High Court sets aside property transfers under s.35 Family Law Act 1995 due to suspicion of defeating claims.

Neutral Citation: [2012] IEHC 613

THE HIGH COURT

FAMILY LAW

[2010 No. 11 M]

IN THE MATTER OF THE JUDICIAL SEPARATION AND FAMILY LAW REFORM ACT 1989

AND IN THE MATTER OF THE FAMILY LAW ACT 1995

BETWEEN

A. APPLICANT

AND

B. RESPONDENT

Judgment of Mr. Justice Michael White delivered the 7th of June, 2012.

1. The applicant has issued a motion dated the 29th September, 2011, originally returnable for the 14th October, 2011, seeking an

order pursuant to s. 35 of the Family Law Act 1995, setting aside any disposition made by the respondent from the 10th March, 2007.

This motion was heard on the 14th, 15th and 16th May, 2012, separately from the substantive action.

2. The parties married on the 10th September, 2006, in Country A. They have two children; There is a serious conflict of evidence as

to the nature of the relationship between the applicant and the respondent. The applicant has stated that she was in a long term

committed relationship with the respondent since 1992 and became engaged to him in 1994, and viewed her marriage as perfectly

normal and healthy until certain events transpired at the end of December, 2009. The respondent has stated that the marriage

between the parties has at all times lacked the warmth and intimacy necessary to sustain a marital relationship and they led separate

lives to all intents and purposes. The respondent viewed their relationship as being of a casual nature.

3. The respondent initiated nullity proceedings in the High Court in January, 2010 (Record Number: 2010 No.3 M). The applicant issued

proceedings by way of special summons on the 10th March, 2010.

4. There are five transactions the subject of the application pursuant to s. 35 of the Family Law Act 1995 and these can be divided

into two distinct categories.

5. The first category relates to the transfer to a trust of properties in Country A and Country B. The property in Country A will be

referred to as Property A and the property in Country B will be referred to as Property B.

6. The second category relates to the transfer of interest in two properties and an amount of sterling to an individual who will be

referred to as M. These properties will be referred to as Property C in Country Band Property Din Country C. The sterling amount was

£750,000.

7. Property B was transferred by the respondent to a named company on the 20th January, 2010. This was a company controlled by

the respondent. The property was subsequently, in or about July, 2010, transferred to a limited partnership. These transactions were

without substantial consideration.

8. Property A was transferred without consideration by the respondent to the limited partnership on the 5th July, 2010.

9. By assignment of the 23rd September, 2010, the respondent transferred without consideration all his interest in the limited

partnership to his daughter, J, who in turn created an irrevocable trust for the benefit of herself during her lifetime and thereafter for

the benefit of any one or more of the descendants of the respondent to be appointed by testamentary power of appointment.

10. There is no doubt that these two properties originally in the ownership of the respondent were transferred by him at a time

subsequent to the issue of family law proceedings by both parties, and that the respondent had knowledge of these proceedings.

11. The method of transfer was devised to ensure substantial savings of gift tax in Country A and capital gains tax in Country B. The

only reason for the inclusion of Property B was tax efficiency. Due to the fall in value of this property from the date of acquisition, the

loss could be offset against the capital gain on the other property. Property A has been the residence of J since her youth. There was

no connection between J and Property B.

12. In respect of these two properties the applicant has argued that in addition to the relief sought pursuant to s. 35 of the Family

Law Act 1995, the respondent was not entitled to transfer the properties during the currency of family law proceedings which

included a claim for a property adjustment order.

13. In A.S. v G.S. [1994] 1 I.R. 407, at p. 408 in the headnote, it is reported that the High Court decided:-

"That an application for a property adjustment order under the Act of 1989 was a registerable lis pendens, even though

the claim to an estate or interest was contingent on the making of the order sought rather than an estate or interest

allegedly existing at the commencement of the action".

Geoghegan J. stated at pp. 414 and 415 of the judgment that:-

"It would seem to me that a volunteer is bound by a lis pendens irrespective of whether he has notice of it and

irrespective of whether the lis has been registered".

14. In ACC Bank Plc v Vincent Markham and Mary Casey [2005] IEHC 437 at para. 3 (1), Clarke J. stated that:-

"It should be noted, and as is clear from the authorities referred to in A.S. that the original meaning of the term lis

pendens related to the fact that there was a case (or lis) pending (pendens). In its more modern usage the term has

come to be synonymous with the filing of a document given the same name (lis pendens) in the appropriate register so as

to put parties on notice of the fact that there is such a case pending. However it is clear that in its original form the term

simply related to the fact that there was such a case pending rather than to a document which placed parties on notice

of that fact".

Clarke J. at para.3 (5) further stated that:-

"By virtue of the fact that a judgment mortgage is taken to be a volunteer rather than mortgagee for value such

judgment mortgagee (and in principal any other volunteer) will (even in the absence of actual notice or the registration of

a lis pendens) rank behind the interest of a spouse to whom a transfer order is made provided the relevant family law

proceedings had been commenced before the registration of the judgment mortgage".

15. I would not go so far as to state that these cases are authority for the proposition that once family law proceedings are initiated

which include a claim for a property adjustment order, that there is a blanket ban in all dispositions by either of the parties to the

litigation until the case is finally disposed of. Each case must be treated on its own merits, but great care has to be exercised when

transferring assets which may be the subject of a claim, subsequent to the issue of family law proceedings.

16. The Court in respect of these transactions is dealing with a transfer to a trust as a gift to benefit the respondent's daughter by

way of a life interest and the descendants of the respondent by testamentary power of appointment, and a straightforward gift to a

friend M. They are not purchases for value without notice to the purchaser.

17. Paragraph seven of the special summons is clear notice to the respondent that the applicant was seeking a property adjustment

order in respect of properties apart from the family home. The Court would expect the respondent to take careful note of reliefs

sought in family law proceedings.

18. The Court notes that Property A was in the sole ownership of the respondent for many years prior to this transaction, but that he

did not take any steps to transfer any interest to J until he commenced proceedings followed closely by the applicant's proceedings.

There is a presumption in s. 35 that the disposition was intended to prevent relief unless the contrary is shown. In some portion of his

evidence the Court has not regarded the respondent as a forthright witness.

19. While the primary purpose of the transaction was to benefit his daughter J in a tax efficient manner in respect of Property A, I am

satisfied that the respondent also had in contemplation the impending family law proceedings.

20. In those circumstances it is appropriate to make an order pursuant to s. 35 of the Family Law Act 1995. The Court is also of the

view that apart from the provisions of s. 35 of the Family Law Act 1995, it is further entitled in this particular case to set aside the

transfers based on the legal principles set out above.

21. There is no dispute between the parties that the Court has the option to attribute the value of these transactions to the

transferring party, without the need to formally set aside the transactions. The Court intends to follow that course. The attribution of

value can either be agreed between the parties or fixed by the Court at the substantive hearing.

22. The second category of transactions to M were all carried out prior to the end of June 2008. They were:-

a). The transfer without consideration of all the respondent's interest in Property C.

b). The transfer without consideration of his half interest in Property D.

c). The transfer of £750,000 sterling.

23. While the transactions were most unusual, and the explanations provided by the respondent not persuasive and not supported by

any corroborative evidence, the Court is concerned that the transactions took place at such a remove from the date of issue of the

proceedings that it is difficult on the balance of probabilities to establish that the transactions were undertaken for the purpose of

defeating the applicant's claim for relief.

24. The applicant considered the marriage to be stable in 2008 and it would be speculation on the Court's part to attribute to the

respondent an intention to put these assets beyond the reach of the applicant.