The impact to you of the latest divorce case of Wyatt v Vince which hit the headlines last week

Always finalise your financial agreements following a divorce by way of a Consent or final Order to prevent your ex-spouse pursuing you in later years for a share of any after acquired assets and to prevent the expense of pursuing or contesting the proceedings.

In the recent Supreme Court case of Wyatt v Vince [2015] UKSC 14 the ex-wife pursued her claim for a financial settlement some 18 years after the Decree Absolute had been granted ending their marriage. Mr. Vince’s business subsequently took off and he became a multi-millionaire.

Mr. Vince made an application to the court to summarily strike out Ms. Wyatt’s claim on the basis that there were no reasonable grounds for bringing the application; and that the application was an abuse of the court's process or was otherwise likely to obstruct the just disposal of the proceedings.

Ms. Wyatt made an application for Mr. Vince to fund her legal costs.

On 14 December 2012 a deputy High Court judge dismissed Mr. Vince's strike-out application and ordered him to make interim periodical payments in respect of legal costs. Mr. Vince appealed, successfully, to the Court of Appeal to have the deputy judge's orders set aside. She appealed to the Supreme Court.

The Supreme Court upheld her appeal. The Judges held that “when an ex-spouse applies for a financial order, the court has a duty under section 25(1) of the Matrimonial Causes Act 1973 ("the 1973 Act") to determine that application having regard to all the circumstances, including the eight matters set out in subsection (2); this assessment is not apt for summary determination.”

On this basis, that it was a proper application to be heard substantively by the court, Mr. Vince also failed in his argument that it was an abuse of process. Subsequently, as Ms. Wyatt was unable to reasonably secure legal services by any other means and it would be unreasonable to expect her solicitors to continue to act without payment until the determination of her substantive application the test for interim periodical payments in respect of legal costs was made out and the original order upheld.

This does not mean that Ms. Wyatt will automatically achieve a final settlement from Mr. Vince but that the court must consider the application as it would any other, taking into consideration the s.25 factors but it does provide a timely reminder to all divorcees who don't have financial orders in place that they should do so to avoid later claims based on wealth acquired after the divorce.

If you feel you are not protected please contact Andie Brown head of our family team for professional advice “clear and simple” on 01524-386500

The Deed of Variation - A Tax Loophole or Not?

There has been a bit of a furore on the Solicitors for the Elderly discussion forum recently following press articles about Deeds of Variation and particularly the Daily Mail’s reference to it as a ‘controversial tax loophole’.  Although a deed of variation can save tax in certain situations, it is basically a device for a beneficiary to record the gift of some or all of his or her interest in a deceased’s estate in favour of another individual or a charity or a trust.  It will be used where the situation after someone’s death is not covered by the terms of the deceased’s will or intestacy and for all sorts of reasons, not necessarily related to tax, it is desirable to change the terms of the deceased’s will. 

The deed of variation sets out how the beneficiary is rearranging or redirecting his or her interest in the estate.  It can be preferable to the beneficiary’s other option of ‘disclaiming’ the gift (where they simply refuse to accept it) as it means that the original beneficiary can choose who (or what) receives it. 

A deed of variation can be helpful where the first to die of an unmarried couple has failed to make a will and the cohabitee would otherwise lose everything to the beneficiaries who were entitled under the intestacy rules.  In these circumstances, the beneficiaries of the intestacy would each have to come to the decision to ‘do the right thing’ as they cannot be made to gift their interest (the deed of variation has to be voluntarily) and the alternative is likely to be a difficult and probably expensive claim against the estate under the 1975 Inheritance Act for the family and dependants. 

It can also be helpful to make sense of the current inheritance tax regime where couples now have a transferable nil rate band.  Prior to the Finance Act of 2006 it was necessary for married couples and civil partners with an estate over the value of one nil rate band to pass some of it to a discretionary trust (if the survivor was likely to need it) or outright to their children or relatives (if the survivor did not) on the first death.  This was an artificial arrangement to avoid a higher inheritance tax bill when the survivor of them died and thankfully it is no longer needed.  However, where a couple have not updated their wills a deed of variation can be useful to pass the estate on to the survivor of them as the couple would have wished if only the tax regime had allowed them to.

The variation is essentially a gift by the original beneficiary under the will or intestacy.   If it is completed within 2 years of the deceased’s death, provisions in the Inheritance Tax Act 1984 and Taxation of Chargeable Gains Act 1992 mean that although the beneficiary is making a gift of his or her interest, that beneficiary will not be responsible for any tax payable as a result of the gift and instead the terms are ‘read back’ into the will. 

In relation to inheritance tax, the reading back provisions mean that the gift is considered as part of the distribution of the deceased’s estate overall.  So, if the total amount transferred to chargeable beneficiaries exceeds the deceased’s nil rate band then tax will be payable, but otherwise it will not.  

It would be rather unusual for a variation to trigger an inheritance tax charge, but it depends on the reasons for doing the variation in the first place.  In cases where the original beneficiary is re-organising the estate to make provision for dependants and relatives, inheritance tax considerations may be secondary to the needs of these individuals. 

I should add, for completeness, that it is only capital gains and inheritance tax that is covered by these reading back provisions.  For income tax purposes, the variation is only effective from the date the deed itself is executed.  Generally, the original beneficiary is assessed on any income produced up to the date of the variation and the new beneficiary after that. 

Hopefully, most people will not require a deed of variation as they will have an up to date will in place that reflects the current situation and includes everyone or everything that should be included.  It is obviously very important to keep checking the terms of your wills (or if you haven’t got one, to make one) to ensure it is up to date.  The deed of variation can be extremely useful and it will always be possible to make one, but whether or not the favourable rules for capital gains and inheritance tax will apply to the variation remains to be seen.  A change in the tax law could remove the advantages of the reading back provisions, so that although an estate can always be varied (or a beneficiary’s interest disclaimed) the ‘tax loophole’ is removed. 

For further information on any aspect of this article please contact Rebecca Lauder, a Partner in our Lancaster office on 01524 386500 or rl@bsglaw.co.uk