Brian Myerson’s Credit Crunch Divorce – by Robin Charrot

Divorce|April 1st 2009

Now that Brian Myerson’s economic circumstances are transformed, he has tried, and failed, to overturn his original financial agreement.

Robin Charrot writes: Ingrid and Brian Myerson have recently hit the headlines. Brian Myerson is a fund manager who – needless to say – is going through tough times. His former wife Ingrid is a sculptor. Their divorce is at the head of a queue of cases and financial deals completed on the cusp of the world’s financial meltdown, when people like Mr Myerson were still seen as “masters of the universe”. His economic circumstances have since transformed and he wanted to unravel the original deal.

When the deal was agreed, Brian was doing quite well, having accrued assets in the region of £26m. The value of his shares in the company which he ran amounted to £15m. It is not reported what his annual income was, but I would wager that it was more than £1m a year.

Brian and Ingrid were married for 26 years. It was therefore a lengthy marriage, and Ingrid almost certainly had a claim to half of the assets. She may also have had a claim to a substantial part of Bryin’s annual income. I suspect that Ingrid sought financial security, and that Brian expected that his company would continue to make considerable amounts of money. Perhaps he did not like the prospect of having to pay out a significant percentage of his future income to Ingrid.

Capitalisation of maintenance

So this is what they did. Brian handed over to Ingrid the couple’s London home and a property in South Africa. He agreed to hand over a second property in South Africa (but hasn’t done so yet), and also agreed to pay her a lump sum of £9.5m cash, in instalments, over four years. He has already paid £7m of this, so £2.5m remains owing. Brian kept all of the shares in his company. In short, the wife received 47% of the assets and the husband kept 53% of the assets. As part of the deal, Ingrid also agreed to terminate her maintenance claims against Brian; this process is known as ‘capitalisation of maintenance‘.

This must have seemed like a pretty good deal for Brian Myerson at the time: he was left with the riskier assets but his wife kept fewer than 50% of the overall assets and he was poised to keep all of his future income.

What has happened since?

Well, the share price of Brian’s company (and remember, these shares were his only remaining assets, pretty much) has collapsed by 90%. This has left him worse off than his former wife. Furthermore, he still has to find £2.5m cash to give to her. Even if he sold all of his shares in the company, he would still have to borrow money to pay the last lump sum instalment that is due.

So, Brian first asked the courts to vary the payments which he is still due to make to Ingrid and the South African property transfer that he still has to do. That request is yet to be decided, and probably won’t be until July or August 2009. However, he then asked the courts to effectively cancel the original order and start again. If he had won with this, Ingrid would have had to pay money back to him, or even take some of the shares in his company

The Court of Appeal decided on Brian’s second request today, and rejected it. I have to say that that result was entirely predictable. Let me explain:

Overturning an original order due to a change in circumstances

The law generally says that capital deals cannot be changed at a later date due to a change in circumstances. There is only one exception to this rule, namely that if an unforeseen event occurs soon after the settlement, which dramatically alters the landscape of the deal and makes it unworkable, the deal can be changed. This applies to any aspect of a financial settlement, including capital that has already paid over. This kind of event is often referred to as a ‘Barder event‘ after the name of the case in which it first arose.

Brian was saying that the dramatic fall in the share price of his company was just such an event, so why did the Court of Appeal reject Brian’s request to overturn the original order for this reason?

Firstly, there is already 20 years’ worth of court decisions which say that if an asset was taken into account and correctly valued at the time of the original decision, any subsequent change in the value of the asset, however dramatic, will not be a good enough reason to overturn the original decision.

Secondly, the original decision was an agreement between Brian and Ingrid. It was not imposed on them by the court. Brian chose to take the risk of keeping his shares in the company. The court was not impressed with Brian effectively asking them to have another go at the agreement because the risk that he had accepted had in fact turned bad.

Thirdly, the court felt that Brian was still in a position to turn his company’s fortunes around. He is certainly making statements to the press to that effect.

Finally, the court decided that the judge who deals with Brian’s first request, to vary the future payments (which will be dealt with by the court in late summer 2009) would be able to give Brian sufficient relief due to Brian’s change in circumstances, if the judge feels that it would be fair and reasonable for him to do so.

Varying future lump sum instalments

So, how will Brian make out on his first request?

If a capital settlement is structured so that lump sums are payable by future instalments, those future instalments can be varied, suspended or even cancelled if circumstances change. This applies to lump sums that represent a split of the assets of the marriage, and to lump sums that represent the ‘capitalisation’ of spousal maintenance.

Brian may have more luck trying to reduce the future lump sum instalments that are due. Perhaps the court will be persuaded to give him more time to pay, or even to reduce or cancel that £2.5m lump sum. Such a decision will probably depend on his ability – or inability – to raise the money. I am sure that the court would have to look quite closely at his income and his prospects before making any final decision. I think he will have an uphill battle (remember, he took on the risk of keeping his shares) but he has a better chance than with overturning the original deal.

Whatever happens, the very high level of costs incurred by Brian and Ingrid Myerson are an expensive reminder that a divorcing couple should not agree to a financial settlement before its advantages and disadvantages have been carefully assessed.

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