An economic downturn undoubtedly adds challenges and stress to every situation and will have an impact on families and their relationships. As family lawyers, our role is to collaborate and support divorcing couples through these difficult times but it doesn’t come without complications.
Valuing couples assets during recession
A volatile market and things changing so frequently means it may be necessary to ensure values are produced regularly. This will ensure you have an accurate reflection of what your clients’ assets are worth in the current market.
If you have expert valuations that have been prepared during negations or financial proceedings, you should consider asking the expert to update their findings based on current market conditions. There may be impacts on profitability and income. Reliance on previous performance or last year’s accounts may not be a reliable indication of how a company will perform.
When drafting a settlement consider the assets carefully, which are more “risky”/“violate”? Consider how those assets are to be divided so that one party is not taking all of the risky assets and the other party having only the more stable assets
Think about income and tax
The changes implemented to taxation under the new government will need to be thought about and reviewed when agreeing the terms of a financial settlement. Work closely with other professionals to ensure clients understand any tax changes in both corporate tax and personal tax. Try to pre-empt future tax announcements whenever they are expected.
Matrimonial property and mortgages
Increasing mortgage rates will have a big impact on the financial settlement. For my clients one of their biggest concerns is what will happen to the family home. We know the court’s overriding objective is that of fairness but with the costs associated increasing and the ability to purchase property more difficult, the family’s needs will need to be considered carefully.
In previous recessions, many courts ordered that the property be transferred to one spouse in its entirety, with the other person’s share being payable, at some point in the future, when market conditions improved. Mesher Orders and post-divorce house sharing agreements may be options to consider.
When the economy is struggling, the value of pensions tends to dip as well potentially impacting the value of Cash Equivalent Value which is the figure that most divorce settlements rely on. A change in the CEV may have a dramatic impact on a pension sharing order that is being calculated but has not yet been implemented.
For separating couples who are agreeing to offset the value of their pensions against other assets such as cash or property, should beware there’s more risk now that the CEV will not be a reliable indication of the asset’s market value.
Managing clients wishes and directions
Some clients may feel that recession would benefit them due to decreased income and a weaker stock market may mean there is less to split. Similarly, couples who have already divorced might ask advice on a variation of child or spousal maintenance payments.
The courts made it clear in case law following the 2008 financial crash that financial agreements that had already been approved by the court could not be revisited due to unpredicted economic change and that market fluctuations do not justify reopening and re-drawing capital orders.
There only limited circumstances where there may be scope for agreements made by consent and orders that have been approved but not yet implemented to be adjusted where market volatility has resulted in an unfair outcome that is not in line with what the parties (or the court) had intended.
As family lawyers we need to be brave and potentially lean into some difficult conversations to steer the best and fairest course of action.
Rachel Buckley, Managing Director at The Family Law Company