UK divorce settlements challenged as finances become strained - Boodle Hatfield

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16 Apr 2020

UK divorce settlements challenged as finances become strained

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Family lawyers are reporting a surge in inquiries from individuals hit hard by economic turmoil caused by coronavirus who are seeking to challenge generous divorce settlements following a change in their financial circumstances.

The coronavirus pandemic has thrown stock markets into chaos and resulted in rising unemployment across the UK, causing problems for some divorcees with sizeable maintenance obligations.

Lawyers have told the Financial Times of panicked calls from clients who have lost their jobs or who seen their investment portfolio hit hard by a turbulent stock market. These individuals argue that they can no longer afford to keep up with their maintenance obligations.

Katie O’Callaghan, a divorce specialist at Boodle Hatfield, said it was reminiscent of the financial crisis in 2008 when higher earners sought to reduce maintenance payments to their former spouses.

“A lot of people have lost a fortune in the stock market crash and will feel they can no longer afford the maintenance payments that they were paying,” she said. “They can apply to the court for those payments to be reduced or completely cancelled.”

She said there were a lot of these cases after the financial crisis when shares fell heavily and a lot of jobs were lost in highly paid sectors such as investment banking.

“If you have lost a very large part of your wealth or your income then the courts ought to take that into consideration as a ‘material change in circumstances’ when looking at an application to reduce or end spousal maintenance payments,” said Ms O’Callaghan.

Others lawyers said it was unclear whether coronavirus would be accepted as grounds for reviewing a settlement and that it would likely depend on how much the individual’s net worth had dropped.

Mark Freedman, a senior partner Osbornes Law, said if one party agreed a settlement on the basis of the value of their shares and then saw those investments plummet in value then they could theoretically appeal to the courts to review that agreement or decision.

The normal rules relating to divorce allow either party to appeal the final settlement within 21 days, but Mr Freedman says the unprecedented nature of the current pandemic could allow cases to be reopened.

“I fully expect people whose finances have been affected and have recently concluded divorce agreements to appeal to the courts for an adjustment,” he said.

An appeal can be lodged under what is known as a “Barder event” a reference to a legal precedent set in 1987.

But a successful appeal would depend on whether a judge views the coronavirus outbreak as an “unforeseen and unforeseeable” event, Mr Freedman said. “This is questionable and open to interpretation but I would expect clients to certainly try, and if one person was successful then many cases could open the floodgates,” he added.

The case of Myerson tested this principle, in 2009, where a husband appealed out of time after his share portfolio lost 90 per cent of its value in the year following a divorce. In that case, the husband lost his case after the courts held that the event — the global financial crisis — was not unforeseeable or unforeseen.

Anyone who wanted to appeal a settlement out of time should lodge papers with the court as soon as possible, lawyers advised. They would then have to wait until the court system returned to normal for their case to be considered.

But they cautioned that individuals should not make the decision to apply to vary the maintenance payments without serious consideration. The process would involve court hearings and the requirement to make a full disclosure of finances. It can be an expensive and time-consuming process.

Matthew Brunsdon Tully, partner at Forsters law firm, said he had received dozens of calls from clients who had been hit financially. “At the moment these people just want to know that we’re here for them and can advise them on what to do. I expect there will be a flood of people wanting to reduce payments in due course,” he said.

He recommended that before seeking a court order, the divorcee should explore a temporary reduction in payments with their former spouse. “You should only go to court to vary the maintenance payments as a last resort — especially at the moment when most of the courts are closed,” he said.

Ms O’Callaghan agreed: “The court won’t look kindly on you if you have been reckless with your money, nor will it reduce the maintenance payments just to save the higher earning spouse from having to moderate their lifestyle.”

She also cautioned that a judge would not look kindly on any decision to unilaterally cut maintenance payments.

This article first appeared in the Financial Times on 11 April 2020. 

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