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The melting pot of a divorce, a pandemic and an uncertain housing market

Date:4 AUG 2020

The family courts remain open in the midst of this pandemic and as a divorce lawyer, I therefore continue to grapple with the question of how the asset pot should be divided fairly and in accordance with the law when there is so much uncertainty in the global market.  Whilst the government recently announced the “re-opening” of the property market, economists and housing experts have differing views on how significant the fall in house prices will be and when the market can be expected to bounce back. 
 

Valuation of properties and timing of sale

Divorcing spouses, who are already experiencing a range of emotions, are extremely anxious about negotiating a financial settlement at a time of uncertainty in the housing market. The matrimonial home, in many instances, makes up a significant component of the asset pot to be spilt upon divorce. It is also the asset which often holds sentimental value and is seen to provide security and stability, particularly for the children.

 At first instance, the value of the family home and other investment properties will need to be agreed between the spouses for negotiations to commence; clearly the spouse wishing to remain in the family home will emphasise the difficulties the current pandemic brings to the selling of properties and the impact on demand, particularly at the high end of the market which is heavily dependent on foreign buyers. The other spouse will of course be optimistic and advance the notion that many economists are predicting that the Coronovirus pandemic will have a short-lived impact on the property market. Numerous arguments can be deployed depending on the type of real estate in question, and its location.

Given the polarised positions that divorcing spouses may find themselves in, I am certainly finding more than ever the need for surveyors to be formally appointed to value the family home as well as other investment properties. The family court will expect a value to be attributed to each property regardless of the uncertainty in the market.  

Despite the government’s recent easing of the guidelines to allow the housing market to re-open, I expect surveyors will in some circumstances continue to use innovative ways in which to provide comprehensive valuation reports without making a site visit. It is important that the report fully describes the methods used by the expert to replace a site visit and whether there are any obvious gaps in their knowledge which can only be filled following a site visit. A party aggrieved with the final figure will probe for answers to these questions and many more, in order to attack the valuation. I am yet to hear the argument that the valuation report cannot be relied upon as there has been no site visit, but it is certainly a point that could be argued.

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Division of the matrimonial home

There are a number of ways to work around an uncertain housing market; let us not forget that the courts still decided the division of matrimonial assets in the midst of the 2008 financial crisis. If the spouses agree that the matrimonial home or investment properties are to be sold, this tends to be a prudent way to reach a resolution. The settlement is usually carved to provide each party with a percentage of the net proceeds of sale so that they both bear the risk, but with a bottom line for the financially vulnerable spouse to ensure that they are able to meet their housing needs (and that of their children, if applicable).

A deferred sale is another option which will allow spouses to market the property at a time when the confidence in the market returns. Careful thought needs to be given to the interim position; which party will pay the mortgage (with consideration given to the interest and capital parts of the monthly payment), the renovations costs and the bills, and how will this impact the final division of the net proceeds of sale.

Opening up a final settlement

The big question hotly debated amongst divorce lawyers (and yet to be tested with a case) is whether COVID-19 is a “Barder” event – i.e. where an unforeseen and significant change in the circumstances allows one spouse to open up a financial settlement which has otherwise been approved by the court.  In the case of Barder v Barder (1988), a financial settlement was approved by the court (and incorporated into a consent order), which provided for the transfer of the former matrimonial home from the husband to the wife; soon thereafter the wife tragically died, and  the court permitted the final order to be revisited. Apart from death, a change in the value of an asset (usually businesses) could only in very limited circumstances be regarded as a Barder event, where that change is regarded as unforeseen.

It is important that property valuation reports commissioned prior to the pandemic are revised where possible; a revised report filled with caveats and setting out various scenarios is far better than an outdated report. In such circumstances, a spouse who wishes to retain the family home or other investment properties as part of their settlement will be taking the deal with their eyes-wide open; therefore a sudden dip in the housing market or a prolonged impact of the pandemic on the housing market is unlikely to succeed the high threshold of a Barder event.

Please note that the general guidance provided within this blog is accurate at the time of writing (10 June 2020). It does not constitute legal advice and specialist advice should be sought in individual circumstances.

This article was first published by Sital Fontenelle, Partner at Kingsley Napley and is reproduced with permission.

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