Financial mismanagement is often recognised in divorce petitions as being a key contributor to the breakdown of a marriage. In times of recession, these problems are often exacerbated by redundancies, pay freezes and the long hours demanded of the remaining staff by their employers.
With evaporating bonuses and reduced salaries permeating the City, there has been a flurry of enquiries from cautious spouses eager to secure a settlement before their partner’s financial situation worsens. Conversely, the media spotlight has managed to avoid the many spouses waiting to see if the economy will recover before initiating divorce proceedings, acutely aware that their partner may be worth far more in a year’s time than they are now if the markets regain momentum.
From the point of view of these husband and wives, such a long game is perhaps justified by being rewarded with the kind of settlement they feel is owed to them after tolerating their partner's many years of working long hours.
But there have also been a number of consultations from City workers eager to have their financial settlements revisited in light of the relative poverty they may now be experiencing. Our advice depends on when the settlement was reached, whether it was after independent legal advice and what the changed circumstances are.
In the majority of cases, clients want to vary the maintenance they have been paying to their ex-partners based upon their reduced financial circumstances. In the past, a District Judge might view such a claim with a healthy dose of scepticism – they will have heard the excuse that a business is in trouble or a financial target might not be met before.
But the grim reality is now splashed across the front pages every other day. These former high-fliers can no longer realistically afford their monthly maintenance payments. In cases where such maintenance payments were funding a mortgage for their ex-spouse, an urgent re-evaluation is being required as parties find themselves in default.
The likely option fast becomes selling the mortgaged property and the parties suddenly faced with more upheaval and often a reduced standard of living.
The majority of our clients are high net worth individuals but they have not been immune to the effects of the economy and the effect on their income and lifestyle.
One case saw surveyors urgently sought when the husband argued that his substantial property portfolio was now worth several hundred thousand pounds less than it was when the parties were at Court a few months previously. The fall in value had been dramatic and the client was particularly relieved that he hadn't settled the case at the earlier hearing as his proposals included him retaining all of the property and the wife receiving a cash lump sum.
In such cases it's becoming very common for the parties to share the future risk of investments depreciating further by each party taking property as part of their settlement rather than one spouse receiving a lump sum pay-off. We've seen several cases settle on that basis and expect this trend to continue for the foreseeable future.
In another case, we acted for the wife of a City trader who had retired early and was then being remunerated by a substantial share option scheme. At the outset of this matter, this index-linked scheme entitled the husband to a £20 million annual pay-out. Just under a year later, that figure had been slashed to £14 million , forcing the parties to reconsider their respective proposals for settlement.
In the current economic climate, good legal advice for divorcing couples has never been more valuable . Those acting in person may not have considered the impact the economic crisis may have on their settlement but they need to examine where they may be left vulnerable.
By Deborah Jeff and David Lillywhite are family lawyers at law firm Seddons.