Family Law in the Pandemic – time to revisit settlements?

Emily Parkin

Should Financial Settlements on Divorce be reviewed in light of the economic impact of Covid-19?

It has been a question family lawyers have been facing since March 2020 and the arrival of Covid-19 and its impact. Those who reached financial settlements on divorce just prior to the pandemic hitting may have found themselves in significantly worse financial positions if they kept business assets which were not worth the 2019 value once the effects of the worldwide lockdown hit, or where their settlements were based on pre-Covid levels of income.

Mr Justice Mostyn has recently dealt with this issue in the case of case of BT v CU [2021] EWFC 87, where a husband’s application for Covid-19 to be treated as a ‘Barder’ event was dismissed by Mostyn J, with Mostyn stating that Covid-19 is ‘probably not’ a Barder event, showing just how high the threshold is to have an event deemed a Barder event.

What is a Barder event?

The case of Barder v Barder (Calouri Intervening), heard in 1988, established the principle of when a court may exercise its discretion to set aside a financial settlement on divorce due to a change in circumstances. It can only be done in truly exceptional circumstances and the House of Lords set out four conditions, which must be met, before the court will consider setting aside a final order:

1. The new event must have invalidated the basis or fundamental basis upon which the order was made;

2. The new events have occurred in a relatively short time;

3. The application to set the order aside must have been made ‘reasonably promptly in the circumstances of the case’; and

4. There is no prejudice to third parties.

If the court determines that these four conditions have been satisfied, it is said to have been a ‘Barder event’ and the financial settlement can be set aside or reopened.

Background and Issues to BT v CU [2021]

In October 2019, the court ordered that the parties’ assets should be divided 58 per cent: 42 per cent s in favour of the husband. The judge justified the departure from equality on the basis that the shares in the husband’s company, which provided school meals, carried an element of risk that was not comparable to the assets the wife was keeping. Part of the order required the husband to pay the wife a series of lump sum payments, totalling £950,000, between November 2019 and November 2023.

Following the outbreak of the Covid-19 pandemic and the closure of schools in March 2020, the husband sought to set aside parts of the order that were yet to take effect, arguing that the impact of Covid-19 on his business were both unforeseen and unforeseeable. The husband argued that the devastating financial consequences for his business, and him, invalidated the fundamental basis on which the final order was made.

Mr Justice Mostyn’s Decision

The answer Mostyn J provided to this question was that Covid-19 was ‘probably not’ a Barder event, but that this would be case dependent. He held that, in this particular case, the husband had failed to clear the first hurdle of the conditions, as the basis upon which the original order was made was the fact that the husband was retaining risk-laden assets – the fact that the company had gone down in value was inherently a risk which was accounted for in the unequal division of the capital assets, which would otherwise have been divided equally.

Mostyn J confirmed that when assessing whether an event is unforeseeable in this context, the court should focus on its economic impact, where it has affected asset values. He went on to explain that when the order was made in October 2019, a reasonable person may have foreseen that there was a chance of an economic downturn in the following year resulting in reduced turnover and increased costs for businesses. This sentiment echoed what was decided in the case of Myerson v Myserson [2009] EWCA Civ 282, heard after the banking crisis in 2008, where it was held that changes in the economy are unlikely to be seen as a Barder event even if they are quite dramatic, as was the case here, as this is part of the natural process of price fluctuation. It seems Covid-19 is the same, if you took the risk in the first place – the rationale being that had an upturn happened, would they have been coming back saying their ex-wives should get more?

What about maintenance orders?

Again the courts dealt with this in AJC v PJP [2021] EWFC B25 earlier this year, where a wife’s application to convert a nominal spousal maintenance order into a substantive order, after becoming she lost her income as a pilot due to Covid-19, was dismissed. It was ruled that losing a job, even if it was as a result of a global pandemic, could not be ascribed to ‘relationship generated disadvantage’ and so the husband (who was arguably also struggling financially as a result of the pandemic) should not have to pay substantial maintenance as a result. Whilst fact-specific (comments were made in the judgement about the wife’s conduct in proceedings), it demonstrates the court’s reluctance to allow Covid-19 to be used as a way to revisit prior settlements.

Conclusion

As with all family law decisions, the outcome will be fact dependent, but it seems that where one party took the risk, they will be held to that and Covid-19 will not be a reason to undo a financial settlement. These cases are still only High Court cases, and it may be that we hear from the Court of Appeal on this issue in 2022, but until then, risk sharing seems to be the only way to hedge ones bets in a financial settlement

https://www.lexology.com/library/detail.aspx?g=daf2de5e-f264-4f38-b2f3-d507bc062cf0

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