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Law

What are matrimonial debts anyway?

Since the watershed of White v White, and the establishment of London as the ‘divorce capital of the world,’ (see Lord Collins in Agbaje at [37])  the leading cases in financial remedies have invariably involved substantial assets, with all of the trappings that come with High Net Individual status: trusts, foreign property, liquidity of shareholdings and tax efficiency etc.

Those who might think this observation is trite (i.e. financial cases that reach the Supreme Court necessarily do involve substantial wealth) might compare and contrast the leading cases in TOLATA, which concern a terraced house in Willesden (Stack v Dowden) and a bungalow just outside Canvey Island (Jones v Kernott). Not that there is anything wrong with living in Willesden or Thundersley, but those disputes inhabit a very different world from the Supreme Court decisions in Miller; McFarlane Prest v Petrodel Ltd and Wyatt v Vince.

The proverbial alien flicking through the financial remedy case law might be surprised to discover that Britain is not a nation of multi-millionaires engaged in sophisticated tax avoidance, and that the vast majority of financial remedy claims that reach the family court involve modest assets and considerable debt. All the more so as we hurtle towards the economic impact of COVID 19 and lockdown.

No law for the rich

As we all know, the legal principles outlined in cases such as White and Miller; McFarlane apply as much to modest asset cases as they do to big money disputes. In A v L Departure from Equality: Needs), Mr Justice Moor confirmed at [49] that:

“The law in relation to financial remedy cases, as set out in the MCA is, of course, exactly the same for everyone, whether rich or poor. Following White v White… , the obligation in all cases is to be fair but, insofar as there is to be a departure from equality, there has to be good reason for so doing”

But the focus in many modest asset cases is not upon assets, and the increasingly ingenious arguments of counsel as to why they should not be divided equally, but debt. And here there are a number of problems.

The problem with debt

Firstly, the court has no power to re-distribute debt between parties. Any ‘property’ in a debt is held by the creditor, who generally speaking will not be a party to the proceedings. The court cannot make a property adjustment order to adjust indebtedness, just as it cannot transfer the burden of a mortgage. In the time-honoured case of Burton v Burton and Another [1986] 2 FLR 419, Butler Sloss J remarked at p.422 that:

“There is no jurisdiction in the court to order one party to pay out of the proceeds of sale of the matrimonial home the debts of that party or of the other party to the marriage”,

Accordingly, the Family Orders Project’s Standard Precedents include provisions for the discharge of liabilities as undertakings (see § 35, 37), but not as orders. One helpful (but still controversial) innovation of the Standard Precedents is the inclusion of an order to indemnify, as opposed to an undertaking to indemnify (as to the legal basis, see Mostyn J in CH v WH [2017] EWHC 2379).

Secondly, there is the widespread but nebulous concept of the ‘matrimonial debt‘. It is remarkable how often this term is bandied about without any clear explanation as to what it actually means. Does it refer to how the debts arose (i.e. were they incurred for the benefit of the family, and if so what does that even mean in practice?) or when they arose. If the latter, does some sort of presumption arise that loans and credit card debts incurred during a marriage are presumptively ‘matrimonial’ unless the contrary is proven?

There is almost no judicial consideration as to what might be encompassed by this definition (‘matrimonial debt’, as opposed, presumably, to ‘non matrimonial debt’), or whether the court’s approach should somehow be connected to the law on matrimonial/ non-matrimonial assets.

There have in the past twenty years (i.e. post-White) been a grand total of three cases in which a reported ancillary relief/ financial remedies judgment has included the term ‘matrimonial debt’. The first is Whig v Whig [2007] EWHC 1856 (Fam), in which Munby J (as he then was) heard ancillary relief and bankruptcy proceedings together. At [81] there is the following passing reference:

I am inclined to agree with Mr Brett that these were indeed matrimonial debts, insofar as they went, in significant part at least, to support the family’s standard of living. (In saying that I do not overlook the distinct possibility that some of the money was being used by the husband alone for his personal pleasures.)

The other two are in the Court of Appeal decisions in Tattershall [2013] EWCA Civ 774 and Matthews [2013] EWCA Civ 1874 both use the term ‘matrimonial debt’ without any consideration of what this term encompasses or excludes.

Thirdly, there is the problem of evidential proof. Unlike bank statements, there is no obligation to exhibit 12 months’ credit card statements to Form E. Where one party asserts that the other’s indebtedness arose because of his own selfish spending on himself, a questionnaire may be raised which seeks several years of credit card statements. This will often arise in a case where the assets do not justify the costs of what can amount to a spending audit, both in terms of poring over the disclosure, but also the prospect of a longer final hearing where evidence in relation to those debts can be challenged. In many cases, the game (in terms of the sums at issue) will not be worth the candle (in terms of the cost of embarking on this exercise).

Fourthly, there is the problem of lack of clarity over (for want of a better expression) burden and standard of proof apply when it comes to ‘matrimonial debts’. Where Mr Smith’s Form E shows that he has £30k of credit card debt, does he have to show that this was the result of expensive family holidays and costs of living, or does Mrs Smith have to show that the husband has been pursuing expensive extra-familial recreational activities? Should the court approach this issue on a straightforward balance of probabilities, or should the court adopt the higher threshold of the add-back?

In Cowan v Cowan [2001] EWCA Civ 679, Thorpe LJ famously stated the following principle [70]

“The assessment of assets must be at the date of trial or appeal. The language of the statute requires that. Exceptions to that rule are rare and probably confined to cases where one party has deliberately or recklessly wasted assets in anticipation of trial.”

The threshold to establish an ‘add back’ is notoriously high: wanton and reckless expenditure. In Vaughan v Vaughan [2007] EWCA Civ 1085, per Wilson LJ (as he then was) summarised the law at [14]

“…Norris v Norris [2002] EWHC 2996 (Fam)… is the last in a line of authority which stretches back to the decision of this court in Martin v Martin [1976] Fam 335 that, in the words of Cairns LJ, at 342H: ‘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 if he had behaved reasonably.’ The only obvious caveats are that a notional reattribution has to be conducted very cautiously, by reference only to clear evidence of dissipation (in which there is a wanton element)”

Some tentative conclusions

There are no easy answers to this problem. But I hazard the following:

  1. Debts present a problem in financial remedy litigation. The court has no power to order a distribution. The best that can be done (absent agreement and undertaking) is to order an indemnity;
  2. The best (i.e. only) definition of a matrimonial debt is that of Munby J in Whig, that they have been incurred in supporting the family’s standard of living. However, that is merely a passing reference which does not consider in detail what might be considered as a ‘matrimonial debt’ (or indeed its obverse, a ‘non-matrimonial debt’)
  3. In many cases, attempting to prove or disprove that debts have been incurred in this way will be difficult. It may involve seeking disclosure going back several years, which the court may (legitimately) refuse at a First Appointment, bearing in mind the overriding objective and the requirement that litigation is proportionate.
  4. What remains unclear in law is whether the court should approach the issue of whether debts are ‘matrimonial’ as a class of add-back (which is generally very difficult to prove, and involves a high threshold) or, where the facts justify it, a lower threshold.
  5. There is however to the writer’s knowledge no authority which backs up or explains why a lower threshold should be applied.
  6. As a general approach, practitioners would do well to bear in mind the Hippocratic Oath: do not make a case more difficult or intractable by pursuing an issue which, due to a cost/benefit analysis, will unlikely result in any profit for your client.

Alexander Chandler, 13 October 2020

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