Family Law White Paper 2013 by Thomson Reuters

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FAMILY LAW WHITE PAPER 2013 FROM SWEET & MAXWELL With a number of important developments occurring throughout the year, leading authors in family law, Richard Todd QC, James Stewart, Raffia Arshad, Fiona Hay and District Judge Edward Hess have offered their insight into some of the recent key issues within this practice area. • Capitalising periodical payments; lump sum or pension share? • Forced Marriage Protection: What more can be done? • Bad Company. Petrodel v Prest re-considered • How should pension funds be divided to achieve equality? • International Family Law – Pitfalls for the Unwary

CAPITALISING PERIODICAL PAYMENTS; LUMP SUM OR PENSION SHARE? Fiona Hay This article will consider the criteria to be applied when capitalising periodical payments and in particular the impact on outcome where capitalisation is to be achieved by pension sharing rather than the payment of a lump sum. The correct approach to capitalisation of periodical payments by payment of a lump sum was set out by Thorpe LJ in Pearce v Pearce [2003] 2 FLR 1150 ‘Both as a matter of principle and as a matter of good practice, in my opinion the judge had to decide three questions in the following sequence. First he had to decide what variation to make in the order for periodical payments agreed in 1997...........The judge’s second task was to fix the date from which the increased order was to commence. ..........Then, and only then, should he have moved to the future, substituting a capital payment calculated in accordance with the Duxbury tables for the income stream that he was terminating’. Thorpe LJ also referred to the (then) relatively recent introduction of the remedy of pension sharing on capitalisation (Matrimonial Causes Act 1973 s.31 (7B) (ba)); ‘Accordingly, in my judgment, in any case in which the court can exercise jurisdiction under s 31(7B) (ba), it should endeavour to conclude the issue by so doing, only considering capital orders, whether alternatively or additionally, where the circumstances would not permit the court to achieve a fair outcome by substituting a pension sharing order for the periodical payments order. ..................In this outpost of the ancillary relief territory the task of the practitioners and the judges would be much eased by the option of providing for the former wife a personal pension carved out of the former husband’s pension portfolio’. This is an interesting observation because the level of award may be very different if a pension sharing order is made. The nature of the capitalisation may change the level of the award significantly. A Duxbury award is amortised over the predicted life time of the payee and is calculated on a rate of return that seems appropriate at the date of the award. A pension sharing order is entirely different; an award calculated to provide an income of a certain level over the lifetime of the payee will tend to be calculated on the basis that the payee will receive a guaranteed income by purchase of an annuity protected against inflation by Retail Price Index linking or some. other form of inflation resistant increase. (Different but similar considerations apply where there will be an internal transfer or where money is to be transferred to drawdown). An example illustrates the difference. In proceedings the court will no doubt have the assistance of an actuarial report. However some simple comparisons can be carried out using “At A Glance” and advertised annuity rates. Let us assume that the court’s goal is to provide a 65 year old female payee with an annual net income of £20,000. A Duxbury award would be £219,000. A search of various annuity providers suggests that a lump sum of £219,000 will buy an RPI linked annuity of between £5,600 and £7,500 per annum (gross). To this one must add the state pension (as receipt of state pension is incorporated into the Duxbury figures). It can be seen that even allowing for the addition of the state pension the capital level of pension required to provide £20,000 per annum net will be much higher than the level of capital required to provide a “Duxbury” income of £20,000. It follows that where periodical payments are to be capitalised the paying party may have a marked preference for the payment of capital and the payee may far prefer an award of pension which will be guaranteed and risk free. It is difficult to predict how the court will approach this conundrum; arguably it is not open to the court to adopt a compromise outcome as the court is enjoined to recreate the payee’s income by way of the order for capitalisation. It may be that the use of CPI linking (when such annuities are available) or the use of other rates of escalation may reduce the extent of the difference. The advisor will need to be alive to these issues and the letter to the actuary will need to be drafted taking these points into account.

FORCED MARRIAGE PROTECTION: WHAT MORE CAN BE DONE? Raffia Arshad The Government recently unveiled plans to make it a crime to force someone to marry against their will. Many have long argued that criminalisation is a step too far. The Forced Marriage (Civil Protection) Act 2007 was introduced in November 2008, the aim being to protect young people who feared being forced into a marriage against their

will. The case of Bedfordshire Police Constabulary v RU and another [2013] EWHC 2350 (Fam) demonstrates that more can be done with the legislation currently in place to offer better enforcement of the orders and ultimately better protection to victims. Currently, victims can apply for the order themselves. However, more often than not, it is the police, local authorities, friends or family members of victims who apply on their behalf. Indeed, in the case of Bedfordshire Police Constabulary, a 16 year old girl approached the police and told them her mother had assaulted her and may take her to Pakistan to marry without her consent. She sought legal advice and applied for a forced marriage protection order. She was made the subject of such order, which prevented her from travelling abroad and banned her mother from arranging a marriage or enlisting someone else’s help to arrange it. Subsequent to the order being granted, a marriage ceremony took place in Luton to a man the victim had only met once. The victim then turned up at a police station in a “distressed” state. The police arrested the victim’s mother and paternal aunt. The police then issued formal applications for committal to prison for contempt of court. Mr Justice Holman ruled that in the instant case the police could not properly make, nor pursue the application. He stated: “It has not to date been the role of the police to join into private civil proceedings and apply to enforce order of the civil court. I am clear that the police cannot properly make nor now proceed with the present application.” Mr Justice Holman, sitting at the Family Division of High Court noted that this case exposed weaknesses in the system and said the Government should give “urgent consideration” to improving the effectiveness of forced marriage protection orders and how they are enforced. The local authority could have brought contempt proceedings and indeed the judge could have referred the case to the Attorney General, but felt the matter had gone on for long enough. The very fact that the police, whose role and duty is to prevent crimes, could not act as applicants to, apply for and press for committal in such circumstances is a flaw. It could be argued that plans for any legislation on criminalisation are premature when the approach should begin with considering the impact of legislation already in place especially on enforcement of such orders. Mr Justice Holman added: “Forced marriages are a scourge which denigrates the victim and can create untold human misery. It is vital that forced marriage protection orders have real teeth.”

BAD COMPANY. PETRODEL V PREST RE-CONSIDERED Richard Todd QC There is the old joke about the barrister who hands up a very long skeleton argument and apologises thus, “I am so sorry that it is such a long document, my Lord, I did not have time to write a short one”. Such behaviour would be intolerable to Sweet & Maxwell who have insisted that I complete this appraisal of one of the most far reaching decisions yet handed down by the Supreme Court in just five hundred words. Well, here goes. Both John Wilson in his article, “Stripping Away the Veil of Deceit” (Family Law Week 13 June 2013) and Rob George in “Family Finances and the Corporate Veil: Prest v Petrodel” (Family Law Journal, August 2013) have already observed – a spouse anxious to put distance between possible spousal claims and the assets will find much in the decision of Petrodel to provide guidance. Cunning lawyers will guide them as to both the necessity of separate legal personality and perhaps even offer guidance to ensure that any equity can be swiftly removed by, for example, an all monies charge. It was against such a background that Rob George intoned that Mrs Prest (probably) won her battle but Family Law lost its war. But Rob George is wrong. First, Mrs Prest won her battle; there is no “probably” about it. He was right to point out that Baroness Hale expressed the fear in paragraph [96] that Mrs Prest might not ultimately succeed because the mortgagees had all monies charges against the properties. However those banks had been the subject of freezing injunctions since 2008 and the capital to be obtained by Mrs Prest outstrips the borrowings by many millions. Second, Family Law did not “lose the war”. If the “war” is a gender equality war in which wives are fighting to get at the “reality” of ownership of assets (and then a fair share of the same) then Petrodel is a triumph for Family Law. Let me give a casual and unscientific illustration; since that decision, I have been contacted by many troubled bankers as to how good is their security. Companies have asked me as to the extent that their assets might be assailed and how to protect themselves. Not one wife has yet contacted me to complain about some perceived new insecurity. The reason for this is three fold: • (a) Now former matrimonial homes although legally owned by a corporation or trust are very close to being presumed to be owned benefically by the Husband. Such a dispute will be decided in the county and High Courts; of course matters of easily rebuttable presumptions will provide an intellectual distraction. But Judges are robust creatures intent on intense forensic enquiry in order that justice may be achieved. The establishment

of a nexus between husband and company will result in the same inference being drawn as was of such assistance to Mrs Prest. Whilst jurisprudes might despair of the intellectual acrobatics involved, judges are now given the tools to achieve fairness. • (b) In the vast majority of cases the shares in the corporate entities will still be capable of transfer. (See para 40, per Sumption SCJ). One of the unique factors in Petrodel was that there was an arrangement which in England would be unlawful – in very briefest summary – Company A owned Company B which owned Company C which in turn owned Company A. The threat of transfer of shares will be all the more real and likely to result in early settlements. • (c) The “paper trail” which must now be put in place by companies / trusts to evidence that the assets really belong to a “true” third party leaves the husband with two immense problems – first the existence of such a trail might provide evidence of dispositions which can be set aside under section 37. Second, there is now a considerable burden of disclosure on such a third party entity. The company runs the risk of the adverse inference so expertly explain by Supreme Court Justice Sumption in his paragraph [45]. • Alas I have run out of my allocated words, but all in all, Mrs Prest won her battle and Family Law is all the stronger for it. Those wishing to avoid the full impact must be careful in their future construction of relationship agreements – whether they be pre-nups, post-nups or even nuptial settlements.

HOW SHOULD PENSION FUNDS BE DIVIDED TO ACHIEVE EQUALITY? District Judge Edward Hess Let us assume that a divorcing couple, well acquainted with White and Charman principles of equality, have been able to divide their realisable assets and their current income by agreement. They also agree that their pension funds should be divided “equally”, which they regard as synonymous with “fairly”. They have up to date figures for Cash Equivalents (CE) of their various funds and they wish to know how a court would be likely to divide their pension funds. They would have to be told that there are two schools of thought about this. Both schools would encourage the use of pension sharing orders to achieve equality; but one school would encourage them to equalise their total CEs whilst the other school would encourage them to equalise the income production from the funds. The mathematics of these different approaches might well produce significantly different outcomes. In some circumstances (for example where there is a significant age gap between the parties or where the pensions are of different types) the differences may be very large indeed. These different schools of thought each have their supporters. I was reminded of this when reading the foreword written by Mostyn J to accompany the publication of the imminent second edition of Hay, Hess & Lockett on “Pensions on Divorce: A Practitioner’s Handbook”. Mostyn J expresses a view, in his characteristically colourful and persuasive manner, in favour of the equal CE school, drawing attention to “the inestimable benefit of being actually alive when the other party is dead! In my book it is an equal outcome for the husband to receive £20,000 annually for 10 years and for his younger wife to receive £10,000 for 20 years”. On the other hand many practitioners fear that such an approach would produce injustice, observing that pension funds exist to produce an income between retirement and death so that equality of income production is the key. The judgment in the recent case of B v B [2012] 2 FLR 222, whilst falling short of attempting a clear determination of this issue, gave a clear steer in favour of the obtaining bespoke equal incomes actuarial reports and, in the experience of this author, such reports are nowadays routinely ordered. Further, Mostyn J’s foreword concedes that his view “is not shared by all and we may have to await a decision from a higher court to resolve the issue”. The difficulty for any court to lay down all encompassing guidelines on this issue is that the fairness of one approach or the other may depend on the particular facts of the case in question. In cases where pensions are small or, conversely, very large or where retirement is a distant prospect it may well be that equalisation of CE is a simpler and fairer approach. On the other hand, there are surely a significant number of cases, perhaps the middle money cases, where the security of pension income is so important for both parties that an equal incomes outcome is a vital component of fairness. Whatever is the right answer to this question, the time has surely come (13 years after the advent of pension sharing) to have some authoritative guidance from a higher court.

INTERNATIONAL FAMILY LAW – PITFALLS FOR THE UNWARY James Stewart

During the past decade there has been a steady rise in the number of transnational marriages and relationships. This is party due to the growth of “international cities” such as New York, Singapore, Sydney and, increasingly, London. The internationalisation of family law is also attributable to the development of a myriad of international conventions that govern issues ranging from child abduction to applicable law, choice of jurisdiction and the enforcement of financial orders. Consequently, family lawyers have seen a dramatic increase in the number of cases with an international dimension and it is now vital for these lawyers to understand the complexities inherent in acting in crossjurisdictional matters, especially as there are no signs the growth will abate any time soon. Against this background, practitioners and clients alike should give some thought to the potential marital consequences of international relocation. For example, the jurisdictional sweep of the English courts often comes as a major surprise to overseas nationals who move to London and end up finding themselves embroiled in divorce proceedings here. A significant proportion of those overseas nationals are from the Russian Federation (Russia) where the financial consequences of divorce are very different. For example, whilst marital agreements are binding in Russia irrespective of the length of the marriage and irrespective of whether financial disclosure has been made and independent legal advice taken, any Russian agreement signed under such circumstances may be given little weight by the English courts. In terms of the final financial settlement, spousal maintenance orders are almost unknown in Russia whereas they are fairly common in England, especially where one party has acted as the “home-maker”. In addition, inherited wealth and premarital assets will be excluded from the ‘marital pot’ to be shared on divorce in Russia, whilst this is not the case in England, where wives can generally achieve awards in ‘big money’ cases which can not be bettered elsewhere. The Anglo-Russian example illustrates that, before moving to England (or indeed any other jurisdiction), clients may well require specialist guidance, in particular in international pre and post-nuptial agreements. Although contemplating marital breakdown seems unromantic, given the strains of international relocation and the stark differences between the divorce procedures in many different jurisdictions, it may well pay to think ahead. Whilst clients certainly need to be wary of the effect of an international move on their marriage, and often their wealth, family lawyers need to avoid a myriad of pitfalls, including the following:• Failure to advise on jurisdiction. A lawyer who sees an international client and fails to discuss the need to take steps to secure jurisdiction may well be found to be negligent if the other party proceeds to secure jurisdiction in another country which may be unfavourable to the client; • Failure to appreciate that a domestic marital agreement may be ignored by a court in another country which has jurisdiction to deal with the divorce and financial applications. For example, a Ukrainian prenuptial agreement signed before a notary without the benefit of legal advice may not be recognised in other jurisdictions; • Failure to seek the consent of the other parent with custodial rights before removing a child permanently from his or her jurisdiction of habitual residence. The Hague Convention provides that a child should be returned to its place of habitual residence. Whilst not all countries are signatories to the Convention, most major jurisdictions are and, as a result, any family lawyer who sees a client for whom the issue of international relocation arises, or may arise, must advise them of the potential ramifications of the Convention and the civil and potentially criminal consequences of child abduction.

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Richard Todd QC is a barrister at 1 Hare Court and was lead counsel in landmark Radmacher v Granatino case and a Recorder and prospective Deputy High Court Judge of the Chancery Division. He is also the author of Todds’ Relationship Agreements and lead editor of Sweet & Maxwell’s Practical Matrimonial Precedents and has been called to the Bar in the Cayman Islands and Hong Kong.

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Pensions on Divorce

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Fiona Hay is a barrister at Harcourt Chambers specialising in financial relief cases. She also sits as a Recorder on the Midland Circuit.

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Edward Hess is a District Judge at the Principal Registry of the Family Division. He was formerly a Barrister specialising in money cases. He regularly lectures on Pension related issues, including at the Judicial College. Both Fiona and Edward are co-authors of the 2nd edition of Pensions on Divorce

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James Stewart is an international family lawyer with Manches’, a Governor of the International Academy of Matrimonial Lawyers (IAML) and a member of the International Section of the American Bar Association. James writes extensively on international family law issues and is General Editor of Family Law in the European Lawyer Reference Series.

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Islamic Family Law

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Raffia Arshad is a tenant at St. Mary’s Family Law Chambers, specialising in all aspects of family law, including sharia law. She is a member of the Family Law Bar Association and the East Midlands Family Law Bar Association. She has completed a Diploma in Islamic Jurisprudence and a Certificate in Muslim Family Law. In addition, she has also obtained ijaza, a license to teach Fiqh- Islamic law and Aqeedah, Islamic Creed. Raffia also he author of Islamic Family Law.

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