When a wealthy construction business owner and his wife divorced in 2011, a ‘clean break’ agreement was made to include the sale of the two properties they owned – the family home in the UK and one in Spain. In the event that neither had been sold, the husband would purchase a property for the wife, the costs of which (including interest on the mortgage which he would pay) would be met from the proceeds of the property sale.

In addition, he agreed to pay her by way of a loan £12,000 a month until the family home was sold.

The loan payments made to the wife were to be deducted from her share of the sale proceeds of the properties. She was to receive £1.3 million from the sale of their UK property and £700,000 from the sale of the property in Spain. The husband was to retain his shares in the construction business, but also agreed to transfer a proportion of his pension to his wife.

However, the valuations the couple put on the properties were highly optimistic and, in the event, years passed and neither property was sold. No action was taken to reduce the asking price of either property. This left the wife in a very unfortunate position, as a result of which she went to court to request that she be released from her undertaking to repay her husband. The court made an order that other than the deposit (£260,000) her husband had paid towards the mortgage of her new property, she should be relieved of further payments unless the sale proceeds of her share in the two properties exceeded a certain figure. However, the judge’s order simply relieved the wife of obligations without suggesting any replacement undertakings on her part.

Her husband appealed that decision as it effectively left him with a continuing liability. In the view of the judge, "If a court is contemplating the discharge of an undertaking in these circumstances it seems to me self-evident that the court should look at the provision of replacement undertakings and to limit the release to that which is necessary to avoid serious hardship or injustice."

In allowing the husband’s appeal, the judge indicated that he would make a ruling which took account of the wife’s finances, including her ability to take a lump sum from the transferred pension and whether the monthly maintenance payment of £12,000 was reasonable given her requirements.

Source: Private Client Library Content