Category: Divorce

All UK taxpayers have an annual exempt amount below which there is no liability to Capital Gains Tax (‘CGT’).

Any capital gain arising on the disposal of a residential property is currently subject to CGT at the rate of either 28% (higher rate taxpayers) or 18% (basic rate taxpayers).  

However, any gain made on disposal of an individual’s main residence which they have occupied as their main home throughout the entire period of ownership is wholly exempt from CGT through the use of Private Residence Relief (‘PRR’).  Reliefs are also currently available to those who have not occupied the property for the entire period of ownership.

On 29 October 2018 the Rt Hon Philip Hammond presented his 2018 Budget to Parliament and proposed changes to PRR, aiming to ensure it is more focused towards owner-occupiers.

It is proposed that the rules on two of the main ancillary reliefs currently available will change in April 2020 as follows:

Lettings relief

This relief is available to those individuals who let out a property that is, or has historically been, their main residence.  Relief of up £40,000 (£80,000 for couples) against the capital gain is currently available on the property, even if the owners have not occupied it for a long time.

However, this relief is to all extents and purposes disappearing, as from April 2020 it will only be available to those owners who occupy the property in shared occupancy with a tenant.  Thus, homeowners who move and let out their former home will be affected and may now wish to consider selling the property sooner rather than later to avoid an increased CGT bill.

The changes to this relief will not affect landlords who have never lived in the property they are renting out.

Final period exemption

This relief means that at present, the final 18 months of ownership is covered by PRR, even if the property is not the individual’s only or main residence during that period.  In other words, an individual currently has 18 months from the date of moving out before any gain begins to accrue.

From April 2020, this relief will be reduced to only 9 months, a period which HM Treasury considers to be twice the length of an average property transaction.  For disabled owners or those who live in residential care, the existing 36 month exemption period will remain in place.

Summary

Whether realistic or not, HM Treasury believes that delaying implementation of the above changes until April 2020 will give people sufficient time to rearrange their affairs (e.g. by selling their property) under the current rules should they chose to do so.

However, for those currently involved in divorce and finance proceedings, it is important that consideration is given to:

Possible CGT exposure, particularly where one party has moved out of a property (or intends to do so) and where it is also possible that the property will be sold.

Where appropriate, the impact of any property transfers which could take place during the course of proceedings, in order to mitigate any potential CGT liability.

The post Renting out your former home? You need to be aware of forthcoming tax changes. appeared first on Stowe Family Law.

I had a brief exchange on Twitter the other day with a certain eminent family lawyer, who was extolling the virtues of private Financial Dispute Resolution Appointments, or ‘private FDRs’ for short. As we will see in a moment, private FDRs are in the news at the moment (my Twitter exchange may not have been a coincidence), and therefore I thought I would devote a post to them, despite having written about them here in passing previously.

For those who don’t know, an FDR is a hearing that will usually take place fairly early in the progress of a financial remedies application. As I said in a previous post, it is ‘designed to enable the parties, with the assistance of the judge, to identify and seek to resolve the real issues in the case, at a time and in a manner intended to limit the overall financial cost for the parties, to reduce delay in resolving the case and to lessen the emotional and practical strain on the family of continuing litigation.’ In other words, it is an attempt to settle the case by agreement, with the assistance of the judge.

The FDR idea is not limited to financial remedy cases. A similar hearing takes place within the procedure for private children applications. There, the hearing is called a ‘First Hearing Dispute Resolution Appointment (‘FHDRA’). As the name suggests, a primary purpose of the FHDRA is to see if the dispute can be resolved by agreement, usually with the assistance of a Cafcass officer.

So what is a ‘private FDR’? Well, instead of being held by a judge in court, it is held before a specialist family lawyer, usually in their office or chambers, upon the agreement of the parties, who pay for the lawyer’s services.

As I said earlier, private FDRs are in the news at the moment, and their primary advantage over court-based FDRs was explained by an article in The Telegraph last Saturday. Now, I haven’t read the whole article (for which registration is required), but the (slightly misleading) headline read: “Long court delays lead to boom in private divorces”. Of course, there is no such thing as a private divorce (yet, at least!) – what the article was referring to was private FDRs, as it explained in its second paragraph:

“Increasing numbers are paying for both financial dispute resolution (FDR), in which a retired judge gives an indication of the eventual outcome, and arbitration, which is quicker, more personalised and deemed more civilised than attending court.”

I understand that private FHDRAs are also a thing, in proceedings relating to arrangements for children.

So what we have here, as that eminent family lawyer said, is the “privatisation of family justice”. She found private FDRs to be helpful for clients, comprising “the right blend of self-determination & firm quasi-judicial steer”. I asked her how much they cost. She did not give a figure, only saying that: “It varies; and obviously to be counter-balanced against the cost of having a court-based FDR”. The latter point is true, but only of course if you are paying to be represented at court. My guess is that the cost of private FDRs goes into four figures, putting them out of the reach of litigants of modest means.

Now, we all know that the family courts are facing huge issues, with the upsurge in the number of private law applications, the proliferation of litigants in person and the reduction in resources. Delays are a real problem for all litigants.

Anything that offers litigants a way to have their cases dealt with more quickly must be welcomed. And if, as anecdotal evidence I have seen suggests, private FDRs have a higher settlement rate than court-based FDRs, then that is also a very good thing.

But of course it is not all good news. Private FDRs, private FHDRAs and arbitration (for both financial and children issues) all come at a cost. Litigants on benefits and low incomes are priced out of these innovations, and left to put up with the problems that the better off avoid. Along with the lack of legal aid representation they are another example of our two-tier family justice system, in which the level of service you can get is determined by your means.

I’m sorry, but that is not the kind of family justice system I want to see.

The post Private FDRs: a good idea, but sadly not for all appeared first on Stowe Family Law.

There is something about the word forensic that makes my mind immediately go Silent Witness, white suits and crime scenes. But what of the ‘forensic accountant’ and why would you need one on your divorce team?

So I asked Suzanne Grant, a member of our in-house forensic accounting team to join us on the blog to explain what the team does and how they can help when the financial detail in a divorce is just not adding up.

“To start, I can assure you that there are no white suits or crime scenes in our office. Instead, you will find a much calmer, quieter place as we concentrate on investigating the financial elements of a divorce case.

Whilst it is always preferable upon marriage breakdown for the parties to reach an agreed financial settlement rather than leaving the matter for the court to decide upon, it isn’t always possible.

One of the most complicating/contentious factors in a divorce can be the division of assets, especially when tensions are running high and one party may not be willing to fully cooperate in the financial disclosure process.

It is often the case that one spouse managed the parties’ finances such that the other spouse is disadvantaged in terms of their knowledge as to the full extent of the financial ‘pot’. That’s where the skills of a forensic accountant come in.

The main role of the forensic accountant in divorce matters is to ensure financial transparency by investigating the parties’ finances, both personal and business, with the ultimate aim being to identify and investigate any discrepancies, including revealing hidden assets and income.

Assets can be hidden in any number of ways including by transferring them offshore or by giving them to a friend or another family member to hold until the divorce is finalised. For those spouses who have businesses, these are often used as a vehicle to hide assets and therefore the accounts must be reviewed for any inconsistencies and irregularities, particularly in the year(s) leading up to separation and continuing thereafter until an agreed financial agreement is reached.

Income can also be hidden and/or manipulated in a number of ways including by delaying receipt or by not entering into lucrative business contracts until the divorce is finalized.

Put very simply, if an asset or income stream is excluded from the financial ‘pot’, it cannot be divided. Even if the existence of that asset or income stream later comes to light, it is by no means certain that the terms of the agreed financial settlement can be revisited and a share allocated to the entitled spouse. For that reason, it is vital that the full extent of the ‘pot’ available for the division is identified and the terms of the financial settlement agreed before Decree Absolute is granted.”

The post Here’s why you need a forensic accountant on your divorce team appeared first on Stowe Family Law.

When I wrote about the case Saxton v Bruzas (or Bruzas v Saxton) here briefly back in June last year I speculated that we might be hearing a lot more about it, as it had the potential to be very significant. In the event, the case has turned out not to be as significant as it might have been. Nevertheless, it is still of interest, and it contains a lesson for anyone who thinks they may have had a bad deal from a financial remedy order made by the court.

The headline feature of the case is that it involved a paralegal employed by the firm of solicitors who had been acting on behalf of the husband ‘whistle-blowing’ by sending documents to the court which the wife suggested indicated that the husband and his legal team had committed perjury and perverted the course of justice. As one might guess, such a finding by the court would be quite significant.

The circumstances surrounding all of this were, briefly (and in simplified form), as follows.

The husband commenced divorce proceedings in 2013. Negotiations took place to resolve financial matters. The husband was represented by lawyers throughout, but the wife was not always represented, and did not have lawyers when a settlement was reached and a consent court order was submitted to the court, to give effect to the settlement.

A consent order is not simply ‘rubber stamped’ by the court, just because the parties agree to its terms. The court must be satisfied that the terms are broadly reasonably, before it approves the order. Here, the Deputy District Judge was not so satisfied, commenting that it was far from clear what the net effect of the order would be, nor was it clear that it was reasonable to dismiss the wife’s claim for maintenance, in view of the large disparity between the parties’ incomes.

The court sent a letter setting out these comments to the husband’s legal team, but the letter was not sent to the wife. The husband’s lawyers replied to the Deputy District Judge’s comments, and their letter was copied to the wife. The order was then amended and signed by both parties. The Deputy District Judge was satisfied, and the order was made, in March 2014.

In February 2016 the wife made an application to set aside the order, on the basis of an alleged failure by the husband to make proper disclosure of his financial circumstances. On the day before the judge, Mrs Justice Parker, was due to hand down her judgment on the application she received an unsolicited email sent anonymously to the court suggesting that the husband’s lawyers had deliberately withheld the letter from the court from the wife, for fear that its contents would cause her to withdraw from the agreement, and seek a more favourable settlement.

Mrs Justice Parker found that the wife had not seen the letter from the court, but concluded that it was not proved that that was as a result of a deliberate cynical and manipulative tactic by the husband’s lawyers.

The wife claimed that if she had been aware of the letter she would have thought twice about agreeing to the settlement. However, Mrs Justice Parker did not accept this, and said:

“In those circumstances, I have come to the conclusion that this is a case very familiar in this area of litigation where the wife has, for understandable reasons, come to the conclusion that she has had a bad deal from the financial remedy order made. That she has thought better of it and has in her own mind reworked the events so as to justify her application.”

Accordingly, the wife’s application was dismissed.

That was not the end of the matter, however. The whistle-blower then sent further documentation to the court regarding the alleged actions of the husband’s lawyers in relation to the letter from the court, and the wife applied to set aside the order dismissing her application.

This application fell to be heard by the President of the Family Division, Sir Andrew McFarlane. In order to keep this post to a reasonable length, I will not go into the details of his judgment. Suffice to say that he found that even if the further documentation was admissible (which he did not think it was, as it was protected by legal professional privilege), it did not take the wife’s case any further, as it did not change the picture significantly, certainly not sufficiently significantly to justify reopening the case.

In the circumstances the wife had no new evidence, and her application was in reality no more than an attempt to reargue the same material as was before Mrs Justice Parker. Accordingly, the application was refused.

As I said at the outset, this case contains a lesson for anyone who thinks they may have had a bad deal from a financial remedy order. Such orders are meant to be final, and therefore they will not be re-opened by the court without good reason. Before seeking to have the case re-opened you must therefore be sure that you have such a reason, and not fall into the trap of manufacturing a reason (consciously or otherwise) by reworking the events surrounding the making of the order.

You can read the President’s full judgment here.

The post Wife fails to have financial order set aside in ‘whistle-blower’ case appeared first on Stowe Family Law.

As will be well known to regular readers of this blog, family courts in England and Wales deal with financial claims on divorce rather differently to the courts in many other countries. The fundamental basis of the rules that govern such claims here is quite different to that in most other jurisdictions. This, of course, means that in certain circumstances our courts may be considered to be more generous than the courts in other countries, hence the phenomenon of ‘forum shopping’, whereby a spouse may seek to have the divorce dealt with in the country where they believe they will get the best outcome.

As one can imagine, these differences can sometimes lead to a clash between two countries’ legal systems.

This was the situation in the recent case Re MF, heard by Mr Justice Mostyn in the High Court in December.

The background to the case needs to be explained. Unfortunately, the judgment is quite brief, and I have had to make a few assumptions about certain details – I hope I am correct. The case concerned an English husband and a German wife. They cohabited in Germany from 1999, and were married in 2003. They lived all their married life in Germany, in a house owned by the wife. They had two children, born in 2003 and 2005. They marriage broke down in 2011, when the husband left the matrimonial home. He returned to England the following year. The wife and children continue to reside in the former matrimonial home.

The particular feature of the case is that the matrimonial home was the only asset of the parties, and it actually decreased in value over the course of the marriage (the judgment doesn’t explain why this was so). Accordingly, there were no ‘matrimonial assets’, i.e. assets accrued during the course of the marriage.

Under German law any capital provision made to a spouse on divorce can only come out of matrimonial assets. Accordingly, as there were no such assets, when the parties were divorced in Germany it was agreed that the husband would not make any claim for capital provision in the German courts.

However, the husband subsequently made an application in the English court “for financial relief following a foreign divorce in circumstances where the powers of this court would be wider than directing a division of the marital aquest [i.e. the matrimonial assets] and could extend to awarding a lump sum to the husband to meet his needs”, as explained by Mr Justice Mostyn. The husband’s particular need was to have the debts that he had incurred since the divorce in rehousing himself met by the wife.

The wife indicated to the English court that she opposed the husband’s application, on the basis that the matter had been dealt with by the German court. Other than that, the wife did not take any further part in the English proceedings, and the English court awarded the husband a lump sum of £20,000. However, as the only source of payment of that debt would be further borrowing on the matrimonial home, the judge decided that it was reasonable and fair for enforcement of that the lump sum to be deferred until completion of full-time tertiary education by the youngest surviving child of the family. In order to compensate the husband for being kept out of his money, he awarded interest on the outstanding sum at 2% per annum.

The decision was appealed (this is what Mr Justice Mostyn’s judgment was about), but the appeal was dismissed.

So we have a situation where a divorce had been dealt with, and apparently finalised, by the courts of a country whose courts one would expect to be fully ‘respected’, and yet the courts of another country make a different, and apparently conflicting, decision. I’m not sure that I feel that this outcome is the right one, even if, as Mr Justice Mostyn found, it is legally correct.

You can read the full judgment here (note that the first four paragraphs relate to the issue of whether or not the appeal should be heard in public).

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One should never of course count one’s chickens, especially when it comes to the promises of politicians, but let us just for one moment assume that the long battle to bring in no-fault divorce has been won. What, then, will be the next great family law reform? What do people want in terms of changes to the substantive law (rather than just to the procedure), and which of those things is likely to happen?

There are, of course, other reforms in the pipeline apart from the introduction of no-fault divorce.

The battle to bring in civil partnerships for same-sex couples, for example, also seems to be almost over. It may not affect so many as no-fault divorce, and the battle may not have taken anything like as long, but it was certainly hard-fought, also going right up to the Supreme Court last year.

And the law on domestic violence/abuse is also in the process of being overhauled, hopefully for the better.

But it is not all good news. Things may be happening on the legal aid front, but the battle there is essentially lost. We will never return to a system where everyone has equal access to the law, irrespective of their means. Sadly, the law will for the foreseeable future be a two-tier system, with only the better off receiving a proper service.

There are, of course, other changes under way, such as the introduction of Specialist Financial Remedy Courts, but that is a procedural reform, rather than a reform of the law itself. Similarly, digital ways of doing things, for example issuing divorce proceedings, are just changes to procedure.

So divorce, civil partnership, domestic abuse and legal aid do not seem likely candidates for further reform. What about other areas?

There are some calls for reform of the law relating to financial remedies on divorce, notably from Baroness Deech, who is seeking to push her Divorce (Financial Provision) Bill through Parliament. But the Bill is certainly not generally supported amongst family lawyers, having been strongly criticised by several eminent members of the profession. Whilst many do think that reform in this area is needed, there seems to be little consensus as to exactly what form the reform might take. It seems to me that any reform here is likely to be piecemeal, rather than anything that will make dramatic changes, in the way that no-fault divorce will. But then again, I could be wrong.

Moving on, there are, of course, still many shrill voices calling for further reform to the law on arrangements for children following parental separation (as I suspect there always will be), but there doesn’t really seem to me to be any great will for such reforms amongst family lawyers, and those currently in power. There has, of course, been much tinkering in this area over recent decades, and maybe it is time for a period of consolidation. Whatever, whilst there are probably few who think the present system is perfect, there again seems little consensus as to exactly how it might be further improved.

Which brings me to the introduction of property rights for cohabitees. Here, rather like with the introduction of no-fault divorce, there is great support for such a reform amongst family lawyers. There does not, however, seem to be much current appetite amongst the powers that be for this reform. They did discuss the possibility a few years back, but then kicked it into the long grass. Still, perhaps we family lawyers, free of the burden of promoting no-fault divorce, and flush with our success in that area, may be able to mount a similar campaign in this area? Once again, I suspect that the battle may be long and hard, but it would certainly be worth it.

Or maybe the next great family law reform will be none of these things. Maybe it will be something entirely new, something that will revolutionise the system in a way beyond my limited imagination.

One thing is certain, though. Whatever changes there may be, there will always be calls for more. That is how it has always been, and that is surely how it should be.

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