Just because a number is on a spreadsheet doesn’t make it real

In this blog FLiP Director James Pirrie identifies key points to be aware of when negotiating a financial settlement in light of the recent case S v T [2021] EWFC B11.

In my blog: Why do I need a financial planner after my divorce? (8 April 2021), I suggested that valuations can be dangerous. They may be all that we have to work with but they may lull couples into assumptions when negotiating financial arrangements.

This truth was highlighted in painful hues in the case of S v T [2021] EWFC B11, published last month.

Two professionals with a range of assets successfully hammered out an agreement at their FDR hearing in September 2019, when each thought that £1.1m for their East London flat was probably a bit light. Late in the day the wife finally agreed to pay what the husband was asking (£300k), which would require her to raise a £620,000 mortgage on the property. She then discovered that toxic cladding gave the property, for mortgage purposes, a value of nil.

The husband pursued enforcement measures. More legal costs were incurred before the parties came back before the court for a final determination almost eighteen months later in February 2021.

There are a few lessons to be learned:

1. Keep your options open and be light on your feet in the negotiations. Deals done (as here) at 6pm after a long day at court can be dangerous – particularly where they involve giving in to an intransigent other side.  Often stepping back and sleeping on the problem and coming back with new options will be a better way forward.  (Of course a better way forward is often not to be using the court process at all – away from court processes are often calmer and more supportive).
2. Be really careful about values … yes it is the only way that we can do deals but always carry out your research and get professional advice where you have doubts. It might not be cladding – it might be escalating rental arrangements that makes a property unsaleable or a host of other things.
3. We would also urge caution: there is a lot going on in the world. No-one saw that the removal of double MIRAS relief in the late 1980s was going to trigger a collapse in property values. But we have something that looks very similar coming up at the end of June with the return of stamp duty below £500,000. Factor in Brexit and the loss of confidence and jobs from Covid and we should surely figure that an adjustment is due.
4. What follows from that is the advantage of simplicity. For most people life is going to change when the assets that used to just about meet the needs of one household now need to be stretched across two: we should surely think hard before we gear up our borrowing to retain as much of that old life as we can.

Returning to the case itself:

5. Move quickly if you see that the assumptions in the order were wrong: you may not be too late to stop the order from going through.
6. The court may offer some relief from a devastating order by setting it aside. It can do that if:
   • the true facts at the time were not known
   • those facts would have led the court to a different award
   • that the facts were wrong wasn’t your fault
   • that you couldn’t have reasonably established what was true
   • you get on quickly with applying to the court to set the order aside
   • there isn’t an alternative remedy available to you
   • innocent third parties aren’t affected.

But note that these things are judged at the time that the court seals the order, so if you have dawdled as the papers work their way through the court, your case may well be completely undermined (hence point 5.)

The case also reminds us that the door to getting things put right is a narrow one … fall foul of the set-aside conditions and help will be hard to find … As we say, just because a number is on a spreadsheet, it doesn’t make it real.