Tag Archives: finance

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

 

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.

William.massey@farrer.co.uk

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.

vincel@r-sassociates.co.uk

A Different Mediation Model

Suzanne KingstonSuzanne Kingston explains how mediation’s flexibility as a process makes it ideal for resolving complex and entrenched disputes.

For the last few years, policy-makers and family law practitioners alike have been raising the profile of mediation as a dispute-resolution process in order to try to relieve some of the strain of litigation both on individual families and on the courts. The discussion tends to focus on the traditional set-up of family mediation. This is where two former partners meet in a room together with a mediator for 3-5 sessions of about 90 minutes each, and work out a way forward which is tolerable to both, and works for the wider family if relevant. However, this is not the only way to practise family mediation.

Where a family’s circumstances are more complicated, perhaps because of the scale of the assets involved, the involvement of foreign interests or difficult tax arrangements, the family involved may find that a ‘quasi-civil’ model of family mediation suits them better. This tends to involve the estranged spouses and their lawyers attending mediation for a few days if necessary with a specially-trained family mediator who directs the process and assists the two people at the centre of the dispute to come to an agreement. Some meetings may take place between the mediator and each team without the other being present; some meetings are between the spouses and the mediator only; and some are with everyone together, perhaps to hear from a jointly instructed expert about tax for example, or to negotiate specific points. The process can adapt to the needs of the family involved.

I myself have had several successes as a mediator with this model even where cases involved have been at final hearing stage. One example is where I assisted in a large complex mediation where the parties had jurisdiction issues in the background but were willing to put those to one side in order to mediate, knowing that they could resurrect them if needed in the future. We worked together over four days to discuss all issues – money and children – and reached a successful conclusion which enabled the couple involved to move on in a positive way.

In mediation, of course, all discussions are ‘without prejudice’ meaning they cannot be referred to in court if the process does not lead to a resolution – this takes away the risks involved in trying, and enables everyone to put their cards fully on the table in the knowledge that it cannot be used against them later.

One of the many benefits of dealing with a family dispute in this way is that the couple involved are able to resolve their disagreements at a substantially lower cost both in financial and in personal terms than if they had proceeded with a final court hearing. The semi-civil model of family mediation is not universally practised by family mediators, and is not appropriate in all cases. However, where it seems that all else has failed even in the most complicated of circumstances, it may be worth your while to seek out a civil/family mediator for one final roll of the dice.

Suzanne.kingston@withersworldwide.com