Conduct in financial remedy proceedings: when is it enough?

Insight

01.12.2023

In determining the outcome of financial remedy proceedings in divorce cases, the courts of England and Wales must have regard to a number of factors. One such factor is the conduct of the parties and, according to the relevant legislation, the court must consider “if that conduct is such that it would in the opinion of the court be inequitable to disregard it”.

Once financial remedy proceedings have been initiated, the parties are invited at an early stage to consider the issue of conduct in the financial disclosure (Form E) they are required to produce prior to a first court hearing. The relevant section of the Form E sets out:

“Bad behaviour or conduct by the other party will only be taken into account in very exceptional circumstances when deciding how assets should be shared after divorce/dissolution. If you feel it should be taken into account in your case, identify the nature of the behaviour or conduct below.”

But what does “conduct” really mean for these purposes and in what “very exceptional circumstances” is it likely to be taken into account?

Recent case law

The recent decision of Tsvetkov v Khayrova shone a light on the issue of conduct and provided some helpful clarity on what a party must demonstrate when seeking to argue that the conduct of the other party is such that it should be taken into account by the court in deciding the financial outcome of the case.

The judge in this particular case explained that a party seeking to rely on the conduct of the other party must satisfy a two-stage test:

Stage 1

They must prove the facts relied upon;
If those facts have been proved, they must reach a certain threshold “which has consistently been set at a high or exceptional level”; and
They must show that there is a causative link between the conduct and a financial loss which they say the conduct has resulted in.

Stage 2

If Stage 1 is satisfied, the second stage is that “the court will go on to consider how the misconduct, and its financial consequences, should impact upon the outcome of the financial remedies proceedings”.

In this case of Tsvetkov v Khayrova, the threshold of conduct was found to have been met in relation to certain of the wife’s actions, for example she had, unbeknownst to the husband, accessed and removed jewellery held in a Harrods Safety Deposit Box. She then subsequently told the court that she had moved the items taken from the Deposit Box to Cyprus. The husband’s solicitors travelled to Cyprus to verify that the items were there, only to find that they were not. Some of the items were later recovered in London, but others were not and the wife claimed that they were no longer in her possession.

The judge in this case described the wife as having “uttered barefaced lies to [the husband] and the court”. The Judge ordered (which the wife accepted) that the value of the jewellery items, which she claimed were no longer in her possession, be accounted for on her side of the balance sheet (the judge expressing a lack of belief in the wife’s case that she could no longer recover those items).

The wife in this case had also told the court that she had only 20 handbags in her possession. It came to light that she in fact had over 150 handbags in her possession. The wife argued that it would be disproportionate to have the handbags valued, but the judge ultimately attributed a value of almost £800,000 to the wife in respect of these handbags.

Given the wife’s approach to the litigation and the manner in which the judge found her to have misled the court, the judge went so far as to suggest that “it may be appropriate to penalise W in costs for her litigation conduct.”

What can we learn from this recent decision in relation to conduct?

The case of Tsvetkov v Khayrova is perhaps a somewhat extreme example of how conduct may play out in financial remedy proceedings, but it serves as a helpful reminder of the high bar set by the court when it comes to pleading conduct successfully. It is not in every case that conduct will be relevant and parties should be mindful of seeking to introduce arguments in relation to conduct when they are unable to meet this threshold.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.