Financial Agreements Made Before The Coronavirus Pandemic – Is Covid-19 A Barder Event?

Reaching a financial agreement in divorce proceedings or relying on the Court to determine how the assets of your marriage will be divided has always required a certain degree of speculation and risk on the part of solicitors, Judges and clients alike.

Generally speaking, however, decisions are made based on fact and foreseeable realities but what if that reality quickly changes without warning?

Financial orders made before the outbreak of the Covid-19

The Covid-19 pandemic has obviously had a profound effect on the economy. There is a large degree of uncertainty surrounding house prices, businesses have been forced to close and job security is in the balance.

So what happens if you reached an agreement about how your marital assets were to be divided before the pandemic which now does not represent what was intended, is no longer fair or no longer meets your needs?

Anyone embarking on divorce proceedings will be advised that the only way that any financial agreement can be made legally binding is to ensure that the agreement is contained within a consent order endorsed by the Court. If you are unable to reach an agreement as to how the assets of your marriage should be divided, a Judge can impose a final financial order setting out who gets what at the conclusion of financial remedy proceedings.

Without a financial order, either made by consent or by a Judge, the parties’ financial claims against each other remain live. A financial order is the only way to ensure that there is finality and that neither party can make a further claim against the other.

In many cases, one party retains the ‘copper-bottomed’ assets, such as the family home or cash savings in a bank, whilst the other may opt to keep the family business or riskier investments.

Before Covid-19, those assets may have had broadly similar values, however, the effect of the pandemic could now see the value of the business and the income derived from it diminish significantly along with grave uncertainty as to the value of other investments. In such circumstances, the party retaining the riskier assets would not have agreed to such a deal had they known that a global pandemic with such disastrous economic consequences was just around the corner.

Varying financial orders as a result of the coronavirus

Orders for maintenance payments or lump sums which are to be paid in instalments can be varied by the Court in some circumstances, however, all other financial orders made by the Court are un-variable. The possibility of appeal is time-limited and will only succeed if the Judge has erred in law.

An application can be made to the Court to ‘set-aside’ an order but only if there has been a significant mistake or material non-disclosure. This will only be relevant for a small number of cases and probably not as a result of Covid-19.

Relevant to an even smaller number of cases is something called a Barder event.

What is a Barder event?

Named after a case decided in 1987, a Barder event is an event that is unforeseen or unforeseeable which fundamentally undermines the financial order that has been made.

In the case of Barder, a husband was ordered to transfer the family house to his wife to provide a home for her and the children. Five weeks after the order was made, the wife killed the children and herself and left the house to her mother in her Will.

There was no doubt that at the time the order was made, the intention was that the wife would live in that property with the children for a significant period of time. There was no way, in the circumstances, that the wife’s actions could have been foreseen.

Cases in which Barder events have been successfully argued to have taken place are rare. A Barder event cannot simply be a significant change in the value of an asset for any reason. For example, a stock market crash or recession would not constitute a Barder event. It has to be something more than that.

Recent case law – HW v WW [2021] EWFC B20

In the recent case of HW v WW, the Court had to consider an application to set aside a final financial consent order reached between the two divorcing parties at a financial dispute resolution (FDR) hearing in March 2020.

The application to set aside the order was as a result of the financial impact Covid-19 had had on the business which the husband retained and whether the coronavirus pandemic was a Barder event.

Background

The parties involved in this case were married for 24 years and they had three children (one of them being a minor). The husband (HW) was 53 years old and the wife (WW) was 49 years old.

Within the financial agreement reached by the parties, the husband was to retain his and wife’s shares in a business which had a net value of £3.2 million, whilst the wife would receive the family home and the proceeds of the sale of a second property (the equity of both properties totalling £530,000). The wife would transfer her business shares to the husband on the basis that he would pay her three lump-sum amounts equal to £1 million. The parties’ assets also included pensions of £558,000 and debts of £200,000.

The agreement resulted in the wife receiving a total of 40% of the capital assets and 33% of the pension assets reflecting the long duration of their marriage. This agreement departed from the sharing principle (an equal division of the matrimonial assets) as the wife was retaining the ‘copper bottom’ assets, while the husband retained the risk-laden assets (i.e. the business). Both parties consented to a clean break after two years.

Just nine days after the order was agreed, the UK entered into its first national lockdown. The following month, the husband informed the wife that he was not able to make the first lump sum payment, which was due to be paid by 10^th June 2020. Then on 5^th June 2020, he made an application to ‘stay’ the lump sum provision of the order for a year, with a review after nine months, due to the financial impact of Covid-19 on the business and his ability to raise a series of lump-sum amounts.

Following the husband’s non-payment of the first lump sum amount, the wife issued an application (on 20^th October 2020) that sought to enforce the payment and accrue interest.

Then on 2^nd November, the husband made a further application to the Courts requesting that the order be set aside entirely, again as a result of the effects Covid-19 had on the business and the value of his shares. He asserted that “circumstances that were unforeseen and unforeseeable have significantly changed the assumptions upon which the Order was made“.

The Court focused solely on the husband’s application to set aside the order and whether the fall in the business’ profits and overall value post-Covid-19 justified the setting aside of the order. The wife’s enforcement application was dependent on the Court’s decision in respect of this application.

When considering the legal framework relevant to this type of case (i.e.. setting aside a financial order), the Court considered Barder v Barder and the four conditions as set out in that case that guides family law practitioners. The four conditions are:

1. That a new event (in this case, Covid-19) has taken place since the making of the order which, consequently, invalidates the circumstances in which the order was made;
2. That the new event took place within a relatively short period of time after the order was made;
3. That the application to set aside should be made reasonably quickly in the circumstances of the case; and
4. A third party who has acquired interests in the property, subject to the order, must not be prejudiced.

The Court also considered the case of Cornick v Cornick [1994] 2 FLR 530, which specified that a new event had to be “unforeseen and unforeseeable” which, the Judge in HW v WW noted is a “requirement that has been maintained in all Barder cases thereafter”. The husband argued that the pandemic was a new ‘unforeseen and unforeseeable’ event that had happened and had severely impacted the value of the business.

Finally, the Court also took into consideration the case of Myerson v Myerson [2009] EWCA Civ 282, [2009] 2 FLR 147, where the Court of Appeal approved the Cornick categorisation, finding that a new event doesn’t need to be “concrete” but could “embrace happenings, developments or occurrences”.

The Court’s decision

The husband’s application to set aside the order was refused. Whilst the Court ruled that the ‘event’ (Covid-19) came within the “developments” referenced in Myerson, it did not accept that the husband could not have foreseen the impact of Covid-19 on the business. Additionally, the business had not “fallen off a cliff”. It remained viable and profitable but on a reduced scale.

The husband’s evidence to his bank seeking funding predicted a recovery of the business’ overall profitability which was supported by industry experts.

The Judge noted that whilst the husband had not “come to Court to tell a pack of lies”, he had, in his “anger and frustration”, put forward a picture of the business’ finances “which was partial”. The Judge asserted he had to “exercise due caution in accepting [the husband’s] unilateral assertions for now and the future”.

Finally, the Judge noted that the Barder threshold is set very high for good reason which is to preserve the finality of divorce litigation.

Is Covid-19 a Barder event?

The effects of Covid-19 on the global financial system are unlike any recession. As HHJ Kloss noted in this case, the coronavirus pandemic is “an extraordinary event” that is “different in nature and scale” from anything else in the parties’ lifetimes. It is “akin to war, with tentacles spreading across the world”. Of great significance, HHJ Kloss found that “in principle, the Covid 19 pandemic can open the door to a successful Barder claim”.

However, the fact that there has not been a wave of Barder applications suggests that, even in a pandemic, the success of any such application will the exception as opposed to the norm and each case will turn on its own individual facts.