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The sudden dive taken by stockmarkets last September as a result of the credit crunch has caught some unfortunate divorcees in a payout trap and may eventually lead to a change in the law. A City fund manager is attempting to overturn an £11.2m divorce payout, which could the floodgates for thousands of similar claims from people who can no longer afford their divorce settlements.
Brian Myerson, whose personal investments have plummeted in the credit crunch, will reportedly be left £500,000 out of pocket and will have to borrow money to pay his ex-wife remaining cash installments unless the settlement can be renegotiated and future payments cancelled, the court of appeal heard earlier this week.
His former wife was awarded a £9.5m cash sum when the couple divorced last March, £7m of which she received as a lump sum with the remaining £2.5m to be spread out in payments over four years, while he took £14.6m largely in shares which have since plunged by more than 90% in value.
The court has reserved the ruling on whether to grant leave to appeal for now, but family lawyers say that should judges grant in his favour, it could lead to thousands of individuals attempting to renegotiate the terms of their lump-sum divorce settlements.
Tina Dunn, family law partner at Mace & Jones, says: "Myerson is trying to change the law. As it stands, if you are ordered to make your former wife a lump-sum payment, then you have to pay it, even if it is spread over a series of installments. If a divorce is negotiated as a clean break, then it's a clean break, meaning the ex-wife gets the money and you can't go back on it. If the court of appeal does allow this, then it will be opening the floodgates of litigation to allow a string of cases settled before the economic downturn to be brought back for renegotiation."
In the UK, divorce settlements usually include a split between marital assets, such as property and cash, and on-going maintentance payments to cover the cost of childcare and school fees. While it is possible to renegotiate maintenance payments should there be a change in either ex-spouse's financial circumstances, a capital, lump-sum settlement can only be reviewed in "unforeseen" circumstances and are very rarely allowed.
Many family lawyers say they have already seen a large increase in the number of high earners who are applying to reduce their maintenance payments, either because they have failed to receive bonuses or because their salaries have been slashed.
In order to apply for a review of maintenance payments, an application must be made through the original court and the process can take months. Those who make maintenance payments through the Child Support Agency can also ask for the installments to be reassessed should they lose their jobs or suffer a drop in income.
Earlier this month, Catherine Bokor-Ingram, the ex-wife of an investment banker, backed down over her demands to renegotiate for an increase in cash maintenance payments when her ex-husband revealed his salary and bonus had been affected by the credit crunch. The couple agreed to an out-of-court settlement to avoid legal charges.
Dunn says couples who are in the process of divorcing now should reassess their expectations of the final settlement, particularly when one or both of the partners are high earners and are expecting to receive a large payout.
"In any divorce case, the first step is to establish what the assets are, to whom they belong and what they are worth. Assessing the value of assets is becoming harder as valuations fluctuate since property values are sliding and share prices are volatile," Dunn says. "Typically, the wife will normally receive safe assets such as cash or the house, while the husband would keep any risk assets, such as shares and investments. But now, if the wife still wants a cash payment, then she may have to reconsider her expectations. It may well be that the wife is awarded less in cash, in order to offset the husband's share of risk assets."
Myerson is requesting that his former wife pays him £3.2m in exchange for a proportion of his shares, on the grounds that she may benefit from any future upturn in the market.
Sandra Davis, family law partner at Mishcon de Reya, which acted for Princess Diana in her divorce, says: "Clients who are mainly retaining the riskier assets are being advised to hold out for a discount on what they have to pay their spouse in cash and property. Meanwhile lawyers are advising clients who secure the cash and property to demand immediate payment to minimise the possibility of the award later being varied by the court."
Dunn adds: "Where there is a period of time between two court hearings, you need to consider revaluing in the interim, so that the figures remain as up to date as possible."
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