Economic abuse in financial remedy cases

Resolution have just published a report on the connection between domestic abuse and the division of finances on divorce and how domestic abuse is addressed in other financial proceedings. This report is very welcome and throws light on an issue which has long been of concern for many family lawyers.

Resolution recognises the difficulties in any change in the underfunded resources for the family justice system. There is also the potential that the government could make further cuts.

The situation

Economic abuse is defined in Section 1 (4) of the Domestic Abuse Act 2021 as: ‘Any behaviour that has a substantial adverse effect on the [victim’s] ability to: (a) acquire, use or maintain money or other property, or (b) obtain goods or services.’

In divorce proceedings when an application for a financial remedy is issued, the parties have to completed Form E. Question 4.4 has a box to complete with the heading ‘Bad behaviour or conduct by the other party will only be taken into account in very exceptional circumstances when deciding how assets should be shared after divorce/dissolution. If you feel it should be taken into account in your case, identify the nature of the behaviour or conduct below.’

All too often even if there has been economic abuse, this box is left empty. In other cases where it is completed, there is often indications by the judge at the first directions appointment not to pursue whatever has been set out in answer to this question. It is open to a person to pursue it, but they will then have to put forward ‘conduct’ as part of their case which will increase their costs and, potentially, if this aspect is unsuccessful, there could be a costs order made against them.

There is, therefore, a real gap between the effect of economic abuse and pursuing conduct in financial remedy cases.

Examples of economic abuse

Family solicitors fairly frequently come across economic abuse. For example, considerable pressure is put on one person to give up their career, usually to prioritise the children, to enable the other party to focus on their own career. Then, 10 or 15 years later in divorce proceedings A may have a significant income and an excellent career, whilst B has not worked for the last 10 to 15 years. The parties’ four children have done extremely well with the excellent support over the years provided by B. However, in financial remedy proceedings, apart from the very rare cases of compensation, where B can show a direct causal link from a promising career with the figures that B might have been earning, a step taken earlier in the marriage will have no impact. A will say it was a joint decision, but in coercive and controlling relationships the reality is that B will not have had any real choice. In this scenario, capital will be shared either equally, or to meet B’s reasonable financial needs. At one time, B could have looked to spousal maintenance for life to recognise the contribution which has enabled A to have a very high income. This is no longer the position. The court will look at B’s reasonable financial need for income and to be independent as soon as possible. The issue is not approached on the basis that these contributions to facilitating A’s sizeable income should enable B to make claims for a share of that income going into the future. There may be a short period of claim against future income, perhaps for bonuses that have been accrued before separation (although paid after). B will be in a very different position to that which they might otherwise have been in without the pressure to give up their own career.

Another example is financial pressure from A as to how available monies should be dealt with. This can even include pressure to take steps that lead to getting into significant debt. It may involve A not having made any contributions to pension schemes (for example, in regard to self-employment where it is not obligatory) and suggesting that the money should be spent, or that it should go towards other investments, for example, stocks and shares, which have subsequently done badly. Cryptocurrency is, at the moment, particularly relevant, where A may have put very significant sums into cryptocurrency, which are at the time of divorce virtually valueless. This is unlikely to be addressed in financial remedy proceedings. I have heard the other party being criticised and told in court proceedings that ‘they would not be complaining if the crypto had done well.’ The courts tend to treat financial decisions as simply decisions made by the parties within the marriage without any acknowledgement of the coercion and control exerted by A, which governed the decisions.

However, understandably, these are very difficult issues to unravel and as is often the case in situations involving coercive control, that B has ended up agreeing with what A has forcibly suggested.

For most people, legal aid is not going to be an option but, in any event, it is ultimately going to be the court that decides how it is going to address economic abuse.

A lack of funds makes a significant difference for the parties dealing with finances. It enables the stronger party financially to continue to exert economic pressure during the proceedings, sometimes by issuing proceedings in the first place, rather than being willing to negotiate. Economic abuse can show itself in many small ways. For example, lengthy correspondence on the content of a letter of instruction to an expert with an abuser’s solicitor going backwards and forwards on particular points that their client wants addressed, putting the weaker party financially in the position of having to concede to the proposed amendments or pay further legal costs in continuing to argue them. Ultimately, if the content cannot be agreed and has to be decided by the judge, again this leads to legal costs associated with the court hearing.

Resolution’s report

Resolution in their report have made recommendations to reduce economic abuse and how they could be applied both in and out of court. There is a suggestion that we could have a new sub-section to Section 25 (2)(g) for example saying, ‘Section 25 (2)(i) any harm suffered by a party as a result of domestic abuse.’ This could be helpful. It would enable a victim to set out their situation and it would be available to be considered by both parties and, of course, by the judge. It would lead to another section in Form E and it would help if that section of Form E divided domestic abuse under the headings in the 2021 Act to assist both solicitors and litigants in person to add the relevant details.

The Resolution survey refers to other proposals they have received for change and one relevant proposal is as follows: ‘the judiciary need to be more aware of the implications of domestic abuse on victims from a financial perspective. They need to be able to recognise the behaviours more and use them when considering situations, not simply focus on the figures that have been put forward and take them as gospel.’

We are lucky in our jurisdiction in England and Wales to have excellent judges at all levels. Once a financial remedy case comes before a judge, often at the first directions appointment, which is intended primarily for directions to progress the case and, particularly, at the financial dispute resolution hearing, the input from the judiciary with indications on the importance and relevance of what arises in the case can be very helpful to the parties in progressing it.

There is real concern about the availability of judicial resources and the length of hearings, but if the judge could give an indication at the first directions appointment on what has been set out as the harm suffered as a result of domestic abuse, it might enable such cases to be progressed without significantly lengthening the final hearing. For example, if the domestic abuse consisted of A spending or recklessly investing family monies and these are now gone, it will depend on what finances remain. If there are limited savings and the parties are living in rented property with, perhaps, a small amount of savings and pension, there is going to be very little that can be done by way of financial redress, however unfair the background is in regard to the victim.

Could non-court dispute resolution help?

Private financial dispute resolution hearings are becoming more common and there is more time and availability for the judge to provide indications. Both parties have to set out their position in relation to the harm suffered as a result of domestic abuse and the other party’s response. In Children Act proceedings, we often find that there has to be fact finding hearings on the allegations of domestic abuse before the proceedings can continue in relation to the arrangements for the children. It is understandable that there would be a very significant concern in terms of judicial resources if financial remedy proceedings followed this route. In non-court dispute resolution, there could be arbitration just to address the domestic abuse in the context of a financial remedy. This could consider the way such economic abuse should, or could, impact on the wider financial proceedings.

Conclusion

The report can drive policy changes to protect abuse survivors in financial proceedings. An amendment to Section 25 as proposed would raise awareness. The perpetrator would be aware from an early stage that past abuse can be considered. Solicitors would advise their respective clients on it and that awareness may enable a financial settlement. It could be particularly relevant if A is continuing to seek to exert financial abuse within the proceedings, but is then advised that all such behaviour could and would be taken into account not only in deciding the financial outcome, but also in regard to costs. At the moment, it is possible to obtain costs orders for litigation conduct, but as in the application of conduct and its wider use in financial remedy proceedings, it tends to have to be extreme to apply. I do agree with the conclusion of Resolution’s report where it states, “This report does not set out to achieve a final recommendation about how to resolve that complicated issue. There is no immediate clear way forward. Resolution supports the aims of achieving fairer outcomes for victims–survivors, helping people reach agreement without litigation, and not over burdening the already over stretched Court system.’

However, a statutory recognition added to Section 25 on the impact of domestic abuse, or potentially as a result of just economic abuse, would be welcomed by many. It may be that such an addition has to be limited to economic abuse, although many victims will feel this is unfair.