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Fairness in Variation Applications: When the ‘Meal Ticket for Life’ Requires you to go on a Diet?

Fri 5th Oct 2018

With the anticipation of a well-deserved summer holiday many family lawyers could be forgiven if their summer reading did not focus on the judgements emanating from the Supreme Court in July.

July was a busy time for the Supreme Court, with the excitement and anticipation of Owen v Owen (delivered on the 25th July 2018) it was possible to overlook the decision of Mills v Mills which was handed down only a week earlier on the 18th July 2018.

In Mills the issue which the Supreme Court decided was a narrow point focused on the question of the proper approach to applications to vary a periodical payments order made pursuant to s.31(1) and s.31(7) MCA 1973.

The case was summarised by Lord Wilson as the single question “In circumstances in which at the time of a divorce a spouse, say a wife, is awarded capital which enables her to purchase a home but later she exhausts the capital by entry into a series of unwise transactions and so develops a need to pay rent, is the court entitled to decline to increase the order for the husband to make periodical payments to her so as to fund payment of all (or perhaps even any) of her rent even if he could afford to do so?

The facts of Mills v Mills are as follows, the husband and wife married in 1987, separated in 2000 and divorced in 2002 (a 15 year marriage). A consent order provided for the wife to received £230,000 from the proceeds of sale of the FMH, an endowment policy and the husband agreed to pay spousal maintenance of £13,200 a year. The wife had placed her housing need at £350,000, the husband suggested that the wife could buy a property near the FMH, mortgage free, for £230,000. The wife was able to get a mortgage of £125,000 and she bought a more expensive house for £345,000.

The mortgage taken out by the wife did not reduce but rather increased quite significantly, so that by the time she came to sell the property her mortgage stood at £218,000. Over the coming years the wife sold and purchased a series of properties, and each purchase the amount which she borrowed increased.

In 2009, the wife sold her property and moved to live in rented accommodation. In April 2015, when the first instance hearing took place the wife had no capital but debts of around £42,000.
The First Instance

The first instance hearing determined two cross-applications under s.31(1) MCA 1973.  The husband had applied to discharge or reduce the wife’s maintenance, the wife sought an increase in her maintenance to meet her needs, which now included an annual sum of £10,200 for rent.

The trial judge noted that there was a shortfall of £4,092 a year between the wife’s needs and her income (earnings and maintenance combined). The judge found that the wife’s financial behaviour whilst not wanton, had not been wise. The wife had not managed her finances sensibly. The judge did not alter the maintenance either way, telling her to adjust her expenditure to accommodate any shortfall.

 

The Court of Appeal

The Court of appeal took the view that the trial judge had not sufficiently explained the reason for not increasing the maintenance award so as to enable the wife to meet her basic needs. The sympathetic Court of Appeal therefore increased the maintenance from £13,200 to £17,292 per annum, an increase of a little over £4,000 per annum.

 

The Supreme Court

The husband was permitted to appeal to the Supreme Court on a single point, specifically whether he should have to fund monthly rental payments in circumstance where the wife had already received a lump sum to meet her capital needs.

Lord Wilson provided the unanimous opinion of the Court. The Supreme Court departed from the approach of the Court of Appeal, finding that the first instance Judge had provided sufficient reasons for maintaining the current level of periodical payments [paragraph 20 and 21].

i) the award in 2002 would then have enabled the wife to buy a home free of mortgage;

ii) it had however been reasonable for her to be ambitious and to secure a mortgage for the purchase of the house in Weybridge;

iii) thereafter she had not managed her finances wisely;

iv) like others at that time, she had committed herself to borrowings which were too high;

v) it would be wrong to describe her approach to finances as profligate or wanton;

vi) but her needs had been augmented by reason of the choices which she had made.

The Supreme Court considered three decisions of the Court of Appeal (Pearce, North and Yates) and confirmed that these were correctly decided [paragraph 40].

The guidance offered by Lord Wilson [paragraph 40] confirms that the principle of double recovery will weigh heavily in the balance. His Lordship concludes that “a court would need to give very good reasons for requiring a spouse to fund payment of the other spouse’s rent in the circumstances identified by the question. A spouse may well have an obligation to make provision for the other; but an obligation to duplicate it in such circumstances is most improbable.

It now appears to be clear that the recipients of joint life maintenance orders can no longer count on having an insurance policy that will cover every eventuality. There will be an expectation that the recipient of the periodical payments will take reasonable and prudent steps to ensure that their capital needs are properly met from any award received which is intended to meet that specific need. They are unlikely to get a second bite at the cherry. Whilst this is a small but important issue when considering variation of joint life orders, there may well be more significant decisions as Waggott v Waggott may yet go to the Supreme Court.

 

-Chris Brown

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