On 1 April, the Court of Appeal rejected a claim that the economic downturn and subsequent asset depreciation were grounds to reopen a financial order on divorce.
In these recessionary times the court’s decision in Myerson v Myerson offers a salutary warning to those advising the recently divorced and couples currently contemplating a separation.
The case turned on whether or not a financial order in matrimonial proceedings could be reopened where the value of a family’s assets had subsequently depreciated as a result of recent and ongoing adverse market conditions. The facts were stark. The husband, a former City fund manager, wanted to reopen an agreement reached in February 2008 whereby it had been agreed that his wife would receive 43 per cent of the couple’s then £25.8m fortune. Her share was payable in instalments and mainly comprised liquid risk-free assets while he was to retain their far riskier business assets.
Following settlement the value of Mr Myerson’s corporate assets collapsed. He argued before the Court of Appeal that the whole settlement should be reopened and the last instalment of the lump sum due to Mrs Myerson should be varied.
In an appreciating market these issues rarely arise. Indeed, had Mr Myerson’s shares increased in value his ex-wife would not have been entitled to review the settlement. In a depreciating market, though, these issues become all too common. Not infrequently, market volatility means that what may at the time have looked like a good deal subsequently becomes a decidedly bad one.
In its judgment, the Court of Appeal recognised that it was possible to vary, or indeed extinguish, the final instalment due to Mrs Myerson. However, this could only be countenanced where circumstances have changed very significantly and/or it would be unjust to hold the payer to the agreement.
Likewise, a final order could be reopened, but only in very limited circumstances where the fundamental basis on which the order was made had been invalidated. Indeed, the subsequent fluctuation in value of an asset that had been taken into account and correctly valued at the hearing was not a sufficient reason to set aside an order. Conversely, where an incorrect value had been placed on an asset, provided it was not the fault of the person alleging mistake and the error made a significant difference, the matter could be reopened.
Dismissing Mr Myerson’s appeal on the basis he could not overcome these hurdles, the judges took note of the fact that Mr Myerson’s business assets could, much as they had decreased in value, have increased in value.
According to Lord Justice Thorpe: “When a businessman takes a speculative position in compromising his wife’s claims why should the court subsequently relieve him of the consequences of his speculation by re-writing the bargain at his behest?”
Given the outcome, in what was as dramatic a depreciation case as could be imagined, the judgment concludes with a clear warning that litigants should be very cautious in seeking to reopen final orders and certainly not as a result of natural price fluctuations in relation to houses, shares or other property.
The moral of the tale is that there will always be winners and losers often based merely on the bounce of the ball after the event. In view of the difficulty this presents, particularly in times of financial uncertainty, it is increasingly likely that divorcing couples will wish to divide their assets to share risk. Alternatively, where one of them is to retain the riskier assets they will expect a significant premium for giving up the risk-free assets. Divorce lawyers therefore need to be alive to risk assessment to properly advise their clients.
Sandra Davis is head of the family law department at Mishcon de Reya