A recent headline in The Daily Mail read: Husband who became a millionaire AFTER divorce not obliged to give ex wife more money, judges rule. This was the Walkden case, heard in the Court of Appeal, which was described by one of the barristers involved as “the flip side of the decision of this court in Myerson v Myerson“. I don’t agree with that description.
Newspapers reported that the judgment in this case was academic, because the parties had already reached a further financial compromise before the ruling in the Court of Appeal was made. In fact, I believe the judgment has important implications for all parties and their lawyers. This is because the safety net to set aside court orders has all but been removed. Although it is not my practice to comment publicly on my clients’ cases, I intend to make an exception referring only to facts which are in the public domain. I would stress that the advice and client examples I give thereafter are not connected with that case.
However, I am pleased to say that Julian Hawkhead, Head of the Domestic Family Law Department at our Yorkshire family law firm represented Mrs Walkden and was able to assist her to reach the financial compromise in advance of the Court of Appeal’s ruling. The details of the case are as follows:
- Martin and Kim Walkden divorced in 2006. The husband’s timber company was valued, and split 58:42 in his favour. Mrs Walkden received a fixed settlement of around £482,000 and ongoing maintenance of £1,100 a month. Case closed? Not quite.
- Less than three months after the divorce settlement was finalised, the husband’s company was sold for more than £3,700,000 – an amount that far exceeded the original valuation. In effect, that 58:42 split became 82:18.
- The county court gave Kim Walkden permission to return to court to seek an increased settlement, on the basis that a “new event” had occurred.
- In the judgment handed down, the court set out the law in great detail, leaving no-one in any doubt about their views. Lord Justice Thorpe, Lord Justice Wall and Lord Justice Elias found that Mr Walkden was not obliged to make additional provision for his former wife and child.
In such a case, the first question to be asked is whether an agreement has been rendered invalid by misrepresentation, mistake, breach of duty of full frank and clear disclosure, fraud or undue influence. If that cannot be established, then under Barder principles, a supervening event may have occurred to wholly frustrate the agreement. However, such an event will be very rare indeed, and certainly not because of the unexpected – but even so, not unforeseeable- increase or decrease in asset valuation from the original, no matter how starkly different the value may be.
Lord Justice Wall also added another obstacle to overcome: the legal advice given not to enter into the agreement, citing the leading case of Edgar v Edgar. He added that while he did not wish parties to be deterred from entering into an agreement, any such settlement “if properly arrived at is likely to be binding and the opportunities to unravel it will be limited in the extreme.”
There we have it, loud and clear, from the Court of Appeal. Don’t rely on Barder. You cannot return to court easily or at all. You certainly can’t complain if assets turn out to be worth far more or far less than you think. This latest, stark judgment is one that all family law practitioners should read. Their Lordships have now set the bar so high, it is almost impossible to set aside a Court order for any reason, let alone where an order has been made by consent on the basis of values that are subsequently subject to dramatic alteration.
Let’s move away from the Walkden case, and look at some practical ideas. Clients: if you are currently in negotiations, what can you do to help ensure that your situation is properly and fairly resolved?
Firstly, you mustn’t close your mind to sound advice in order to do the deal “your way”. You may regret it. Countless times new clients have said to me, having had time to reflect on their actions, “I wish I had seen you first” or, when there is nothing more that can be done, “I wish I had listened”. Remember: you get one chance only. Your decision will affect you for the rest of your life. Please don’t blow it!
Stay commercial. Don’t let your emotions run away with you. You may be “king of the castle” elsewhere, but this does not- repeat not– make you a clued-up divorce lawyer, forensic accountant or commercial valuer.
I always insist on full disclosure, which is given by court-sanctioned documentation and is sworn on oath to be true. If there is anything in the documentation that looks fudged, or odd, or ignored, it needs to be clarified. Documentation needs to be considered objectively. You can still play an important role, even you are commercially unaware. For example, you should think hard about any comments made in passing about the business.
Is it going to be sold? Is it going to be floated? What are the long-term intentions?
Has the other party talked about buying somewhere abroad?
Has the other party been to see solicitors other than divorce lawyers? Why? What is that party’s long term plan?
Ask yourself these commercial questions – and keep asking them. Write down things you remember. Then let your lawyers and other professionals get on with the job of analysing the information, asking the questions that will protect you and valuing the assets. Once, a client of mine found a phone bill in the house. She analysed it. One number kept coming up – incredibly, it led to a trail of undisclosed companies located around the world. Of course, that husband could not have got away with non-disclosure, even with this latest judgment, but it is an example of how sometimes clients can still, legally, help.
Always attempt to analyse the possible risk to each of the assets in the case in advance. Clients and advisers should deal with those risks accordingly, remembering the general rule that assets should be revalued and disclosure must be given fully, frankly and clearly up until the date of settlement. I don’t understand why clients often don’t want to value assets, preferring instead to rely upon what their spouse is telling them – or worse, what they themselves consider of the asset to be. If the opportunity to value is lost, the spouse could stand to do very well at the other party’s expense. Are those assets likely to increase or decrease or if currently illiquid, be sold on? What is really intended for them once the divorce is out of the way?
If you are paying for advice, take it. If your advisers recommend a professional valuation from qualified valuers, they are doing so in your interests. Please obtain one. Consider this. Your spouse gives you a valuation to read of his company, prepared by his accountants. It looks ok to you. He offers you half of this figure. You accept and breathe a sigh of relief that everything is agreed so easily. However, do you know that there are several different ways of valuing a business? Is the correct method adopted here? Do you know that properties may be included at values years out of date? Do you know that sometimes business interests are discounted by a significant percentage, when a discount may not be applied by the court at all?
You didn’t know?! Exactly!
If you still refuse to agree to a valuation, and your advisers produce letters for you to sign, indemnifying and absolving them from any liability in the event that things go pear-shaped for you, please, start worrying. Clearly your advisers are so concerned about your steadfast decisions, they naturally want to protect themselves in case you decide to sue them in the future.
Where assets may be “subject to swing” e.g. if liable to decrease, arguments could be advanced to discount their value in negotiations and thus lower a potential pay out. Similarly, when assets may be liable to increase, arguments could be advanced to increase the pay out in the event of certain events arising.
(Note that arguments could also be applied to pensions, if the parties are young and have to live to pension age to make use of their pensions. Should their value be discounted against assets which are immediately available?)
How does this work in practice?
One of my clients entered into a maintenance agreement pending a sale of a property. She preferred this to a clean break and a larger capital sum. Indeed, she has profited by this arrangement; she knew that the property would stick on the market.
Another client was invited to choose between a fixed sum or a percentage amount from the sale of a property. This was before the recession. She chose the fixed sum, which seemed risky at the time. In fact it has now netted her a substantially greater sum, as the sale price of the property has now been vastly reduced – to her former husband’s horror.
Yet another client was faced with a balance sheet analysis. This down valued her husband’s company, which was involved in a hefty law suit. The client accepted a partially deferred payout which could increase her share, once the outcome of the litigation is known.
The point is that potentially risk in divorce is substantial, and risk shouldn’t be ignored. Not every client will take good advice about asset values, and how they may be protected in relation to risk. Some clients want to settle fast with as little expense as possible, because they want an end to the proceedings. They want to get on with their lives. They think they know best. But those decisions frequently come back to haunt them down the line when emotions have settled and they may be thinking more clearly.
Now that the “Barder” safety net has been all but removed by the Court of Appeal, clients must make a concerted effort to face up to the risks in their cases and take the best advice they can get. This principle applies no matter how clever, how unwilling, how amicable, how pressured, how stressed they may feel – and no matter how much they wish to get the case over and done with on their terms.