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JL v SL [2014] EWHC 3658 (Fam)

Date:24 FEB 2015
Third slide
Law Reporter
(Family Division, Mostyn J, 7 October 2014)

[The judicially approved judgment and accompanying headnote has now published in Family Law Reports [2015] 2 FLR 1193]

Financial remedies – Appeal – Treatment of inherited assets – Intervening events – Retrial

The full judgment is available below

The wife’s appeal was allowed on the basis of the erroneous treatment of inherited assets and a retrial was ordered.

Prior to the breakdown of the marriage the wife received inheritance of £465,000 from her mother. It was decided that a proportion of that money would be put into an account in the name of the husband.

At first instance the judge found that this treatment of the inheritance money was evidence of pooling of the family resources and, therefore, it should be treated as such when determining the division of marital assets. The wife sought permission to appeal.

The authorities demonstrated that the fact that there had been some mingling of monies did not mean that the non-matrimonial source of them had been destroyed as a relevant consideration. The decisions that were made as to in whose name the monies at any given time were held were influenced almost exclusively by the question of where interest would most beneficially be obtained. The placement of monies in the husband’s or the wife’s name seemed to have nothing to do with any underlying decisions by the parties as to whether such and such a fund should be characterised as matrimonial, with a concomitant consequence of equal division on divorce or not.

There should have been some reflection of the non-matrimonial source of the inheritance money with a consequent unequal division of the assets. Such a conclusion meant that the wife would have more money available to her and, therefore, the calculation of spousal maintenance was also erroneous and could not stand.

Permission to appeal was granted. In the circumstances of this case a retrial was necessary due to two significant intervening events. Firstly the shareholding held by the husband in his employing company which had been valueless was now extremely valuable due to a purchase by venture capitalists. The husband had received £580,000 net for the shares which needed to be taken into consideration when the court considered how to exercise its discretion anew. Secondly, the husband had been made redundant and received £100,000. He was now seeking alternative employment. In those circumstances further evidence needed to be filed before a determination could be reached.

A costs order was made in the wife’s favour.

No. FD12D00611

Neutral Citation Number: [2014] EWHC 3658 (Fam)


Royal Courts of Justice

Tuesday, 7th October 2014

(In Private)

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MISS A. CAMPBELL (instructed by Family Law in Partnership) appeared on behalf of the Applicant.
MR. R. BATES (instructed by Kidd Rapinet) appeared on behalf of the Respondent.

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[1]  This is an application for permission to appeal the judgment and order of District Judge Reid. The judgment was given on 10th October 2013, and was clarified on 8th January 2014. The order is dated 8th January 2014. There are three grounds of appeal.

[2]  The first is that, in her distribution of capital, the District Judge erred in not properly reflecting the non-matrimonial origin of part of the divisible pool. The second is that the District Judge’s decision in relation to spousal maintenance was erroneous, specifically inasmuch as it provides for step down as and when the two children of the family complete university education. The third ground is that the District Judge erred in not providing for the spousal maintenance to be index linked. Mr. Justice Bodey has ordered that the question of permission to appeal should be heard today, with appeal to follow, if granted, with a time estimate of one day.

[3]  I have been told of events that have occurred since the judgment was rendered. Under the rule in Ladd v. Marshall, evidence or events subsequent to judgment are more readily admissible than evidence that relates to events that occurred prior to judgment, for reasons that are too obvious to spell out. The significance of those events, I will deal with later when I give my decision on the question of whether leave to appeal should be granted; if so, whether the appeal should be allowed; and, if so, what orders should be made in consequence thereof.

[4]  I say immediately that I am not satisfied that the third ground of appeal is arguable. It was not even raised before the District Judge at trial. She determined that the spousal maintenance should not be index linked, and that was, in my view, a decision that was squarely within her remit of her discretion, and I do not regard the third ground as arguable. Permission is, therefore, refused in relation to that ground.

[5]  So I turn to the first two grounds. The relevant facts referable to the first ground are these. Towards the very end of the marriage, the wife received from her mother £465,000. In fact, she received a little more than that, but some was diverted directly to the children of the family. That £465,000 which she had obtained from her mother derived from the estate of her late father. The funds were received in two tranches; £100,000 in 2009, and £365,000 in September 2010, a mere ten months before the end of the marriage, and at a time, as is recorded in the judgment, when the wife believed that the husband was forming a relationship with another lady.

[6]  The way in which the District Judge dealt with that is set out in some detail in her judgment. Before I turn to that, it is perhaps helpful if I were to set out, in short form, the relevant law in relation to the treatment of property that derives from a source other than the joint endeavours of the parties.

[7]  In my own decision of N v. F [2011] 2FLR 533, I endeavoured to summarise the law in relation to what I described as pre-matrimonial property, although everything I said there applies with equal force to property inherited during the course of a marriage. I analysed the authorities in some detail, culminating in the decision of the Court of Appeal in Jones v. Jones, which is [2011] 1FLR 1723, which is almost the last word on the subject from an appellate court.

[8]  In para.14, I stated, having traversed the law in some detail, that the process should, generally speaking, be as follows:

“i) Whether the existence of pre-marital property should be reflected at all. This depends on questions of duration and mingling.
ii) If it does decide that reflection is fair and just, the court should then decide how much of the pre-marital property should be excluded. Should it be the actual historic sum? Or less, if there has been much mingling? Or more, to reflect a springboard and passive growth, as happened in Jones?
iii) The remaining matrimonial property should then normally be divided equally.
iv) The fairness of the award should then be tested by the overall percentage technique”.

Then I said in para.15, “Of course, all of this is subject to the question of need”.

[9]  In the instant case, the District Judge had certain oral evidence from the wife, on which she made her adjudication. In the transcript that I have, in her evidence-in-chief, at p.88, the wife is recorded as saying this:

“So obviously, his savings had gone down and he was always concerned about the fact that a lot of our joint savings, the money that he had earned in the past, had been put into my name for tax reasons. Obviously, any income that was earned on those savings was at a lower rate of tax than if he had them in his name. He used to worry that if anything happened to me, if I died suddenly, he would have to go through probate in order to get hold of his own money, as it were. So the reason I transferred some of that money into his name was because most of our joint assets at the time, liquid assets, were in an NS&I bond which I could not touch. You know, it had to be locked in for a certain amount of time to earn that interest”.

[10]  The wife there is referring to the fact that, of the monies that she received from her mother, which had derived from her father, she had put £190,000 into the name of the husband. This was the explanation for that transfer. She was tested in this account in cross-examination. At p.118, she said this:

“I think it was put in places where it would earn those amounts of interest for … the family”.

Then she was asked this question:

“It is practically impossible, so far at least, to distinguish which was the money that had come in by way of gift from other money that went into this account in terms of where it went. It was all pooled, was it not?” To which her answer was: “In a way it might have been but, you know, for example, the two amounts of £45,000 went out and still left £100,000 in the account. I do not think we are disputing that I would try to make the best possible rate of interest on any resources that came into the family home. I think the point that is being made is that these resources came from a source outside the marriage”.

[11]  Then, a little later, she was asked about certain transactions, and then this question was put, “And that was part of your continuing plan for investment, was it not?” to which her answer was:

“No. I think I have explained, madam, that SL was nervous, if you like, about the fact that a lot of our savings were in my name and he was worried that if anything happened to me he would not be able to access money, particularly as a lot of our money was tied up in a bond at the time, and he wanted there to be something in his name. He had just spent out, put a lot of money into the company that he was working for at the time and had bought two cars”.

[12]  Then a little later, the Judge asked this question: “But you acceded and the money was transferred. It was a decision matrimonially”, to which the wife replied:

“Yes. I could not access the money in the bond at the time because it was tied up, so I could not access that money, so I transferred money that was available to us”.

[13]  Then, at p.120, counsel asked her this:

“There was not a suggestion that, ‘No, this is money that has got to be separate because it is different. It needs to be treated in a different way from any of the other finances that we have got’. That has never been suggested, has it?”

To which the answer was:

“No, I do not think it was. I mean, again it was just always a matter of making the most practical decisions at the time as to where the best rate of interest could be got”.

The District Judge asked, “For your joint benefit?” “Yes, Madam, [she replied] for the family’s benefit”.

[14]   What is clear, at least to me, from those excerpts is that the decisions that were made as to in whose name the monies at any given time were held were influenced almost exclusively by the question of where interest would most beneficially be obtained. The placement of monies in his name or her name, at least on a plain reading of the words, seems to have nothing to do with any underlying decisions by the parties as to whether such and such a fund should be characterised as matrimonial, with a concomitant consequence of equal division on divorce or not.

[15]  Further, in circumstances where certain matrimonial funds were being held in the wife’s name and locked up in a bond, it is plain from these passages that the motive for the placement of some of the monies in the husband’s name was to ensure that, in the event that the wife prematurely died, he would have access to certain funds, in circumstances where other funds were locked up.

[16]  However, the view that the District Judge took on the analysis of that evidence is set out in paras.40 through to 44 of her judgment. She said this:

“40 I have heard evidence from the wife that the money from her mother was treated by Mr. and Mrs. L as a gift to benefit the family unit. Historically, surplus savings were put in the wife’s name although earned and deriving from the husband, because she was a lower tax payer. In 2009-2010 the husband had bought shares in the company which employed him and bought a car, and therefore a joint decision was made to put £190,000 of the wife’s mother’s gift in the husband’s accounts to build them up. Others of the money were invested. No representation was made by the wife at that time that this was her money to the exclusion of the husband, or that it should be ring fenced as hers. The wife, fairly and frankly, accepted in oral evidence that she, “put the money where it would earn the best interest for the family”, and she said to me, “In a way it might have been pooled”.
41 I have read and considered the law on inherited assets, especially the cases of Robson [2011] 1 FLR 751; K v. L [2011] EWCA Civ 550; and AR v. AR [2011] EWHC 2717 Fam. I acknowledge the current thinking that recognises that in certain circumstances gifted and inherited property may fall outside the matrimonial bequest and therefore not be treated in the same way, absent the existence of need and compensation. I infer from these cases that the following propositions are good law: that inherited wealth should be treated differently from the matrimonial property depending on:

1 firstly, its source;
2 secondly, its nature, particularly whether it is a particularly valuable or personal item;
3 the duration of the marriage and for how long the wealth has been enjoyed by the parties, and the more and the longer it has been enjoyed, the less it should be ring fenced;
4 the extent to which the non-matrimonial property has become mixed with matrimonial property, to the extent that identifying its separate current value is difficult; and
5 fifthly, if invested in the former matrimonial home, the extent to which this home has become treated as a central item of matrimonial property.

42 I have to apply this thinking in particular to the £100,000 gifted to the wife by her mother in 2009 and the net £365,000 received by her after the sale of a business property of her late father in September 2010.
43 The wife now asks that the entire £465,000 accrued in 2009 and 2010, or at least all except the £190,000 given to the husband to build up his savings in 2010, should be ring fenced as hers. I have come to the conclusion, after careful consideration, that the wife regarded the money from her mother, much of it the proceeds from her late father’s business, so in a real sense not personal or sentimental, as a windfall available to her to use as she chose. This money was not invested separately or ring fenced as was open for the wife to do, but applied in a way consistent with the couple’s long term established ethos in relation to prudent savings - all surplus money from whatever source applied and set to work in the best way to benefit the family.
44 The husband had spent the money which he had earned but which was matrimonial money, on shares and tax, and into that vacuum flowed, as a joint decision and without any reservation, the money which the wife had acquired as an inheritance. It was only subsequently, with the breakdown of the marriage, that the wife sought to retrieve what in hindsight she felt she had lost, and I find that these monies have become matrimonial assets”.

[17]  In my judgment, the District Judge could not tenably have held, on the basis of the evidence which I have recounted, that the wife had intended by virtue of the arrangements that she made, which were motivated, first, by a question of where the best interests would be obtained and, second, to ensure that, in the event of her death, the husband would have some access to money where joint assets were locked up, that the monies become matrimonial assets. That was, in my view, a finding too far.

[18]  A true analysis of the finding made by the District Judge is that she has concluded that the wife intended, when she made these arrangements, that the assets in question should have the same character as those assets built up by their joint endeavours during the marriage, with the consequence that they should be equally shared on divorce. I simply do not accept that the evidence which I have recounted can tenably lead to such a finding.

[19]  The fact that there had been some mingling of monies, in the sense that some of the monies had been placed in the husband’s name, does not, as the authorities demonstrate (specifically my own decision of N v. F, to which I have referred), mean that the non-matrimonial source of the monies in question is destroyed as a relevant consideration; far from it. In the decision of N v. F itself, the non-matrimonial contribution made many years earlier than in comparison to this case were nonetheless reflected in the decision which I made.

[20]  So I conclude that the treatment of the evidence by the District Judge which led her to the conclusion that she reached was erroneous. That error is, in my view, compounded by para.35 of her judgment, where she sets out her findings in relation to the contributions which the parties had made to the welfare of the family. Here, she said this:

“35 (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;
In terms of past contribution to the family, the husband has contributed by earning and applying his income to the family, a proportion of which was saved and invested. The wife brought into the relationship monies from her uncle, her mother and her late father, so she too made a significant financial contribution. The wife looked after the home and the children enabling the husband to work, and she is therefore a fully entitled wife. The children are now young adults, but each party will continue to support them financially and emotionally as necessary. The wife is in need of financial support as she has been a housewife and home maker, and she is entitled to look to the husband to achieve this while doing what she can to earn for herself”.

[21]  It can be seen there that, in terms of weighing contribution, the District Judge formed the view that there was an equality of contribution when the husband’s earnings, on the one hand, were weighed against the wife’s domestic contributions coupled with the inheritance from her father, on the other hand. That seems to me to be a plain error.

[22]   So, in relation to ground 1, I am satisfied that the ground is arguable and, having heard the full argument from both sides, I allow the appeal in relation to that ground. The consequence of that is that there should have been, in my judgment, some reflection of the non-matrimonial source of the inheritance, and there should consequently have been an unequal division of the pool of assets, which included that non-matrimonial source.

[23]   Of course, an unequal division of that pool of assets would mean that the wife would ex hypothesi have more money to invest, and so her need for spousal maintenance would be pro tanto reduced. So a consequence of the error which I have identified, which is encapsulated in ground 1, means that the decision inevitably in relation to spousal maintenance is erroneous.

[24]  With all due respect to Miss Campbell, it is probably more erroneous in favour of the husband than it is in favour of the wife. Put another way, if I were to consider ground 2 alone, it is very difficult to see why the decision made by the District Judge is faulty, she providing for a step down when the children leave university.

[25]  In circumstances where I have identified an error in the exercise of discretion, it falls on the appellate court to exercise the discretion anew or alternatively to order a retrial. Generally speaking, the appellate court will take the former course, in order to bring closure to the case in circumstances where an appeal has, by definition, exposed the parties to yet further delay. However, there may be circumstances where a retrial has to be ordered, and I believe that this is one of those cases, for this reason.

[26]  I have been told that, since the hearing a year ago, there have been two significant new events. The first is that a shareholding in his employing company held by the husband, which he had testified in his oral evidence to the court were valueless, have, in fact, turned out to be extremely valuable. The company has been taken over by some venture capitalists. His shares have been purchased, and have achieved a price of £1.1 million gross on which income tax has been payable, leaving him with a net receipt from that source of £580,000. That is a very substantial change of circumstances. It would arguably have been a Barder event, had the wife sought to disturb the judgment on that ground. But, in circumstances where I am satisfied that the appeal must be allowed on ground 1, as I have identified, I believe that the receipt of the £580,000 can be taken into account when the court comes to exercise the discretion anew.

[27]  The second new event is that hard on the heels of this benign windfall has come some very bad news for the husband, which is that he has been made redundant. He has been given six months’ salary in lieu of notice and an ex gratia payment of £40,000, a total of £100,000, and his employment with his employer has been terminated. He is 52 years old, and he is in the early days of seeking new employment.

[28]  The wife points to the passages in the judgment where the District Judge, in para.15, identifies a similar redundancy suffered by the husband, which was followed in just under a year’s time by fresh employment. That was, however, two years ago. He is now that much older, and whether he will obtain fresh employment must be a matter of speculation.

[29]  So, on exercising the discretion anew, how is the court to reflect these new facts? Can I fairly today, exercising the discretion anew, reflect these facts, or do I need further evidence specifically as to the prospects of re-employment by the husband? With some regret, I take the view that I cannot exercise the discretion anew today. I will direct that this matter shall be reheard by me, but on the basis that further evidence will be filed by both parties, but specifically by the husband, dealing with his employment prospects. I will hear counsel as to whether there should be a single joint expert from an employment consultant as to the husband’s employment prospects.

[30]  I would urge the parties to engage in mediation or a private FDR before the matter comes back to me, with a time estimate, I would estimate, including reading and delivery of judgment, of no more than a day, which I would hope to be before the end of the year.


[31]  I think it is appropriate that I should determine the question of costs, because, if it is not determined today, the merit of the parties’ respective positions will be lost with the effluxion of time.

[32]  I think Miss Campbell is right to say that this appeal is really all about ground 1. If ground 1 succeeds, then the question of maintenance, which is the subject matter of ground 2, would have to be reconsidered. It may have to be reconsidered against the wife’s interests, rather than in her favour. But this appeal was basically all about ground 1, although I will say that, as standalone grounds, grounds 2 and 3 were, in fact, hopeless.

[33]  So, in my judgment, the wife is entitled to recover her costs of succeeding in having the order set aside and for there to be a rehearing before me, irrespective of the fact that the actual way in which the appeal is being allowed has been influenced by the new events.

[34]  The form N260 provides as to the wife’s costs of £21,232. In my judgment, a reasonable contribution, having regard to the fact that the wife was largely successful, is that the husband should contribute £15,000 inclusive of VAT to the wife’s costs. That order is not to be enforced until the final distribution of the assets has been achieved.
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