distribution, either by excluding a portion of the overspender’s unpaid costs or adding back a portion of the overspender’s costs already paid, in order to penalise the overspender. HHJ Hess made clear that in the right circumstances a party could expect to receive an award which meets their needs at a lower level than might otherwise have been the case as a result of overspending on legal costs.
In his judgment, DDJ Hodson describes spending on excessive costs as an advance, on account of the party’s entitlement, and distinguishes it from the add-back jurisprudence which needs to meet the hurdle of “wanton dissipation”.
Although not strictly conduct, these latest developments highlight for all litigants the need to spend proportionately on costs. No longer can parties invade marital savings, confident that they will be “lost in the wash”, by the time of the final settlement or hearing.
Please note this content was originally published in the Family Law Journal. February 2023 and March 2023 edition, best practice section.
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This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, April 2023