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Hetty Gleave discusses financial remedy negotiations during Coronavirus in Family Law LexisNexis

  • April 06, 2020
  • By Hetty Gleave, Partner

This article was originally published in Family Law LexisNexis and can be accessed here.

The settlement of financial remedy claims always involves some risk for clients, requiring a degree of speculation as to how their financial position will develop. However, in times of great financial and wider uncertainty, such as now exists with the COVID-19 pandemic, that risk increases. Solicitors will need to ensure clients understand the range of options open to them, and the potential consequences of their choices.

As family practitioners we are comfortable discussing the principles of “need” and “sharing” with our clients – but how can someone know what sum they will need to purchase a new home when property prices are so uncertain, or whether they require maintenance if their job is suddenly insecure? And how are parties to know whether an award amounts to 50% of the family assets with investment values changing daily, and businesses very difficult to value?

There are a number of options as to how to proceed, each with advantages and disadvantages that will weigh differently in each case.

Deferring negotiations, or proceedings, and awaiting more stable times has the obvious attraction that once the financial consequences of the pandemic have become clearer, the parties will be better able to value their assets and assess their future needs. If the parties have stable and affordable interim arrangements, then this may be sensible, but there will be couples for whom maintaining an interim position is unaffordable, or for whom it would throw up new issues to resolve, such as maintenance pending suit, increasing costs.

Where there is a risk of one party becoming bankrupt as a result of the financial turmoil, deferment could be hugely costly. Once a bankruptcy order has been made, the bankrupt’s assets vest in the trustee in bankruptcy and family court has no power to make orders over them. If orders have already been made prior to a bankruptcy petition being presented, the non-bankrupt spouse will be in a much better position.

Where a property adjustment order is made before a bankruptcy petition is presented it will bind the trustee in bankruptcy, although it could be challenged in cases of collusion, fraud or other vitiating factors (per Hill v Haines [2007] EWCA Civ 1284).  In respect of any lump sums ordered prior to the petition for bankruptcy, the payee will be an unsecured creditor, but the bankrupt will not normally be released from this type of debt on discharge of the bankruptcy (see McRoberts v McRoberts [2012] EWHC 2966).

The intersection between divorce and bankruptcy is complex, but it is important to appreciate that a client whose spouse is at risk of bankruptcy will be in a significantly better position if a final order is made before a bankruptcy petition is issued. Solicitors must be alert to any risk of bankruptcy to either spouse if a client is considering deferring their case during the pandemic.

Adjournment of one (or both) parties’ lump sum claims is an alternative to deferring settlement of the entire case. Whilst adjourning capital claims is fairly unusual given the court’s desire for finality, the court does have the power to adjourn an application for a lump sum, with liberty to restore. Note that K (formerly G) v G [2004] EWHC 88 (Fam) confirmed that the right to restore is not lost by remarriage.

Two recent examples of adjournments of lump sum claims are Quan v Bray [2018] EWHC 3558 and Joy v Joy [2019] EWHC 2152, both cases where the husbands had arranged their finances such that they held little in their names, but where it was suspected that funds may flow back to them in due course. In other cases, adjournments of lump sum claims have been granted in anticipation of one party receiving an inheritance or bonus. For example, in MT v MT [1992] 1 FLR 362, the wife’s lump sum claim was adjourned until the death of the husband’s father, in anticipation of inheritance he may then receive.

In principle there would seem to be no reason why a lump sum claim cannot be adjourned in view of the uncertain circumstances now prevailing. However, parties must keep in mind that such adjournments are generally time-limited, and usually restricted to exceptional cases. The parties will need to demonstrate that there is a genuine need to adjourn the claim; that it is not simply giving one party a second bite of the cherry, and a time limit (by reference to a particular event or timescale) should be put in place for restoring the adjourned claim.

A further alternative is to provide for different scenarios within the final order. For example, the quantum of a lump sum could depend on the sale price of a particular asset, or its value on a particular date. Maintenance could be self-varying depending on the earned incomes of both parties. The timing of the sale of a property could depend on advice from an agreed agent. The options are wide, and whilst agreeing terms may be more complex, for many couples reaching settlement now will be preferable to deferring or adjourning their claims.

Solicitors should also be conscious of the inbuilt flexibility in some of the orders the court can make on divorce. If acting for a wife looking to return to the job market, it is likely to be worth resisting a s28(1A) bar on a maintenance order, given that the client’s prospects of finding work will be particularly uncertain. Nominal maintenance orders may also be sensible security for those whose jobs are no longer secure. If a lump sum order is being paid over a number of payments, setting out in a recital that the order is for a lump sum payable by instalments, rather than a series of lump sums, will enable the payer to apply to vary the quantum and timing of the payments if their financial position does not develop as expected. An explanation in the recital of the circumstances in which it is anticipated that variation may be required may be sensible.

Whilst discussion rages as to whether the pandemic may constitute a Barder event, it is clear that anyone entering into a settlement now will do so in full awareness of the uncertain financial climate which exists, and will not be able to escape a settlement on that basis. Solicitors must, therefore, ensure that clients understand and accept the consequences of decisions made at this challenging time.

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