Lyons v Lyons

A clean-break order should normally end one former spouse’s use of the other’s property as security for borrowing. Where exceptional circumstances justify temporary security, the arrangement should last only for the minimum reasonable period and should contain an effective mechanism for securing release. A court may intervene where the order rests on a material error in assessing net assets or on an unsupported finding of financial consequence. Selling property to redeem secured borrowing does not, by itself, reduce net assets where the proceeds discharge liabilities pound for pound.

Following divorce, the parties disputed ancillary relief. The judge divided the assets broadly equally but allowed the husband to retain, temporarily, the benefit of charges over commercial properties owned by the wife. The charges secured the husband’s indebtedness to HSBC.

The order required the husband to use his best endeavours to remove the charges and to indemnify the wife, but imposed no time limit. The wife appealed, challenging the judge’s reasoning that immediate redemption could deplete the husband’s assets and lead to financial ruin. The central issue was whether the arrangement was rationally and adequately supported, and whether it sufficiently achieved a clean break.

1. Appeal allowed in part. The court granted permission and varied the order governing the charges.
2. The judge had materially erred in reasoning that the husband’s asset base would be depleted by £1.345 million if he sold property and used the proceeds to redeem the charges. The relevant measure was his net asset base, which would remain substantially unchanged because the sale proceeds would reduce liabilities pound for pound. The evidential basis for the asserted risk of financial ruin was also inadequate.
3. The court accepted that the judge could allow the husband reasonable latitude to redeem the charges, particularly in uncertain market conditions. However, permitting one former spouse to use the other’s property as security after financial division is generally undesirable and departs from the objective of a clean break. Any such indulgence should be limited to the minimum reasonable period.
4. The existing best-endeavours undertaking was open-ended and lacked sufficient practical force. It was replaced by a two-year period from the date of trial. If the charges were not removed by then, the husband was to pay the wife a lump sum of £1.345 million, which she would receive solely to enable onward payment to HSBC. The husband was given liberty to apply if an unforeseen change of circumstances impeded discharge within that period.
5. Wall LJ agreed with the proposed order, while observing that the appeal ought preferably to have been addressed before the judge or during drafting. Rimer LJ agreed that the scheme was sound in principle but defective because it lacked a real time limit.

• Court of Appeal (Civil Division): In [2010] EWCA Civ 177, permission was granted and the wife’s appeal was allowed in part. The order was varied to impose a two-year period for removal of the charges, with a default lump-sum mechanism and liberty to apply.
• Principal Registry of the Family Division: Mrs Justice Macur divided the family assets broadly equally and accepted undertakings requiring the husband to use his best endeavours to remove the charges and indemnify the wife.