How to get divorced in a recession
- AuthorNeil Denny
Many people will be wondering what a recession will mean for their future plans.
Some will be reconsidering whether to move house or extend their home. Others will be debating whether to go ahead with that expensive holiday next year or upgrade the car.
Sadly, for some, they will now be wondering whether their plans to separate from their partners are still feasible.
Recessions have several potential effects to include
- Falling house process resulting in less equity to be shared
- Increased borrowing costs both on mortgages and unsecured borrowing
- Rising costs of living
- Businesses reducing investment or making cuts to include redundancies
- Rising unemployment
As a result of all of these features, getting divorced in a recession requires even greater focus on cost effective dispute resolution and taking care of yourself and your finances.
This article addresses how a recession might shape your decisions if you are thinking about getting divorced or dissolving a civil partnership in a recession. It focusses on the resolution of associated financial matters. This article is not intended to address matters regarding child arrangements but some of the points will apply.
Cost effective dispute resolution
Divorce and separation can cost tens or even hundreds of thousands of pounds as all manner of grievances and disputes are thrashed out through solicitors' correspondence, in mediation rooms or, as a last resort, in the courts.
Very often, the issues which create the greatest heat and highest costs are not central to the issues that have to be resolved moving forward.
As a result two essential questions are;
- "What issues need to be resolved?"; and
- "How are we going to resolve these issues?"
What issues need to be resolved?
It can be difficult to maintain a forward focus at times of separation, to concentrate purely on what needs to be put in place, now, in order to meet both parties' needs in the future. The pain and grievances from the last few years leading up to the separation will have a strong hold and can distort the perception of what really needs to be done.
It is a common mistake to believe that the divorce and associated financial proceedings will decide who was wrong and who was right in the past.
The courts have now moved to no-blame divorces in order to drive this point home within the divorce or dissolution of the relationship itself.
Even though "Conduct" is a statutory criteria, when considering financial applications, it rarely features as a contributing factor to a judge's final decision.
A specialist family lawyer will be able to work with you to distinguish what issues will be relevant to determining outcomes in ways that will save money and acrimony.
How are we going to resolve these issues?
There are several ways to resolves separation finances as set out in the table below. The potential costs increase with each level. Not every process will be suitable in every case depending upon your particular facts. Your family lawyer will be able to discuss which options are suitable for you.
Application to court
The court resolution process remains an option and one that is used far more often than many of the choices below. There will be three hearings to explore disclosure, possible compromises and then a final hearing. At the third hearing a Judge will impose a decision if the previous two hearings failed to settle matters.
An arbitrator is employed by both partners to hear both parties' case and subsequently decide what the outcome will be. Once a decision has been made then it will become binding unless appealed.
An arbitrator can be seen as a private sector Judge. The process is typically faster than court proceedings and can be less hostile.
Lawyer led negotiation through dialogue or correspondence
Here the lawyers are instructed to try and reach a mutually acceptable settlement on behalf of the parties.
Both partners instruct collaboratively trained lawyers and then meet in a series of round table meetings until a solution has been agreed. This enables both of you to take legal advice in real time. The round table meetings can also be attended by financial advisors and family therapists or counsellors to help support one or both of you.
Partners meet with a third party called a mediator. Meetings can be online or in person. You do not necessarily have to be in the same room. The mediator will help you both to focus on generating solutions and will recommend that independent legal advice is taken along the way in between meetings.
The kitchen table negotiation
Partners decide for themselves through straightforward, informal, dialogue in conventional social settings such as their own kitchen table. Even where this happens, you still need to ensure your agreement is filed and approved by a court as part of your divorce or dissolution process before any agreement can be fully binding.
There are other emergent processes, practices and interventions but the table above represents the main options.
Some commentators also suggest that each ascending level of the table above also brings additional potential for conflict and a corresponding reduction in your level of input or control over the outcome but those are matters for another article.
Therefore, do not assume that an application to court is the only way forward.
Discuss process selection with your divorce lawyer at your first meeting with them.
If they do not bring up the various options, raise the matter with them and ask which options might be suitable, which are not and why.
Keep a running check on asset values
Assets values can vary more rapidly than usual in a recession and, unfortunately, variation will often mean a reduction.
While many wealth managers will encourage taking a long term view and not to be alarmed by short term reductions on portfolio or asset valuations, the reality within divorce proceedings is that you will be rapidly approaching a settlement date.
It is essential therefore that you keep a closer eye on the up to date values of
- Real estate to include your family home, rental property portfolios, in some cases, commercial property holdings
- Stocks, shares, unit trusts or other investments
- Pension funds – you want to know the cash equivalent transfer value (CETV) or if your pension is already in payment, the cash equivalent of benefits (CEB). These can take a long time to be delivered so request these as soon as possible. The first request for a CETV is typically free (less so for CEBs) but subsequent valuations may be required at a later date and may incur a fee from your pension providers.
- If you own your own company and are getting divorced then speak to your accountant about the value and appropriate basis of valuation for your business. While you are at it, ask about liquidity and whether it is possible to access that value, how and what tax consequences would apply.
- Expensive chattels such as luxury goods and collections.
Your lawyer will need this information early on in the proceedings.
Keep an eye on variations in value. You do not want to spend 6 months or more settling matters only to realise, once the agreement has been made, that the valuations are now out of date. That could result in one or both of you not being able to meet your immediate and future needs or result in one party receiving a greater share of the matrimonial wealth than had been intended.
Be disciplined with your own day to day expenditure and purchases
There can be a real temptation when going through separation to lose sight of the need for budgeting. When divorce and recessions combine then the need for discipline in this area becomes even greater.
Update your domestic budget, if you have one. If you do not, consider starting one.
Be realistic and recognise where costs of living have increased.
Put in the time to research what outgoings are genuinely costing you as opposed to inserting your best guess or what you have been used to paying. Those estimates might now be out of date.
Recognise where you are being tempted to spend extravagantly whether on individual purchases – a new car, motorbike, an expensive holiday – or day to day expenditure. Try to stick to the budget.
This sounds like dull advice but it is given for a reason; too often one or both spouses run out of money at the later stages of a case because of failing to budget for the expenses or letting expenditure run away with itself.
This budgeting applies to your legal costs.
Insist on cost estimates from your lawyer and regular billing. You need to know precisely what your legal work is costing and you need to know about expenditure coming down the line so you can make plans accordingly.
Your lawyer should periodically review and report upon the estimates they provide and let you know if the estimates remains realistic. Cases frequently evolve and take on new directions which may require the estimate to be reviewed.
Do not be afraid to ask your lawyer for more information on costs.
Ask how much and why is the expense required. Also ask what you can do to keep the costs down – are there aspects of your case management that you can do yourself and if so, what support do you need if any?
"I recognise that legal fees are both expensive and unwelcome," explains Neil Denny, family law partner with Chattertons in Lincoln. "It is essential that the cost of any certain action is weighed up against the benefit to be gained. Why is this cost being incurred? To achieve what benefit and is that benefit worth the cost? This also helps to focus on what is or is not relevant to your divorce. I always remember one client telling me as a young lawyer that he did not need to spend £5,000 on an aspect of his case just to Spin his wheels in the mud'!"
Focus on looking after yourself to maintain effectiveness at work and at home.
Divorce, dissolution and separation is always tough. When you have the added anxieties about job and wealth prospects within a recession then the problem is compounded.
Consider getting a counsellor or therapist as well as a lawyer.
It is helpful, as indicated above, to be clear on which matters can be resolved through the legal process and which are not. That is not to say that the personal, felt emotions and concerns are any less important than the legal aspects.
It is to recognise that both the legal and emotional have to be recognised, acknowledged and dealt with. The legal processes will rarely resolve the emotional dynamics.
If the emotional factors are not addressed and managed then they can easily distort the legal dispute resolution process.
Your lawyer will be empathic and understanding concerning your situation but they are still your lawyer, not your counsellor. As an aside, you do not want to be paying your lawyer's hourly rate for counselling work – paying a counsellor to do that work will be more effective and more efficient.
Neil Denny says "I find I recommend counselling or therapy to every client sooner or later. In a recession, you want to make sure that you are doing everything that you can so that your separation does not impact on other aspects of your life any more than it has to, especially work. Getting this additional support is therefore more important than ever."
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Neil s a partner in the family law team at Chattertons Legal Services in Lincoln.
He is the author of "The Collaborative Law Companion" and frequently delivers workshops on conflict resolution and family law matters to other professionals across the country.