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Jean-Yves Gilg

Editor, Solicitors Journal

A sealed deal

A sealed deal


The courts are reluctant to re-open financial settlements, so what are the options for spouses left out of pocket when asset values drop, asks Sarah Whitten

Husbands hoping to renegotiate divorce settlements agreed in better economic times had better think again after Brian Myerson failed in his attempt to re-open the deal he struck with his wife Ingrid in February 2008.

Myerson argued that the collapse in value of his company shareholding brought about by the global recession had led to 'an extreme departure' from the asset division agreed (Myerson v Myerson [2009] EWCA Civ 282). The deal he struck should have left him with 57 per cent of his estimated £25.8m fortune. In the depressed new world, implementing the order in full would leave him in the red.

A 'supervening event'?

Following Barder v Calouri [1987] 2WLR 1350, Myerson argued the court could treat his financial annihilation as an unforeseen 'supervening event' and replace the original settlement with one which was fair to both parties in current circumstances. In Barder, where a fundamental assumption of a consent order was invalidated by a supervening event, an appeal out of time was allowed. The event must be relatively shortly after the order, the appeal likely to succeed and be made reasonably promptly and there must be no prejudice to third parties who had acquired an interest in property in good faith for valuable consideration.

The Court of Appeal roundly rejected Myerson's argument. He was an experienced businessman who had agreed to a deal which left him 'Captain of the Ship'. His wife would have no claim to any increase in his wealth. He could not complain that things had not turned out as he had expected. Thorpe LJ relied upon the earlier decision in Cornick v Cornick [1994] 2 FLR 530 to emphasise that the natural process of price fluctuation, whether in houses, shares or other property '“ however dramatic '“ is not a ground for re-opening a settlement.

Where does this leave litigants who fall on hard times and have second thoughts about their settlements?

If an agreement has not yet been converted into a court order it may be possible to resile from it, although it will not be easy. There is a long line of cases '“ from Edgar v Edgar [1981] 2FLR 19 to McLeod v McLeod [2008] UKPC 64 '“ in which the courts at all levels have made clear that agreements reached at arm's length with competent legal advice on both sides will normally be upheld by the courts.

Once a deal has been sealed in an order, unless some material non-disclosure comes to light, it is almost impossible to re-open it. Thorpe LJ reminded the profession in Myerson that there are few successful Barder applications.

Myerson may yet have a partial get-out. He agreed to pay his lump sum in instalments, some of which are not yet due. He has applied to vary the instalments and the court may well in this context allow him some leeway by delaying the timing of the payments or even (less likely) reducing them in amount.

Sharing the risk

In the current market courts are likely to be especially sympathetic to the notion that spouses should share equally the copper-bottomed assets (such as the home and the bank accounts) and the risk-laden assets in accordance with Wells [2002] 2 FLR 97.

Advisers should tread very carefully before allowing their clients to sign up to a deal which leaves them with a high percentage of risky assets. Solicitors must advise their clients that courts accept that certain assets are more risk-laden than others. Unless considerations of need outweigh this, fairness usually requires both spouses to share in the risk. If nothing else, clients need to know that it will be almost impossible for them to go back on the deal even if the circumstances have changed radically by the time the deal is implemented.

Some may be reluctant to settle cases with so much uncertainty as to the value of assets. For others, the financial pressures can prove a trial too far for a struggling relationship. For husbands falling on hard times, now may be a good time to negotiate a settlement.

The recession is also resulting in a significant number of applications to vary periodical payments orders from husbands faced with redundancy or slashed bonuses. Barder and Myerson have no relevance to these applications. The court has the power to vary periodical payments orders '“ up or down '“ at any time.

A newly redundant husband will very probably succeed in reducing the amount of his periodical payments. A bonus-impoverished husband may also succeed '“ but his wife will want to look carefully at the bonuses he has been receiving for the past few years. If he has enjoyed a few years of exceptional bonuses, she may argue that he should continue to support her during the hard times from the capital he has been able to accumulate.

Some husbands are trying to take advantage of the recession by varying their periodical payments orders downwards and then buying their wives off with a capitalisation. This might not have been affordable at the original rate of payment, but may be an option for them if they can succeed in obtaining a substantial reduction. This can be a smart move for litigants who have enough capital to fund a capitalisation. If they wait until their income positions improve, they may find that their spouse looks to increase her (or his) periodical payments to a level which would make a capitalisation unaffordable.