8: Who should pay in divorce?
We are seeing more and more third parties becoming involved in financial disputes on divorce. These are often family members who in happier times have provided financial assistance for a property transaction. One inevitable consequence of this is that the legal costs of resolving the dispute increase but who should pay for these?
Applications for financial orders and divorce are now called “financial remedy” proceedings. The “general” rule in such proceedings is that each party pays their own legal costs. This applies in the vast majority of cases. A different outcome will only be ordered if this is justified by the litigation conduct of one of the parties. Before making what is known as an adverse costs order the court takes into account a number of factors. These include a failure to comply with court orders or rules and whether it was reasonable to raise or pursue a particular allegation. This general rule is therefore the default position but it may not apply where third parties are involved.
In a recent case the husband sought, amongst other things, to argue that four valuable properties held in the name of the wife’s half-sister were held on behalf of the wife. At trial the husband was successful in his argument. By then he had incurred legal costs of over £1m and the wife and her half-sister had each run up costs of even more.
The argument over the ownership of the four properties was not covered by the general rule as it did not amount to financial remedy proceedings even though it counted as “family proceedings”. The court therefore approached the issue of costs in connection with that particular dispute on the basis that it had a “clean sheet” and that the starting point was that the costs should following the event, i.e. the loser should pay.
The husband tried to run several other arguments at trial and all of these were not successful. He was found to have grossly overestimated the wife’s wealth and he failed in his assertion that she had substantial undisclosed assets in Russia. He was also eventually awarded substantially less than he was seeking. He got £8.4m rather than the £25m he claimed.
The wife and her half-sister, perhaps, understandably argued that the overall outcome was a ‘score draw’ and each of them should pay their own costs. The judge disagreed with this. He concluded that there were “substantial reasons” why an order for costs should be made in the husband’s favour in respect of that part of the case relating to the four properties. In the circumstances the wife and her half-sister were together ordered to pay 25% of the husband’s costs to be assessed by the court if not agreed. The judge mentioned that there was, potentially, a case for ordering 50% of the husband’s costs to be paid but after careful consideration it was decided that this would not fairly reflect the fact that the husband had failed on his case as to undisclosed assets in Russia.
This case therefore demonstrates that there are risks associated with third parties becoming involved in financial disputes on divorce. This can seem especially tough when a third party feels that they have no option but to become involved to protect their investment.
22 June 2015