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Divorce Settlement Variations
In the wake of the global banking crisis that began around 2007, the family courts saw applications from business people who found that financial settlements agreed before the crisis hit had suddenly become unaffordable. Perhaps the most famous of these was the 2009 case of Myerson, in which a husband had agreed to take most of his share of the family fortune in the form of shares in a business. These were trading at £2.99 at the time of the settlement (and worth £15m in total) but had plummeted to 27.5p a share by the time he came back to court. The judge at the time said that reopening an agreed (or for that matter, court ordered) settlement would take a very exceptional set of circumstances and that 'the natural processes of price fluctuation, whether in houses, shares, or any other property, and however dramatic' are not sufficient.
A very dramatic change of circumstances - such as shares in a company dropping to less than 10% of their original value - has been held to be not enough to change a financial settlement on divorce. What would justify reopening a financial consent order or court judgment following contested proceedings?
Variable parts of a financial settlement
First of all, there are certain elements of a financial settlement that can always be changed to respond to new circumstances.
Maintenance payments can always be looked at afresh if the financial situations of either the paying or the receiving party have changed. A person receiving maintenance could have got a new job with a higher salary and this could entitle the payer to ask the court to reduce or even bring to an end the maintenance payments. Alternatively, a person with a very high income but no capital at the time of the financial settlement could have had a windfall, allowing the court to swap the monthly maintenance payments for a one-off lump sum to provide the receiving party with an investment fund to meet their needs. This process is known as capitalisation. There has to be a substantial change of circumstances for the court to justify a variation of maintenance, but it does not require something dramatic or exceptional as is required to reopen the whole financial settlement.
Some financial settlements involve the payment of not just a one-off lump sum but a lump sum paid in timed instalments. In these cases, it is possible to ask the court to vary both the timing and the amount of the lump sums. This would be relevant if the person supposed to be paying the instalments found themselves genuinely unable to release the capital needed to fund them in the timescale set out in the order. Usually the court will only extend the timescale for payments or convert the schedule into a longer plan of smaller instalments, rather than alter the total lump sum. However, it can do this but only in rare circumstances, because of the importance of finality in dividing capital on divorce or civil partnership dissolution.
The court can also change orders for sale of property but only really to make changes for practical reasons rather than to alter the fundamentals of the original settlement. For example, a financial consent order might have provided for the family home to be sold after certain work had been completed to put the house into a saleable condition. If these works had been delayed, the court could step in to alter the timetable for the sale if this could not be agreed. However, the court could not just call off the sale altogether and change the whole basis of the settlement.
Finally, there are a very limited set of situations in which the court can vary a pension sharing order. There is a very narrow window of opportunity for this to happen and this is something that almost never comes up in practice.
Completely changing a financial settlement
We have looked at the elements of a financial settlement that the court can vary under normal circumstances. However, there is a tiny, tiny minority of cases in which the courts can reopen the entirety of a financial settlement on divorce. This is where something truly unforeseeable happens that completely undermines the basis of the settlement.
The leading case on this is Barder v Calouri from back in 1988. For this reason, situations giving rise to the exceptional power to go back and change a financial settlement are often called 'Barder events'. In the case itself, the husband was ordered to transfer the family home to the wife. Very sadly, she killed the two children of the family and took her own life five weeks after the order was made. The husband asked the court to alter the order so that he no longer had to transfer the house. The court agreed. This was not just because of the fact of the wife's death itself. In many cases, the death of a party after a financial settlement has been reached will not be enough for it to be overturned. The reason why the court allowed the finality of the financial settlement to be undermined was because the fundamental purpose of the financial settlement had itself been undermined. The husband was transferring the house to the wife so that she could live in it with the children, potentially for many years to come. Now that this purpose had been swept away by the tragic deaths of all three, the order could be changed.
The case gave us four guidelines to assess whether or not a 'Barder event' has taken place, justifying a change to a financial settlement:
- New events have occurred since the making of the order which invalidate the basis, or fundamental assumption, upon which the order was made
- The new events should have occurred within a relatively short time of the order having been made
- The person seeking to change the order should apply to the court promptly once the events have occurred
- The requested change should not prejudice third parties who have paid for an interest in property covered by the order in good faith
Later cases have refined these principles and introduced the phrase 'unforeseen and unforeseeable' into the description of the type of events that would qualify. Several cases have underlined the fact that fluctuations in the price of an asset will not be enough.
A financial settlement could also be reopened if a genuine mistake was made at the time of the financial order, meaning that had the reality been known, a different order would have been made. For example, in one case, the fact that a major accident claim affecting the parties' business was not covered by insurance, contrary to the expectations of everyone involved in the final hearing, allowed part of the order to be reopened on the basis of mistake'.
It should be said that the while the courts will basically never reopen a case because of a change in the value of an asset, the practice of generally sharing out the proceeds of sale in percentages rather than by giving one party a fixed sum goes some way to ensuring that both parties share the risk of prices, in particular house prices, going up or down.
Something has changed. What can I do?
As you can see, the circumstances in which a financial settlement can be reopened are extremely limited and it requires something truly 'out of left field' for this to happen. Financial consent orders and settlements imposed by the court are supposed to be final and provide both parties with certainty for the future. However, some parts of a financial settlement (e.g. maintenance, lump sums payable by instalments) can be varied without an earth-shattering turn of events. The main thing to remember is that if you believe a change of circumstances justifies a change to a financial settlement on divorce or civil partnership dissolution, it is important to act quickly and take early legal advice.
JMW Solicitors and divorce variation
The family law specialists at JMW Solicitors, based in Manchester, have an extremely high level of expertise in settling complex financial arrangements to the best conclusion for clients.
For a no-obligation discussion regarding variation of your divorce financial settlement, contact the JMW divorce team within The Family Law Department .
You can also read more about financial settlements and how we can help you here.