[2010]JRC168A
royal court
(Family Division)
20th September 2010
Before : |
V. J. Obbard, Registrar, sitting alone. |
Between |
A |
Petitioner |
And |
B |
Respondent |
IN THE MATTER OF SS
AND IN THE MATTER OF REASONS FOR REASSESSMENT OF MAINTENANCE
Advocate C. Hall for the Petitioner.
The Respondent appeared on his own behalf.
judgment
the registtrar:
1. This is a divorce case which was finally settled by order of the Royal Court on 7th December, 2005. A comprehensive judgment was delivered by the then Deputy Bailiff dealing with all the parties' properties, the husband's business and capital. The decision was that there should be a clean break as to available capital. The parties' pension provision was not included in the available capital and was to be considered as income at a later stage as and when the business was sold.
2. Having divided available capital, the husband's business could not be divided, so the order was made that the respondent would continue to pay maintenance to the petitioner during their joint lives, but subject to review.
3. Maintenance was to be paid at least until the business was sold. The amount of maintenance decided was a total of £51,480 per annum which was slightly more than one half of the husband's business profit at that time.
4. It is difficult to foresee upon exactly what grounds a review would be required, and, not surprisingly that is not clear from the judgment, but I think it was implied that spousal maintenance could be reassessed if and when the parties' financial circumstances were to change in any meaningful way. This would include, I would suggest, the change which would occur when either of the party's pensions (including the husband's Norwich Union Aviva policy) commenced payment.
5. The husband has now applied to reduce the spousal maintenance. There have already been two occasions when the maintenance, which was originally set at £3,250 per month, plus a weekly payment of £240 per week (£51,480 per annum) has been reduced. The first occasion was by agreement, on 3rd March, 2009, when the maintenance was reduced to £3,000 per month plus £250 per week (£49,000). The second, which was not agreed, and which was effective from the beginning of this year, was a reduction to £1500 per month plus £125 per week (£24,500).
6. The husband attended before me in person and the wife's advocate (in the absence of her client who produced a doctor's certificate saying she was too ill to attend). The husband, not having instructed a lawyer since he instigated these proceedings in February this year, applied for an adjournment to instruct a lawyer. I think it wrong to delay these proceedings, and so I refused his application. A decision needs to be made, in both parties' interest, so that the continuing uncertainty and worry which this is causing to both parties is drawn to a close.
7. The husband continues to work as proprietor of the same pharmacy business aged 67. The wife is two years his senior. Both parties' States pensions are in payment as is the husband's Norwich Union (Aviva) policy. The business is still profitable even if the profit has declined in recent years.
8. There are several references in the Deputy Bailiff's judgement (B-v-C [2005] JRC 169) to future reviews of maintenance. In paragraph 23(vii) he writes:-
"(vii) We do not consider that the Norwich Union pension plan should be taken into account when allocating capital. This is not a case where there is a clean break. The husband will continue to pay maintenance. When the Business is eventually sold, the maintenance which he pays to the wife will need to be reviewed in the light of his then income. At that time, his income will include the Norwich Union pension and it will therefore be taken into account at that stage in its income form when assessing the amount of maintenance which the husband should then pay the wife. It would be wrong therefore to take it into account when considering the allocation of capital."
9. In paragraph 26, he writes:-
"As to income, the husband will now receive the £90,000 to £100,000per annum out of the Business. The parties wish to maintain the split between the monthly maintenance and the weekly cash sum. As to the former we order that this should be in the monthly sum of £3,250. As to the latter, this should be £240 per week. This makes a total of £51,480 p.a. This sum should be paid free of tax to the wife because, for the most part, tax will have been paid by the Business and should therefore be received free of tax by the husband. Furthermore, unless we make the order in this form, the wife will be worse off than she is at present, where she has been receiving money as a shareholder out of taxed profits. We note that when the 'look-through' provisions are introduced in the Income Tax legislation in due course, the Business will not then pay any tax and it will all be payable by the husband as shareholder. At that time, the question of whether maintenance should continue to be free of tax would have to be reviewed in order to ensure that the tax burden continues to be shared in a fair manner between the husband and wife. On the basis of our proposals, the wife will receive maintenance of £51,480 plus property income of £29,970 making £81,450 in total. In practice, she will of course have to realise some of the assets which we have allocated to her in order to clear her debts. If she were to sell the French property and 13 Regency House, her annual income would reduce by £12,750 leaving £68,700 largely free of tax".
10. Again, at paragraph 29 he writes:-
"We have considered whether the maintenance should be index linked as contended for by the wife. The husband has argued that, although he is willing for the cash element to be index linked, the main element should not be index linked because the profits of the Business are not increasing. On the contrary, he points out that an application has been made for a nearby medical practice to open its own pharmacy. This is an increasing trend. If this particular practice were to be given permission to open its own pharmacy, this would undoubtedly impact adversely on the Business. We note that submission but we think that it would nevertheless be reasonable to index link the maintenance. Either party is free to apply at periodic intervals to review the maintenance level in the light of changing circumstances. If we were not to index link the maintenance it would be perfectly natural for the wife every one or two years to apply to vary the maintenance level to take account of inflation. At that stage, there would have to be an investigation and, if it transpired that the Business profitability had not increased in accordance with inflation, she might not be successful. It would require frequent applications and further legal fees and tension between these parties. Conversely, if we index-link the maintenance, there will only need to be an application should the husband find that the Business profitability has reduced in real terms (i.e. after allowing for inflation) and he could not afford the increased maintenance. On balance, we regard that as marginally less likely and therefore, in an effort to reduce the frequency of the need re-visit the maintenance level we propose to index-link the whole of the maintenance. However, we emphasise that this does not prevent the husband from applying for a variation so as to reduce or extinguish the index linked increase in any particular year should the financial circumstances at the time justify such an application." (My emphasis added).
11. In summary, he suggests that maintenance could be reviewed:-
(i) when the business is sold; or
(ii) when new tax provisions are implemented; or
(iii) if the business declines in profitability.
12. Dealing with these possibilities:-
(i) The business has not been sold. However, both parties' are now drawing their Old Age pensions, and the husband does now derive an income from his Norwich Union (Aviva) Policy. All these sources of income seem to me to be relevant now;
(ii) The new tax provisions need to be taken into account; and
(iii) the husband is indeed arguing that the business has now declined in profitability. As predicted, medical practices have opened their own pharmacies in the neighbourhood.
13. However, at all events, the Deputy Bailiff, said in paragraph 29 of the judgement:-
"Either party is free to apply at periodic intervals to review the maintenance level in the light of changing circumstances."
14. I take this statement at face value. Coupled with that freedom to apply, it is a principle of law that, in reviewing maintenance levels, the Court has to take into account all the information available to it at the time of the review. I cannot do better than cite a passage from an old Jersey case, Cameron-v-Archdale Unreported 12th July 1983) and JLR [1989] N 8:-
"...in considering an application for variation, the Court is not confined to looking at changes in the means of the parties since the original order was made, but is required to look at the actual means of the parties as they stand at the time the case is before it and to approach the matter as if it were fixing the payments de novo."
The Husband's Income
15. Looking at the business trading and profit and loss accounts for the year ending 31 March, 2010, the husband draws annual remuneration of £53,061 and the sum of £13,362 remains as "profit before taxation", leaving a potential income to the husband, before tax, of £66,423 from the business (as opposed to £90,000 to £100,00 after tax in 2005).
16. In addition to this sum he receives:-
(i) income from his Norwich Union (Aviva) policy £ 8,685
(ii) Jersey pension £ 8,643
(iii) agency work £15,468
(iv) lodgers £10,212
(v) rental £23,920
£66,928
17. Adding the two sums together, the husband's total gross income is £133,351.
18. He seeks to argue that the Aviva pension, the Jersey pension and income from lodgers and tenants should not be included. He believes that the Deputy Bailiff did not calculate maintenance in 2005 by using these figures and they should not be used now. For the reasons already explained, I disagree.
19. The husband complains, a little bitterly, that, in his opinion, the wife has neglected her properties since 2005 and that it is unfair to include his single property in 2010. I stand by my opinion that it is necessary to calculate all income.
Husband's Tax Liability
20. What is the husband's liability for tax? Neither party could be certain how much tax would be levied on the £133,351.
21. As a result of a simple enquiry from the tax office website, I learned the following:-
(i) the tax exemption threshold for a single person over 63 is £14,110;
(ii) The threshold is extended a further £2,600 to £16,710, if the taxpayer is a maintenance provider.
22. If one deducts from total income:- £133,351
the allowances: £ 16,710
the net figure is: £116,641
20% of £116,641 is £23,328.
23. I am nearly sure that the husband would also qualify for mortgage interest relief, but I don't know how much. His total mortgage interest for a year he declares to be £43,200. Say I allow him a further £3,000 his tax bill would be in the region of £20,000.
24. An example is given on the Tax Office website of a tax bill of £22,256 for a single man with no children and a mortgage of £240,000. The man in the example would qualify for extra relief for a larger mortgage, if he were an OAP and if he paid maintenance. The example reinforces my estimate that the husband in this case will pay tax on all his income in the region of £20,000. If this is right his net income will be £133,351 - £20,000 = £113,351.
25. According to the husband's affidavit, his living expenses amount to £36,000 and his mortgage interest is £43,200 making a total of £79,200. A simple calculation of net income less declared expenditure reveals a surplus of £34,151. That is before payment of any maintenance to the wife.
26. The husband has already voluntarily increased the maintenance to £34,400 per annum, which is almost identical to the surplus. In addition, he will have to fund the total repayment of his mortgage soon. As I understand it he pays interest only at the moment and will have to find a capital sum of £770,000. The only way he will be able to do that is to sell his business.
27. From an extract of the accounts, the husband is eager to point out that turnover, gross profit, and disposable income have declined in the space of a year, the latter by 34%. I have heard no accountancy evidence upon which to base an opinion one way or the other, but I do accept that the value of the business as a saleable commodity is suffering.
28. The wife's advocate has sought to persuade me that the husband's net disposable income is higher than £113,000 (she claimed £135,728) and that his surplus was £56,529. The tax liability was not really known by either party, which put both parties and me in some difficulty. However, Advocate Hall sought to persuade me that the husband's surplus, whatever that was having paid the tax, should fund a level of maintenance in total of £40,000.
29. In addition, she seeks payment of additional sums relating to arrears of maintenance, a sum of £600 which represents deposit money for a flat and a sum relating to the service charges for the French property which was sold.
30. I am not making an order for arrears of maintenance for eight months between January and August this year, being a period for which the husband unilaterally reduced maintenance payments. The reason I have declined to do so is that I accept the husband's evidence that he reduced the maintenance because he was getting into debt by continuing to pay it at the agreed level. It would not be fair to cause him a repeat of this kind of problem, provided I am satisfied (which I am) that the higher future maintenance will continue to be paid.
31. I have also declined to investigate the detail of the claims for deposit money and service charges if, in the final analysis, the husband cannot afford to pay these extras. It is appropriate in these circumstances to make no order.
32. It is time to leave bygones be bygones. A decision needs to be made now. The payment of £34,000 seems to me to be a reasonable sum of maintenance for the husband to pay and which he can continue to pay for the foreseeable future. It will meet nearly all of the wife's present cost of living, while being made at some sacrifice to the husband in a declining business market in which he operates.
The wife's income
33. With a regular payment of 34,400, the wife's income will be:-
Maintenance (£2000 p.m. + £200 per week) £34,400
Rental £ 9,240
Pension £ 6,673
£50,313
Additional income could be achieved if all her property were to be let.
34. Her present annual expenditure is £56,856, although this does not include allowance for payment of her medical expenses. It does include £300 per month (£3,600 per annum) towards legal bills. The husband sought to criticise her excessive expenditure, for example, the item for £300 per month for shoes.
35. I do also wish to make a provision that the husband must contribute a substantial amount to the wife's legal expenses. I have no doubt that the wife has incurred additional bills because of the husband having no lawyer. He has been slow to cooperate in requests for additional disclosure, although I have no reason to doubt the truth of what he has provided by way of disclosure and he has not in any way tried to mislead.
36. Nevertheless, the wife has incurred legal bills to a total of £25,881 of which £12,139 have been paid. An estimate of future bills, to include this hearing, is another £10,454. The minimum which the husband should contribute is £10,000. It is not fair that the wife's legal team have had to do all the running in the preparation for this hearing which has, from the beginning, been the husband's application to reduce child maintenance. More than once there have been adjournments because the husband has not complied or not fully complied with requests for information.
37. The costs order will mean that the husband will have to exceed his income to pay it. It might give the impression that it is a form of penalty for not cooperating with previous court orders. This is partly so, but I would prefer to see it simply as a means of levelling all issues which remain outstanding. It would not be fair to leave the wife to pay all her legal costs without assistance from the husband.
38. I also take the view that the husband should make every effort to pay the £10,000 contribution as quickly as he can. If not in a lump sum, I suggest £100 per week in addition to the £200 weekly maintenance (+ £2000 per month) he is to pay by virtue of the order.
Authorities
B-v-C [2005] JRC 169.
Cameron-v-Archdale (Unreported 12th July 1983).
Cameron-v-Archdale [1989] JLR N 8.