Whose asset is it anyway? Joining a third party or intervening in financial remedy proceedings

When a couple gets divorced, there will often be disagreements about how assets should be divided between them. These arguments will raise questions such as who is the rightful owner of the asset, when was the asset acquired and who should retain it. But what about a third party who seeks to claim that they have an interest in an asset or assets that form part of the matrimonial pot and are the subject of a dispute in financial remedy proceedings.

What type of situation might give rise to a third party claim?

There are many situations where a third party could seek to stake a claim over an asset in divorce, or a third party needs to be added to the proceedings in order to decide the rightful ownership of an asset.  The following situations are examples of where the issue of joining a third party will arise:  

  1. 1. Where a spouse of the marriage alleges that the other party is beneficially entitled to property held in the name of a third party. In order for the third party to be bound by any decision of the Court, they would need to be joined to the proceedings.
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Examples:

The wife claims that a property legally owned by the husband’s parents is being held on trust for the husband. Given the husband’s beneficial interest in the property, the wife may want to join the husband’s parents to the financial proceedings to argue the extent of the husband’s beneficial interest in the property.

The husband claims that the wife’s brother who holds shares in a family company, is holding the shares on trust for the wife. The husband may want to join the wife’s brother to the proceedings to argue that these shares are being held on trust for the wife and she is therefore beneficially entitled to the same.

  1. 2. Where a family member, friend or other have provided a significant lump sum of monies to one or both spouses, and the question arises was this a gift or a loan. The Court would need to join the third party to the proceedings in order to get to the bottom of the intentions at the time of providing these monies.
  2.  

Example:

The husband’s father provides the parties with a significant sum of money after they have married, and the parties use these monies to purchase the family home. The wife says these monies were a wedding gift and there was no intention that they would need to be repaid but the husband says that these monies were a loan to help them get onto the property ladder. The husband may want to join his father to the proceedings to argue that these monies need to be repaid.

  1. 3. Where a third party seeks to claim a beneficial interest in property held in the name of one or both of the parties to the marriage. The Court would need to determine the extent of the third party’s claim and in turn the resources that will be available for distribution between the parties of the marriage. In this situation, the party seeking to join the proceedings would be an intervener.
  2.  

Example:

The wife’s parents provide a substantial sum of money to enable the parties to purchase a family home. In order to protect their interest in the property, the wife’s parents may request permission to intervene in the proceedings in order to establish their interest and seek that this is upheld, for example if the property is sold, they are repaid the monies they put into the property.

It is important to note that the decision of the Court in financial remedy proceedings will only be binding upon the parties to those proceedings i.e. the divorcing couple and therefore consideration has to be given to the need to join a third party to the proceedings in order to ensure that the decision is also binding upon them. A failure to do this could jeopardise the enforceability of the Order to be made.

How does the Court decide whether to allow a third party to join proceedings?

The power of the Court to join a third party to proceedings is set out in FPR 9.26B which states that:

The Court may direct that a person or body be added as a party to proceedings for a financial remedy if:

  1. a) It is desirable to add the new party so that the Court can resolve all matters in dispute in the proceedings; or
  2.  
  3. b) There is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the Court can resolve that issue.
  4.  

In short, if the ownership of an asset is in question and the resolution of such a dispute is necessary to determine the outcome of the financial remedy proceedings, the Court would be likely to consider that that adding a third party is “desirable”. Given the outcome of joining a third party to the proceedings can detrimentally impact the assets available for distribution between the divorcing couple, it is important for such matters to be dealt with at an early stage and for ownership to be resolved before distribution.

Further, in considering whether it is “desirable” to add a third party, the Court will also consider the proportionality of doing so. In this regard, the Court would consider whether the parties are seeking a transfer or sale of the asset in question. If seeking a transfer of a particular asset from the other spouse and it is argued that this asset is owned by a third party, then it would be appropriate to join the third party to the proceedings. In contrast, if a lump sum is sought rather than a transfer or sale of the asset, the Court may not consider that the third party needs to be added, and instead consideration can be given to the matrimonial pot as a whole.

Making a joinder or intervening application

It is important that such an application is made at an early stage of the financial remedy proceedings. In TL v ML and Others (Ancillary Relief: Claim against Assets of Extended Family) [2005] EWHC 2860 (Fam), Nicholas Mostyn QC (as he then was) set out what he described as a “discipline” to be followed in such cases:

  1. 1. The third party should be joined to the proceedings at the earliest possible opportunity.
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  3. 2. Directions should be given for the issue to be fully pleaded by points of claim and points of defence.
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  5. 3. Separate witness statements should be directed in relation to the dispute.
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  7. 4. The dispute should be heard as a preliminary issue before the FDR (Financial Dispute Resolution hearing).
  8.  

In Fisher Meredith v JH and another (Financial Remedy: Appeal: Wasted Costs) [2012] EWHC 408 (Fam). Mostyn J identified that a distinction must be drawn between those cases in which the third party sought to uphold the paper title and those where the third party seeks to prove a trust. Therefore, if a party to the proceedings seeks to assert that a property is owned beneficially by a third party, it may be possible for the FDR judge to express a view on ownership of the asset at the FDR based on the evidence before it, avoiding the cost of additional contested proceedings on the issue. Whereas if a party to the marriage is to assert that a property held in the name of a third party is the property of the other party to the marriage, this is a matter which must be dealt with as a preliminary issue before consideration of division of the assets at an FDR can take place.

Costs Implications

There is a risk in making a joinder or intervening application as the general rule of “each party bears their own costs” which applies within the financial remedy proceedings, does not apply to these applications. It will be at the discretion of the Judge to decide whether the unsuccessful party should be ordered to pay costs of the other parties.

This is a matter that requires careful consideration and the correct approach to be taken will depend on the circumstances of the case.

Written by Sarah Rose (Solicitor)

Please contact us on 020 8290 0333 or email info@judge-priestley.co.uk if you would like more information about the issues raised in this article or any aspect of family law.

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