Updated on 14/04/2020
The coronavirus outbreak is having a huge effect on the global and national economy, and it isn’t clear when things will be back to normal.
If you’re going through a divorce or separation, we know that you’ll be concerned about getting the right financial settlement for your situation. We’ve put together this guide to cover the key factors that might affect a financial settlement during the COVID-19 crisis.
This article doesn’t give financial advice. If you need financial advice, you should consult a financial adviser.
Income
An important part of going through a separation, is deciding if you or your ex-partner will need to pay maintenance, and how much. This maintenance could cover the period while you wait to go to court or come after a final court order.
The court must weigh up everyone’s income needs by looking at what’s available and affordable.
If one or both of you are on furloughed leave, you’ll have less income, even with the government’s package to help employers pay 80% of earnings up to £2,500 gross per month. You could also have taken a pay cut or lost your job entirely.
If you’re self-employed, the government has put a plan in place to help keep your business running, but your income could still be affected. You could also be affected if you receive your income through drawings, dividends or director’s loans.
If your or your ex-partner’s future income is uncertain, it may not be possible to figure out how much maintenance either of you need or can afford.
Changing maintenance payments in future can get expensive and time-consuming if you have to go to court. If you can, it may be worth waiting until both your incomes are more certain. In the meantime, you may be able to agree on a temporary position while you wait for the coronavirus situation to settle down.
If there’s a significant change to income, then child maintenance assessed using the Child Maintenance Service (CMS) formula may need reviewing.
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Business values
If either of you own a business, the value of it may have dropped because of coronavirus. You may have also had to take protective measures that affect the business’s liquidity or cash flow. In some cases, the business may have shut down completely.
It’s likely that you should avoid getting any business valued while the current situation is so uncertain. The valuation may not be an accurate reflection of what the business is worth.
Existing valuations may need to be revisited, but you may want to consider doing this when the situation with coronavirus has returned to normal or is more predictable.
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Property values
It’s unclear how COVID-19 will affect the property market.
Any valuation reports either of you have, may not be accurate anymore. It’s not advisable to get an updated valuation while the situation is so uncertain. Estate agents and surveyors also may not be in a position to visit properties to provide a valuation.
If you have to sell any property as part of a settlement, carefully consider when the best time to do this will be.
You should both also consider what price you’re likely to get for the property. It may be lower than expected if you sell while coronavirus continues to affect the UK.
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Investments
The coronavirus outbreak has made investment values particularly unstable, which means:
- Existing valuations for either of your investments may now be very different and need updating
- If you agree to a settlement based on receiving investments at pre-COVID-19 valuations, you may not receive the percentage of the overall assets you intended. This is particularly likely if you’re keeping or receiving investments while the other party keeps or receives cash or property
- The future performance of investments is uncertain. If markets recover, investments at values calculated during the COVID-19 situation may rise. So anyone receiving those investments may end up with a significantly higher proportion of the family assets than the terms of settlement intended.
Reaching a settlement at any time can mean one person ends up with a bit more or a bit less than anticipated due to the rise and fall in value, but the current situation is extreme.
In some cases, a larger lump sum of money is paid to one party to meet their future income needs (capitalised maintenance) rather than regular, smaller payments. This is often called a Duxbury fund. It assumes the money is invested and produces a particular rate of return. This return is calculated to run out at the end of the individual’s life expectancy or after a given period.
At the moment, it might not be appropriate to assume the standard rate of return as the markets continue to change.
A financial adviser can help you or your ex-partner consider how best to use your investments after a settlement. They can help you think about if you should:
- Cash in funds sooner rather than later, for example to buy a property
- Use the funds to meet ongoing income needs
- Leave the funds as they are with the intention of growing the capital.
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Pensions
Changes in the market are unlikely to affect certain defined benefit pensions, like unfunded public sector schemes. These include pensions for:
- Police
- Armed forces
- NHS workers
- Teachers.
Defined contribution schemes and funds that invest in the financial markets may have dropped significantly. Having these types of funds in your settlement, could affect the overall value of the settlement.
Getting pensions valued may not be a good idea right now, and some pension schemes might not provide a value. If you’ve already had a valuation, you may need to get it updated when the markets have settled.
If you receive a share of your partner’s pension, you may be able to take advantage of the current market potential for growth. This could be a reason to proceed with a settlement rather than wait, but it’s important to get financial advice on this.
To achieve the fairest result possible, you should both get financial advice and work with the most accurate pension values and an up-to-date expert report.
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The overall settlement
It’s important to conduct a review of your family’s whole financial position. You and your partner should revisit any financial disclosure, to check it’s still accurate, including if either of you have incurred any liabilities. You may then decide to wait or go ahead with negotiating a settlement depending on all the circumstances.
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Our family law solicitors can help you if you’re going through a financial settlement and you’re unsure of how to start. We can look at putting in place an arrangement based on your current income situation before you make a final settlement agreement.
If you had already reached a settlement and you’re concerned that it’s not workable anymore, we can advise you on your options.
Contact our team today to find out how we can support you. Call us on 0370 1500 100.
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