Tuesday, December 3rd, 2019
How often in divorce proceedings related to the divorce financial settlement do our clients look at their partner’s bank or credit card statements and express horror and anger at their expenditure? Money that should perhaps be supporting two households or saved for the eventual capital division, spent instead on unnecessary and excessive luxuries – dining out at Michelin star restaurants, the unexplained weekend in Amsterdam, designer clothing, the Rolex watch and membership of The Ned.
In what circumstances will the court be prepared to ‘add back’ this expenditure and effectively penalise the over spender by reducing their share of the matrimonial assets?
As long ago as 1976 in Martin v Martin the Judge stipulated that a spouse cannot be allowed to fritter away the assets by ‘extravagant living or reckless speculation’ and then claim the same share in the divorce financial settlement of what is left as he would otherwise have been entitled to if he had behaved reasonably.
Later however the well-known cases of Norris v Norris (2002) and Vaughn v Vaughn (2008) established what is known as the ‘add back’ principle. Both cases involved substantial overspends by one party and, in Vaughn, a gambling debt of over £100,000. The principle that emerged was that any notional reattribution has to be conducted very cautiously and based on clear evidence of dissipation and especially a ‘wanton or reckless’ element.
It is easy to see how excessive gambling can be both wanton or reckless but what about the husband or wife who fritters away their capital on fast cars or expensive holidays. In reality, will they be financially penalised by the Courts?
Sadly, in many ways, these arguments rarely succeed, and this is often a bitter pill to swallow. The burden of proving that behaviour is wanton or reckless is high and can also be affected by the argument that a divorce financial settlement must where possible meet both parties’ needs – particularly for housing.
Far too often these arguments are raised at length in Court proceedings incurring thousands of pounds in costs, only to fail.
A good example is the case of MAP v MFP where the judge held that a husband’s spending on prostitution and drugs was morally culpable but not deliberate or wanton. He had not spent the money with the aim of reducing the wife’s claim but because of his own flawed character.
So, what steps can be taken to avoid an add back situation?
If you think your partner, for whatever reason, might overspend or deplete the assets, ask through your solicitor for an assurance or undertaking that money will not be spent – perhaps above an agreed limit. Breach of an undertaking is a serious matter and could result in an application for committal to prison.
In a scenario where you think significant amounts of money may be dissipated seek advice as to whether a freezing injunction might be appropriate.
Don’t delay on getting advice and progressing matters. Judges don’t want to delve back into the history of your marriage and will rarely address excessive expenditure that occurred some years back.
Don’t embark on an expensive add back application unless you have received expert advice that it is likely to succeed.
Sue Harlow heads Hanne & Co’s Family and Divorce Law team. If you want advice on add backs, divorce financial settlement or any related matter call her on 020 7228 0017.