The purpose of this article is to provide a brief update in respect of a few diverse financial remedy issues/topics and in particular: (1) anticipated HMRC changes to Capital Gains Tax (“CGT”) on separation and divorce, (2) Statement on the efficient conduct of financial remedy hearings proceeding in the financial remedies court below High Court judge level (“Efficient Conduct Statement”) published on the 11th of January 2022 by Mr Justice Mostyn and HHJ Hess, on the authority of the President of the Family Court, (3) the Divorce Dissolution and Separation Act 2020 which came into force on 6th of April 2022, (4) Final hearings and capital awards and (5) The Domestic Abuse Act 2021.
Anticipated HMRC changes to Capital Gains Tax (“CGT”) on separation and divorce
These proposed changes are to be found in a HMRC policy paper, published on the 20th of July 2022 to be found at: https://www.gov.uk/publications/capital-gains-tax-transfers-of-assets-between-spouses-and-civil-partners-in-the-process-of-separating. The policy objective is to make the Capital Gains Tax (“CGT”) rules that apply to spouses and civil partners in the process of separating more fair. The policy paper refers to the current law being regulated by section 58 of the Taxation of Chargeable Gains Tax 1992.
It is proposed that legislation will be introduced in the Finance Bill 2022-23, which will provide that:
- Separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain or loss transfers;
- No gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement;
- A spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim Private Residence Relief (PRR) when it is sold;
- Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, will be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.
The operative date and proposed changes will apply to disposals that occur on or after the 6th of April 2023. The policy document also sets out a helpful summary of impacts under 7 different headings (exchequer, economic, individuals; households and families, equalities, business including civil society organisations, operational and other). Monitoring and evaluation is to occur through bodies including individuals specialising in divorce work and other affected groups.
It is to be noted that the proposed changes appear to apply to former matrimonial homes only. Presumably the CGT rules in respect of second homes and/or investment and other properties remain unchanged.
Clearly in respect of CGT, every case turns on its own facts. The Court and parties will still require expert evidence as to whether (1) a particular disposition for a particular property attracts CGT and (2) the amount of CGT liability in question.
Efficient Conduct Statement
Readers are referred to the article by Magdalena Cass’s of these Chambers, available on Chamber’s website, titled: “Front-loading: the new FRC Efficiency Statement in a nutshell”, published on the 11th of January 2022, available at https://www.judiciary.uk/guidance-and-resources/notice-from-the-financial-remedies-court and the accompanying guidance note.
As indicated in paragraph 2 of the Efficient Conduct Statement (“ECS”) this statement has been published in order to enhance efficiency, ensure the appropriate share of court resources and to improve access to justice for all litigants in financial remedy proceedings.
Clearly in parallel to this, the emphasis is also to encourage parties to reach early agreement/settlement/avail themselves of alternate dispute resolution and readers are referred to the various articles by members of this Chambers on this topic and the fact that some of Chambers’ members are qualified mediators or arbitrators.
The most profound change wrought by the ECS is the necessity to file and serve completed ES1 and ES2 forms before the FDA, the FDR and the Final Hearing. The guidance has been very helpful in clarifying that each party (the Applicant/Respondent) has to complete their designated columns only and resist filling in the columns designed for the other party.
Clearly the Court before any hearing will be assisted by the most up to date information which of necessity means that the word versions of the ES1 and ES2 are emailed between the parties, both parties having a duty to co-operate in completing the ES1 and ES2 forms.
The requirement that in accordance with paragraph 26, position statements should be emailed to the hearing judge by no later than 11 am on the working day before the hearing is not a new one but is clearly designed to assist with the efficient conduct of the hearing.
Paragraph 31 of the ECS entitled “Duty to negotiate” emphasises the fact that the court will require the parties’ compliance with the duty to negotiate openly and reasonably pursuant to PD28A para 4.4 if they want to avoid costs orders being made against them. In the case of OG v AG [2020] EWCA 52 [92-93] Mostyn J considered both parties’ litigation conduct and determined that PD28A para 4.4 clearly applied and penalised both parties in costs to a greater and lesser degree for failing to negotiate reasonably and held [93] “I hope this decision will serve as a clear warning to all future litigants: if you do not negotiate reasonably you will be penalised in costs”.
Readers are referred to the ECS which sets out comprehensive directions in relation to FDA, FDR, Final Hearing, interim applications, associated directions for PD27A compliant bundles and draft orders which have to comply with standard order templates as far as possible and be adapted as appropriate to the facts of the case [32].
Para 36 of the ECS deals with the issue of digitisation and the fact that increasing numbers of financial remedy applications will be made on the HMCTS online portal under the Digital Contested Cases System (“DCCS”).
By way of update, it appears that in early 2023, it will be compulsory for all solicitors and counsel to use the online portal to lodge all financial remedy documents in contested hearings.
Divorce Dissolution and Separation Act 2020
Readers are referred to 2 articles by members of these Chambers regarding the Divorce Dissolution and Separation Act (“DDSA”) 2020 which came into effect on the 6th of April 2022, being those of Magdalena Cass (“What the new no-fault divorce legislation means for practitioners”) and Christopher Wall (“Changes to the Financial Remedy Standard Orders”).
As indicated, aside from the key changes to the law, there has been a change of terminology and standard financial remedy orders.
Interestingly, in Family Law Week, Financial Remedy Update, August 2022, Nicola Rowling, Emily Elvin-Poole and Caitlin Lewis indicate that that as a result of the DSSA, Resolution has unveiled a “new model of working which allows a single lawyer to advise both parties in a divorce or separation”.
The organisation apparently maintains that its new model will work within current regulations around acting where there is a risk of conflict, following talks with the Solicitors Regulation Authority (“SRA”) about compliance.
The trigger for the changing approach has apparently been the implementation of the DSSA in April 2022, based on the fact that couples are able to make joint applications to end a marriage.
It will be noted that just because the DSSA allows parties to make a joint application to end a marriage, this does not necessarily mean that there is no conflict or risk of potential conflict.
Clearly in contested proceedings, there is no question (due to the issue of conflict or risk of conflict) of both parties being represented by a single lawyer.
Final hearings and capital awards
Readers are referred to a recent article of Holly Coates of these Chambers titled “Adjourning capital claims: a weapon in the arsenal when dealing with a dishonest spouse”, in which she considers the recent decision of HHJ Hess in the case of X v Y [2022] EWCF 95 in which the capital claims were left open for 10 years due to the unique facts of that case, contrary to the principle (and expectation) that final remedy proceedings result in finality. The point is made that the judge chose to publish the judgement to “draw wider attention to the ability of dishonest parties to manufacture bank statements (and other documents) which, for all practical purposes, look genuine, but which are in reality not in that category”. Reference is made to an article in the Financial Remedies Journal called Dodgy Digital Documents: Where are we now? Where are we going? by Helen Brander [2022] 2 FRJ 139. Very helpfully the link to this article, which is recommended to all FR practitioners, is provided in the article.
As will be noted from the facts of this case, they were unique and the Court ordered the adjournment of all capital claims generally for 10 years. The issue of possible adjourned pension claims was not canvassed. However, should such a scenario arise (despite robust directions for disclosure), it is suggested that the situation is even more complicated and consideration may need to be given as to the timing of any application for a Final Divorce Order (or Decree Absolute, using the old terminology).
Domestic Abuse Act 2021
The Domestic Abuse Act 2021 (which has different commencement dates which can be viewed at: www.gov.uk/government/publications/domestic-abuse-act-2021-commencement-schedule) and the Act itself (which can be viewed at www.gov.uk/ukpga/2021/17/contents/enacted) impacts on financial remedy hearings in that: (i) section 63 provides for special measures in family proceedings (commencement date 1st of October 2021) and section 64 in civil proceedings (which include claims under the Trust of Land and Appointment of Trustees Act 1996, that is, “TOLATA” claims) (commencement date 14th of June 2022) and (ii) in terms of section 65 there is a prohibition of cross examination in person in family proceedings and section 66 a prohibition in civil proceedings (commencement date 21st of July 2022). Practitioners must be sensitive to the issue of domestic abuse and make and/or ensure that the necessary application for special measures is made as soon as applicable. In addition, in a situation where one of the parties is a litigant in person, practitioners need to be alert to potential possible issues.
Conclusion
It is to be hoped that the above eclectic comment/update proves useful in this ever-changing area of law.
