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March 5, 2014updated 11 Jan 2016 2:07pm

Can arbitration keep HNWs out of the courtroom when divorcing?

By Spear's

The news that a senior judge wants to make it easier for divorce settlements agreed by arbitration – rather than litigation – to be approved begs the question about whether arbitration is right for everyone.

Sir James Munby, president of the Family Division of the High Court, is looking to publish draft rules on the subject which will make it easier for family courts to endorse and enforce agreements made in arbitration. In taking this step he aims to ‘move forward’ in arbitration as an alternative way of resolving family disputes.

Arbitration in divorce cases does have many advantages for couples. It can produce fewer overall costs than court proceedings (notwithstanding that the couple are obliged to pay arbitrator’s fees as well as pay for the venue and possibly a transcription service).

The foremost reason for this is that it is generally faster than taking the case to court: the timetable for arbitration can be agreed beforehand, allowing for an expedited process in many scenarios.

Another advantage is that the parties can actually choose the arbitrator who decides their case, removing the problem of judges who may not necessarily be a specialist in family law.

Arbitration could also be advisable for couples who foresee significant press interest around their split. Journalists won’t be present at the hearings and confidentiality is paramount to the arbitrators.

Problems, however, first emerge when you consider high net worth individuals. Although Sir James is drawing on the S v S case – which carved up assets worth between £1.5 and £2 million through arbitration – the specific application of arbitration to financially larger disputes is unclear at this stage.

The first step in committing to arbitration is in deciding, often in specific detail, what the arbitrator can rule on, effectively what the boundaries of the arbitration are. Arbitration can be rendered a long, drawn-out process if couples are not willing to agree these basic terms given the sums at stake.

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Although the draft rules have been characterised as ‘fast-tracking’ justice (it took eight weeks for S v S), the process may not in these circumstances be a quick alternative for every case.

Aside from any animosity, the business and property interests of HNWs are numerous and complex. It is perhaps unrealistic to suppose that multiple complex or offshore assets can be divided up through arbitration, which would in turn more reasonably lend itself to smaller-scale assets.

The situation becomes even more complex when one or both partners attempts to hide assets overseas. If a partner feels it is likely that their spouse’s financial position will not be disclosed fully, then choosing court proceedings would be better in the first instance rather than aborting the arbitration mid-way through the process, by which time significant costs will have already been incurred and potentially wasted.

It is also worth bearing in mind that arbitrators ultimately have no powers to freeze assets or retrieve them when they have been wrongly removed, unlike courts.

Nonetheless, the arbitrator’s final decision is binding on both parties. As such, couples of all financial means, though especially those with substantial assets to allocate, should consider carefully before they enter the process.

Arbitration is one of a number of ways to resolve a break-up, including mediation and collaborative law. It should therefore perhaps only become a real consideration if the parties are unable to reach a mutual decision through discussion.

Whether the draft rules herald a new trend for arbitration among HNWs remains to be seen.

Ruth Abrams is a senior associate in the family team at SA Law

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