Reaching a Divorce Settlement During Economic Market Turmoil

How can economic turmoil impact a divorce settlement?

Turmoil in the economy can impact a divorce settlement in a number of ways; for example:

• A fall in property prices may not leave enough money for divorcing parties to set up separate homes
• Rising interest rates may make it even harder to secure a mortgage on a new property
• A rise in the cost of living may lead to a greater need for spousal maintenance for less financially well-off party
• If one party was not working while married, it may be more difficult to secure a well-paid job in a struggling economy
• A fall in share prices may reduce the value of investments and pensions, meaning that any money held in this form has to stretch further, and
• A struggling family business may reduce the value of dividends payable and income received.

Achieving a clean break during market turmoil

It is well established that the family courts prefer to split marital assets equally and to achieve a clean break where possible. A clean break is preferable because it allows both parties to move on without making further financial claims against their ex-wife or husband.

Clean break orders often include provisions stating that:

• The divorcing parties will sell the family home and split the net proceeds between them for a deposit if either decides to buy
• Neither party will make periodical payments to the other, and
• One party will retain a particular asset (e.g. a pension) while the other may keep a different asset (e.g. their shareholding in a business) to cover their ongoing living costs.

The judge will typically take into account the age of the parties, their financial needs, and their ability to generate income in the foreseeable future when trying to reach a clean break.

Unfortunately, a fall in the value of shares, property, pensions, or profitability of a family business can put the possibility of a clean break in jeopardy because the judge may conclude that there is not enough available, or they may award a much greater share the financially less well off party. They will not generally agree to a clean break order if they believe that doing so will be unfair and place one party at a financial disadvantage.

While it is not possible to fully reverse the impact of a dip in the economy, there are ways that divorcing parties can reach a fair financial settlement while maximising the value of their assets.

The importance of up-to-date expert valuations

We recommend seeking the support of an expert valuer/appraiser who can accurately assess the value of your assets and recommend a strategy to maximise the sale price. We have seen first-hand that asset valuations can vary wildly. One valuer may have a tendency to undervalue, while another has a more optimistic and positive approach or makes recommendations which can result in a much higher price being realised.

Once you have accurate valuations on your marital assets, it is important to keep these up to date. The family courts will want an accurate idea of the value of your home, business, shares, and pension when making a decision.

Another approach is to seek a ‘Mesher Order’.

What is ‘Mesher Order’?

A Mesher Order is commonly issued by the family courts following a divorce when it is not appropriate to sell a marital asset and split the proceeds, but there is an agreement to sell the asset in the future when certain triggering conditions are met (e.g. when the children reach the age of 18). Mesher Orders are particularly useful when the sale of a family home leads to financial hardship, such as during a market decline. The increased cost of living and falling share and house prices experienced in the UK in recent years have led to an increase in the number of divorcing couples applying for a Mesher Order.

Final words

A lull in the economy should not be the ultimate determining factor in whether to get divorced, but it is important to understand the implications for your settlement. If you are concerned that the ongoing levels of financial uncertainty in the UK may lead to an unfavourable divorce settlement, it is essential to seek legal advice from a family law Solicitor. Your Solicitor will listen to your circumstances and explain the legal options and orders available to reduce the impact of the financial downturn on your settlement.

For a free consultation regarding your divorce or any other aspect of your separation, please call our understanding and caring family law team on 0208 300 6666.