At Watson Morris, we work with our clients to support them when it comes to all aspects of family law, one of which being avoidance of disposition orders.
What is an avoidance of disposition order?
An avoidance of disposition order is a court order that can be issued in divorce proceedings if one party intentionally attempts to dispose of assets in order to undermine the financial claims of the other party.
Disposing of assets may involve concealing or diminishing items earmarked for distribution. If there is evidence of such actions, the court has the authority to nullify the disposal by making an avoidance of disposition order.
When will the court make an avoidance of disposition order?
The courts have been given statutory powers to set aside or ‘avoid’ transactions made with the intention of frustrating the other party’s financial claims. In most circumstances, by applying these powers, the court can salvage the applicant’s claims even after the dissipation has taken place. The main statutory provisions are contained in s 37(2)(b) and (c) of the Matrimonial Causes Act 1973.
However, the court also has a broader general power pursuant to s 423 of the Insolvency Act 1986 to set aside transactions that are intended to put assets beyond the reach of persons who have a claim against the person disposing of the asset. In most cases, the provisions of MCA 1973, s 37(2)(b) or (c) will suffice, but there may be cases where it will be preferable to apply under the Insolvency Act 1986 as well.
The court’s jurisdiction under the two provisions is not identical, and one provision may be easier to apply on the particular facts of a case than the other.
When is an application for an avoidance of disposition order necessary?
Not all transactions need to be set aside. It is important to consider the size of the transaction relative to the remaining assets. As long as there are other remaining assets which are sufficient to meet the applicant’s claims, the court can make orders to preserve those assets whilst proceedings are pending and then make appropriate orders at the final hearing.
What other options are there?
This court can achieve a fair outcome without an avoidance of disposition order by taking the disposal into account as either as part of the overall circumstances of the case or as conduct which it would be inequitable to disregard.
The court can proceed on the basis that the assets which the respondent has disposed of without good reason should continue to be treated as part of his capital reserves at the end of the marriage. In other words, the court will treat the respondent as if still in possession of the dissipated funds and ‘add back’ or ‘re-attribute’ those funds to his share of the assets.
This approach is not without risk, as the court may find that the expenditure was reasonable, depending on the circumstances. In N v F (Financial Orders: Pre-Acquired Wealth), the court said:
‘In this country, we have separate property. If a party disposes of assets with the intention of defeating the other party’s claim, then such a transaction can be reversed under s 37 of the MCA 1973 similarly, where there is “clear evidence of dissipation (in which there is a wanton element)” then the dissipated sums can be added back or re-attributed (see Vaughan v Vaughan  1 FLR 1108 at para ). But short of this, a party can do what he wants with his money. What is not acceptable is a faint criticism falling short of either of these standards. If a party seeks a set-aside or a re-attribution then she must nail her colours to the mast.’
Mostyn J returned to that theme in BJ v MJ and another where he went further and said:
‘Although intellectually pure, the problem with this technique is that it does not re-create any actual money. It is, in truth, a process of penalisation. In my judgment, it should be applied very cautiously indeed and only where the dissipation is demonstrably wanton. I am not satisfied that here, the gifts to C are to be characterised in this way. True, the timing is suspicious, but other than that, there was no evidence that the gifts were anything other than bona fide. They would represent sensible IHT planning anyway. I therefore decline to add the gifts back. Generally speaking, I suggest that it would be altogether better where a reversal of a transaction is sought, that it is made pursuant to s 37 MCA 1973, where the disponee can be heard and where strict statutory criteria must be met.’
What are the relevant considerations when considering an avoidance of disposition application?
When considering an avoidance of disposition application, it’s important to take into account the size of the transaction relative to the overall assets in the case. In practice, all cases turn on their particular facts, but the court is unlikely to take a cautious approach where the ‘add-back’ relates to a very significant part of the overall assets.
Consideration should be given to the type of asset and the nature of the disposition. All categories of asset can be relevant, whether real property such as land or buildings, savings and investments, shares and even pensions. All such assets are capable of falling within the court’s powers. It is also possible for the court to pierce the corporate veil in cases where a company is, in reality, the alter ego of the party to the proceedings.
What is a disposition?
A “disposition” includes any conveyance, assurance or gift (except by will) of property of any description and a “reviewable disposition” is any disposition made by a party to financial remedy proceedings (before or after commencement) unless it was made for valuable consideration to someone acting in good faith and without notice of the intention to defeat the claim. It may also include the registration of a charge against particular assets, the effect of which is to reduce the value of assets available for distribution. It is perfectly possible to set aside a charge in the same way as any other “disposition” under S. 37 of the Matrimonial Causes Act 1973.
It is also possible to apply after the substantive proceedings have concluded, for example, as an aid to enforcing an order.
Watson Morris on avoidance of disposition orders
In summary, when it comes to avoidance of disposition orders, the court’s powers are wide-ranging and highly effective. However, it is essential that anyone contemplating an application for an avoidance of disposition order proceeds with caution.
If correctly pursued, an avoidance of disposition order is a powerful tool to further the interests of the client. However, if action is taken in a way the court considers inappropriate, the application will be rejected, and this will have far-reaching consequences.
It is, therefore, essential to obtain expert legal advice on avoidance of disposition orders. In cases where a principle of equal sharing applies to the matrimonial ‘pot’, often the most significant question is what is the full measure of the ‘pot.’
For more information or to discuss your case, contact the team at Watson Morris today.
Written by Peter Morris
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