C. OverviewSurveying the law of ‘add-backs’, pre-MAP v MFP, and pulling some threads together:
a) The court may re-attribute/ add-back sums which have been dissipated, although the language deployed has developed from 'frittered away' (Martin) to ‘recklessly deplete’ (Norris) to ‘wanton’ (Vaughan at , N v F );
Query if this development in the language is significant, or an example of individual judge using a different word to describe what is basically the same thing.
b) An ‘add-back’ argument is a species of “conduct”. The threshold is, accordingly, a high one ('…a stiff climb to meet': BP at );
c) The exercise has to be conducted 'very cautiously' (Vaughan, ), i.e. with witness statements, frequently with Scott schedules, and well in advance of the final hearing;
d) Unlike a Section 37 set aside application, the exercise does not bring assets back into the matrimonial pot. The court should not lose sight of the fictional nature of the exercise - or ignore the other Section 25(2) factors such as meeting financial/housing needs, which may in some cases be the magnetic factor (US v SR at );
e) 'Add-back' arguments can be expensive and time-consuming. In some cases, there may be a single transaction (e.g. purchase of a property), in others, it will be a pattern of spending with several hundred transactions – many in cash – which may not all come up to proof. In some cases, the argument is framed so widely, with so many transactions, that it is only a matter of time before the case collapses under it’s own weight.
f) Always bear in mind, the innocent party typically receives 50% of the net benefit (ie when faced by an alleged add-back, discount for litigation risk and then halve what you’re left with – this can often concentrate the mind in terms of the proportionality of taking the point).
It is also worth bearing in mind: as a rule, judges don’t like add-back arguments. They take a long time to resolve and divert the court from the often-delicate balancing exercise into a quasi- trial of heads of claim. Hence, in several reported cases, the court has declined to add back (eg McCartney  1 FLR 1508; GS v L  1 FLR 300; R v R  1 FLR 120).The facts:
a) This was an extremely long marriage of 40 years, during which H had established a successful property maintenance company. The assets were worth £25.1m of which the bulk represented the net value after CGT of the company. At the time of the hearing before Moor J, H was 62 and W 61.
b) W’s open offer was for an equal division of assets, of which approximately half would be received in two years time. Crucially, W sought an additional £750,000 in respect of H’s ‘wanton and reckless expenditure’ over the preceding two years.
c) H did not dispute an equal split, but sought five years (not two) to pay the balancing lump sum. He disputed that any money should be added back. There were also a host of comparatively minor issues to do with tax liabilities, arrears etc.
d) Given the parties’ overall wealth, the issues were accordingly relatively narrow (summarised at ). Recall: the 'iron law of ancillary relief':
' It seems to be an iron law of ancillary relief proceedings that the final difference between the parties is approximately equal to the costs that they have spent' N v F (Financial Orders: Pre-Acquired Wealth)  2 FLR 533 per Mostyn JNature of the allegations:
a) H’s 'personal demons'  included cocaine addiction, depression and prostitutes. He had spent significant sums on unsuccessful drug treatment;
b) Moor J concluded that H was in mortal danger:
' … I sincerely hope that, once this divorce is behind U.K., he will be able to get rid of this problem for ever. If he does not, it will probably kill him' (my italics)In some respects, MAP v MFP is a typical add-back case: it demonstrates a number of familiar features:
a) Evidential difficulties
Bank statements rarely have debits which are titled 'Payment Out: Drug dealer' or 'Prostitute(s)'. By its nature, this behaviour is often covert, or the paper trail runs out (payments are often in cash). Over time, it can be genuinely difficult to get to the bottom what the payments were for;
b) Net cast too widely
The temptation to plead the highest number possible (NB: as a rule of thumb, only one-half is gained) often leads to items being added which with hindsight should have been jettisoned, eg drug therapy of £229,290 – which Moor J firmly rejected at );
c) Natural evaporation/Litigation risk
Add-back arguments rarely come fully up to proof.
Almost invariably at trial, some payments will turn out to be kosher. It is extremely easy to fall into the trap of relying on payments that were in fact made for the benefit of one’s own client [MAP at 84] – or to fail to take a broader view, eg where generous payments have been made in favour of the innocent party (see MAP at );
d) The total amount claimed as dissipated was £1.5m : W sought a lump sum for one-half of the amount.An add-back is a classic ‘noise cancelling’ area of law:Client’s (rightly or wrongly) feel extremely strongly about these issues. However, there is every reason to tread carefully, err on the side of caution and keep to the strongest point: Just how easy is this going to prove? As a general rule of thumb, the more examples of spending, the more can go wrong. Few judges willingly trawl through hundreds of pages, and cross-reference, unless the amounts at stake are really significant – and where the auditing has been properly done.
Moor J's innovationWhat makes MAP an especially interesting read is the following sections of the judgment:
a) Moor J confirms that an add-back remains an arguable area of law, and rejects H’s counsel’s argument that it infringes on the principle of equality . If fact (this is often overlooked), Moor J did add-back £271,000 which represented the additional tax W paid as a result of H sacking her and therefore W losing her entrepreneurs relief rate for CGT ;
b) However, Moor J concludes that H did not overspend to reduce W’s claim: '... he could not prevent himself from doing it. It was down to flawed character” : “It may have been morally culpable. Overall it was irresponsible. But I find that this was not deliberate or wanton dissipation. It would be wrong to add it back';
c) In other words, the requisite mens rea (so to speak) has changed from reckless (Norris) to deliberate intention (specific intent?);
d) In words which have afforded some comfort throughout trading rooms in the Square Mile and Canary Wharf:
' … a spouse must take his or her partner as he or she finds them. Many very successful people are flawed … 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.'
E. Response and Rapp v SarreMAP raises a number of fascinating7 questions:
a) Was MAP limited to its facts, ie the case of a man whose addictions were (as the judge found) life-threatening, or did they apply to the more everyday situation of a trader working hard and playing hard?
b) Did MAP sound the death knell of add-backs for all but the exceptional cases where a party had deliberately dissipated assets in order to defeat a claim?
c) To what extent was MAP a restrictive interpretation of the law, as set out by the Court of Appeal in Vaughan?Rapp v Sarre  EWCA Civ 93In many ways, Rapp was too good to be true. An appeal to the Court of Appeal, heard less than a year after MAP, where there were several remarkable similarities (cocaine addiction, non-engagement by H with proceedings, female escorts) – and H even engaged the same legal team used by the husband in MAP at the Court of Appeal.Broadly the same arguments were advanced by H, who appealed the decision of HHJ Everall (admittedly at a hearing at which H failed to properly participate) for a 54.5%/45.5% division of assets of £13.5m in W’s favour; and where allegations of dissipated capital had been dealt with broadly:
' ... The first reason was that it was necessary in order to cater for the wife's needs and would still leave the husband with sufficient to meet his needs. The second reason was the husband's conduct, which the judge accepted had led to "the reckless frittering away of family money". The judge did not adopt the sort of approach adopted in Norris v Norris  1 FLR 1142 and Vaughan v Vaughan  1 FLR 1108, notionally re-attributing dissipated sums to the spouse responsible, because he did not think it was possible. However he accepted the wife's submission that it was appropriate to adjust the distribution of the assets from a 50% division in order to take account of this factor. He proceeded on the basis that in the 12 months to November 2014, the husband had received £168,000 more than the wife by way of income from the investments (in addition to the extra sum that he required to pay his rent), noting that Mr Huggins had told the wife that he believed the sums paid to the husband had been excessively large and were in part due to the husband's addiction issues. The judge calculated that if the same occurred in each of four years since separation, that alone would amount to over £600,000 and there was in addition an unquantified waste of money during the marriage. He also took into account the distress caused to the wife by the husband's conduct and concluded that "it would be inequitable to disregard the [money] wantonly expended and the distress to the wife of the husband's addictive behaviour" which, along with the need factor, he considered justified "the modest departure from equality" in his order.' (paragraph 135).Unfortunately, the judgment of the Court of Appeal is an extremely damp squib. As practitioners, we are increasingly used to judgments which range over issues, entertain controversies head-on, and summarise the law in Roman sub-paragraphs.What is less frequently reported (for obvious reasons) is the more traditional exercise of the appellant art, where the appeal court simply says words to the effect that 'we are satisfied that the trial judge’s decision was within the generous ambit of discretion', frequently coupled with a reference to how experienced the trial judge is, and that he had the advantage of seeing and hearing the parties evidence.In particular, in Rapp, the CA (Black LJ, Patten LJ, Baker J) was satisfied that the original order (in W’s favour) was justifiable on the basis of need. MAP was entirely side-stepped:
' ... It follows that even if the husband were to succeed in establishing, as he seeks to do, that the judge placed undue weight on the husband's behaviour and its consequences for the family finances, this court would not interfere with his order, because the view that he took of the addiction aspect of the case was not a necessary part of the justification for it. In these circumstances, I do not propose to consider further the interesting and challenging question (recently considered by Moor J in MAP v MFP  EWHC 627 Fam) of whether behaviour such as the husband's should be reflected in the court's ancillary relief order, and if so, how. It seems to me undesirable to engage with this issue in a case where there has not been a full exploration of it at first instance, involving evidence and submissions from both parties.'By way of summary:
a) A party planning to run an ‘add-back’ argument should bear in mind the points summarised at paragraph 12 and 16 (above). Add-backs should be conducted with great care;
b) The development of the law in MAP, which suggests a raising of the threshold from 'reckless' to 'deliberate' conduct to defeat a claim, is yet to be considered by the higher courts;
c) In the short term, MAP is good news for the wealth generator/flawed character. Hopefully it won’t be long before the argument returns to the Court of Appeal.
See also Jo Edwards and Amanda Sandys, 'The death-knell for add back cases: Rapp v Sarre?' in May  Fam Law 576.7
Ie moderately interesting to a family lawyer.