Ruling means divorce settlements remain robust irrespective of the credit crunch

Myerson divorce settlement


Kevin Harris-James, partner and head of Private Client and Family Law at law firm Irwin Mitchell, contemplates the ramifications of the recent Court of Appeal ruling regarding the Myerson divorce settlement.

These are challenging times as the economic recession impacts upon divorce settlements and the manner in which we family lawyers advise.

I am seeing notably more clients now who find themselves simply unable to meet existing financial obligations arising out of a divorce settlement whether that settlement was by consent or judicial determination.

I was hoping for some relief in the Myerson Judgement, as the Court of Appeal addressed this very same issue. In many respects the judgement will come as welcome relief for the recipient of the settlement but not so the payor who is at the mercy of fate.

Brian Myerson agreed settlement terms with his wife. The assets as at the date of the divorce settlement hearing were valued at £25.8m. It was agreed the Wife would receive £11m (43%) and the Husband would retain £14.5m (57%).

The Wife's portion was to be provided as to £9.5m cash and the balance in property valued at £1.5m.

The Husband's assets consisted of a very substantial shareholding and various properties. It was agreed that the Husband was to pay the Wife her cash settlement by instalments over four years, the first payment being £7m within three months of the original order.

During the period between the settlement and the 1st instalment falling due, however, the value of the Husband's share plummeted and, as a consequence, he was unable to meet the payment. By the time of the appeal, the value of the Husband's shares had fallen from £2.99 per share at the time of the order to 27.5p, effectively wiping all the value of his settlement.

Mr Myerson therefore appealed the order on the basis it was rendered unfair and unworkable given the collapse of the global economy.

The Court of Appeal rejected the appeal, showing little sympathy for the debilitating impact of the recession upon those in difficulty meeting divorce settlements. The Court re-iterated the hard line adopted in earlier decisions.

A court may exercise its discretion and reconsider an order, subject to 3 rigorous conditions:

  1. New events have occurred since the making of the order which invalidate the basis, or fundamental assumption, upon which the order was made
  2. The new events should have occurred within a relatively short period of time of the order being made (no more than a few months)
  3. The application to appeal was made reasonably promptly

The Court determined that where an asset, which was taken into account and correctly valued at the date of the hearing, changes in value within a relatively short time owing to natural processes of price fluctuation, this in itself should not warrant judicial interference.

The natural processes of price fluctuation, whether in houses, shares, or any other property, however dramatic, are not sufficient to allow an appeal of the original order.

The Appeal Judge noted:

  1. The original Order was by consent a product of will
  2. The Husband's motive was to offer the Wife a transfer of the shares in lieu of the cash as such taking a speculative position to settling the Wife's claim
  3. The Husband enjoys the opportunities that go with the shares which can rapidly increase in value overnight as well as depreciate.

It is my belief a 4th factor weighed heavily upon the Appeal Judge's mind - that of public policy. Indeed the Appeal Judge comments "...I am wary of the flood gates..."

The decision therefore puts a nail through any suggestions of re-writing orders on the premise of the credit crunch.

It does seem a harsh decision:

  1. What if the Order was not by consent but instead by judicial determination? Would that be a distinguishable factor for appeal?
  2. How can the near collapse of financial markets be described as "...a natural process of price fluctuation..."?

    The decision, of course, imposes significant obligations upon my colleagues and I here at Irwin Mitchell when advising our clients, who include footballers, celebrities and high-fliers in the business community:

  3. Ensure a fair spread of the marital wealth to achieve a balance between the copper-bottomed assets and the illiquid, risk-laden assets: for example why should the Wife receive all the cash leaving the husband with the volatile shares?
  4. Remind the client of the lasting obligations arising from Orders clients must reflect before committing.
  5. The above two points represent business as usual. However, we would not have been overly surprised had the Court of Appeal shown a degree of leniency in the case of Mr Myerson - who, according to some media reports, claims that he will be £500,000 out of pocket if he makes the payment - in the light of the seismic shifts in the financial markets. Myerson is a cautionary tale for the unwary.