Tax & Accounting News

Divorce Settlements Hit By Recession

13/07/2009

The recession has meant that many divorced individuals are having to revisit old maintenance orders, since falls in income, and particularly bonus payments, for some individuals mean the maintenance they were paying now exceeds their income. Where a maintenance recipient is happy to accept that circumstances have changed, it is normally possible to agree a variation without going to court.

Things are a little more complicated in the case of so-called ‘clean break’ orders, which by definition are supposed to be a final settlement. However, past case law suggests there are certain circumstances in which one can be varied – where a new event has occurred since the making of the order which invalidates the basis on which the order was made, where the new event occurred within a relatively short period of time of the order being made, and where the application is made reasonably promptly.

However, a recent Court of Appeal judgement (Myerson v Myerson) appears to set aside that precedent, when it considered an application to vary a clean break order. The original order had stated the wife would receive 43% of the assets, and the husband 57%, at a time when the total family assets were valued at £25.8million. Much of the husband’s assets were in the form of an AIM-listed company of which he was funds manager, which at the time of the order were worth £2.99 each, valuing the husband’s stake at £15million. However, the shares subsequently fell to around 27.5p per share, meaning if the order was fully implemented, Mrs Myerson would end up with 105.2% of the assets – and Mr Myerson would be left in debt.

Despite this, the judges ruled that the order should not be varied, for the following reasons:

• The change in value of the share price was the result of a ‘natural fluctuation’, not a mistaken valuation.
• The order had been negotiated and made by consent, rather than imposed by the court, and it was Mr Myerson who had wanted to keep all his shares.
• The shares may go up in value in the future.
• As the lump sum was being paid in instalments, the court could vary the outstanding instalments without varying the original order.
• There was concern that allowing the appeal would open the floodgates to a series of similar appeals.

This judgement makes it clear that it is generally very difficult to alter a clean break order, even where the drop in wealth of one party has been significant, and it is important to bear this in mind when applying for one. Where an agreement has been reached, but not converted into a court order, this will not have the same binding effect, although a court is still likely to take into consideration what has previously been agreed.

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