Implications of covid-19 on financial settlements

These are unprecedented times and the effects of the COVID-19 are likely to be felt for some considerable time.  To what extent is clearly unknown at the present time but what is certain is that it is having a significant impact on the economy, both nationally and globally, immediately and for the foreseeable future.

It is therefore essential that you consider some of the following points when proceeding towards a financial settlement and assessing how best to divide your asset

Employment and Income

Individuals are already seeing the effect of the virus on their financial situation.  Although furloughing staff has prevented some redundancies there have still been many and this is likely to increase as the time progresses.  Furloughed staff have seen a reduction in their income and it is far from certain whether they will still have employment once lockdown is over until businesses have the opportunity to assess the damage to their financial position.

Many small business have already been hit along with many of those who are self-employed and have seen their income tumble or disappear completely.  This includes those whose income is made up by dividends and drawings such as directors of companies.  Although the Government has put measures in place to eliminate some of this hardship it is limited and a reduction in income is inevitable.

All of this will have an impact on reaching a financial settlement where household income is concerned.  It is difficult to predict the future and many financial settlements rely on income and expenditure when assessing how much maintenance is to be paid or equalising the couple’s financial position.  Maintenance which has been agreed may need to be varied to take into account the reduced income levels which may involve further court hearings and expense.  This may well be the case in respect of child maintenance which has been assessed on current CMS formula.

It may be that in the current crisis that some flexibility has to be built into a financial order to allow for this.

Assets and Valuations

House prices

The main asset of many marriages is the matrimonial home and the division of the equity in that property is often the foundation of many financial settlements.

There is no certainty as to whether house prices are likely to fall or not but what is certain is that the housing market is not moving at the moment.  Lockdown regulations have effectively put a halt on buying and selling.  It is therefore difficult to get an accurate valuation on property. If a valuation is obtained, is it realistic and is it likely to change.

Business Valuations

The value of a business will often feature in the valuation of a couple’s financial position.  However, due to the current uncertainty in the economy it will be difficult to ascertain the true value and it is likely that this will need to wait until the consequences of the crisis is better known.  At this stage it will be difficult to assess whether the financial impact is going to be short term of long term.  Some business will be better able to weather the storm while others will cease trading.

Investments, Stocks and Shares, Pensions

The stock markets have been particularly volatile resulting in investment values tumbling.  While long term these may recover, in the short term the value is likely to be considerably less than anticipated.  We are likely to see these investments continue to fall over the coming months.

The above has had a significant effect on pensions and previous valuations may now be greatly reduced and it may be advisable to obtain a new valuation but you may need to wait before doing so.  This may not affect pensions for public sector schemes.

Why the above is important

The basis of the majority of financial settlements is to obtain an equalising outcome so that both parties come out of the marriage/partnership with an equal slice of the wealth or at the very least moving forward on a level playing field to meet needs.  This would normally involve the completion of a Form E where income, expenditure, assets and liabilities are reviewed and agreed.  This document relies on accurate information in respect of valuations of assets and income etc.  As outlined above, accurate valuations are difficult to obtain at the present time.

Many of these assets will be used to fund the income of the parties as well as their housing requirements and maintenance.

If your financial settlement is currently in the process of being finalised it may be that it needs to be reviewed to ensure it is still accurate.

These are difficult times and it may be that you seek an interim financial order and agree to defer a final settlement until the outcome of the current situation becomes clearer.  If you wish to proceed to a final order with the current information you need to be aware that that order will be binding.   Consideration may need to be given to build in flexibility of outcomes to accommodate the economic uncertainty.

As your solicitors we will continue to give you the most accurate advice that we can but you should be aware that as we are in a continually evolving situation and the effects on the long term economy are as yet unknown this may make it difficult for us to give you definitive advice

Spectrum Family Law do not give financial advice and this note is designed to make you aware of the challenges involved with financial settlements but is not to be taken as financial advice.  It is important that you speak to a Financial Advisor to obtain that.

For more information contact Margaret Porter or Dee Finnegan on 01279 799598 or email contact@spectrumfamilylaw.com