Back

Divorce for the more mature of us (and others!)

 

Bear_Family.jpg 

Contrary to the title the Brad and Angelina divorce is a useful opportunity to highlight common situations where there is a greater asset base between divorcing couples. That is to say they have accumulated significant assets (and are always older.)  The so called empty nest syndrome is often blamed where the children have left the home and a couple are left to stark realisation there is now just the two of them.

There may also be a greater and more diverse asset base incorporating properties, investments, family business and significant pensions.

The Court will tend to look at pension and none pension assets separately. Some commentary I have heard that the Courts prefer offsetting as an easier way forward is in my experience not the case. You can not necessarily equate a £300,000 pension pot with a similar sum in other assets and savings such as property and ISA’s.

Dependants upon the age of the parties it will usually be recognised that a pension is little more than a lump sum and income stream entitlement which is deferred to a future point in time when the scheme member is aged 55 years. If a party is approaching that age and in recognising pension freedoms then the Court may then equate the two. But it must be brought to the Courts attention the often significant tax consequences pensions freedom will bring over and above receiving 25% as a tax free lump sum.

Full tax implications will need to be investigated by a pensions expert otherwise it must be treated the same as looking at a slightly younger pension scheme member who is say in his mid-40's.  Comparing such a pension entitlement with home savings is a kin to comparing apples with pears.

If it has been a long marriage then there may be an expectation of periodical payments to usually the wife. Even where the children have left. She may never have worked or having had to take time off work to prioritise the care of the children so be exiting the marriage with significantly lower earning capacity but having been used to a significantly greater standard of living. Whilst the Court will accept some hardship to adjust to providing a clean break which the Court must consider, it must not be undue or grave hardship. That is often the great conundrum. A clean break can be very much viewed as a prize by the greater earner if there are sufficient assets. The wish to give the other party a greater share of the capital assets in return for that clean break.

In any event there may be child support payments to be made and which will be based upon 12%, 16% or 19% of the absent parents gross earnings. Say for the 1 child, 2 children or 3 or more children. There are deductions for overnight stays and if the paying parent has other dependant children with them. They may be required to some departure from the child support formula to recognise or that significant proportion of the paying parent income is not “earned” but rather something like dividend income. The so called “Bertie Wooster” clause in the child support legislation remains for initial assessment.

There may also be school fees or university to fund. The greater earning parent may be required to assume this responsibility. However the advantage is that payment for a child can be more palatable than to an ex-partner and it does at least also provide for the likelihood of a future anticipated clean break.

What is often not understood is that one party, usually the wife, does not have an automatic right to remain in the family home. If there are still dependant children a sale can be deferred if size and location is required to meet perceived needs of the family. Fairness can also come in to play.  Is the party remaining in the family home for a period of time affordable? Is child support sufficient or are additional periodical payments required? What is the property’s size? The value and the degree of equity within it will be relevant. Usually needs and affordability are the driving criteria at Court.  But, first consideration (not paramount consideration) to the welfare of any minor child also.

With older couples and indeed children remaining at home then downsizing would often be planned in any event and that would be recognised by the Court. It frees up equity and housing for two so will usually be required even if there are sufficient assets to enable one party such as the wife to remain in the house. Often a deciding fact in that situation may be any perceived need by the wife for periodical payments. It could be unfair to the paying former husband to pay periodical payments based upon an income needs budget the wife has put to the Court based upon her remaining in house significantly greater than her recognised housing needs. There will no doubt be greater council tax, gas, electric, water, mortgage re-payments. A more modest and perhaps mortgage free property could also be the obvious choice.

If there is a joint mortgage then a sale may be only the way to achieve true clean break between the parties in terms of the capital assets. Even if there is maintenance required for a certain period. It enables the other parties mortgage capacity to be fully freed up.

Again, there can be arguments about housing needs including those of children. This can require the Court to scrutinise housing details from various estate agents which both parties putting forward as reasonable for themselves and the other party. Also, information and documentary evidence of respective mortgage capacity.

There may well be other debts even amongst much older divorcing couples. The Court cannot reallocate a debt held by a third party, such as directing Barclays bank on a joint debt to remove one parties name from it! However the Court can require one party to undertake to maintain the subscription payments due on a loan or order maintenance is paid to enable the indebted party to make those payments. The Court can also order an asset to be sold and direct the proceeds be used to discharge a debt.

There is in family law quite rightfully a wide ranging discretion given to the Court. One suit cannot fit all nor can there be a magic formula. The age of the parties and any dependant children has a bearing. The size and type of assets and the parties respective earnings are relevant. Fairness is the driver once need is met.

We have already mentioned that a pension is difficult to equate with other assets but likewise one party having an interest in a company can be difficult to value. Not only will a minority interest in a company be subject to discount to its valuation but it can also be relevant as to what liquidity is available. The party may have a Director’s Loan owing to them or own all the company which has spare cash at the bank over its operating needs. Personal Guarantees may also be relevant if have been required by the banks but consideration of these is no decisive as it is not truly a debt merely a promise to pay what you can. However it must be checked as to whether the Personal Guarantees­­­­­­ are also charged to property.

A recent example I had was a client having a 25% interest in the family trading company. A company in round terms valued at £1,000,000.000 did not make is 25% worth £250,000. Imagine, who was going to buy his minority, none controlling interest in a closed family company? In the end it was valued at approximately £125,000 which was subject to tax. There was then the question as to what liquidity there was in the company to purchase his shares, pay him and the others a dividend or otherwise repay his Director’s Loan Account. This turned out to be approximately £50,000 (his share) over what it required for its normal capital requirements. £50,000 was in respect of that shareholding what the Court felt was a magnetic factor.  The Court took account of the mid-point figure for fairness to both. (His interest in the company had a value on an Accountant’s calculation but of course is then subject to legal consideration of it being discounted on the basis it is a risk laden and illiquid asset). Given the wife in that case had in her mind the sum of £250,000 when she saw the million pound valuation it came as somewhat as a disappointment.

A specialist family solicitor would have identified that for her at an early stage and managed the likely expectations.

Whether there are grown up children, young children, plenty of assets or very little in assets the advise of a specialist family solicitor should be sought. Myself and Marie Whittaker offer a free initial consultation to help assist in identifying pros and cons, pitfalls and soft underbellies as well as the possible cost of resolving such a situation. Call 0800 083 0815 to speak to us today and book a free, initial consultation.