Monthly Archives: June 2015

Full disclosure

William MasseyWilliam Massey explains the key part played by financial disclosure in divorce, collaborative or otherwise.

Financial disclosure is the biggest single legal exercise in the divorce process for most of my clients, whether they are resolving disputes in court, through mediation or in the collaborative process. In order to ensure that financial arrangements on divorce are fair, and for lawyers to advise, it is necessary to pull together a comprehensive picture of the assets, liabilities, income, expenditure and expectations of both spouses. Financial disclosure must be full, frank and clear. When it is not, the process inevitably becomes longer, more complex and more expensive.

As a case in point, the justices of the Supreme Court have just heard argument in the case of Sharland. The former wife is seeking to reopen a court order on divorce finance reached by agreement at a time where her former husband failed to tell the whole truth about his business affairs.

The former couple reached an agreement on the understanding that the husband’s business was worth between £31.5m and £47m, and that his shares in it were worth £7million. He had told his wife and the court that he had no immediate plans to float the company. However, shortly after agreement was reached and approved by the court, it emerged that the company was worth significantly more (press reports said up to £600m) and that an initial public offering was indeed being prepared.

Mrs Sharland asked the court to set aside the agreement on the basis that neither she nor the court had been aware of the true scale of the husband’s wealth at the material time. However, both the High Court and later the Court of Appeal declined to overturn the settlement, saying although the husband’s non-disclosure had been deliberate and dishonest, it was not “material” to the outcome: effectively, the wife would have received a similar amount even if the truth had been known. The Supreme Court has now been asked to take a good look at the rules, and what happened in this case, to say whether the lower courts were right to reject the wife’s application to reopen the settlement. We await the judgment with interest.

Financial disclosure is just as important in the collaborative process as it is the court process, and the same standards of disclosure apply. However the collaborative process has the significant advantage of the built-in opportunity to ask questions of each other face-to-face, and to discuss complicated matters such as tax and business valuations directly with the experts. This reduces the potential for delay, confusion and misunderstandings, which can all be frustrating and costly elements of the litigation process. The end result is that decisions about future financial arrangements can be made consensually once everyone is satisfied that the relevant issues have been explored and all questions answered. If this can take place, as tends to be facilitated in the collaborative process, there is a much lower likelihood of problems arising later.

New options on pensions

Vince LaneVince Lane explains why the new rules on pensions give divorcing couples useful new options when arranging their finances.

I’ve been working as an adviser to people going through divorce for over 20 years now, and throughout that time I’ve become used to reacting to the regular changes in the options for divorcing couples in dealing with their pensions. When I first started in the field, pensions were highly inflexible investments and there were only two real options – offsetting the value of one person’s pension against an asset retained by the other, often the house; and pension earmarking, which required a proportion of one person’s pension to be paid to the other but had significant disadvantages, and inflexibility.

We then saw the introduction of pension sharing orders, which are very common now in divorce and have gone a long way towards reducing the unfairness that often occurred when one person’s large pensions couldn’t previously adequately be divided up. For many couples, particularly those some way from retirement age, pension sharing is still likely to be the best option on divorce.

However, the new flexibility available to those aged 55 and over in defined contribution schemes, (such as personal pension plans) goes further in expanding the range of options. Since 6 April 2015, pension investors have total freedom over how they take an income or a lump sum of capital from their pension, effectively freeing up the pension as an asset for potential immediate use by either or both former spouses, subject to taxation. These new provisions offer a new set of choices for those nearing retirement age and going through divorce.

A pension investor can now take the entire pension fund in one go, if necessary or desirable. The first 25% will normally be free from tax, and the balance taxed as income at the individual’s marginal rate. Alternatively the pension fund could be taken in smaller lump sum amounts at irregular intervals, which may be useful for example to fund loan repayments, or larger cash flow issues. Again, typically the first 25% of each withdrawal is tax-free with the balance taxed as income.   Alternatively, an individual might take 25% in the form of a tax-free lump sum and take a regular taxed income from the balance of the fund, or buy an annuity if a guaranteed income is needed.

Pensions are complex products and, for those with significant amounts of money tied up in them, they need careful handling on divorce. The beauty of the collaborative process is that both spouses have the opportunity to sit down with their lawyers and a pensions expert like myself, in a calm and constructive atmosphere, to work out the most efficient way to deal with these assets from all the different options available. This increased pension flexibility is another tool in the toolbox of the Creative Divorce professionals to enable progress towards a fair and cost-effective settlement that is acceptable to the whole family.