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  1. Wealth
October 31, 2018

How to tackle the ‘Unknown Unknowns’ in divorce

By Spear's

A watertight agreement can mitigate the risks of a complicated divorce, especially when the court is involved, writes Claire Blakemore

‘Let us never negotiate out of fear.  But let us never fear to negotiate’, said John. F. Kennedy.  Negotiating a deal is an extremely important way to resolve a divorce and I spend much of my time negotiating on behalf of clients.  Even when in litigation, many people want to settle as quickly as they can and move on.  Reaching an agreement can mean avoiding the financial and emotional costs of a trial, with the risk of the dispute being made public, and ultimately a lack of control over the outcome.

In family cases an agreement must be approved by the court before it becomes enforceable.  But up to (and even after) the court’s approval of it there is still a risk that one party will seek to resile from an agreement.  I have seen an increase in disputes about whether a party should be held to the terms of an agreement.  Sometimes, this is due to the parties reaching agreements themselves and not dealing fully with all the necessary requirements, or documenting the terms in a way which means there is a lack of consensus on them.  Other times, there is a change of circumstances, or the parties may have not understood the full facts or implications or were under pressure when they reached the agreement.

There are some significant pitfalls which should be avoided to give your agreement the certainty and security that you require.  Most importantly, the court will not endorse an order that leaves one side (or any children) in a predicament of real need.  Whilst parties are entitled to agree to an arrangement that is less generous than they might otherwise receive, they cannot ‘contract out’ of justice or fairness. Both parties must have entered into the agreement freely and understood the implications – they should not have been under any pressure to compromise their claims. If a party claims not to have understood the implications of the deal whether or not they will be entitled to get out of it will depend on the facts.

It is also imperative that the parties have a full understanding of any rights or claims that they are relinquishing, which means knowing the financial position.  All parties are under a duty to provide full and frank financial disclosure. In the event of a dispute on this issue, if the non-disclosure was innocent, the onus is on the party alleging the non-disclosure to show that a materially different order would have been made if the full information had been provided. If the non-disclosure was deliberate or fraudulent, the burden of proof switches to the non-disclosing party. Agreements can also be vitiated if there has been misrepresentation, but these are often very challenging cases because the facts can be difficult to determine.

If an unforeseen supervening event occurs which fundamentally alters the basis upon which the agreement was made, there might be grounds to reject it. If, however, the supervening event was a ‘known unknown’, such as a potential liability which is later established, that would not unravel the agreement if the parties were aware of the risk but decided to agree terms anyway.  The best way to avoid this issue is to deal with any potential variables at the time of the agreement.  For example, if there is a risk of inheritance, redundancy or relocation, remarriage or flotation, it should be flagged during negotiations and made clear on the face of the agreement.

When you are concluding your negotiations, make sure that you conduct a final check through.  Firstly, ensure all parties have all the relevant facts.  Failure to provide each other with the relevant facts could mean wasting all the time and money spent negotiating a deal.  The level of disclosure should be proportionate, and the parties must have a sufficient understanding of the extent of their claims against the available assets and resources.  Where there is uncertainty as to value or liquidity then the best protection may be to seek expert advice and to be clear about the assumptions that are being made in the agreement.

Furthermore, each party should be encouraged to take legal advice so they are advised on the implications of the agreement and whether there are any gaps which could later result in the agreement being rejected. Finally, draw up the heads of terms as soon as possible so that there is clear documentary evidence of exactly what has been agreed. Ensure the agreement is then converted into a Consent Order and approved by the court. Financial claims are not dismissed until the agreement is approved by the court.

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In summary, while the court respects the parties’ autonomy and wants to protect their ability to negotiate their own deal, it will not rubber stamp a half-baked deal. From my experience, clients who later have to litigate over a deal gone wrong are more frustrated than those litigating to get a deal, so it is crucial to get it right from the outset. Equally, if it’s gone wrong, don’t assume that you are stuck with it.

Claire Blakemore is a partner in Withers’ Family Law team

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