Agreeing financial arrangements following the breakdown of a marriage or civil partnership is often complex, but aiming to do so during the Coronavirus pandemic poses additional challenges.
Two of the cardinal principles which determine the appropriate financial settlement are “needs” and “sharing”. With huge uncertainty in the financial markets and in individuals’ financial circumstances, working out what each person will need going forward, and what amounts to a fair share of the family’s assets, is difficult.
Lack of clarity as to the value of assets such as property, businesses, investments and pensions, and fluctuating currency exchange rates mean it is hard for a family to know what their assets are worth.
The stalling property market means that separated spouses may find themselves unable to sell the family home and purchase new homes in the timescale they would like.
Some might find that their income is much reduced or be worried about losing their job, whilst others might find their expectations of re-entering the job market are suddenly no longer realistic. Caring for children who are no longer attending school may also severely limit parents’ ability to earn, whilst those with underlying health conditions may no longer be safely able to work.
With interest rates at a historic low, families relying on investment income to meet some or all of their outgoings may face a shortfall.
All of these factors and more will need to be carefully considered if negotiating a financial settlement. If a divorcing couple enter into a settlement at this time, it will not later be possible to seek to revisit the division of their assets based on the effects of the pandemic, given that we already know that it is likely to cause huge financial disruption.
Some may choose to pause their financial negotiations and resume them when there is more certainty about their financial future. Without knowing when that will be, indefinite postponement will not be appealing to all, and would require agreement as to the interim arrangements to be put in place.
For those who wish to press ahead with negotiations and reach settlement, it may be sensible to include flexibility in respect of some arrangements, with the financial provision to be made dependant on income levels, asset valuations or sale prices. Creative thinking and careful consideration of a wide range of possible scenarios will be important.
The financial crisis resulting from the pandemic will also affect those who have already reached financial settlements. Agreements reached in the past may no longer seem fair.
The scope for revisiting the capital division is very limited – cases decided after the financial crash of 2008 made clear that dramatic reductions in asset values did not justify re-opening settlements. Whilst there may be more scope for arguing that the pandemic and its implications are sufficiently “unforeseen and unforeseeable” to justify re-opening past cases, the potential for such arguments is currently unclear and likely to be of very limited application.
Maintenance, whether for a former spouse or for children, is by contrast always variable, and where a lump sum is payable by instalments, the timing and amount of those instalments can be varied. Whether the court will exercise its power to vary will depend on all of the circumstances, and whilst a judge may look sympathetically on those in genuine financial difficulty, those looking to exploit the situation to reduce their obligations are unlikely to succeed.
The family courts are currently sitting remotely, and so will be able to determine applications to vary. Consideration should however be given to other ways of reaching solutions, including negotiations, arbitration, and mediation – all of which can take place remotely and may be faster and more cost effective.
If you would like to discuss how the current situation affects your financial negotiations or obligations, please be in touch with one of our family team or head of department Henry Hood on Henry.Hood@hunterslaw.com.