Usually the primary issue in most financial remedy cases is how the pot of matrimonial assets should be divided between the parties.
But what if, as is not uncommon, one of the parties has dissipated assets, thereby reducing the amount available for division, and therefore potentially leaving the other party with less than they should have received?
The approach of the court to such a situation was demonstrated in the recent case O v O.
Financial misconduct
The case concerned a wife’s financial remedies application. The parties had married in May 2006 and separated in August 2022. In the following month the wife applied for a divorce.
The wife is the director of a further education training college, and the husband is a director of two companies.
The net assets of the marriage came to about £2.5 million. However, the wife claimed that between March 2020 and May 2023 the husband had dissipated some £406,000 via a spread betting account, and that this financial misconduct should be reflected in the overall award.
The wife invited the court to ‘add back’ these losses to the husband’s side of the ‘balance sheet’, on the basis that his actions in gambling and losing this money were reckless and had significantly reduced the value of the ‘pot’ available for division between the parties, and that it would be inequitable to disregard this conduct.
The husband admitted that he lost the £406,000 on the spread betting account, but the source of those funds was crucial to the outcome.
Source of funds
The judge found that of the £406,000, £150,000 came from the bank account for one of the companies, a further £100,000 came from two loans, one made personally to the husband and the other made to one of the companies. The balance of £156,000 came from the sale of shares formerly owned by the husband.
The judge was satisfied that the shares were a matrimonial asset, but the other money did not come from matrimonial assets. The money from the company bank account was clearly not matrimonial as it did not belong to either the husband or the wife, and the husband was at risk of having to pay it back. As to the loans, the husband was already liable to repay them, and it would be unfair to allow the wife to ‘share’ in the notional upside without also sharing in responsibility for future repayment.
That left the sum of £156,000.
The law on adding back
Before deciding how to approach that sum the judge summarised the law on adding back.
As she explained, the test for notionally reattributing to one party’s share of the assets money that has been spent requires clear evidence of dissipation, in which there is a wanton element. Reattribution must be justified in the context of the case – it is a form of conduct, and as such it must be inequitable to disregard it.
It may also be appropriate to take into account the extent, timing and nature of any alleged wanton dissipation, and set it against the backdrop of a general assessment of the (over)spending of both parties.
Applying these principles, the judge found the following factors to be relevant:
- The vast majority of the deposits into the spread betting account were made prior to separation, and in circumstances where the judge was satisfied that the husband was desperately trying to make money, in large part to maintain the lifestyle of himself and the wife, which included expensive private education for the couple’s two children, and the running of a £1.65 million home.
- However, £40,000 of the money paid into the spread betting account by the husband was deposited after the separation. This, the judge found, was reckless in the extreme, particularly given that at that time the parties were having difficulties paying the children’s school fees.
In the circumstances the judge found that only the £40,000 should be added back, with the result that the wife received £20,000 more from the assets than the husband.