What impact will COVID-19 have on matrimonial asset values?
What impact will COVID-19 have on matrimonial asset values, and is it sensible to settle your matrimonial negotiations now?
The COVID-19 pandemic has impacted many aspects of our everyday lives. We can only now begin to imagine the far-reaching effect the pandemic will have on us all.
As family lawyers, we are am considering the ways in which COVID-19 will impact on the way we interact with clients and manage our cases. Those are practical issues in terms of the day-to-day running of our business, with solutions fairly readily available.
COVID-19 may also impact family law cases in other ways, and that is at the forefront of our minds.
If you are involved in divorce proceedings or separation negotiations, you will understand the process of identifying and valuing the matrimonial assets and debts. This exercise is used by family lawyers to calculate what constitutes a fair sharing of the net matrimonial capital on separation or divorce. However, the values of the assets and debts are calculated at the date you separate. Your house, pensions, business interests, savings, shares and other capital assets will all have been valued at the date you separate. It is entirely possible that such valuations may have changed. Given the current economic circumstances, the likelihood is that assets will have decreased in value.
The law, as set out in the Family Law (Scotland) Act 1985, remains the same.
The argument that will require to be made in such cases will be in relation to “special circumstances”. Special circumstances are identified in the Family Law (Scotland) Act 1985 as a basis upon which it is possible to depart from the equal sharing principle. The special circumstances argument will not allow one value to be substituted for another but will possibly allow for account to be taken of the change in value when determining what is a fair sharing of the net matrimonial capital. This will allow the Court to take into account a special circumstance which would justify a departure from the equal sharing principle. So, if the net matrimonial capital had a total value of £650,000 and the split between the parties in terms of the assets they each own was 30/70%, where one party’s assets have reduced in value, the argument would be that any balancing capital sum should be reduced, that is, there should not be equal sharing to take account of the special circumstance.
Special circumstances are wide in nature and are not defined, other than in general terms in the Act. The application of special circumstances is a matter for the Court’s discretion, so the outcome is by no means guaranteed. However, it may be that much more will be made of special circumstances in negotiations in light of the potential impact of COVID-19 on the historical values of many matrimonial assets.
Another way in which COVID-19 may possibly impact on matrimonial negotiations is in relation to what lawyers call ‘the resources argument’. Any order the Court makes has to be reasonable having regard to the whole circumstances of the case and also the parties’ respective resources. With more people facing potential loss of employment and loss of their future stream of income, it may be that more has to be made of financial hardship in such matrimonial negotiations.
For those clients who have been involved in prolonged matrimonial negotiations it may seem that the right thing to do is to put aside your differences and settle matters. However, regard should be had to the potential impact of COVID-19 and the impact that the deterioration in the economic climate may have on the value of assets moving forward.
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