This article was originally published in WealthBriefing and can be accessed here. 

Economic abuse: Its new role in divorce

Economic abuse has gained increasing recognition as a form of domestic abuse. This is reflected in the Domestic Abuse Bill currently before Parliament, which explicitly includes economic abuse (also known as financial abuse) as a form of abuse. Economic abuse is defined in the bill as “any behaviour that has a substantial adverse effect on [the victim]’s ability to (a) acquire, use or maintain money or other property, or (b) obtain goods or services”. It is a form of controlling or coercive behaviour, and may be accompanied by other forms of psychological abuse, or reinforced with violence or threats of violence.

Economic abuse can take many forms and affect people from all walks of life. In wealthy families there is much scope for using financial resources as a means of control. Family lawyers are increasingly attuned to indicators of economic abuse, as it may have substantial implications for how a divorce case should be run and what protection may be needed for the client. Other family advisors (accountants, wealth managers, IFAs, etc.), particularly those concerned with financial affairs, should also be alert to signs of economic abuse.

The campaign group Surviving Economic Abuse identify a number of behaviours which may amount to economic abuse. Within wealthier families examples may include:

• Preventing a partner from working where they wish to do so, denying them financial independence;
• One partner’s salary being paid into a bank account to which only their partner has access;
• One partner controlling all of the family’s financial arrangements, holding all assets in their name, and denying their partner any information about the family’s financial circumstances;
• Imposing strict limits on the other’s spending, or making them ask for money every time they want to incur costs;
• Requiring detailed explanations of all spending from the other partner and checking their receipts; and
• Incurring debt in the other party’s name, potentially without their full knowledge, damaging their credit rating; or mortgaging the family home without their knowledge.

For example, a husband may require his wife to pay her salary into a joint account to which she does not have access. He pays her a very limited allowance, in cash, and demand to see receipts for all her expenditure. She may become isolated from her friends and family as she cannot afford drinks or meals out, or suitable clothes to enable her to feel comfortable at social events. By way of another example, the wealthy wife of a househusband may prevent him from working, damaging his earning potential and self-confidence, and keep all the family assets in her name and deny him any information about the family’s financial position, dictating what the family can and cannot afford. All of these behaviours may be enforced through violence or psychological intimidation.

It is always difficult to leave an abusive relationship, but this is exacerbated where economic abuse is present given the practical difficulties arising from the lack of access to resources. However, family lawyers have an array of tools which can be deployed to assist victims of domestic abuse who do leave their partners and seek a divorce, and victims should be encouraged to seek legal advice and be reassured that support is available.

In terms of meeting immediate needs, an Occupation Order can require the abusive party to leave the family home and require them to pay mortgage, rent or other outgoings, providing a safe and secure home environment. Once divorce proceedings have been issued, an Interim Maintenance Order can be sought to ensure that the client will be able to meet their needs during the proceedings. Funding for legal costs can be sought by way of a litigation loan, where a specialist lender loans funds to cover legal costs on the basis that the loan will be repaid from the final award, or by way of a Legal Services Payment Order which can require the other party to pay a sum to cover legal fees.

A party who has perpetrated economic abuse may be more likely to try to put assets out of the court’s reach by transferring them to a third party, charging them and disposing of the cash released, or transferring assets abroad. Where this is a risk, Freezing Orders can be sought to prevent the disposal or transfer of assets, or if transactions have already taken place applications can be made to set such transactions aside. In respect of real property, notices and restrictions can be registered at the Land Registry to protect the client’s position.

In some cases, an economic abuser may use the divorce and related financial proceedings to continue their abuse, for example by refusing to make full disclosure of their financial position or to comply with orders that the court has made. Such behaviour amounts to “litigation misconduct” and any additional costs resulting from it can be claimed from them. Ultimately, refusal to comply with a court order may be contempt of court and can be punished by imprisonment, as in Young v Young [2013] EWHC 34 (Fam), where Scot Young was sentenced to six months in jail after refusing to make financial disclosure.

In the recent case of OG v AG [2020] EWFC 52 the judge stated that “If one party economically oppresses the other for selfish or malicious reasons then… it may be reflected in the substantive award”. Generally, what this will mean is that where past economic abuse has harmed a party’s financial position (e.g. by damaging their credit rating or earning capacity), the consequences should be borne by the perpetrator, not by the victim. When it comes to the details of the final settlement, every effort should be made to prioritise financial separation going forward so far as possible, as ongoing financial ties provide an opportunity for further economic abuse.

Once the proceedings are over, a victim of economic abuse may need substantial support in moving forward into economic independence. The tasks of putting together a budget, opening bank accounts, making investments etc., may be challenging for someone who has not had control over their own finances for many years, or has been told that their (modest) spending aspirations are frivolous. Considerable support from suitable professionals may be needed.

Family lawyers and other family advisors must be alert to signs of economic abuse so that they can react appropriately. Those who are victims of domestic abuse will face a challenging time in re-establishing their financial independence but should be reassured that family lawyers have a range of tools available to help them move forward toward an independent future.