Covid-19: Changing the Financial Orders
With businesses struggling to survive, jobs lost, assets devalued, many of those who have financial agreements or Orders following a divorce to adhere to, are starting to wonder whether they can afford to honour these Orders. In this blog, we will have a look at how and when Financial Orders can be varied.
Since March this year, when countries started shutting down one by one in desperate attempt to slow down the spread of novel coronavirus, our lives have changed to a point of becoming unrecognisable. It has been reported that the UK economy has shrank by 20.4% in April 2020, the largest monthly contraction on record. Just for context, during the Great Recession of 2008, the UK economy contracted by o more than 1% in a single month and the overall contraction was under 7% during the entire Recession. Therefore, the economic fallout from the pandemic will clearly be a great one and have a lasting effect on our lives.
There are already hundreds of things we need to worry about, whether it is to ensure our businesses stay afloat, keeping our jobs, making sure our children’s education is not disproportionally affected, worrying about loved ones. But for those who have Financial Orders in place that they need to act upon, there is a worry added into this already infernal mix: how to ensure compliance with said Orders.
Whether the Financial Order was based on Court findings or on consensual agreement of the parties (known as a Consent Order), the fact remains that all Financial Orders are Court Orders and, as such, they are enforceable through the Court. If you fail to abide by the Order, you might face legal and financial consequences that are best avoided.
To look at your options in case you find yourself unable to honour the Financial Order you have in place, we first will look at what constitutes a Financial Order.
What is a Financial Order?
In short, a Financial Order in a divorce case, is a Court Order that sets out how the matrimonial assets will be divided between the parties, once the marriage is terminated. As a Court Order is approved and/or issued by a judge, the Financial Order is legally binding and can be enforced through the Courts.
There are several types of Financial Orders that the Courts can make. This will depend on a number of factors including what assets the parties have;their Financial capacity and needs and whether there are children of the family etc. In many cases, the parties will agree between themselves how to divide those assets. In fact, it’s always recommended that you try and agree a financial settlement, as this will save time and resources. To ensure that the agreement reached by the parties is enforceable, it will need to be approved by a judge. These are known as Consent Orders and have the same effect as the other Financial Orders.
In certain circumstances, the Financial Orders can be changed after they have been issued and even partially executed. This is known as varying the Financial Order. Not all Orders can be varied and there are very specific circumstances that allow for a variation of Order. Below, we will look at what Orders can be varied.
What Financial Orders that can be varied?
In principal, not all Financial Orders can be varied. Those that can be varied, will still need to meet certain criteria for variation. It is, however, important to remember that any Financial Order can be changed, if there is a significant event alters the basis on which the Order was taken out. These are known as Barder events and we will look at it later on.
For now, let’s see which Orders can commonly be varied and for what reasons.
Maintenance pending suit and interim maintenance Orders: There are situations when one of the partners in the marriage is financially particularly vulnerable and unable to maintain themselves without the other partner’s financial support. In such cases, the Court will Order an interim maintenance payment. These payments are payable until the final Financial Order is made.
Periodical payments and secured periodical payments: These Orders are issued when one of the spouses is in a financially vulnerable position after the termination of marriage and is unable to support themselves financially without continued support. This can happen for instance when one party has given up working to dedicate themselves to family. Unlike the Maintenance pending suit Orders, these Orders are final Orders and the payments are to be made for a determined period of time.
Likewise, periodical payments and secured periodical payments can be ordered in respect of a child of the family.
Lump sums Orders to be paid by instalments: Lump sum Orders are a usually feature when one of the parties is keen to retain an asset or seeking to get a clean break. In these instances, the financially weaker party agrees to a lump sum, instead of periodical maintenance. However, lump sum Orders can also be ordered to be paid in instalments. Such Orders then can be varied.
Deferred lump sum payments can also be varied if they meet certain conditions.
Sale of property Orders: As part of a Financial Order, there often can be an Order to sell a property. The proceeds can then be divided between the parties according to a Court determined formula.
What Orders cannot be varied?
Most prominent in this category of Orders that under normal circumstances cannot be varied are lump sum Orders that aren’t payable by instalments, a property adjustment Order or pension sharing Order after the decree absolute cannot be varied.
Principles the Court applies on a variation application
There are certain principles that the Courts will adhere to whenever they are looking at varying a Financial Order. In general, the Courts have a broad discretion as to how they are looking at the case, but this does not mean that you can simply re-litigate the case. Unless you present the Court with very compelling grounds as to why the Order needs to change, your application will be refused. If your application is completely without merits, it will be struck off even before you have the chance to present your case.
The principal factors the Court will look at are the following:
- Children – Welfare of any minor children is paramount and the Courts will need to consider it as a primary factor.
- Change in circumstances – The Court will consider whether the circumstances which led to the initial decision have changed in such a significant manner that keeping the original Order is no longer fair or workable.
- Fairness – In general, the Courts have to ensure that the parties are treated fairly. This principle applies to making Financial Orders as much as varying them.
- Available finances – any changes of the level of income to either or both parties can be a reason to vary the Order. This is because the level of income for the parties is a determinative factor when a Financial Order is made, therefore it amounts to material change.
- Balance of responsibilities between first and second families – if the party has re-married or otherwise started a new family, their responsibility to their new family will need to be taken into account. It is in essence, a balancing exercise to ensure that the new family has the level of care and financial support they require.
It’s worth mentioning that where the party receiving periodical payments starts a new cohabitation, this will not necessarily lead to reducing or terminating their maintenance. This is because the Courts do not recognise cohabitation as marriage.
Changes to non-variable Orders
We’ve mentioned above that certain Orders are not seen as variable Orders. Normally, these Orders will be carried out without any amendments. There will, however, be situations where these Orders are varied albeit on rare occasions. Order
The circumstances which lead to variation of otherwise non-variable Orders, are known as ‘Barder’ events.
The name of ‘Barder’ comes from the landmark case Barder v Caluori (1988). In this case, a financial award to meet the wife and children’s needs was fundamentally undermined by the death of the wife and children in a matter of weeks after the final Order had been made.
The conditions for setting aside a Financial Order are as follows:
- There is a new event that has occurred since the original Order was made and this new event invalidates the basis on which the Order was made.
- The new event occurred within relatively short time, in most cases this would be 6 months or so.
- The application is made reasonably promptly.
- The leave to appeal would not prejudice third parties who have acquired, in good faith and for valuable consideration, interest in the property which is subject to the Order.
Could the economic consequence of COVID-19 pandemic constitute to a Barder event?
There are no specific events that are automatically seen as Barder events, for instance death, unemployment etc can constitute a Barder event, but only if all the above conditions are met.
It is quite difficult to succeed with a Barder application. Therefore, it is always advisable to obtain a proper assessment of merits before such an application is attempted. Otherwise, you run the risk of a costly legal battle with no benefit.
By way of comparison, we can look at the applications made in the wake of the financial crisis in 2008. Despite a spate of applications being made to set aside Orders, none were successful. The Court considered that the 2008 financial crisis was part of a natural process of price fluctuation, however dramatic, and therefore did not constitute an unforeseen and unforeseeable event.
Arguably, Covid-19 is not in the same category. While the impact of the 2008 crisis was substantial, it was an event inherent to the economy and credit cycle, and so was considered to be foreseeable (indeed many commentators predicted the economy’s collapse). Covid-19, by contrast, is a different type of event. It is true that much like financial downturns and economic recessions, pandemics are part of natural life cycle, albeit not the economic life. However, the economic impact of Covid-19, is arguably not possible to describe as part of normal economic cycles.
Moreover, the impact of the pandemic on household finances is already said to be far more significant than the 2008 global financial crisis. That said, establishing whether or not an event is a Barder event is highly fact-specific and simply suffering financial loss as a result of Covid-19 will not necessarily reopen a final Financial Order. Judges will be wary of opening up the floodgates to a wave of cases, and will also be reluctant to reopen and set aside Financial Orders as finality in litigation remains a core principle.
Finally, timing is vital. For an application to have a chance of success, the Barder event ought to have occurred within months and probably no longer than one year from the date of the Order. This would suggest that the window for making an application applies to those who entered into an Order between mid-2019 and February 2020. Additionally, even if the Court considers Covid-19 to be a Barder event, it may also need to determine at what point the effect of Covid-19 became foreseeable. For example, if an Order was made in early March it might be difficult to argue that the global effects were unforeseeable at that stage.
Therefore, if you find yourself in situation where you are unable to adhere to a Financial Order issued before the pandemic, the best course or action would be to speak to divorce lawyers specialising in Financial Orders. The best divorce solicitors not only will know how to deal with your application, but will be able to advise you early on if such application is advisable, or whether there is another route that you can attempt, as well as how it should be approached.