Divorce and the Credit Crunch
13 Nov 2009
A recent decision in the Court of Appeal has considered whether the devastating effect on the value of assets caused by the current financial situation is sufficient justification for the reopening of capital settlements made within Divorce proceedings. The court`s firm conclusion was that "the natural processes of price fluctuation, whether in houses,shares, or any other property, and however dramatic" will not be sufficient cause to reopen such settlements.
In Bryan Myerson`s case the fall in the value of shares, which made up the bulk of his share of the assets, had indeed been dramatic. His original settlement, finalised in March last year required him to transfer to his wife 43 per cent of their £25.8 million assets. She was to receive £9.5 million cash and a house, whilst he retained his shareholding in his company. Subsequently, the value of his shares plummeted by 90 per cent. The result is that Mrs Myerson will effectively hold 105 per cent of the couple's assets, while Mr Myerson, who was to have retained assets worth £14.6 million, will now have to borrow the £2.5 million which he still owes his ex wife. His claim that the recession and resulting fall in value of the shares were both" unforeseeable and unforeseen" and thus should justify the reopening of the settlement, received short shrift from the court.
Although this was an extreme case, it has not been unusual in "big money" divorces for a Wife to retain the bulk of the "copper bottomed" assets, including the former matrimonial home, while the Husband retains a larger percentage of the risk-laden assets such as shares. It is these assets which have typically suffered the most significant reduction in value, resulting, as in Mr Myerson`s case, in Wives often holding significantly more capital than was contemplated by the original settlement.
In these difficult times it is therefore increasingly important when reaching financial settlements to ensure that divorcing couples share not only the "safer" assets, but also the risk laden ones. In situations where this is simply not possible, then this imbalance may well have to be compensated for in the overall capital division.
Melanie Den Brinker is a consultant in the Family department and can be contacted on 01892 502326 or mdbrinker@bussmurton.co.uk