Marital settlements: single lump sums vs multiple lump sums
January 25, 2013 1 comment
A new judgement delivered by Mrs Justice Baron, sitting with Lord Justices Thorpe and Kitchin, was published by the Court of Appeal yesterday. It involves a relatively small sum of money, but also some tricky money-based family law.
The judgement has already been covered succinctly in this post by my friend, “curry loving” John Bolch over at Family Lore – (see his Twitter feed on Saturdays for the progress of his weekly homemade curry!) – so please have a read of his post for the main points.
I will comment – equally succinctly I hope – on the judgement from a practitioner’s perspective. It is a very helpful judgement, even if it effectively closes off a particular practice in drafting consent orders that is both common and risky.
When reaching a financial settlement after divorce, usually after a great deal of negotiation, some clients who want to buy themselves a clean break rather than pay continuing maintenance will agree to pay the spouse a “one off” lump sum instead. But if they cannot afford to pay to pay that lump sum in one go, agreements will usually be made between the parties to pay the sum in instalments, over a period of time.
It is perfectly permissible in law, to agree to pay a single lump sum or a series of lump sums under Section 23 (1)(c) of the Matrimonial Causes Act (MCA) 1973.
Furthermore, an agreement to pay a lump sum or several lump sums cannot be changed – ‘varied’ in legal terminology, except in very limited circumstances relating to timing.
So, if the agreed instalments are largely unpaid, as occurred in this case, where the paying spouse protested subsequent poverty and claimed an inability to pay, the recipient spouse can then take steps to enforce payment – again, as in this case, by seeking a sale of the other’s house (even though young children were living in the property).
However….an agreement to pay a single lump sum BY instalments is a different matter, one that falls under Section 23 (3) of the Matrimonial Causes Act, where the court is entitled to secure the payments and to order interest to be paid. This arrangement is capable of variation under Section 31 (2) (d) of the same act. According to this, the court may “vary, discharge or suspend temporarily and revive any suspension”. The court must also take into account the welfare of the children under section 31 (7) of the Matrimonial Causes Act when exercising its powers.
So the tricky question for the Court of Appeal was this: what was the nature of the agreement reached between theHamiltons? Was it a series of lump sums that could not be varied, or an agreement to pay a single lump sum by instalments that could be varied?!
A pretty subtle, even mind-boggling distinction! Of course, such distinctions are what being a lawyer is so often all about!
The lawyers had drafted the order so that it read, on the face of it, that each payment was a separate lump sum. Their intention in doing so was, of course, to avoid the possibility of the agreement being varied, whether in the amounts due or the timescale for payment.
But the lower court who first grappled with this case found otherwise. Despite what the order actually said, Mrs Justice Parker decided after analysis that the agreement was for payment of a single lump sum payable by instalments and therefore was capable of variation. Without interfering with the overall sum payable and bearing in mind the welfare of the children, she substantially extended the time available to pay the instalments, but also added interest, as of course she could under section 31 of the Matrimonial Causes Act.
Mrs Justice Parker also found, following judicial thinking in other cases, that in reality ANY provision for payment of lump sums by instalment is capable of variation.
‘No!’ was the trenchant reply from the Court of Appeal. There will be genuine occasions, they said, when several lump sums are agreed in settlements. But is this point debatable?
The Court of Appeal made it crystal clear that if there is a dispute in the future, the court does have the power to examine the circumstances in which a financial order was created - and if there really was agreement to pay a lump sum by instalments, the court has wide powers to exercise it discretion and vary agreements, cancel (‘discharge’) agreements, suspend them, or reinstate (‘revive’) them and add interest, as it deems appropriate. Bu they must always pay careful attention to the welfare of dependent children, as in this particular case.
The Court of Appeal went on to note that it would be helpful if, in future cases, the parties made the exact nature of the agreement clear, in order to avoid subsequent disputes.
It’s a tricky judgement and no doubt a blow to any lawyer trying to protect clients who thinks they are going to receive a substantial sum in exchange for a clean break, albeit one payable by instalments. So legal practitioners will be well advised to make it clear to clients that lump sums payable some time in the future do potentially run the risk of having changes made to them. And as such, any financial agreements should make it crystal clear (as happened in this case) that there will be no clean break until all the money has been paid.
This type of deal may be anathema for some clients and bring comfort to others. But as the old saying (slightly amended!) goes: you pays your money:- and if you don’t – you takes your chances!
Photo by Emilie Hardman via Flickr under a Creative Commons licence