Financial Disclosure in Rule 43 Applications
What is a Rule 43 application?
Rule 43 was created to offer a streamlined and affordable process for obtaining the same interim relief in matrimonial actions as had been previously available under the common law in regard to maintenance and costs.
When a divorce is taking a long time to finalise or when one of the spouses is a homemaker with no income, the law offers a procedure that can be used to help spouses during a divorce to provide for the interim period until the divorce is finalised. Rule 43 of the High Court and rule 58 of the Magistrate’s court give an interim measure to help an applicant fast and with little legal costs. In the law, this is called interim relief. Rule 43/58 can be used for one or more of the following:
Rule 43/58 deals with many of the difficulties that will eventually be dealt with in the final divorce action, but is a temporary remedy. An extremely acrimonious divorce can take many years to finalise and spouses need to be safeguarded during the course of the divorce process.
In terms of the equality provisions in the Constitution, a divorcing wife who has no income is entitled to a contribution to her legal costs to ensure she has an equal opportunity to defend her case.
Depending on the circumstances, such an application can be brought:
Current problems with Rule 43 applications
Lawyers specialising in Family Law will tell you that a rule 43 application is a lot like playing Russian roulette. The rule is viewed to be unpredictable in application and is said to be susceptible to an unjust outcome for one if not both of the parties. The difficulty is that it matters more now simply because of the significant consequences to the parties of what is procedurally classified as an interim order but in practice is probably to be the only contested hearing during the whole divorce process. The cause is the length of time it might take for an opposed divorce to come to trial therefore compelling the need for interim parenting arrangements, maintenance and the like under rule 43. It is also the subsequent realisation, by the one party or both, of the unaffordability of seeing the litigation through to a costly full blown trial.
Delay may be due in part to the resources available to a court, such as over-stretched offices of the Family Advocate. It might additionally arise as a result of the increasing number of divorce cases coming to the High Court or the behavior of those lawyers whose interests are served by keeping an inequitable status quo in relation to any of the issues which a rule 43 application is intended to address, especially where that party has sufficiently deep pockets to out-litigate the other.
The issues before the High Court have also come to be more complicated. Lost are the days of the norm being a single bread winner or that a child must stay with the mother unless of course it can be shown that she is unfit. Not only are both spouses more probably to be working but the structuring of the financial affairs of one or the other may be complicated and intertwined with family trusts or businesses here or off-shore in which they tend to be de facto beneficiaries.
A presiding judge has an unenviable task. It is usually confusing to ascertain whose version is to be believed; with each party producing out a convincing case on paper. A party may even provide a plausible explanation to account for extra expenditure over disclosed net remuneration on the ground that property was sold, that money had to be loaned or that capital is being eaten into in order to make ends meet. Generally there is no way of evaluating these allegations if regard is had to the limits inherent in getting two brief sets of affidavits as practice requires under the rule. There may also be inequality of treatment in regard to interim maintenance applications simply because there will be cases where discovery has already been made by both parties (e.g. where the trial was postponed) and no issue has been taken with their adequacy; in such a case there will therefore be documentary evidence that makes the task of the parties much easier in presenting brief affidavits or refer to external documents contained in court bundles.
A court hearing a rule 43 would usually be expected to deal with the following series of questions: What are the historic expenditure figures? Is there any reason to decrease or increase them (e.g.; if the income source has changed or become depleted and, where applicable, what account if any should be taken of providing for the additional cost of accommodation for the children)? Must there be an annual adjustment for inflation? As soon as the expenditure figure is established what would be its equitable apportionment between the parties having regard to their respective net worth, their income or other financial benefits actually enjoyed, their own reasonable expenditure, and any other relevant factors arising in the particular case that should be considered?
At face value this may appear to be a simple exercise. In some cases it is. In other cases, income, assets or other economic benefits might be provided via drawings, under the guise of a loan (whether directly or through ostensible intermediaries), or in the case of a benefit, is contended to be for temporary use only without any rights being acquired to the property or other asset in question.
Furthermore, emoluments may be deferred or, as with assets and other benefits, may be hidden through trusts, nominees, family operated businesses, share options, corporate entities or other businesses or employment structures in relationships that would generally involve connected persons (and consequently raise the question of whether these are likely to be genuine arms-length relationships). And while a court may on occasion have enough to pierce the structure employed it is seldom in a position to determine the actual quantum of the benefits received, preferring to err on the side of a conservative evaluation. Where the parties are wage earners employed by a complete outsider who, to adopt a term from company law, is not a related person, then a court will have confidence in accepting pay slips, IRP5 forms and tax returns.
Legal entities and trusts are popular means wherein income and assets may be distributed in forms other than salary or cash. They also enable income to be deferred via retention in loan accounts or being converted into investments or equity. An additional illustration is where one legal entity passes a debit in its books resulting in the transfer of funds to another entity which in turn may either park the proceeds or else immediately distribute them in one form or another for the ultimate benefit of one of the parties to the proceedings. These various structures may also enhance the provision of readily available or recurring revenue streams that are habitually used by one or both parties to the marriage to maintain the family lifestyle. The simple fact that the revenue received is not shown in a regular payslip or IRP5 return is of no consequence- at best these documents are pieces of evidence. They nevertheless can never be conclusive in such circumstances since they are unlikely to account for funds received in the form of loan account repayments or of other benefits having an economic value, such as the de facto indefinite occupation of residential property in the name of a trust, the use of a company car or the provision of groceries through a company credit card, the payment of insurance premiums and the like.
The relationships or structures employed result in the individual concerned maintaining a specific standard of living or accumulating rights and other benefits that are not accounted for by the payslips and list of registered assets produced in court. In a number of cases the one party has re-arranged his or her affairs in a manner which has resulted in a significant drop in earning capacity or the reduction of assets through their disposal or dissipation.
Without the requirement of a proper disclosure, and possibly the utilisation of oral evidence in appropriate cases, rule 43 proceedings favour the dishonest party or the one who takes advantage of a practice that does not insist on up-front disclosure of the true state of financial affairs. Logically there is also no risk of contempt of court proceedings or of a criminal charge for fraudulent non-disclosure.
A judges' personal or relative viewpoint of a reasonable expense may impact the determination of that side of the equation, whereas the issue should be concerned with the parties’ reasonable expenditure having regard to their living standards and their accessibility to income. Of course this will be tempered by the reality that with the split in households there is an inevitable increase in expenditure for either one or both of the parties (or possibly even a reduction for one of them at the expense of the other).
While the rights of children have continuously been respected and the courts have diligently exercised their common law powers and duties as upper guardian, the recognition of the rights of children being of paramount consideration in all matters affecting them is more emphasized. This is due to s 28 of the Constitution and its adoption into the Children's Act 38 of 2005.
A rule 43 order, although temporary in nature, can loom large in the negotiations that are inevitably conducted between the parties. As a result it will affect whether an eventual settlement achieves the desired result of fairness to both parties. On the other hand, if the case can't be settled then the “successful” party to a rule 43 application (or a rule 58 in the Magistrates’ Court) is placed at an advantage as the order will be relied upon before the trial court with the risk that a “reverse onus” is cast on the other party to show why the order was wrong.
Financial disclosure
In TS v TS (28917/2016) [2017] ZAGPJHC 244; 2018 (3) SA 572 (GJ), Spilg J, emphasized the importance of financial disclosure during Rule 43 proceedings.The necessity of disclosure in interim maintenance orders is not a unique process. Both the English and Australian court rules provide for it. In England it is commonly known as a Form E disclosure. This refers to the form that is completed in an application for a financial order inter alia in divorce proceedings before the High Court or the Family Courts in England and Wales.
The English decision of Livesey (formerly Jenkins) v Jenkins [1984] UKHL 3; [1985] 1 All ER 106 (HL) was concerned with the provisions of the Matrimonial Causes Act of 1973 which at the time provided in s25(1) that, when deciding whether to exercise its powers to make orders under ss 23 and 24 of that Act for financial provision and property adjustments after a divorce, it was the duty of a court to have;
“regard to all the circumstances of the case including the following matters, that is to say- (a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future; (b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future … “
The relevance of Livesey is that, in the context of section 25(1) of the Matrimonial Causes Act, the House of Lords considered that unless the parties make full and frank disclosure of all material matters, a court are unable to lawfully or properly exercise the discretion it is given to make an order under ss 23 or 24 of that Act. The Practice Direction imposes on the parties a duty to make a full, frank and clear disclosure to the court of all financial and other relevant circumstances. Where a party is deliberately untruthful a case of statutory fraud may be brought. The offending party would also be subject to contempt of court proceedings.
The financial elements of a rule 43 are aimed at offering child maintenance, spousal maintenance or a contribution towards legal costs already incurred or to be incurred. The relative financial commitments of each spouse has absolutely nothing to do with the patrimonial consequences of a divorce (division of the assets) however everything to do with the application of s 7(1) of the Divorce Act 70 of 1979[1] and, in respect of a contribution towards costs, by guaranteeing a level playing field when it comes to litigation between them.
A court would be incapable to determine whether there has been a proper disclosure of available income and the parties respective means to provide for maintenance or be able to litigate on a relative par without assessing the available source of funds that historically have been used to support the family prior to the parties’ separation and whether that has changed to any marked degree bearing in mind that the households have been split.
Without a proper up-front disclosure procedure judicial officers may be compelled to elevate an anomaly in one party’s papers to an overall adverse credibility finding which impacts on the maintenance ordered to be paid, whereas it might be that the other party was more adept at juggling income and expenditure figures. In cases where it is apparent that both parties have exaggerated expenses or minimised income there is the temptation to simply split the differences. In either case a respondent may also enjoy an unintended advantage because the applicant does not have an automatic right of reply.
Rule 43 was created to offer a streamlined and affordable process for obtaining the same interim relief in matrimonial actions as had been previously available under the common law in regard to maintenance and costs.
When a divorce is taking a long time to finalise or when one of the spouses is a homemaker with no income, the law offers a procedure that can be used to help spouses during a divorce to provide for the interim period until the divorce is finalised. Rule 43 of the High Court and rule 58 of the Magistrate’s court give an interim measure to help an applicant fast and with little legal costs. In the law, this is called interim relief. Rule 43/58 can be used for one or more of the following:
- interim care or contact with the child;
- maintenance for the wife and/or children;
- enforcing certain payments, such as for the bond on the matrimonial home, vehicles, school fees, medical aid premiums and even deposits on new accommodation and relocation costs;
- interim contribution towards the costs of the divorce and legal fees; and/or
- an order for delivery of a car, furniture, etc.
Rule 43/58 deals with many of the difficulties that will eventually be dealt with in the final divorce action, but is a temporary remedy. An extremely acrimonious divorce can take many years to finalise and spouses need to be safeguarded during the course of the divorce process.
In terms of the equality provisions in the Constitution, a divorcing wife who has no income is entitled to a contribution to her legal costs to ensure she has an equal opportunity to defend her case.
Depending on the circumstances, such an application can be brought:
- before issue of the summons;
- simultaneously with the issuing of the summons; or
- after a notice of intention to defend is received.
Current problems with Rule 43 applications
Lawyers specialising in Family Law will tell you that a rule 43 application is a lot like playing Russian roulette. The rule is viewed to be unpredictable in application and is said to be susceptible to an unjust outcome for one if not both of the parties. The difficulty is that it matters more now simply because of the significant consequences to the parties of what is procedurally classified as an interim order but in practice is probably to be the only contested hearing during the whole divorce process. The cause is the length of time it might take for an opposed divorce to come to trial therefore compelling the need for interim parenting arrangements, maintenance and the like under rule 43. It is also the subsequent realisation, by the one party or both, of the unaffordability of seeing the litigation through to a costly full blown trial.
Delay may be due in part to the resources available to a court, such as over-stretched offices of the Family Advocate. It might additionally arise as a result of the increasing number of divorce cases coming to the High Court or the behavior of those lawyers whose interests are served by keeping an inequitable status quo in relation to any of the issues which a rule 43 application is intended to address, especially where that party has sufficiently deep pockets to out-litigate the other.
The issues before the High Court have also come to be more complicated. Lost are the days of the norm being a single bread winner or that a child must stay with the mother unless of course it can be shown that she is unfit. Not only are both spouses more probably to be working but the structuring of the financial affairs of one or the other may be complicated and intertwined with family trusts or businesses here or off-shore in which they tend to be de facto beneficiaries.
A presiding judge has an unenviable task. It is usually confusing to ascertain whose version is to be believed; with each party producing out a convincing case on paper. A party may even provide a plausible explanation to account for extra expenditure over disclosed net remuneration on the ground that property was sold, that money had to be loaned or that capital is being eaten into in order to make ends meet. Generally there is no way of evaluating these allegations if regard is had to the limits inherent in getting two brief sets of affidavits as practice requires under the rule. There may also be inequality of treatment in regard to interim maintenance applications simply because there will be cases where discovery has already been made by both parties (e.g. where the trial was postponed) and no issue has been taken with their adequacy; in such a case there will therefore be documentary evidence that makes the task of the parties much easier in presenting brief affidavits or refer to external documents contained in court bundles.
A court hearing a rule 43 would usually be expected to deal with the following series of questions: What are the historic expenditure figures? Is there any reason to decrease or increase them (e.g.; if the income source has changed or become depleted and, where applicable, what account if any should be taken of providing for the additional cost of accommodation for the children)? Must there be an annual adjustment for inflation? As soon as the expenditure figure is established what would be its equitable apportionment between the parties having regard to their respective net worth, their income or other financial benefits actually enjoyed, their own reasonable expenditure, and any other relevant factors arising in the particular case that should be considered?
At face value this may appear to be a simple exercise. In some cases it is. In other cases, income, assets or other economic benefits might be provided via drawings, under the guise of a loan (whether directly or through ostensible intermediaries), or in the case of a benefit, is contended to be for temporary use only without any rights being acquired to the property or other asset in question.
Furthermore, emoluments may be deferred or, as with assets and other benefits, may be hidden through trusts, nominees, family operated businesses, share options, corporate entities or other businesses or employment structures in relationships that would generally involve connected persons (and consequently raise the question of whether these are likely to be genuine arms-length relationships). And while a court may on occasion have enough to pierce the structure employed it is seldom in a position to determine the actual quantum of the benefits received, preferring to err on the side of a conservative evaluation. Where the parties are wage earners employed by a complete outsider who, to adopt a term from company law, is not a related person, then a court will have confidence in accepting pay slips, IRP5 forms and tax returns.
Legal entities and trusts are popular means wherein income and assets may be distributed in forms other than salary or cash. They also enable income to be deferred via retention in loan accounts or being converted into investments or equity. An additional illustration is where one legal entity passes a debit in its books resulting in the transfer of funds to another entity which in turn may either park the proceeds or else immediately distribute them in one form or another for the ultimate benefit of one of the parties to the proceedings. These various structures may also enhance the provision of readily available or recurring revenue streams that are habitually used by one or both parties to the marriage to maintain the family lifestyle. The simple fact that the revenue received is not shown in a regular payslip or IRP5 return is of no consequence- at best these documents are pieces of evidence. They nevertheless can never be conclusive in such circumstances since they are unlikely to account for funds received in the form of loan account repayments or of other benefits having an economic value, such as the de facto indefinite occupation of residential property in the name of a trust, the use of a company car or the provision of groceries through a company credit card, the payment of insurance premiums and the like.
The relationships or structures employed result in the individual concerned maintaining a specific standard of living or accumulating rights and other benefits that are not accounted for by the payslips and list of registered assets produced in court. In a number of cases the one party has re-arranged his or her affairs in a manner which has resulted in a significant drop in earning capacity or the reduction of assets through their disposal or dissipation.
Without the requirement of a proper disclosure, and possibly the utilisation of oral evidence in appropriate cases, rule 43 proceedings favour the dishonest party or the one who takes advantage of a practice that does not insist on up-front disclosure of the true state of financial affairs. Logically there is also no risk of contempt of court proceedings or of a criminal charge for fraudulent non-disclosure.
A judges' personal or relative viewpoint of a reasonable expense may impact the determination of that side of the equation, whereas the issue should be concerned with the parties’ reasonable expenditure having regard to their living standards and their accessibility to income. Of course this will be tempered by the reality that with the split in households there is an inevitable increase in expenditure for either one or both of the parties (or possibly even a reduction for one of them at the expense of the other).
While the rights of children have continuously been respected and the courts have diligently exercised their common law powers and duties as upper guardian, the recognition of the rights of children being of paramount consideration in all matters affecting them is more emphasized. This is due to s 28 of the Constitution and its adoption into the Children's Act 38 of 2005.
A rule 43 order, although temporary in nature, can loom large in the negotiations that are inevitably conducted between the parties. As a result it will affect whether an eventual settlement achieves the desired result of fairness to both parties. On the other hand, if the case can't be settled then the “successful” party to a rule 43 application (or a rule 58 in the Magistrates’ Court) is placed at an advantage as the order will be relied upon before the trial court with the risk that a “reverse onus” is cast on the other party to show why the order was wrong.
Financial disclosure
In TS v TS (28917/2016) [2017] ZAGPJHC 244; 2018 (3) SA 572 (GJ), Spilg J, emphasized the importance of financial disclosure during Rule 43 proceedings.The necessity of disclosure in interim maintenance orders is not a unique process. Both the English and Australian court rules provide for it. In England it is commonly known as a Form E disclosure. This refers to the form that is completed in an application for a financial order inter alia in divorce proceedings before the High Court or the Family Courts in England and Wales.
The English decision of Livesey (formerly Jenkins) v Jenkins [1984] UKHL 3; [1985] 1 All ER 106 (HL) was concerned with the provisions of the Matrimonial Causes Act of 1973 which at the time provided in s25(1) that, when deciding whether to exercise its powers to make orders under ss 23 and 24 of that Act for financial provision and property adjustments after a divorce, it was the duty of a court to have;
“regard to all the circumstances of the case including the following matters, that is to say- (a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future; (b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future … “
The relevance of Livesey is that, in the context of section 25(1) of the Matrimonial Causes Act, the House of Lords considered that unless the parties make full and frank disclosure of all material matters, a court are unable to lawfully or properly exercise the discretion it is given to make an order under ss 23 or 24 of that Act. The Practice Direction imposes on the parties a duty to make a full, frank and clear disclosure to the court of all financial and other relevant circumstances. Where a party is deliberately untruthful a case of statutory fraud may be brought. The offending party would also be subject to contempt of court proceedings.
The financial elements of a rule 43 are aimed at offering child maintenance, spousal maintenance or a contribution towards legal costs already incurred or to be incurred. The relative financial commitments of each spouse has absolutely nothing to do with the patrimonial consequences of a divorce (division of the assets) however everything to do with the application of s 7(1) of the Divorce Act 70 of 1979[1] and, in respect of a contribution towards costs, by guaranteeing a level playing field when it comes to litigation between them.
A court would be incapable to determine whether there has been a proper disclosure of available income and the parties respective means to provide for maintenance or be able to litigate on a relative par without assessing the available source of funds that historically have been used to support the family prior to the parties’ separation and whether that has changed to any marked degree bearing in mind that the households have been split.
Without a proper up-front disclosure procedure judicial officers may be compelled to elevate an anomaly in one party’s papers to an overall adverse credibility finding which impacts on the maintenance ordered to be paid, whereas it might be that the other party was more adept at juggling income and expenditure figures. In cases where it is apparent that both parties have exaggerated expenses or minimised income there is the temptation to simply split the differences. In either case a respondent may also enjoy an unintended advantage because the applicant does not have an automatic right of reply.