Jersey: The Recession Effect - August 2012

Last Updated: 21 August 2012
Article by Appleby  

We are all aware of how the recession has impacted finances on a global, local and personal level. The impact of the recession on our personal relationships is somewhat less well documented but from the divorce lawyer's perspective, some interesting consequences are already emerging.

Financial difficulties inevitably place strain upon personal relationships and so it is hardly surprisingly that relationship breakdown was the third most enquired about topic at the Jersey Citizens Advice Bureau during 2011.

This article looks at the effect the recession has had when splitting a couple's assets during divorce proceedings.

The Property Pool

The effect of the global economic downturn upon the property market is now evident even in Jersey. The matrimonial home is usually the largest asset belonging to a married couple and the value realised upon its sale is often key to whether each will be able to buy a property with their share of the equity and whether financial independence from each other may be achieved. Tighter borrowing restrictions to fund personal mortgages have also made it more difficult for divorcing couples to sever their financial links. The corollary of low property values is of course that we are currently in a buyer's market and the divorce statistics suggest that while at the outset of the financial crisis such constraints resulted in some couples feeling like they had no option but to remain together, with no end in sight to the global economic gloom, unhappy marrieds are increasingly no longer willing to wait.

Hidden Treasures

Rather than divide a reduced asset pot, some may be tempted to reduce the pot first and then divide it. Transferring assets to third parties, providing depressed valuations and forgetting to declare the existence of bank accounts are all tactics which have been exposed in recent years in divorce cases. Full and frank disclosure is the very bedrock which underpins the resolution of financial claims in divorce proceedings; without a clear picture of the asset pot, it is impossible to fairly divide it. Unsurprising, therefore that the court's armoury includes sanctions for such shenanigans. Furthermore, the end of the case is not always the end of the matter; there is no time limit upon setting aside a financial settlement where one party is subsequently discovered to have hidden assets in divorce proceedings. The case can be re-opened and a different settlement imposed which does justice between the parties.

Illiquid Funds

Increasingly sophisticated remuneration packages are a feature in the divorce proceedings of those working in the commercial and financial sectors. Share options, shadow equity schemes, long term incentive plans and undeclared employee benefit trusts create an additional layer of complexity both in terms of ensuring that full disclosure is made and that risk laden and copper bottomed assets are fairly divided. A good understanding of such packages and their value is essential to a fair outcome.

Where previously the wife would often retain the matrimonial home and a large proportion of the liquid assets, the husband would be left with his pension pot, shares and share options. The case of Myerson v. Myerson demonstrated back in 2009 just how risky this had now become. The assets totalled £25.8 million and the parties agreed to divide them such that the wife received 43% in property and cash and the husband retained his shares. Less than 12 months later the value of his shareholding had plummeted. With f luctuating markets and shifting values, the structure of divorce settlements is necessarily changing to ensure that both parties share the risks as well as the rewards of their joint endeavours.

What's Mine is Mine

Whether an asset is the result of joint endeavours and how it should be treated as a result, has been aired in numerous recent cases heard in the higher appellate courts in England. If the needs of the parties are already adequately provided for, categorising an asset as "non-matrimonial" may justify a departure from equality. For example an asset acquired prior to the marriage or a bonus awarded for work which has taken place after the parties have separated.

In Jones v. Jones [2011] the husband was given credit for having built up his successful company prior to the marriage. Of its value, £9million was deemed "non-matrimonial" and therefore not to be shared with the wife, who received 32% of the total assets.

It is clear from those appeal judgments that it remains a matter of judicial discretion whether and to what extent the genesis of the property justifies a departure from equality. Such an approach safeguards f lexibility but at the cost of consistency, hence the remit of the Law Commission, initially set up to consider whether prenuptial agreements should be given a statutory footing, has now been extended to consider the status of non-matrimonial property.

The current economic landscape has thrown up a variety of new challenges in the context of divorce proceedings. Obtaining specialist legal representation remains key to securing a fair outcome without undue cost.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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