Background and Parties
The case of Tsvetkov v Khayrova [2023] EWFC 130 involved high net worth financial remedy proceedings between Dmitry Tsvetkov, a Russian oligarch, and his former wife, Elsina Khayrova. The parties, who had substantial wealth, including assets worth approximately £50 million, engaged in prolonged and highly contentious litigation following the breakdown of their marriage. The case was heard by Mr Justice Peel in the Family Court, who addressed issues of non-disclosure, asset division, and litigation conduct.
Key Issues
The primary issues in this case revolved around the division of assets, allegations of misconduct by both parties, and whether non-disclosure and asset dissipation should affect the financial settlement. The case also included discussions on how the conduct of the parties could be reflected in the final financial order, particularly under section 25(2)(g) of the Matrimonial Causes Act 1973.
Conduct and Non-Disclosure
A significant element of the case was Khayrova’s failure to fully disclose her financial position, including concealing a vast collection of designer handbags worth nearly £1 million. There were also allegations of litigation misconduct and reckless dissipation of assets. For instance, Khayrova was accused of refusing to allow a £2 million investment portfolio to be applied towards reducing a £25 million mortgage, resulting in financial losses for Tsvetkov. However, the court found that these financial impacts were relatively minor in the context of the couple’s overall wealth.
Mr Justice Peel addressed the doctrine of “add-back,” where a party who dissipates matrimonial assets recklessly may see those funds “added back” into the asset pool for distribution purposes. However, in this case, the court did not find sufficient evidence of reckless dissipation to trigger the add-back principle. The court noted that applying this principle requires clear and exceptional circumstances, which were not present here.
Litigation Misconduct
Peel J highlighted the significance of litigation misconduct in determining costs rather than in the substantive financial settlement itself. Khayrova’s dishonesty throughout the proceedings, including her non-disclosure of assets, was deemed to be of considerable gravity. The court concluded that Khayrova’s misconduct warranted a penalisation through costs, rather than adjusting the financial remedy. Consequently, she was ordered to pay 50% of Tsvetkov’s legal costs, which totalled over £1.7 million. This reduction took into account Tsvetkov’s own conduct, as he had exaggerated certain aspects of his case.
Financial Outcome
The court ordered an equal division of the matrimonial assets, which included multiple properties in London, Cyprus, and the UK. Tsvetkov retained the £25 million Surrey property, while Khayrova was awarded a London flat worth £11.5 million. The remaining properties were to be sold and the proceeds divided equally between the parties. In addition to this, Tsvetkov was ordered to pay Khayrova a lump sum of £5.5 million.
The court also dealt with the allocation of significant tax liabilities that both parties faced, potentially amounting to £20 million. The tax burden was to be shared equally between the parties, a decision that aimed to avoid further disputes once the final tax assessments were known.
Children and Child Maintenance
The couple’s oldest child had substantial funds in a bank account earmarked for school fees, which amounted to £2.1 million. Tsvetkov was also ordered to pay child maintenance of £50,000 per annum for each of the children. The court made a clean break order, meaning that no further financial claims could be made after the implementation of the financial order.
Public Interest and Anonymisation
Both parties sought anonymisation of the judgment, citing privacy concerns and the potential impact on their public profiles. However, Mr Justice Peel rejected these requests, pointing to the public interest in the case. He noted that Khayrova’s serious litigation misconduct and the public nature of previous disputes involving the couple warranted transparency. Additionally, Tsvetkov’s lack of UK tax compliance was deemed to be a matter of public concern. The court concluded that anonymisation would be impractical, given the high level of media coverage already surrounding the couple’s affairs.
Conclusion
The Tsvetkov v Khayrova case provides significant insights into how courts handle issues of non-disclosure, asset dissipation, and litigation misconduct in high-value financial remedy proceedings. The court’s decision to penalise Khayrova’s dishonesty through costs, rather than directly adjusting the financial settlement, underscores the judiciary’s commitment to fairness while discouraging misconduct in family litigation. This case also highlights the challenges of balancing privacy with public interest in high-profile divorce proceedings.
Here are the key principles:
- Conduct becomes relevant in four distinct situations.
- The party alleging misconduct must provide evidence to substantiate the claim.
- If misconduct is proven, the court will assess how it should influence the financial remedy, applying the section 25 balancing exercise to weigh all pertinent factors.
- Specific procedures apply when conduct, aside from litigation misconduct, is raised.
- Litigation misconduct, however, will be addressed separately during the costs hearing.