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Reforms to improve enforcement of family financial orders fall short

ANALYSIS: Plans to make it easier for divorcees to enforce financial orders of the courts in England and Wales do not go far enough to address the challenges those divorcees face in obtaining access to offshore assets of high net worth individuals.20 Aug 2018

The issue of enforcement of financial orders arising from divorce has long been a problem that judges in the English courts have had to grapple with in cases where high net worth individuals hold assets in various jurisdictions and through corporate entities. It is of major concern in all financial remedy proceedings where one party looks likely to be uncooperative and often impacts third parties as much as the parties to the litigation themselves. 

These issues were identified by the Law Commission in a report it published in late 2016. The report highlighted difficulties that people face in enforcing family financial orders and made a series of recommendations for reform.

In addition to calls for procedural reforms, the Law Commission called on the government to make a number of changes to UK legislation.

Now, the UK government has given its response to the Law Commission's report (4-page / 257KB PDF). Although it has announced plans for a new "clear and comprehensive procedural framework" to help people who successfully obtain family financial orders to effectively enforce them, it has stepped back from pursuing legislative changes for now.

Recent cases before the courts in London, however, suggest that the reforms planned may not be sufficient to resolve the challenges of enforcing family financial orders in complex cases involving high net worth individuals and assets belonging to them held overseas. There are millions of pounds at stake.

As the Law Commission report pointed out, the total amount of money that goes unpaid each year through non-compliance with family financial orders is approximately £15-20 million. This value is based solely on figures taken from orders that have been enforced – there are unquantified numbers of orders that do not get enforced each year, often seen in high net worth cases where marital assets are located off-shore and the cost, time and uncertainty of enforcing an English order in the relevant jurisdiction prevents the receiving party gaining their just entitlement. 

We often see parties being awarded large sums, only to remain penniless for years whilst enforcement proceedings have to then be undertaken. The Supreme Court case of Prest v Petrodel demonstrated the limitations faced by the courts in dealing with such situations. These were echoed in the more recent High Court case of Akhmedova v Akhmedov

Tatiana Akhmedova was awarded a £453m lump sum in 2016 comprising of a £350m cash sum together with the transfer of various properties, as part of the financial remedy settlement. However, in January 2018, it was reported that she had not received "a penny" of the money from her former husband, and has had to pursue costly and lengthy enforcement proceedings which have included the unprecedented step of piercing the corporate veil of several of the husband’s corporate entities.

Whilst the government’s long awaited response to the Law Commission report goes some way to simplifying the current highly complex system of enforcement against English assets, it still leaves open the issues faced when having to enforce in relation to offshore assets as seen in the Akhmedova v Akmedov case.

Also, they are yet to address the Law Commission’s suggestions on ways to put greater pressure on the debtors, by for example, providing the court with wide powers to obtain information from third parties about a debtor’s assets, extending existing methods of enforcement to UK situated assets that currently cannot be enforced against, for example pension assets and joint bank accounts, or allowing the courts to apply pressure to debtors that have the means to pay but are refusing to pay by disqualifying them from driving or preventing them from travelling out of the country.

Sarah Ingram of Pinsent Masons, the law firm behind Out-Law.com, is an expert in private wealth dispute resolution and specialises in family law. She acted for the Petrodel companies in the Supreme Court case of Prest v Petrodel.