Add-backs on divorce

On the breakdown of a marriage, one spouse can be quick to criticise the other’s spending, seeking to “add back” monies which they say have been spent unreasonably. This is an issue which I have seen raised in an increasing number of cases in recent years. It appears to be reflective of a desire to “punish” what is viewed as inappropriate behaviour by the other party and a concern that monies which previously financed one household must now be stretched between two.

“Reckless” or “wanton” transactions or spending trends can be taken into consideration by the court as either “conduct it would be inequitable to disregard”, or as falling within the catch-all provision of “all the circumstances of the case”.

However, before including a claim for add-backs in your client’s Form E or statement of issues, it is important to consider the merits of their claim. The reality is that it can often be a waste of time and money. It will only be in a minority of claims where add-backs make a difference to the ultimate outcome of the case.

Provide evidence

The court will require clear evidence of both the spending and its “wanton” element on any add-back application (Vaughan v Vaughan [2007] EWCA). Consideration should be given to preparing a schedule of spending, which sets out in categories (if appropriate) and by reference to bank or credit card statements (again, if appropriate) each individual item of expenditure which is being challenged. This will enable a judge to quickly extrapolate the relevant information. The document is something which many clients should be able to prepare themselves, thereby minimising costs. This is an important consideration when the other party is likely to challenge pursuit of the issue on the grounds of disproportionality. Clients must be warned that a disproportionate amount of time being spent on this issue will, at the least, irritate a judge and, at the most, may result in a costs order being made against them.

An applicant needs to be aware there will be an analysis of what both parties have spent, and what constitutes recklessness will depend greatly upon the parties’ general financial positions (Evans v Evans [2013] EWHC). In that case, both parties were spending at a “prodigious rate” and, in the context of an overall wealth of £40m, adding back the sums sought was deemed unnecessary to achieve a fair result.

Wanton dissipation

Case law has identified those areas of spending where the court will decide there has been wanton dissipation.

Successful cases include: day-to-day spending over and above that which is assessed as a reasonable monthly amount (Martin v Martin [1976] Fam; McCartney v McCartney [2008] EWHC); extravagant expenditure, including flying a private plane (Re C [2007] EWHC) and purchasing a Ferrari (Norris v Norris [2002] EWHC); and gambling and expenditure on a mistress (M v M (financial misconduct; subpoena against third party) [2006]).

Unsuccessful cases include: alleged excessive expenditure on legal costs (Riding v Riding [2011] EWHC); generally poor business decisions (L v L (Financial provision: Contributions) [2002]); and where assets have been found to have been legitimately gifted (BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC).

Even if a court decides there has been reckless spending, they must then decide the amount which should notionally be added back in order to recognise that one party has unfairly disposed of what ought to be there. This will inevitably be less.

Indeed, it may be that the court will refuse to add back anything, because practicalities mean they cannot do so. For example, in any case where needs are to be the determinative factor, a judge cannot allow themselves to become distracted by a “process of penalisation” which, albeit “intellectually pure”, does not recreate any actual money (BJ v MJ). Bear in mind that where there are no available assets to “add back” and put on one side of the asset schedule, a court will not redistribute monies.

However, even in those circumstances, proving wanton dissipation can (as an aspect of conduct) create a context within which a judge goes on to consider the nature of the appropriate award. For example, excessive spending paints a picture of someone not especially concerned about their financial future. It can also be used as evidence of the standard of living. That said, again, a proportionate approach must be taken.

Recent case law also reminds us to consider whether it is more appropriate to make an application under section 37 of the Matrimonial Causes Act 1973 before pursuing an argument for add-backs. Such a procedure enables the recipient of the benefit to be heard, and strict formalities and statutory criteria are applied (BJ v MJ). SJ

Claire Reid is a senior associate in family law at Slater & Gordon