Conduct and add-back in financial remedy proceedings – get in early!

O v O [2023] EWFC 161

When assessing a financial remedy case, the court will always have to be guided by section 25 of the Matrimonial Causes Act 1973. Family practitioners will all be well aware that conduct appears under Section 25(2)(g). The test for conduct is that it must be “inequitable to disregard it”.

In the case of O v O [2023], Recorder Moys found that the Husband’s conduct was indeed inequitable in respect of a £40,000 deposit into a betting account after the parties separation.

The Wife claimed that the Husband had incurred losses in advance of £400,000 between March 2020 and May 2023. The Wife sought that these sums should be ‘added back’ into the pot. The process of add-back is long established in financial remedy proceedings and there should be a “wanton and wilful” dissipation of the assets in order for add-back to be successfully claimed.

Interestingly in this case, the Wife’s allegations were not the subject of formal pleadings so that their relevance could be examined. The Husband deposited some £537,000 into the account (£497,000 before separation and £40,000 afterwards).

Recorder Moys found £150,000 came from an account for C Essex Limited, of which the Husband was a director, in breach of his fiduciary duties. A further £100,000 came from loans: one made to Husband and the other a COVID bounce back loan made to a business owned by Husband. £156,821 came from the sale of shares owned by Husband. These shares were deemed to be matrimonial assets, leaving £130,000 unaccounted for, which Recorder Moys found must have come from matrimonial money. As a result, some £157,000 of £287,000 of matrimonial funds was lost.

A fundamental difficulty was that a significant amount of the lost money belonged to C Essex Limited. It was not the Husband’s or the Wife’s money. A key take away from this case is that if the Wife had pleaded conduct and add-back from the outset of proceedings, this difficulty would have emerged sooner.

The Husband did not intend to put the matrimonial money that was lost (£157,000) beyond Wife’s reach. The Husband was trying to make money to maintain the parties’ lifestyle and outgoings, including private education for the children. However, the court found that it was inequitable to disregard Husband’s decision to deposit £40,000 into the account after separation, when he had already incurred significant losses, particularly as the Husband had been unable to pay school fees and the Wife had taken a loan to pay them.

This case not only serves as a helpful reminder on the principles of ‘add-back’ but also highlights the real need to properly plead conduction allegations and understand your case theory from the outset.

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