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Divorce and pensions

Duncan Carmichael-JackDuncan Carmichael-Jack considers divorce and the sticky issue of pensions: protecting and rebuilding.

No-one can pretend that pension planning is the most exciting subject to engage with. But make no mistake as to the importance of understanding the tax treatment of your or your ex-spouse’s pension arrangements in any divorce settlement. Whether the task is protecting their value, obtaining a true and accurate valuation or seeking to re-build pension savings, the legislation can be complex and, at times bewildering.

Re-building pension benefits

If life was simple then it would be a relatively easy task to invest money back into a pension fund after a divorce. But life is not simple and nor are the tax rules. The government essentially caps the amount of contribution that can be made tax efficiently to pensions by using a mechanism called the Annual Allowance. For this tax year it is set at £40,000. It is also possible to carry forward unused annual allowance from the three previous tax years under prescribed circumstances. If you are a UK taxpayer, in the tax year 2015-16 the rule is that you will get tax relief on pension contributions of up to 100% of your earnings or the £40,000 annual allowance. Confused? It gets worse! From next tax year the annual allowance for higher earners will be tapered away, so that an individual with earnings in excess of £210,000 will have an annual allowance of only £10,000 and NOT £40,000. This could have a significant impact on a person’s capability to restore and re-build pension savings.

Protecting pension benefits

It is difficult where to start! Everyone has a Lifetime Allowance which from the tax year 2015/16 will be set at £1m. Pension savings in excess of this value can be taxed at up to 55% dependent upon how they are taken. The key point is that the government has introduced a number of different ways to protect pension funds from a potential tax charge. With any divorce settlement it is vital to establish whether a) some form of protection has been implemented and b) what type of protection/s (yes it is possible to have more than one) is in place. From the next tax year there will be up to eight different ways to protect a pension fund and each will (or could) have a slightly different way of working when brought into account for a divorce settlement.

The fact is that pensions are incredibly complicated and my recommendation is to seek professional advice as early as possible to avoid any nasty traps and make use of the tax and financial planning opportunities available.

Duncan Carmichael-Jack

Disclaimer:

The information and opinions expressed herein are the views of Vestra Wealth LLP and are based on current public information we believe to be reliable but we do not represent that they are accurate or complete and should not be relied upon as such. Any information herein is given in good faith, but is subject to change without notice. Investors should be aware that past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invested.

Arbitration’s moment

Duncan BrooksDuncan Brooks discusses his experiences of arbitration both as an arbitrator and as a barrister representing a divorcing client.

Arbitration of family financial matters on divorce is possibly fastest-growing form of dispute resolution in England and Wales. Since the advent of the first family law arbitration scheme here in 2012, it has increasingly captured the imagination of divorcing couples who are frustrated with the delays, potential publicity and inflexibility of the court process, yet for whatever reason need an independent and binding decision made by a third party in order to move on with their lives. I am privileged to have been appointed as an arbitrator in seven cases to date, and to have been involved as an advocate in several more.

The arbitration process is inherently flexible. It is possible for those involved to request an arbitrator’s decision on all financial aspects of their divorce, or just on the issue of maintenance where a capital settlement is already agreed, or vice versa, or on a discrete issue such as child maintenance where there are no other ongoing issues. This flexibility also extends to financial disclosure, which can be ordered on a bespoke basis: there is no cast-iron rule as to use of the Form E, for example.

The majority of arbitrations in which I have been involved have taken a similar form to a court hearing, where each advocate speaks in turn and evidence is called and tested. However, this is not obligatory: I have been involved in two arbitrations where nobody gave oral evidence, as the people involved had agreed to deal with the issues simply by having their barristers present their arguments to the arbitrator. Even that is deemed unnecessary in some cases, and it is possible to get an arbitrator’s decision on the basis of written arguments alone, which can be very cost-effective for specific and discrete issues. Also, it’s open to the arbitrator to deal creatively with particular points that arise as part of the decision-making process: for example, in one case, I had to decide about the appropriate cost of re-housing. Rather than hear evidence sequentially, as is usual, I heard evidence from both parties concurrently – a process known as “hot-tubbing” – which meant that I could lead the questioning and explore properties with each party at the same time.

I feel strongly that the experience of arbitration for people going through divorce is better than the court alternative. Because the arbitrator is working for the people involved, he or she can devote the necessary time fully to pre-read all of the papers and ensure complete familiarity with the circumstances. There are no other cases competing for the arbitrator’s time, unlike in a court environment, and case management matters can be dealt with by email or over the telephone meaning that costly interim visits to court can be avoided.

The arbitration “hearings” take place in a non-court environment, which is usually less intimidating than a court setting, plus the coffee and sandwiches are better! In three of the arbitrations in which I have served as arbitrator, the parties have chosen to be referred to by their first names only.

Another advantage in present circumstances is that arbitrations remain entirely confidential – the press have no right to attend an arbitration, although they do have the right to attend court hearings.

The procedure saves time and, counter-intuitively perhaps, money too. There is no court diary to worry about, meaning that the decision can be taken sooner. This shortens the process of litigation and the ongoing costs reduce as a result. The actual hearing is usually much shorter than it would be in court, because of the ability of the arbitrator fully to familiarise him or herself in advance. As arbitrator, I have yet to take more than 1 day over the hearing, because I have pre-read the papers in full and will deliver a written award promptly after the hearing finishes. These are cases that might be listed for three or more days in court, with all the attendant stress and costs, plus a lengthy wait for a final decision afterwards.

Arbitration is a bespoke and modern method of resolving financial disputes on divorce, which contrasts favourably with the often archaic workings of our court system. For those seeking to divorce creatively, cost-effectively and with dignity, it is surely worth investigating.

 

d.brooks@qeb.co.uk

 

Dishonesty in divorce

Tim AmosTim Amos QC considers dishonesty in financial proceedings on divorce, and whether collaborative law can ever be appropriate where there is a suspicion of dishonesty.

The cases of Mrs Sharland and Mrs Gohil have been much in the media recently. For those who have not seen the coverage, these two women were both financially hoodwinked in different ways by their respective husbands during divorce proceedings. Because of this, at the time both settled for less than they would have been entitled to, had they known the truth. Now the truth has been revealed, the Supreme Court has clarified the law to ensure that both of their settlements can be reopened and they can reach a fair resolution at last.

Due to the publicity, it is likely that more people will ask the Family Court to reopen settlements that they now know to have been built on deceit. Of course, the court has always had that ability: these cases were clarifying technical legal points that had held these two particular women back. There is a firm principle that on divorce, to get a final and binding order from the court regulating financial provision, each person must give full and frank financial disclosure. Anything less – and certainly any overt deception – means a settlement or court order cannot be considered truly final. It can always be open to attack on the discovery of evidence that the real situation was not as it was put across.

It is difficult to know to what extent financial dishonesty is prevalent in divorce. Where legal advisers – solicitors or barristers – are involved, one of their jobs is to request, collect and assess the appropriate evidence to advise the client of their legal position. When things don’t ‘add up’, they are queried – sometimes they are clarified, and sometimes not. If not, there may be court proceedings where the evidence is tested by cross-examination. However there are other ways for testing evidence, and the collaborative law and mediation processes are interesting alternative options.

One might think that collaborative practice and mediation are less rigorous processes for assessing the veracity of financial disclosure because they are less combative, gentler options for resolving disputes. However, I do not believe this is so.

The supportive atmosphere of collaborative law does not mean that it is soft on disclosure. As both participants are accompanied by their solicitors, there can be a frank discussion of disclosure matters, face-to-face, which often leads to insight not available through the arms-length processes of solicitor negotiation or court. An independent barrister brought in to discuss settlement parameters can also raise questions, and the former couple also has the opportunity to question valuation experts directly on their methodology and conclusions. Because the collaborative setting is less positional, there is more opportunity for people to react flexibly and realistically rather than being tempted to “stick to their guns” at all costs, which sometimes still happens in the court process. Potentially therefore, the questioning about financial disclosure during collaborative practice can be more intense than in a court situation, meaning mistakes and misrepresentations are perhaps more likely to be rooted out.

Likewise, a strong mediator will ask questions to ensure he or she fully understands the disclosure made, and will allow each person to ask the questions they feel necessary to be satisfied that the truth is out there. If they are not satisfied, they may withdraw from the process and seek a solution through the courts or otherwise. It is always sensible to take legal advice from a solicitor outside the mediation process, and this provides yet another safeguard against being deceived.

When it comes to financial disclosure, mediation and collaborative law are not easy options. Although it may perhaps be too late for Mrs Sharland or Mrs Gohil to take advantage of alternative ways to resolve their disputes with their husbands, for those just starting to consider the best way to get to the truth, collaborative practice and mediation are worth investigation.

t.amos@qeb.co.uk

What does a Valuer do?

Ruaraidh Adams CairnsProperty expert Ruaraidh Adams-Cairns explains the process of completing an independent property valuation during divorce

I understand, from working with clients during family breakdown for 20 years, that the process of divorce can be confusing and overwhelming. I believe that information can help: the more clients know about how things work, the easier it is to understand or at least not worry about one part of the system. I am often asked about how I go about valuing a property, or properties, and I hope this short blog can give a flavor of how I work in the collaborative process and outside it.

The first stage is go to the property and inspect it. In doing so, I will measure up and photograph it, checking its physical condition and how it presents to me as a valuer, and to a potential purchaser. This is all about getting to know the property physically, getting a sense of it and understanding its situation and context. Once back in the office, I’ll check the Land Registry to find out how it is owned and when it was last sold, or go through the deeds if it’s not registered, and check its full history. This means also looking at whether there have been any planning applications and what they have been for. After that, I’ll look around for similar properties in the market, and compare them to see what light they shed on the valuation and talk to agents in the area. The last stage in the process is to put all of these things together into a report, which I submit to the instructing solicitors.

There are inherent difficulties with property valuations. My opinion is just an opinion – one that is formed through settled process, experience and the cultivation of expertise, but an opinion nonetheless, and necessarily subjective. Different people, whether valuers or prospective buyers, may take a different view. The other major difficulty is that the property market is constantly shifting and evolving. It never stays still. A valuation is indisputably a snapshot taken at a certain time that needs to be reconsidered frequently if it is to remain up to date.

Considering these problems with the valuation exercise, clients often consider the short cut of obtaining marketing appraisals from estate agents. There’s no doubt that this is cheaper – even free – however, it is not without significant risk. Estate agents usually pitch their appraisals above market value, and sadly it is not unknown for client to seek to mislead or influence local estate agents in order to acquire a valuation at a level that suits them. Indeed, when working as a single joint expert where I am presenting an independent report to both sides, problems often occur when estate agents have given unrealistic expectations to one of the clients. My role is to give a realistic value, without any influence from either side.

In the collaborative setting when I am asked to prepare a valuation report for clients, we have the opportunity to discuss these problems and the issues with estate agents’ views in a meeting, so that everyone is directly involved and can ask questions until they have sufficient understanding. I am also able to give an insight into the robustness of the valuation, which can vary from property to property and from time to time. We have the opportunity to investigate any “special value” which a property may have to both clients or either of them, which might affect the way a settlement is structured. These discussions inevitably help the collaborative lawyers and their clients better understand their property needs going forward, and contribute to a lasting and practical resolution of financial matters.

Property valuation is not an exact science, but experienced valuers can contribute significantly to a discussion on resources and future needs. It is most productive to do this in the context of collaborative practice, and I commend this approach to those considering how to resolve matters arising on relationship breakdown.

Radams-cairns@savills.com