crunch time for divorce
With the property market still uncertain, businesses still
failing, unemployment rising and many homeowners with mortgages in
negative equity, there is certainly an impact on anyone
contemplating a divorce.
Divorce rates have fallen to their lowest levels since 1981
(according to the Office of National Statistics). Whilst this could
be seen as good news, it seems that the so-called credit crunch is
making it more difficult for people to deal with their personal
relationships.
The reduction in the number of divorces could be as a result of
fewer people getting married and more people living together.
Getting married is expensive but problems arise when cohabiting
couples separate and then try to agree the division of property and
finances. This is particularly so during a property market
downturn, which can leave them in a difficult financial position as
well as facing often complex and costly litigation. There is a
campaign for law reform to give cohabiting couples more rights –
but it is early days yet and the extent to which disputes will be
avoided by the new legislation is uncertain.
Another perhaps more cynical view is that divorces are proving
less popular because people are looking at the high profile
celebrity divorces with massive settlements – the fear of which is
keeping marriages (albeit temporarily) afloat – especially in a
time of recession. This could mean that there are many couples in
unhappy marriages feeling unable to do anything about it, due to
the financial risk and consequences.
For the majority of married couples, the single most valuable
asset is the family home. Due to the slow down in the housing
market, divorcing couples may be reluctant or unable to sell
forcing the couple to continue living together. As the value of the
family home falls, less money is available to re-house and due to
lending restrictions, it is also more difficult for one party to
buy the other out. One option is for the couple to agree to rent
out the property until the housing market picks up again. The
rental income would be used to pay the monthly mortgage payments
and other necessary outgoings with any surplus income being
distributed equally. This can still have significant consequences
for the couple when trying to subsequently re-house themselves, if
they are unable to be released from the mortgage on their
matrimonial home, meaning that they could then struggle to raise
another mortgage for a new property. In the past where lenders have
been prepared to be flexible in the mortgage multiples, they are
prepared to offer terms under which they are prepared to lend, the
credit crunch means that the options available are fewer and the
loans often lower, if offered at all.
For business owners, the drop in the value of their businesses
and liquidity problems also mean that there is generally less money
available.
The credit crunch is deemed to be making divorce proceedings
take longer and more complicated. Solicitors have to continually
assess the family finances – especially as share prices and
property values fall. Where there is a period of time between court
hearings, the marital assets, including shares and property, will
need to be re-valued so that information is kept up-to-date. In any
subsequent agreement or a court order changes in the value of
assets do not invalidate the agreement and so advice is required on
how to build asset value changes into any settlement. Agreements
negotiated through solicitors or orders made at court are open to
review if they contain a maintenance claim but clean break orders,
where the distribution of assets is final, are unable to be
re-negotiated unless exceptional unforeseen circumstances occur. It
has recently been decided that the current fall in values is not an
exceptional unforeseen circumstance.
On a final note, the area of insolvency and individual
bankruptcy is inevitably increasing. Any financial award made can
to some extent be jeopardised even if bankruptcy occurs after the
end of court proceedings. However, speed in the family courts is
generally the best remedy.
Although the divorce rate has been falling for the last decade,
this is largely due to the number of married couples per head of
population decreasing. In real terms, the divorce rate tends to
match the property market in that it rises in good times and falls
in bad times. When the property market starts moving, house prices
begin to rise, people are better off and the chances are that if
the marriage has broken down they feel able to afford a separation.
We may also find that litigation by cohabitants increases to an
unprecedented level when the market picks up, as the decision not
to marry doesn't protect the couple from potential legal disputes
over property and assets if the relationship breaks down. When
there is equity to fight over, litigation is much more likely than
where there is nothing to be gained, other than a share of
debt.
