Family Finances and Covid-19 The impact on existing financial agreements and negotiating financial agreements
Content 1. Introducing the Speakers 2. Samantha Jago – DMH Stallard LLP – Common concerns and Alternatives to Court 3. Ben Fearnley – 29 Bedford Row – Reviewing the impact of Covid-19 on family finances and agreements 4. Caroline Bayliss – Excalibur Actuaries – Pension Reports and Sharing in the Covid-19 climate 5. Questions and close
3 Your speakers today Samantha Jago Ben Fearnley Caroline Bayliss Actuary – Excalibur Actuaries Family Law Partner Family Law Barrister, Mediator, Private FDR Judge and DDJ +44 (0)1483 467 437 +44 (0)7454 935125 +44 (0) 20 7404 1044 samantha.jago@dmhstallard.com cbayliss@excaliburactuaries.co.uk bfearnley@29br.co.uk
4 Common concerns Should I initiate divorce proceedings or put this action on hold? Should I put on hold negotiating my financial settlement? Do I have to go to Court - are they open? Can I revisit my financial agreement given the pandemic by either setting it aside or varying it? My former spouse has stopped paying me or reduced their payments to me and I have a Court Order, what do I do? Difficulty in valuing assets and assessing true earning capacity
5 Deed of Separation Sets out financial arrangements between divorcing or separating couples Can be used where parties do not want formal order of court at that stage Can be drafted to each parties set of personal circumstances Could make provisions pandemic specific Provides persuasive evidence before the Court of a couples’ intentions
6 Alternatives to Court: Direct Agreement Solicitor led negotiation Mediation Collaborative Law Round table meetings Private FDRs Arbitration Early Neutral Evaluation Hearing on paper only? Think time, costs and outcome.
7 Barder type event? Fairly soon after agreement has been entered into and approved by the Court, there is a new event, which may invalidate the basis upon which the agreement was reached Think Myerson 2009 Cormick 1994 Maskell 2003 Is a fluctuation in the economy outside of the contemplation of the parties when reaching financial agreements? Variation a better option?
According to the Institute for Fiscal Studies by May 2020 the % of people in jobs was what % lower than predicted before Covid-19? A. The number of jobs was 4% lower B. The number of jobs was 2% lower C. The number of jobs was 6% lower Poll
9 Result of question surveys A. The COVID-19 crisis led to abrupt falls in employment, earnings and incomes by April By May 2020, when compared with what was predicted just before the crisis based on trends up to that point, the number of jobs was 4% lower, median after-tax household earnings were 9% lower and median household income (including benefits) was 8% lower (equivalent to an income loss of around £160 per month).
According to the Institute of Fiscal Studies, the number of households paying their mortgage/rent and council tax was how much lower than anticipated for May 2020? A. 14% for mortgages, 11% for rent and 9% for council tax B. 16% for mortgages, 13% for rent and 11% for council tax C. 12% for mortgages, 9% for rent and 7% for council tax Poll
11 A. Non-payment of household bills increased sharply after lockdown, Result of question surveys and increased further between April and May. By May, the number of households making mortgage, rental and council tax payments was, respectively, 14%, 11% and 9% below what was predicted based on pre-crisis trends. This represented a further deterioration since April, suggesting that some households are increasingly struggling to make ends meet as the crisis persists. Poorer households are falling behind by more on council tax and utility bills. Non-payment of mortgages is spread more evenly across the income distribution.
In a poll of 1,500 adults by Hitachi Personal Finance, what is the top activity that has brought Brits joy during 2020? A. Spending time with extended family B. Financial security C. Spending time with their partner/spouse Poll
13 and finally...... and finally..... A. Spending time with extended family (30%) Financial security (14%) Spending time with partner/ spouse (11%)
Ben Fearnley Reviewing the impact of Covid-19 on Family Finances and Agreements or ~ V ariations ~ V aluations ~ V itiations ~
Impact of Covid : Consequences on FR Proceedings • Job losses / furlough / sudden income reductions : ie maintenance • Value of assets reducing / Value of pensions reducing (xref Caroline Bayliss’ talk) mid proceedings : ie snapshot valuations in a moving market. • Orders already made which perhaps no longer seem as fair as they did : ie query whether orders can be re- opened on Barder grounds.
Maintenance : Variation Generally • s.31(7) MCA - ‘ all the circumstances of the case’ • Assessment of needs being ‘elastic, fact-specific and highly discretionary’ (NS v SS) • need not be a ‘root and branch’ forensic examination of the parties’ finances and the court is entitled to take a ‘light touch’ approach ( Morris v Morris )
• Introduction of the 2014 ‘ fast- track’ procedure • Costs of variation can be disproportionate – see FPR PD28A 4.4 re costs orders: ‘ this may be of particular significance in applications for variation orders and interim variation orders or other cases where there is a risk of the costs becoming disproportionate to the amounts in dispute ’
Maintenance : Capitalisation • Not suited to unpredictable times – crystallises future risk. • The court’s approach remains the ‘three questions’ as set out in Pearce v Pearce 1. What variation to make? 2. From when should it start? 3. What is the ‘Duxbury’ figure? • Risks inherent for each party.
Valuation of Assets • Pensions • Private companies • Impact of Covid recently referred to in OG v AG (Mostyn J) • Remember valuations are inherently vulnerable – an ‘art’ not a ‘science’
• Per Moylan LJ in Martin three ways the court can take into account the valuation of a company, each dealing with risk in a different way. 1. Fix value and offset in cash if that is approach, should case proceed or wait until economy stabilises? If proceed, how is ‘ Covid risk’ factored in? 2. Sell the shares should we take the goose that lays the golden eggs to market? 3. Share the shares do you really want to leave divorced spouses co-shareholders?
Is Covid a ‘Barder’ event? • Ratio of Barder (per Lord Brandon) four conditions: 1. ‘New events.. Invalidates the basis … upon which the order was made’ 2. ‘Relatively short time of the order being made’ 3. ‘application… should be made reasonably promptly’ 4. ‘should not prejudice third parties who have acquired in good faith and for valuable consideration interests in property’
Change in Value as Barder? • Cornick – increase in value of shares. Per Hale J, three categories: 1. Asset correctly valued at trial changes due to natural process of price fluctuation . Court should not allow appeal. 2. If wrong value put on asset at trial where had the court known there would have been a different order. Appeal could succeed if no fault of person alleging mistake. 3. Something unforeseen and unforeseeable happened since hearing – but these are few and far between. Application failed.
• Myerson – decrease in value of shares – application failed • Maskell – loss of job – application failed • S v S – impact of White v White – application failed. Three propositions: 1. New event must be a complete change of circumstances and not a development of facts known or which should have been known. 2. ‘Unforeseeable’ means not envisaged and could not reasonable have been envisaged. 3. If the events could have been ascertained with diligent inquiry then the application will not succeed.
So to answer the question (or not) : • Is the economic impact of Covid-19 a subsequent event? • Is the economic impact of Covid-19 ‘unforeseen and unforeseeable’? That does not mean ‘ literally incapable of being imagined ’ but ‘ reasonably could not have been predicted’ • Does the economic impact of Covid-19 invalidate the basis on which the order was made?
thoughts, questions and discussion…
thoughts, questions and discussion…
Pensions and divorce and Covid-19 Caroline Bayliss October 2020 cbayliss@excaliburactuaries.co.uk www.excaliburactuaries.co.uk
Recent Developments Covid-19! But first a little revision……...
Pensions 101 ■ Defined benefit - (or final salary) - a pension for life (and for spouse), increases before and after retirement ■ Defined Contribution- (or money purchase) - a pensions ’pot’ - income depends on investment return, longevity, increases in payment etc.
Pensions and Covid-19 ■ Defined Contribution- (or money purchase) – fund values decreased
Pensions and Covid-19 ■ Defined benefit – different impacts: Mortality increased Assets may have decreased Cost of benefits may have increased Discretionary benefits removed Companies become insolvent?
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