Brian Myerson was forced to stick to his expensive divorce agreement, despite the credit crunch wiping out his fortune. Kevin Harris-James looks at why the Myerson divorce case means the rules of the game are changing.
These are challenging times as the economic recession impacts upon divorce settlements and the manner in which family lawyers advise. I am seeing notably more clients now who find themselves simply unable to meet existing financial obligations arising out of a divorce settlement – whether that settlement was by consent or judicial determination.
Many such clients have been waiting in hope for guidance from the Court of Appeal in the Myerson case. Unfortunately, their hope was in vain, although it will come as welcome relief for the recipient of the settlement.
Brian Myerson agreed settlement terms with his wife. He retained the other assets consisting mainly of his shareholding and various properties. It was agreed that he was to pay her cash settlement by instalments over four years, the first payment being £7m within three months of the original order.
During the period between the settlement and the first instalment falling due, however, the value of his shares plummeted and, as a consequence, he was unable to meet the payment.
He therefore appealed the order on the basis it was rendered unfair and unworkable given the collapse of the global economy.
The Court of Appeal rejected the appeal, showing little sympathy for the debilitating impact of the recession upon those in difficulty meeting divorce settlements. So, following on from Myerson and looking at the conditions which are collectively referred to as the ‘credit crunch’, what would I advise?
First, Myerson is a cautionary tale for the unwary. Second, we need to consider reaching an agreement before the court makes an order, sometimes even before divorce, and this is where Post Nuptial Agreements come in. Many people are aware of Pre Nuptial Agreements, as a means to protect the assets of the individual parties prior to marriage in the event of either party subsequently seeking a divorce. Although not legally binding in this country, the divorce courts are increasingly taking them into account.
Circumstances change during the course of a marriage and this means that Pre Nuptial Agreements may need a degree of revision to re-direct the division of assets should that become relevant, for example the birth of children, an inheritance or a lottery win. These changes may be regarded as Post Nuptial Agreements. There is increasing expectation among the legal fraternity, that the credit crunch will and is fuelling interest in revisiting Pre Nuptial Agreements because of the impact of the credit crunch on the assets which existed before the marriage in addition to those which mig
An example of this could be where an entrepreneur is running his or her own company and the Pre-Nuptial Agreement might well have agreed that the spouse could have a share of profits but not the assets.
The impact of the credit crunch may have prompted the need for an additional investor who would expect a share of both assets and profits and so a Post Nuptial Agreement would have to be drawn up to reflect this. Another take on this example could be where there is no new investor but that there is no likelihood of profits in the foreseeable future and so the spouse wants a share of the assets.
My colleagues in Irwin Mitchell offices around the country are also finding that the credit crunch is prompting some couples who have been contemplating divorce to hold back. Factors behind this include the drop in value of the family residence and the difficulty in securing new mortgages going forward.
Conversely, other couples may find that the additional stresses and strains placed upon them by the economic climate exaggerates issues in their marriage to an unacceptable degree and they decide to divorce when previously they may well have stayed together.
And, of course, there are couples who decide to hasten their divorce proceedings simply because they are pleased that the asset value is low so the award to the other partner will be reduced.
Myerson may well be a cautionary tale for the unwary but hopefully it will alert other couples to the factors they need to consider an discuss with their family law expert when considering the potential prospect of divorce in the era of a credit crunch of uncertain depth and duration.
* Kevin Harris-James is partner and head of private client and family law at Irwin Mitchell.