Protecting Marital Assets on Divorce

The concern for some people on being informed that their spouse wants a separation or divorce, is that money or assets are going to disappear and their first question to their lawyer is how to ensure that the money or asset can be preserved. If that is not possible, they want to be assured that it will be taken into account at the end of the day.

Injunction

Where there is a real risk that an asset of value is going to be disposed of or in some other way removed beyond the reach of one spouse, then an application can be made to the court for an injunction preventing that, under s37 Matrimonial Causes Act 1975.

This application can be made without giving notice to the other person, if it can be explained to the court that time is of the essence, and that providing any amount of notice would enable the spouse to put assets beyond the reach of the court. However, when considering whether to grant the injunction, the judge has to consider whether there are other assets that remain available, from which the spouse who stands to lose the asset could be compensated. The judge also has to be satisfied that the actions of the spouse in dealing with the asset are driven by the desire to frustrate the other spouse’s claims. It cannot be an action that they would be justified in taking in the normal run of their affairs.

Any injunction made without notice to one spouse has to come back before the court quickly for a further hearing with both parties present, permitting the judge to consider whether it is necessary to continue the prohibition. The injunction can be discharged in full or in part, and the spouse who made the initial application could be penalised in costs if the court takes the view that it was an over reaction and the claims are not justified.

Can missing assets be added back?

What if the money or asset has gone? Can it be added back in when the final financial division is being dealt with?

It could be said that the courts have placed the bar very high to accomplish this. The judges have pointed out that granting any ‘add back’ does not recreate any actual money. In truth (they say) it is a process of penalisation. However, it can work to depress what the spouse would otherwise have been entitled to. As Cairns LJ said in the 1976 case of Martin v Martin
“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”.

The case of Vaughan v Vaughan introduced the idea that to succeed the dissipation has not just to be proved but it has to include a ‘wanton’ element. That means it has to be deliberately reckless, and cannot include spending on a party’s reasonable needs, such as housing.

A high bar

In the case of MAP v MFP (2016), Moor J found that the husband’s spending on drugs and prostitutes of £6000 a week was not deliberate or wanton in this sense, although it was described as ‘morally culpable’. The judge found that this spending was part of his character and had not taken place with any intention of reducing the wife’s claim.

In the same case, the husband dismissed the wife from her employment within the company which meant that she lost her ability to claim entrepreneur’s relief on her shareholding in that company; that relief would have been worth around £271,000. This was taken to be a deliberate and wanton act as there were other ways the husband could have addressed the wife’s behaviour within the company. However, it seems unlikely that denying the wife the right to claim entrepreneur’s relief was even a consideration for the husband in choosing to dismiss her, so this decision of the judge does not lie was easily with the requirement that there has to be an intention to defeat the wife’s financial claims in the divorce.

Weighing up an injunction vs costs risk

Given the difficulties with succeeding in an “add back” argument, it seems more likely that people will use the s37 injunction procedure. However, the spectre of a costs order is a significant deterrent. A party’s best hope is that whilst some money or assets may disappear there will be sufficient remaining in other non-moveable assets, such as property or even pensions, to compensate for the money lost. The focus is then on establishing what was there and that it has been within the sole control of one spouse to remove it. Running this line of argument is, however, only worth it where the overall asset base exceeds the needs of the parties and their children.

Initial Fixed Fee Consultation

Come and talk to us. You’ll find us empathetic, keen to help and with a wealth of experience. We offer a fixed fee consultation of £100 for the first appointment. You will be advised on the options open to you and the possible outcomes. Our priority is to ensure that you have a clear understanding of the path ahead and the challenges involved in achieving your goals.

Disclaimer: This guide contains general information only and does not constitute legal advice.  You need to consult a suitably qualified lawyer from the firm on any specific legal issue.