What does the Coronavirus outbreak mean for divorce settlements and financial court orders?

22 April, 2020
by: Cripps Pemberton Greenish

As Coronavirus continues to impact our everyday lives, partner Simon Donald, looks at how it may impact family law and court orders amidst extreme financial uncertainty.

It has long been established that the court can set aside an order where events have occurred since the order was made which change a fundamental aspect of the order.  This can be done irrespective of whether an order has been made by consent or by a judge following a final hearing.

The question that will be debated in the courts over the coming months is whether the economic impact of the pandemic restrictions will be treated as such an unexpected event. 

Parallels have been drawn with the extreme financial uncertainties and changes in fortune that came in the wake of the credit crunch.  The courts have been reluctant to consider fluctuations in the economy, no matter how extreme, as such an event.  In the case of Myerson v Myerson [2009] 2 FLR 147, the court expressed a clear and unequivocal view that fluctuations in house prices, share prices, and property “no matter how dramatic” will not satisfy the court that an order should be set aside and revisited. 

Impact on current negotiations or potential proceedings

Negotiating a settlement now bears the risk of uncertainty, and an inherent element of “crystal ball gazing” on the part of both the parties and the court in trying to predict what may happen in the future.  Parties should be encouraged to take a pragmatic and practical view on renegotiating an agreement reached before the Coronavirus pandemic.   If no agreement has yet been reached, then careful consideration should be given to making an agreement or court order as “future-proof” as possible, with a careful eye on avoiding future litigation.

 

Impact on existing financial orders – what can a court do?

But what happens if you and your former spouse already have a court order in place?  What elements of an existing order can be changed to take into account the extraordinary times we currently find ourselves living through?

The court can always vary orders which deal with income: be that a maintenance pending suit order, periodical payments orders or income-related pension attachments orders.

The court does not have the power to vary capital orders, except for the following:

  • A pension attachment order relating to capital provision.
  • A settlement order or a variation of settlement order relating to an ante-nuptial or post-nuptial settlement.
  • Lump sum orders, so long as they are payable by installments.
  • Orders for the sale of property.

 

What will the court consider if asked to change an existing order?

When asked to change the existing terms of any order, a judge will need to consider all the circumstances of the case before them, giving priority to meeting the needs of any children of the family. Importantly, the court will be required to consider any change in circumstances since the original order was made. 

The economic impact of the Coronavirus has already been far-reaching across all sectors.  Large national and international companies, small businesses, and the self-employed, are already struggling.

 

Impact on income – spousal maintenance and child maintenance

The consequence of such a sudden unanticipated downturn in the economy will undoubtedly affect employees at all levels, with the prospect of prolonged furlough and reduced hours, and the spectre of redundancy in sectors which were previously buoyant. 

Company directors and shareholders will experience the downturn in profit share, dividends, and the ramifications of work rapidly drying up to the point where insolvency may be the only outcome.

With the above changes in economic fortune, previous agreements and orders based on the continued sharing of bonuses and income between former spouses may become unaffordable.   One party may find that a settlement predicated on a significant bonus income and subsequent mortgage capacity may no longer be viable. 

 

Impact on capital – orders for sale and lump sum orders

Orders for the sale of family homes or properties to realise capital to fund the next property purchase could well be impacted, as the halt on new conveyancing transactions begins to bite.  

While most orders for a capital lump sum cannot be varied, the court will always be open to requests for further time for payment especially where the paying party has suffered a sudden detrimental change in their financial circumstances. 

 

How can we help?

Addressing such complicated issues such as these will involve a holistic approach in reviewing existing orders and all the options available to the parties, and the court, when seeking a solution.  The foremost consideration should be to find a pragmatic solution to what is an extreme set of circumstances given the present measures to counter the Coronavirus pandemic. 

Communication and understanding will be key.  Often this will involve explaining complex financial circumstances in a language which is clear and jargon free, and in a solution-focused approach.

If an agreement cannot be reached, then an application to the court may well be necessary.  If so, the same pragmatic approach should be adopted with a view to assisting the court and both parties in efficiently managing the court process and negotiations.

Our family lawyers are continuing to support our clients in finding efficient and practical solutions to suit their needs. This includes alternative ways to reach a negotiated settlement such as through collaborative law, mediation or arbitration without having to go to court.   If you would like to talk to a member of the family team, please contact Simon Donald  on simon.donald@crippspg.co.uk.