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On the rebound: How to clawback from a divorce
For relatives of those getting divorced, their concern for their loved one can be compounded by the fear of wider financial repercussions for the family. This can be particularly worrying if family assets have been ‘intermingled’ with the couple’s marital assets, opening up potential claims against those assets, whether held in immediate or extended family members’ names, within family financial structures, or by a spouse on behalf of other family members.
Common issues include:
It can be a source distress to the divorcing spouse that their family members may be drawn into the legal disputes in this manner, and their assets made potentially vulnerable. In turn, this can often put great pressure on a party’s relationship with their support network at the very time they need them most. How then, can family members in such a position protect themselves and their loved ones?
Pre-empting any relationship breakdown can help avoid such difficulties. Prenuptial agreements between the spouses are often invaluable, in that they can define the boundaries of marital and non-marital property and clarify any third party interests from the outset, as well as setting out what financial provision will be made upon divorce.
It may also be appropriate for other legal documentation to be drawn up at an early stage, such as loan agreements clarifying the terms on which funds are being lent and when repayment is required, or other legal instruments specifying the basis upon which are couple are being permitted to live in a family member’s property.
Although these documents will not of themselves be determinative, or prevent a dissatisfied spouse making claims upon divorce, contemporaneous documentary evidence as to the intentions of all involved when an arrangement was put in place can make all the difference.
Taking early legal advice as soon as separation or divorce is on the cards is key. Family members who fear that their assets are at risk or that they may otherwise be financially affected by the anticipated divorce should obtain their own separate advice, rather than relying on the advice given to the divorcing spouse. This not only avoids any potential conflicts of interests or disclosure difficulties, but also means that, should family members need to become involved in the financial proceedings, they have consistency of representation throughout.
Where advised, family members should also take steps to formalise any financial or other arrangements between them and the divorcing relative they are or have been supporting financially. However, as above, it is preferable that such steps are taken well in advance of any divorce.
Independent legal advice is particularly important when family members are considering whether – and when - to intervene in financial proceedings, either by way of a proactive application or following an invitation to do so. This decision will be fact-specific, and largely dependent on the strength of the applicant’s or intervenor’s case, and the risks involved.
The general rule is that the joinder of third parties should take place as early as possible. Points of claim and points of defence should be prepared, together with witness statements addressing the dispute in which the third party is involved. The dispute should then be heard as a preliminary issue in the overall financial proceedings.
Although this approach may not be followed in every case, given the added complication that their involvement in the proceedings can bring, the intervenor’s position should be addressed as soon as possible within the proceedings, with a view to concluding their involvement in the case and limiting cost and delay. Whilst the prospect of becoming involved in such litigation is often daunting, potential intervenors can take reassurance from the fact that the process is designed to limit their involvement to the greatest extent possible.
The decision as to whether the family members in question should involve themselves in the financial proceedings is particularly significant given that the usual ‘no order as to costs’ rule in family proceedings does not apply to the intervenor’s involvement. To that end, the party who ‘loses’ may face an order to cover the legal costs incurred by the other party, or parties. For example, a parent who unsuccessfully intervenes in financial proceedings to argue that an asset in their child’s name is beneficially theirs may find themselves responsible for meeting their former son- or daughter-in-law’s costs of disputing this.
Potential intervenors with strong cases may also find that the risk of being on the receiving end of an order to meet their costs may be the trigger which brings their former son- or daughter-in- law to the negotiating table.
In summary, consulting specialist, separate legal representatives from an early stage (and ideally, prior to the marriage taking place) ensures that the best interests of all involved family members are protected. This not only offers the best prospect of a positive outcome, but also allows those involved to focus on supporting their loved ones, trusting in their advisors to guide them through the process towards a brighter future for the family as a whole.
This article was originally published by ThoughtLeaders4 HNW Divorce Magazine in their October 2021 issue.
If you have any questions about the issues raised in this or other blogs in this series, please contact a member of our family and divorce team.
Cate Maguire is an associate in the Family Team, advising clients on matters including divorce and civil partnership dissolution, associated financial issues and issues surrounding children. She has particular expertise in jurisdictional issues and complex financial matters.
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