When the court considers what order to make on a financial remedies application it will take into account not just the assets of the parties, but also their liabilities, and that includes their liability in respect of outstanding legal costs.
In addition, legal costs may have already been incurred, and paid from the marital assets.
Either way, the costs will have the effect of reducing the assets available for division between the parties.
And this can obviously have a bearing upon the outcome, especially in a case where the court considers it appropriate for the assets to be shared equally between the parties.
Now, if both parties have incurred a similar amount of legal costs then there would be no unfairness if the remaining assets are divided equally.
But what if one party has incurred far greater costs than the other?
Does this mean that the party who incurred less costs will get a smaller settlement than if the costs of each party had been similar?
Or can they argue that their share should be based upon what the assets would have been had each party’s costs been similar?
The answer can be found in a recent judgment of the Central Family Court in London.
The judgment concerned the final hearing of a financial remedies application. In the course of the application the wife had incurred legal costs of £463,331 and the husband had incurred legal costs of £159,044, a difference of £304,287.
The judge commented that, on the face of it, the wife’s costs seemed to be “grossly disproportionate” for what was not a particularly complex case, where the money really being argued about (i.e. the difference between the parties’ real cases) was in all probability less than that sum.
The judge held that where one party has incurred legal costs at a sensible and moderate level and the other has incurred legal costs at a grossly disproportionate level, the simple inclusion of both debts in the court’s schedule of assets and liabilities (whether already paid or yet to be paid) is likely to be unfair to the sensible and moderate spender.
Accordingly, the judge decided to add back the sum of £200,000 on to the wife’s side of the court’s asset schedule, recognising that some of her additional costs may have been reasonably incurred.
The net result of this adjustment, of course, was that the wife received less of the available assets than she would have done had her costs been reasonable, and the husband was not penalised for the wife’s disproportionate costs.
You can read the full judgment here.
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