News

Hetty Gleave examines HNW clients and the impact of the pandemic on their financial settlements in HNW Divorce Magazine

  • August 10, 2020
  • By Hetty Gleave, Partner

This article was originally published in HNW Divorce Magazine and can be accessed here

The Coronavirus pandemic is having a huge impact on families across the socio-economic spectrum, but the scale of potential losses faced by HNW clients will be particularly daunting.

Solicitors with HNW clients are likely to see a rise in clients whose matters have recently concluded looking to revisit capital settlements, as they may well have businesses or investments that have suffered from, or even collapsed, as a result of the economic disruption caused by the pandemic.

Often, the financially stronger party (whom I’ll refer to as the husband) will have retained his businesses and investments, and have been ordered to pay a lump sum, or series of lump sums, to the other. If the value of the assets the husband is retaining have crashed, then the cash sum he has been ordered to pay may amount to a far higher proportion of the overall assets than had ever been intended.

The Court of Appeal considered this scenario following the 2008 crash, in Myerson v Myerson [2009] EWCA Civ 282, where, as a result of a dramatic fall in the value of the husband’s business following the financial crash, the wife’s award of £11 million ended up reflecting more than 100% of the assets, rather than the 43% that had been anticipated.

As practitioners will know, under the Barder jurisdiction, a financial remedy order may be set aside where a new event has invalidated the basis on which the order was made. Mr Mostyn QC, then at the bar, successfully argued for Mrs Myerson that asset depreciations resulting from the financial crash did not amount to Barder events.

The Court of Appeal in Myerson built on the judgment of Hale J (as she then was) in Cornick v Cornick [1994] 2 FLR 530 (in which Mr Mostyn also acted for the successful party). In Cornick, Hale J had held that it was necessary to distinguish between cases where “an asset…correctly valued at the date of the hearing changes value within a relatively short time owing to natural processes of price fluctuation”, and those where “something unforeseen and unforeseeable had happened since the date of the hearing which has altered the value of the assets”. Only if a case fell into the latter category, rather than the former, could the order be set aside under Barder.

In Myerson, it was held that the case clearly fell into the first category; what had resulted from the economic crash was part of the natural process of price fluctuation in share values. The court also noted that the husband had chosen the more speculative option by retaining the riskier assets, and queried why the court should now relieve him of the consequence of his speculation, as well as noting that what had gone down in value could increase again, and that the husband would be able to take advantage of the opportunities in a bear market.

However dramatic and unforeseeable the Coronavirus pandemic has been, its main impact on asset schedules will be a result of market fluctuations. Hale J in Cornick specifically stated that unforeseeability does not turn something which is not a Barder event into one. Nevertheless, there may be a case where the impact of the pandemic has such a dramatic impact on a family (perhaps beyond asset values) that an argument could be made that it falls within Barder. Such an application would be speculative, but may be warranted in an appropriate HNW case. In order to ensure the other requirements of Barder are met, the order being challenged will need to have been made relatively shortly before the outbreak of the pandemic (within a year and ideally less), and the application will need to be made promptly.

Alternatively, there may be another option if the final order provided for the lump sum to be paid in instalments (as distinct from a series of lump payments). It will be possible with any lump sum order to apply for an extension of time for payment, but with a lump sum payable in instalments, s31(2)(d) MCA 1973 not only allows the court to vary the timing and quantum of the instalments, but also empowers the court to vary the overall quantum of the lump sum.

A lump sum payable in instalments is distinct from a series of lump sums, and it may not always be clear into which category an order falls. The Court of Appeal in Hamilton v Hamilton [2013] EWCA Civ 13 confirmed whilst ordinarily a reference in the order to “lump sums” (in the plural) will mean that there is a series of lump sum payments, this is not necessarily so, and indeed, was not definitive in the case. Rather, the court must look at the context and consider whether, objectively, the order was for one overall sum which was payable in instalments for reasons of convenience, or whether there are genuinely separate lump sums. A recital explaining whether the payments are a series of lump sums or a lump sum payable in instalments is likely to be conclusive.

Even if it is established that there is a lump sum payable in instalments, a high bar has to be met before a court would vary the overall quantum. The Court of Appeal in Westbury v Sampson [2002] 1 FLR 166 held that this “should only be countenanced when the anticipated circumstances have changed very significantly, and/or for cogent reasons rendering it quite unjust or impracticable to hold the payer to the overall quantum of the order originally made”. In Horne v Horne [2009] EWCA Civ 487, another failed attempt to invoke Barder following the 2008 crash, Thorpe LJ indicated that the court’s approach in applications to vary the overall quantum of a lump sum by instalments should be “almost as stringent” as in determining a Barder appeal. However, he did recognise that more latitude exists in such cases.

Finally, of course, maintenance orders always remain open to variation. This may, however, be less relevant to HNW clients, who are more likely to have been able to afford to capitalise maintenance claims at the time of the original order.

Related News

Sep 16, 2020
Hetty Gleave examines HNW clients and the impact of the pandemic on their financial settlements in ThoughtLeaders4 Private Client Magazine
Sep 08, 2020
Hunters shortlisted at the Family Law Awards 2020
Sep 02, 2020
Jay Patel examines the Court of Appeal’s ruling regarding Islamic marriage ceremonies under English and Welsh law in STEP Journal
Sep 01, 2020
Jay Patel discusses financial claims on the breakdown of cohabiting relationships
Aug 05, 2020
Hunters recognised as one of the 2020 eprivateclient Top Family Law Firms
Jul 09, 2020
Chambers HNW 2020 – Hunters’ success
Jul 03, 2020
Hetty Gleave comments on the surge in divorce inquiries due to lockdown in the Financial Times
Jun 26, 2020
Henry Hood discusses the use of nuptial agreements to protect family wealth
Jun 25, 2020
Rebecca Christie discusses the rights of unmarried couples in FTAdviser
Jun 24, 2020
Henry Hood examines the valuation of businesses on divorce

© Hunters Law LLP 2020 | Privacy NoticeLegal & Regulatory | Cookies Policy | Complaints Procedure.

Hunters Law LLP is authorised and regulated by the Solicitors Regulation Authority (number 657218)