Coronavirus has had a major, but hopefully temporary, impact on business, housing and stock markets. As plans are made to ease restrictions, solicitor David Cobern explains the implications for those involved in financial remedy claims in divorce.
Asset valuations are taken on the day of settlement, based on the latest available evidence. Where parties are in proceedings, under the court timetable some delay is possible, usually by agreement, but the court will not allow indefinite or unplanned delay.
No one knows what the trajectory will be when the housing market reopens, but it seems unlikely to be strongly upwards. Confidence is low. Lenders are changing their criteria, increasing minimum loan to value ratios and secure income requirements.
What does this mean for parties with a marital home to sell? The answer depends on the purpose of the sale. If the equity is to be reinvested in new homes for each party and the children, it is “swings and roundabouts“; a lower sale price is offset by a lower purchase price. The problem may be difficulty in getting a mortgage. On the other hand, if one party is hoping to be bought out by the other, the value is important.
Those seeking a better deal may try to revisit pre coronavirus valuations or negotiate a delayed sale hoping the market picks and based on a percentage of the value at some future date.
Stock markets and defined contribution pensions
The stock markets have fluctuated wildly in the last few weeks, but this crisis (unlike past ‘crashes’) has a predictable curve. There is some confidence on the part of speculators second-guessing winners and losers when the world emerges from the crisis. Parties to divorce wishing to keep stock market based investments, including defined contribution pension schemes may wish to negotiate an early settlement while the market remains low. On the other hand, those seeking a lump sum buyout or pension sharing may want to delay while the market recovers.
Public sector pensions
These schemes are unaffected by the crisis whether in deferral or in payment.
Business sales and buyouts
Some sectors have suffered more than others. Tourism and leisure and the high street have lost business and experienced cash flow problems while IT and many online business sales have soared. Consequently, family business valuations and lending options predating the crisis should be reviewed when considering a buyout or a sale where one party is to receive all or most of the proceeds as part of settlement.
Options to be considered include delaying the sale or buyout to enable the business to recover or (if there are proceedings and the court won’t permit delay) negotiating a settlement with built in delay. This may mean that the sale is deferred, or any buyout is made in stages reflecting the performance of the business over time. Whilst finality is important for future investment and strategic decisions, these safeguards avoid a potentially unfair outcome if a previously healthy business suffers or fails post lockdown.
It should be borne in mind that the courts aim for finality in arranging settlements. Whilst it is possible in limited circumstances to set aside agreements which prove to be unfair due to some previously unforeseen event, it is likely to prove difficult to rely on the effects of this crisis as a ground for challenging an order made by agreement.
David Cobern is a director and solicitor who specialises in supporting clients with the financial aspects of family law. If you would like to discuss this article any other family law legal matter then please do get in touch by telephone 01392 421777 or by email [email protected]