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Coronavirus and financial orders on divorce: could COVID-19 allow some financial orders to be challenged?27th March 2020 Family Law
Coronavirus represents a public health emergency of unprecedented proportions and its impact goes far beyond the health and wellbeing of the population. This is a new situation and it will be some time before the ramifications are known in full. One question that has been raised by family lawyers, particular in the Twittersphere is the extent to which the pandemic has the potential to undermine financial orders made on divorce.
Financial orders on divorce
The gold-standard for dealing with the financial aspects of divorce or civil partnership dissolution is for the arrangements to be set out in an order which is approved and sealed by the court and then becomes final and binding when decree absolute (or final order in the case of civil partnerships) is pronounced. Without such an order, the parties’ financial claims against each other remain “live” indefinitely.
The big advantage of dealing with finances via a court order is that it is the only way to achieve finality.
That said, certain elements of an order are always variable:
- Maintenance orders can be altered up or down and the length of time for which they are in force can be reduced or (depending on the wording) extended. This usually occurs in response to changes in the payer or payee’s income or other factors that affect their financial needs
- A lump sum payable by instalments can be varied in a similar way. The court will be very reluctant to change the total amount payable but can change the structure of the payment schedule if the circumstances justify it
- Orders dealing with the sale or transfer of assets, including property and shares, can be changed to accommodate practical considerations but the substance of the original order cannot (e.g. delaying sale of a home until works are undertaken to put it into a saleable condition, rather than cancelling the sale altogether)
These options could prove relevant in many families where the pandemic has seen incomes fall to near zero almost overnight. For example, a successful freelancer in the arts, reliant on income from performances or exhibitions could suddenly be claiming universal credit, radically altering the financial landscape. Such a change could impact the needs of a maintenance recipient or a payer’s ability to pay, or both.
Similarly, social distancing provisions make it basically impossible to market a property, with an inevitable effect on orders for sale. As professional service firms experience heightened levels of absence and transition to homeworking, a share transfer could require more time than anticipated to process.
Orders that aren’t usually variable
The fundamentals of a financial order dealing with capital – for example, the payment of lump sums and asset transfers – are almost always incapable of variation. Almost always.
There is a very small proportion of cases where seemingly final court orders can be set aside. This includes cases where a significant mistake has been made or where there has been material non-disclosure.
There is a smaller still set of cases where a financial order can be set aside on the grounds that something unforeseen and unforeseeable has occurred after the order was made, which fundamentally undermines it. Perhaps you can see where this is heading.
Such happenings are known as Barder events, after the case in which the concept was first identified. In that case, the family home had been transferred to the wife so that she could live there with the children. Five weeks later, she killed the children and took her own life. The court granted the husband’s request to reverse the transfer. It wasn’t the fact of her death alone that justified this. It was the instant removal of the key purpose of the order, namely the requirement to meet the needs of the wife and children.
Is COVID-19 a Barder event?
It’s complicated and the family law world is alive with speculation.
The following criteria have been developed to assess whether the court should alter an ordinarily non-variable part of a financial order.
- New, unforeseeable and unforeseen 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
Market volatility and Barder
In the wake of the financial crisis in 2008, applicants failed to convince the courts that a catastrophic reduction in asset valuations was a Barder event. COVID-19 is already having an impact on the global financial system in a profound but different way. What we don’t yet know is whether the financial implications will be regarded by the courts as yet another example of the peaks and troughs inherent in global capitalism or a different beast altogether.
Let’s be clear, there is no suggestion that each and every financial order made in 2019 and early 2020 should be scrapped. However, there are almost certainly going to be cases coming through, sooner or later, in which things have been changed so radically by the pandemic that one or both parties will be asking for the court to undo orders that would never usually be undone.
As for the original question, I think it likely that there will be small proportion of cases where it is arguable. The UK is only at the beginning of its COVID-19 journey but we should expect significant and possibly unexpected legal developments to come out of this.