Chancery or Family? – the former matrimonial home

In Smith v Smith the Court of Appeal considered the conflict between TOLATA and its family law jurisdiction.

The background is a sad one. The Smiths married in 2004. They bought what I assume to be a lovely house of 3,800 square feet in 5 floors and with substantial gardens both front and back for a total of £6 million. They spent another £7.4 million on “elaborate works of renovation” (with contributions of £1.5 million from Mr Smith and £0.4 million from Mrs Smith, the rest being funded by a mortgage). Mrs Smith directed the works and “her energy and flair were major contributors to its ultimate style and beauty”.

In April 2007 they moved into the house, but their marriage had already hit difficulties and Mr Smith eventually moved out of the home for good in January 2008 — they had lived together in the home for only 6 months.

Mr Smith continued to pay the outgoings on the house which amounted, he said, to some £228,000 a year. In addition he had annual outgoings of £18,000 (an allowance paid to his wife), £100,000 (rent on his own home) and obvious other living expenses (I suppose one is expected to think this leaves little change out of his net income of £350,000 per year — readers with social housing practices may think otherwise).

Mr Smith petitioned for divorce in May 2008, Mrs Smith answered in July 2008, indicating her intention to resist her husband’s petition. Mr Smith’s solicitors pressed Mrs Smith concerning the house, telling her that a sale was both urgent and inevitable. Mrs Smith disagreed.

In October 2008 Mr Smith applied for an order under s.14 of the Trusts of Land and Appointment of Trustees Act. He also applied for an order for a sale of the family home under s.17 of the Women’s Property Act 1882 and for an occupation order prohibiting Mrs Smith to exercise her right to occupy the home under s.33(3)(d) of the Family Law Act 1996.

Just before the hearing Mr Smith was paid an exceptional commission of £720,000 (net) on a corporate deal that had been made in March 2009. This rather put the Kaibosh on the case that he had advanced, namely that he could barely afford to maintain the family home (with other outgoings) on his income. At the hearing he described the commission as a “once-in-a-lifetime payment” and argued that although he could, in the short term, afford to maintain the property, it was unreasonable to expect him to do so.

Mrs Smith argued that the application was premature given the pending matrimonial proceedings.

The recorder held that:

  • the home was “far larger than could objectively be justified by reference to [Mrs Smith’s] reasonable housing need”
  • the purpose for which the property was acquired was to provide a home for both of them while they lived together and that purpose could no longer be achieved

He ordered that the home be sold with completion no earlier than 3 months from his order. The net proceeds of sale were then to be divided into two sums and placed on deposit pending agreement between the parties or an order of the court.

In the matrimonial proceedings, the judge found that Mrs Smith had behaved in such a way that the husband could not reasonably be expected to live with her and their marriage had broken down irretrievably. He therefore granted a decree nisi.

On appeal Mrs Smith argued that:

  • the order for sale was premature in advance of a decree of divorce
  • in particular the substantial and exceptional payment to the husband (so that he no longer needed to sell the home urgently) meant that the TOLATA application should not have been heard in advance of the divorce
  • finding that the purpose for which the home had been acquired was now defeated, effectively pre-empted the inquiry as to whether the marriage had irretrievably broken down that was to be decided in matrimonial proceedings
  • as a general rule TOLATA was an inappropriate vehicle for the resolution of issues between husband and wife.

Wilson LJ set out the approach a court should take to an application under TOLATA between separated spouses. As a general rule it is better if questions of shared property are dealt with as part of divorce proceedings:

It is in principle much more desirable that an issue, as here, about sale of the home should be resolved within an application for ancillary relief. For there the court will undertake a holistic examination of all aspects of the parties’ finances, needs, contributions etc; will devise the fairest set of arrangements for the future housing and finances of each of them; and, to that end, will provide for the transfer of capital, as well perhaps as for payment of future income, from one to the other. By an order under TOLATA, on the other hand, the court lays down only one piece of the jigsaw, namely that the home be sold, without its being able to survey the whole picture by laying down the others.

So a court faced with such an application should carry out a threshold enquiry, asking itself whether the issues raised by the application could reasonable be left to be resolved within an application for ancillary relief following divorce. In doing so the court will have regard to whether (within a time-frame “tolerable in all the circumstances) the parties will become able to apply for ancillary relief.

Further the court should consider whether there is a “measurable chance” that on such an application for ancillary relief one of the parties might preserve their occupation of the home or secure an outright transfer of ownership (or a variation of the trust). If so, an order for sale under TOLATA is unlikely to be right.

Wilson LJ found on the facts that the delay before ancillary relief was not tolerable and that there was no measurable chance that Mrs Smith would retain occupation of the home or otherwise preserve her right to live there. The recorder’s decision was therefore correct.

A second point raised by Mrs Smith at first instance was that before making a TOLATA order in her circumstances, the recorder would have to be satisfied that it would have been appropriate to make an occupation order. The recorder disagreed, but found that the requirements for such an order were satisfied. The Court of Appeal agreed.

One point that surprised Wilson LJ, but which had not been addressed by either party in proceedings, was the nature of the recorder’s order. Where was Mrs Smith supposed to live after sale while the proceeds of sale were languishing in a deposit account pending a judicial determination or an agreement. That would be a circumstance that should be taken into account under s.15(2) of TOLATA. He said:

One might wonder whether such a strategy would be likely to prove as satisfactory for the wife as a submission to the recorder that no order under TOLATA should be made until the husband had made satisfactory proposals for these two allied aspects of her needs. But, although had I been in the recorder’s shoes, I would myself have invited submissions in these respects, he cannot fairly be criticised for not having done so and thus for not having in any way addressed the wife’s needs following sale.

A point to consider in the face of a similar TOLATA application in future.

An interesting and important case for those dealing with matrimonial home disputes. TOLATA may be an alternative to waiting for ancillary relief to be resolved.

Posted in Housing law - All, Trusts and Estoppel.

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