The impact of Covid-19 on existing financial settlements
Jun 19, 2020, 14:04 PM
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Jun 19, 2020, 14:03 PM
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We find ourselves in unprecedented times, and whilst there are many uncertainties, one question that has arisen for family lawyers across the country, is whether financial settlements that have been approved by the Court can be altered as a result of these exceptional circumstances, given the financial concerns many are now facing.
When a marriage or civil partnership ends, there are a number of financial claims to resolve. Without a financial settlement, recorded in a Court Order, these claims can continue indefinitely. Such an Order, whether agreed between the separating parties, or imposed by a Court, is intended to be final and binding.
That being said, some elements of Final Orders can be varied. The Court can vary the amount due or period of payment where an Order provides for ongoing maintenance or a lump sum paid in instalments, if either party has had a significant change in their financial circumstances. It is clearly worth considering this option if a source of income has been lost as a result of Covid-19.
Additionally, if external circumstances prevent an element of the Order coming into effect (such as an inability to finalise the sale of a property due to social distancing restrictions), the practicalities can also be amended.
But what of “capital” settlements – fixed lump sums, or a division of shares and property? Typically, these cannot be altered once a divorce or dissolution has been finalised.
In 1988, the Courts were asked to consider whether a significant and unexpected change in the parties’ circumstances could be grounds to revisit a Final Order, and amend the terms of the same. This case, known as Barder introduced the concept of “Barder Events”. Following the tragic events of this case, Courts have been able to exercise their discretion to set aside an Order, or revisit the terms where:
There is a new, unforeseen and unforeseeable event, which means that the basis upon which the Order was made has fundamentally changed; AND
Such event occurs within a relatively short period after the making of the Order (usually a matter of months, but not more than 12 months); AND
There is a prompt application to the Court following such event; AND
Any change would not unfairly impact upon a third party (such as an independent purchaser)
In the first instance it is important to note that, if an unexpected event could be remedied through a variation application, then it is highly unlikely that the Court would accept that a Barder event had taken place.
Is Covid-19 a Barder Event?
The possibility of the current situation being described as a Barder event may provide comfort to those concerned by the financial impact of Covid-19, and their ability to comply with an Order, or those who are left with less than they had anticipated when the Order was made.
That being said, whilst it is clear that as a country we are facing economic uncertainty, and we have already seen share prices and pension valuations fall, it is less clear whether this would, in practice, constitute a Barder event.
Following Barder, a number of applications have been made to the Court, seeking amendment to the terms of the settlement following changes that a party feels were unforeseen and unforeseeable; these have rarely been successful.
A substantial increase in the value of shares from just over £2 a share to over £10 a share was insufficient to persuade the Court that the Order should be amended in the 1994 Cornick case. The Courts found the asset had been correctly valued at the time of the Hearing, and the increase was a result of the natural processes of economic fluctuation; as such, the Wife was not able to increase her lump sum as a result of the positive performance of the investments retained by the Husband. It should be noted that she did successfully apply to have her maintenance varied substantially some 7 years later.
The Courts were equally unwilling to reopen an Order following a sharp drop in shares following the 2008 economic recession (Myerson 2009), finding that although the Husband’s position was considerably worse than had been anticipated, he had knowingly taken a risk by accepting shares, which can always fluctuate in value, and as such no Barder event existed. Again, he was able to vary the instalments he was required to pay, but not change the underlying content of the Order.
A loss of employment (Maskell 2003), was also rejected as an unforeseen and unforeseeable event to warrant revisiting the Order, on the basis that no employment can be guaranteed.
Although decisions made by the Courts cannot be viewed as immutable, the fact remains that to date the judiciary has rarely been persuaded that a change in circumstances is sufficient to amend the terms of a settlement.
The reason for this is twofold. Firstly, it is accepted that the economy ebbs and flows, and that this “natural process” is insufficient to justify a departure from an existing Order. The second is that when a party retains a risk laden asset, they are fully aware that the value may fall. When considering a settlement, the Court must consider potential future resources of each party, and so in many cases, uncertainty over the future performance of investments has already been contemplated, arguably removing it from the scope of an unforeseen and unforeseeable event.
That being said, it remains unclear whether the unprecedented nature of this lockdown and the consequent economic issues, are part of the natural processes of the economy. The current situation is not entirely analogous to an economic recession, predicted and anticipated for many months; it is a sudden change, resulting from Government intervention, necessitated by a global pandemic. The Courts have previously held that the reason for economic fluctuation is not relevant when considering Barder, but instead it is the extent to which the implications of such fluctuation are unforeseen and unforeseeable that the Court must assess. It remains to be seen whether consequences arising from Government legislation that simply could not have been foreseen 12 months ago would be sufficient to justify a change to existing Orders.
Ultimately, applications have already been made to the Court to consider whether Consent Orders made in the last 12 months or so can be reconsidered in light of current events. The outcomes of these are awaited, and will no doubt be highly case specific, but should bring some clarity. The Courts will be wary of opening the floodgates to a wave of litigation, but at the same time, will be keen to avoid unfairness. There is little that we can do at this stage, but wait to see the outcome of these cases to provide clarity as to the way forwards.