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Executives and Divorce - presenting the complete picture

 

The trend towards bonuses and discretionary remuneration has significant implications for executives in divorce proceedings.

Failure to take non-salary awards into consideration can create legal argument, even in amicable settlements, and could wipe out the value of benefits received. Skilful handling is essential.

Finality of financial arrangements upon divorce, or dissolution of a civil partnership, can only be obtained by securing an order from the Family Court. That is equally the case in contested proceedings, negotiated agreements (with or without legal advice), and financial arbitration, which has the considerable benefit of being conducted entirely in private.

The court has a duty to determine that a final award is fair, which means both parties are obliged to disclose any information that is relevant, or potentially relevant, to the outcome. It also means that parties cannot exonerate each other from that responsibility, whether proceedings are contested or not.

Discretionary remuneration, past present and future, and carried interest, are undeniably relevant. So far, so uncontroversial.

But the information must include any fact relevant to the court's review not just of current circumstances but also of the foreseeable future. So it is not generally acceptable to attribute a nil value to an asset just because it is unrealisable or deferred. And the duty to provide all relevant information continues up to the point when a Family Court seals its order. That can be many weeks or even months after an agreement has been reached or a judgment given.

The more complicated the remuneration arrangements, the greater the obligation to explain them in a way which is capable of being understood by a solicitor of average financial sophistication.

Commercially sensitive information which is not in the public domain is protected by an implied undertaking of confidentiality before, during and after the proceedings.

Case law now dictates that all these warnings apply with equal force and effect to negotiated settlements as to contested proceedings. Amicable separation has everything to recommend it, but amity is no defence to a failure to comply with the demands of the Family Court.

Failure to comply may lead to a costs order against the defaulter in contested proceedings, and could lead to an agreed order being set aside. There have been some very high profile examples of the latter in the last couple of years.

It is not all hard work and no play in the bonus culture. The earner can argue that his deferred remuneration and carried interest is an asset only acquired, if at all, long after separation. So it is not a matrimonial asset subject to the equal sharing principle. A discretionary award may be made during the marriage, but it will only be earned through the solo efforts of the beneficiary in the ensuing years.

All will depend on the individual case, and on a comprehensive explanation of the terms upon which the ultimate proceeds will be calculated and received. Legal advice is essential, and experience shows that accountants, financial advisors and HR departments may also be needed to help present the most complete picture.

March 2017

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