Can my ex-partner's extravagant spending be considered by the Court?

In order to achieve a satisfactory financial settlement in Family Law proceedings, the initial step is to ascertain the total asset pot available for distribution between the parties.

Although the general starting point is that any financial losses occurred during the marriage, whether from sole or joint liabilities, should be shared between the parties, a situation may arise whereby assets which existed prior to or at the time of separation no longer exist. It may therefore be necessary to notionally add them back in, to ensure justice and equality is reached. Add-backs are therefore a financial remedy used by the Court to compensate a party for the effect of the other’s financial misconduct. The main uses of add-backs are for legal fees when they have been paid out of joint assets (the general principle is each party pay their own costs); waste (when a party has deliberately attempted to reduce the asset pot or has acted recklessly or negligently); or disposing of assets/spending monies. In these circumstances the Court may make an adjustment to the settlement to compensate a party.
 

Case law Examples

Add-backs were first introduced in the decision of Norris v Norris [2003] 1FLR1142. The amount by which the husband had “recklessly depleted those assets” by, was added back into the asset pot as though it actually existed so that there was no potential disadvantage to the wife.

In Vaughan v Vaughan [2007] EWCA Civ 1985 the principle was expanded and Wilson LJ held that it is only fair to add-back the amount by which a party “recklessly depletes the assets” by, and 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)”. Therefore this case narrowed and clarified the situations where “add-backs” can be applied.

The most recent case is that of Evans v Evans [2013] EWCH 506 (Fam). The parties had been married for 25 years, during which time the husband had set up a private company. At the time of the hearing, the parties’ shares in it were worth £32m and they had other assets worth £9m. The husband wanted to give the wife 33% of the company shares whereas the wife asked for 50%. The wife was also arguing that the husband’s “wanton campaign of extravagance” should be reflected and accordingly, an adjustment made to the capital division.

The Court considered the husband’s post separation spending but, although in isolation it appeared extravagant, in the context of the case and the fact that the wife had also been spending at an abnormal rate, the wife had not provided sufficient evidence to satisfy the Court that monies the husband spent had “wantonly dissipated” the assets. The add-back sought would only have provided the wife with around an additional 0.5% of the overall wealth. On that basis the Judge stated there was no need to adjust the division of the pot to achieve fairness on the issue of add-backs. Considering all aspects of the case and the husband’s special contribution to the marriage as a result of building up the business and his work in the business post separation until the shares are sold, the Judge ordered for the shares, when sold, to be split 45% to the wife and 55% to the husband.

It may be the case moving forward that the Court prefers to adjust the overall percentage outcomes to reflect an exception (it may not reflect the actual amount of the add-back sought), rather than notionally including the value of specific add-backs in the calculation. In big money cases, it may be easier to downplay the importance of extravagant spending and so add-backs may be more applicable in smaller money cases. Should you have any questions regarding financial settlements upon separation, or you wish to consider how you could protect wealth prior to or post marriage or civil partnership, contact Jennifer Allen on 01242 574244 or email jal@hughes-paddison.co.uk.