The COVID-19 Pandemic: Financial Settlements on Divorce

couple wearing mask not looking at each other

I am an English lawyer with 14 years of experience. I specialise in English family law as it applies to British expats based in Singapore, and across Asia.

In my previous article “The COVID-19 Pandemic: 6 issues international families may face” I discussed, in broad terms, the types of issues that are likely to arise for separated international families in the context of the ongoing global coronavirus pandemic.

The Singapore circuit-breaker is currently in place until 1 June 2020. It is not yet known when ordinary patterns of work, commuting, shopping, travel and socialising will return to normal. The ongoing disruption to the local and global economy has already led to job losses across numerous sectors.

In this article I expand on the implications of the COVID-19 pandemic on the financial elements of family separation and divorce.

The commentary below is written from the perspective of English family law as it affects British expats living in Singapore. If Singapore law applies to your family, you should take bespoke advice from a specialist in Singapore family law.

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Implications of COVID-19 on Family Finances: Scenario 1

A couple has already concluded divorce proceedings and there is a binding financial settlement in place. The financial settlement addresses the division of the parties’ assets, savings, investments and pensions.

The ex-husband has been paying ongoing maintenance to his ex-wife to meet the children’s needs, her own needs, and school fees.

Question 1: The ex-husband loses his job, what happens next?

Ability of ex-husband to keep up with maintenance payments

Ongoing maintenance payments are a common feature of expat divorces. Typically the wife has followed the husband abroad as a “trailing spouse” and is financially dependent on him and/or she is the primary carer of the couple’s children.

It is an unavoidable fact that the ex-wife’s standard of living continues to be explicitly linked to the success (or otherwise) of her ex-husband’s career.

If the ex-husband loses his job as a result of the disruption caused by the pandemic, there will be difficult decisions ahead.

The ex-husband cannot reasonably be expected to continue to pay maintenance if he does not have an income, but the ex-wife might not be able to meet her day-to-day needs if the ex-husband’s financial support ends abruptly.

Theoretically, both parties have the option to initiate court proceedings against the other. The ex-husband can apply to vary (reduce) his maintenance obligations, and the ex-wife can counter by applying to enforce the terms of the maintenance order.

However, in the unique scenario of COVID-19 the couple should take a proportionate approach which allows for the fact that the disruption caused by COVID-19 might be short-lived.

The starting point is that the ex-husband should provide documentary evidence to the ex-wife of his change of circumstances e.g. a letter from his employer combined with credible evidence which gives an account of the state of his industry.

He should also commit to providing regular updates to his ex-wife because her advisors will be on guard to the possibility of COVID-19 being used as an excuse to avoid or minimise financial obligations. Transparency and honesty is the way to proceed to avoid unnecessary litigation.

I suggest that the fairest way to proceed is for the parties to mutually agree to suspend the terms of any maintenance order until the parties have a clearer understanding of whether the ex-husband will be able to find a new job.

In the meantime, bills still need to be paid. If the parties have agreed to a broadly equal division of capital then it is fair that both parties tighten their belts, and use savings and investments to meet their basic needs until there is clarity about the ex-husband’s employment.

However, depleting savings and investments is not a sustainable long-term plan. The parties will need to carefully calculate and agree what their essential needs are and how long they can sensibly be funded from existing resources.

If the ex-husband is unable to find work within X months, there may come a point at which drastic changes will need to be made before the parties find themselves in a truly desperate situation. There may also come a point (which will be different for every expat family) at which it may no longer be viable for the parties to remain in Singapore.

Possible impact on the family’s immigration status in Singapore

Immediate consideration will also need to be given to both parties’ immigration status. If the ex-husband loses his job, his Employment Pass (EP) will be cancelled and a 30-day Short Term Visit Pass (STVP) will be issued.

All related passes tied to the main pass such as the ex-wife’s and/or children’s Dependant’s Passes will also be cancelled and the ex-wife and/or children  will similarly each be issued with an STVP that is valid for 30 days.

If the ex-husband is an overseas foreign professional with a last-drawn fixed monthly salary of at least S$18k, or was an EP holder earning a fixed monthly salary of at least S$12k, he can make an application for a Personalised Employment Pass (PEP).

More information can be found on this webpage of the Ministry of Manpower website.

Loss of employment does not immediately impact on the immigration status of expats who are Permanent Residents. Bespoke advice should be taken from a specialist lawyer in Singapore in this regard.

Question 2: Disruption caused by the pandemic has fundamentally altered the balance of the underlying division of assets agreed between the divorced parties. Can the divorce settlement be changed?

In English proceedings, agreed divorce settlements are converted into orders of the court by applying for a “consent order”. When the consent order has been approved by the court, the starting point is that the allocation and division of property and investments is final.

There is a very strong public policy in English family law in favour of finality, conclusion and certainty. It is of paramount importance that the parties know that there is an end to the dispute and to the litigation. As a result, a person should not generally be troubled by the same litigation twice.

This same public policy, which encourages finality, also discourages applications to set aside existing consent orders so they can be replaced with new ones.

There are very narrow and strict circumstances in which an application to set aside a consent order might be viable. The main grounds to set aside a consent order are that, at the time the order was made, there must have been either:

  • Fraud or fraudulent non-disclosure or misrepresentation of material facts
  • Inadvertent or negligent non-disclosure of material facts
  • Mistake
  • Or, that there has been a “Barder” event: an “unforeseen and unforeseeable event” happens which “invalidates the fundamental assumption upon which the order was made”.

Does the COVID-19 pandemic constitute a Barder event?

The case of Barder v Barder [1987] established that the English court may allow a change to a financial remedy order on the ground of new events if the following 4 conditions are satisfied:

  1. The new events have invalidated the basis or fundamental assumption upon which the order was made;
  2. The events have occurred within a relatively short time i.e. in most cases no more than a few months;
  3. The application has been made “reasonably promptly” in the circumstances of the case; and
  4. There is no prejudice to third parties who have acquired interests in property in good faith and for valuable consideration.

Now termed a Barder event, subsequent cases highlighted that the new event must be “unforeseen and unforeseeable” and outside the “natural process of price fluctuation”.  

It is important to note that there have been very few successful Barder applications since the original decision, but the scale and effect of the COVID-19 global pandemic is unprecedented in modern times.

It is highly unlikely that a settlement agreed after the World Health Organization declared a global pandemic on 11 March 2020 can be set aside. This is because the economic effects of the pandemic were not “unforeseen and unforeseeable” after that date.

However, if a settlement was agreed prior to 11 March 2020 and the value of one party’s share of the assets has collapsed while the other party’s assets remain unaffected, a Barder application might be a viable way to proceed.

It is important that bespoke legal advice from an English lawyer is taken on the facts of your case before considering an application to set aside a consent order obtained as part of an English divorce.

Implications of COVID-19 on Family Finances: Scenario 2

A separated couple are in the process of divorcing. Financial matters between them have not yet been resolved.

Question 1: How can assets be valued and fairly shared in the context of the uncertainty and volatility caused by the pandemic?

Any agreement reached in the context of the ongoing pandemic, post-11 March 2020, will be very difficult to set aside in the event of a later collapse in asset values.

Valuations of properties and business interests are particularly unstable at present. Therefore, if a deal must be done, the parties should take great care to share the risks by structuring a settlement to share liquid and illiquid assets evenly.

Shares of assets should be expressed as percentages, not as fixed lump-sums so interests rise and fall with the market.

For example, it would not be sensible for party A to agree that party B will receive a fixed lump-sum from the sale of a property, when the value of the property is likely to fall. This is because party A could be left with less sale proceeds after party B has received their fixed lump-sum share of it.

Question 2: Should the wife capitalise her maintenance payments? Is it wise for the husband to agree to do so?

Capitalisation of maintenance, or the “buying out” of future maintenance claims, is usually a viable option only in wealthy families. That is because the husband needs sufficient funds to be able to do so – on top of transferring her share of the family assets. To capitalise maintenance which would have been measured in years can require a significant lump-sum.

Capitalisation has benefits and risks for both parties.

For the husband, if capitalisation is calculated based on his current income and he subsequently loses his job, he cannot recoup the money already paid to his wife as capitalised maintenance. However, his future earnings are definitively protected from future claims.

For the wife, if she accepts her maintenance as a lump-sum payment, the agreement is final, and she has no future claims against any increase in the husband’s income. However, she avoids the uncertainty and risks of being dependent on her husband on an ongoing basis in times of economic uncertainty.

Question 3: Should the parties agree to the terms of a settlement now and try to share risk and volatility, or should they pause all financial discussions indefinitely? If so, for how long? What should the interim holding position be? Can the other person be forced to suspend taking any further action?

Most people seek certainty and closure in their personal matters.

However, the parties might decide that the current volatility and uncertainty makes it impossible for long-term decisions to be made.

The difficulty with agreeing to suspend dealing with a divorce is not knowing how long to suspend the discussion for and what the trigger event should be to re-visit the subject.

It is not yet known how long the pandemic will continue to be a feature of our lives, or how long the effects on the economy will last for even after the pandemic has been contained.

If the separating couple decides to suspend their discussions about division of assets, they will still need to at least agree how income should be shared in the meantime.

An agreement to suspend further action requires mutual consent. Either party can still force a resolution by using the court process, although that process is currently taking significantly longer due to COVID-19 disruption.

For example, essential or urgent cases are being given priority and are being heard remotely. Other matters are being adjourned. A backlog of unresolved cases is growing day by day. This is something parties should bear in mind if they are considering resorting to the court process.

Question 4: If the separating couple cannot agree to suspend further action and they cannot reach an overall divorce agreement – how can the matter be resolved? Are the English courts still functioning? What other options are there?

Given the current circumstances, the English courts have imposed a duty on divorcing parties to consider alternative methods of dispute resolution, including but not limited to:

  1. Mediation: where an impartial third-party assists the couple to reach an agreement between themselves;
  2. Negotiation between lawyers in correspondence;
  3. Private Financial Dispute Resolution Hearing: where an experienced barrister, solicitor or retired judge will provide a neutral opinion on the issues in dispute and lead negotiations between the parties;
  4. Arbitration: where an experienced barrister, solicitor or retired judge is appointed to make decisions.

If the above options are not suitable for the case, the formal court process is still available in England. Either party can choose to initiate the court timetable which leads to a final hearing (where a judge imposes an outcome).

However, in the context of COVID-19 the process will take longer and most hearings are currently being handled remotely by way of telephone or video hearings, as mentioned above.

If you require any further advice on the issues raised in this article, please contact me at sonny@expatriatelaw.com

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