Footballers Divorcing and Separating
FLiP Director Bradley Williams and Sofia Thomas, Director of Thomas Consulting a specialist divorce tax adviser, recently co-authored an article which appeared in Sports Law and Taxation, SL&T 2021. Family law and tax are both complex areas which can directly impact on a player’s wealth. The article focused on the law affecting footballers following either a divorce or separation, and also on the possible tax issues arising on divorce or separation.
In this blog, we focus on Bradley’s analysis of the possible financial issues that may arise for footballers following a divorce or separation (whether married or not), together with the significance of pre-nuptial agreements.
For full information on the original article (including a detailed commentary of the tax focused discussion), please contact FLiP or Sofia Thomas directly.
The English courts operate a discretionary system of financial provision on divorce. The court looks to achieve fairness between the parties. However, fairness carries a specific legal meaning which may well be at odds with what the footballer or his/her adviser considers to be fair.
Essentially, assets which are built up during the course of the relationship fall to be shared between the parties. Assets earned by the parties during the course of a long marriage will almost always be shared equally. However, Mr Justice Mostyn has recently stated that the circumstances in which assets earned during the course of a short marriage will not be shared equally “will be as rare as a white leopard”. Even assets which are pre-owned do not escape sharing if they have been “matrimonialised”, albeit the sharing will not necessarily be equal in this case. Importantly, if the spouse’s share of assets does not meet their needs, then the court can “invade” the other spouse’s share of assets in order to provide for needs. Both parties are under an obligation to disclose all of their assets wherever they are situated. Holiday homes and assets in countries other than England will also be under the spotlight. It is therefore vital that tax advice is sought at the outset both in this jurisdiction and in any other relevant jurisdiction as to the realisation costs of all assets. The court is concerned with net asset values and having accurate, reasoned figures from a recognised tax expert is key.
The issues faced by footballers in the divorce courts first came to prominence when the former Arsenal footballer, Ray Parlour, was involved in a high-profile divorce case in 2004 during which Mrs Parlour was awarded c.1/3 of Mr Parlour’s net income for a period of 4 years. It is not uncommon for footballers to be high or very high earners but to have relatively modest assets. This could be for a variety of reasons; the lucrative contract with the club has only recently been signed; spending has been lavish; or tax avoidance schemes have come home to roost (for more see below). The court does not treat earning capacity as an asset which automatically falls to be shared. However, the court can award substantial periodical payments to meet capital as well as income needs.
In AB v FC  EWHC 3285 (Fam), the husband was a professional footballer (expected to earn £900,000 a year until 2020), and the wife was a former beautician. They had one child. Due to heavy spending, there was little capital (which was all non-matrimonial). After a short marriage of only 19 months, the wife was entitled to the security of owning a home, because of her substantial on-going contributions to the family’s welfare. This was achieved by including an element of “stockpiling” in the joint lives’ spousal maintenance award, to be used by the wife to pay down a mortgage. Whilst maintenance is not taxed in the recipient’s hands in this jurisdiction that is not the case in other jurisdictions. Again, tax advice with an international expertise will be necessary depending on the circumstances.
- Pre-marital agreements (pre-nups)
Pre-nups are not automatically binding on the parties. At the time of writing, no agreement between the parties can override the legislation or prevent the judge from deciding on the appropriate division of assets on a divorce. Again, this is not the case in other jurisdictions. This means a pre-nup cannot stop a spouse applying to the court for financial provision from the other spouse. Any “waiver” of the right to apply to the court for financial provision in an agreement will not be effective.
The significance of a pre-nup is as a relevant circumstance of the case, to be weighed by the judge. In Radmacher v Granatino, the Supreme Court stated that the court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless it would not be fair to hold the parties to their agreement. What constitutes fairness is again up for debate. The courts are increasingly looking to try to uphold these agreements where possible. If a party’s reasonable needs cannot be met from the provision available pursuant to the pre-nup then it is unlikely to be upheld. It could be said that a pre-nup which provides that the claimant will not receive a penny in any circumstance e.g. a long marriage with children, is not worth the paper it is written on. Sadly, this does not deter some lawyers from routinely drafting these kinds of documents. On the other hand, a well-drafted and considered pre-nup will always be worthwhile and should be considered as part of an overall financial planning strategy.
If the parties were married outside of the United Kingdom, they may have married pursuant to a marital property regime e.g. a community of property regime (whereby assets can be shared on divorce) or a separate property regime (whereby assets are not to be shared on divorce). The terms of a non-UK marital property regime will not have binding effect if the parties divorce in this jurisdiction. However, in Versteegh v Versteegh  EWCA Civ 1050, the Court of Appeal cast doubt on Mostyn J’s comments in B v S that for a foreign nuptial agreement to carry weight, the parties must intend it to apply wherever they might be divorced, and they will “usually” need to have received legal advice to that effect. If the parties were married pursuant to a foreign marital property regime and they intend to live in this jurisdiction, a confirmatory pre-nup here is always advisable.
- Parties not married but have a child(ren)
Where the parties are not married but they have a child the claims are made pursuant to the Children Act 1989. There are significant differences between the provision which can be made on behalf of a married parent and a non-married parent. Although there is no spousal maintenance in respect of unmarried couples, the court still strives to ensure that the child is not brought up in too dissimilar circumstances to the standard of living enjoyed by the other parent. For high earners such as footballers, child maintenance can be awarded for the benefit of the child to include a “carers allowance” for the claimant. Further, where the parties are not married, an order for provision of property will be made on the basis that it reverts to the payer when the child reaches the age of majority. Tax advice will always be advisable for selecting the most appropriate structure or vehicle to hold the property.
FLiP Director Bradley Williams specialises in complex financial remedy applications, applications concerning the property of non-married couples, and private children law issues. Bradley has extensive experience of international family law cases and frequently acts for clients with substantial assets.
Sofia Thomas, Director of Thomas Consulting, is a specialist divorce tax adviser. Sofia and her team aim to provide straightforward advice on a range of complex UK tax issues whether that be through expert instruction or single joint expert instruction. To contact Sofia, visit her website here.
Sofia has recently launched Juno Sports Tax, a boutique tax consultancy for professional footballers in the UK. Juno focuses on providing clear and responsible tax planning and advice for their clients to protect their wealth, visit the website here.
To learn more about how we can support you with your family law issues, please contact Bradley on T: 020 7420 5000 or E: email@example.com.