A cautionary note for Financial Advisors
I am presently involved with a challenging but very interesting case involving the variation of spousal maintenance following divorce.
My case involves the variation of a joint lives order for periodical payments, made upon the parties’ divorce some 17 years ago or put more simply, an application by the wife for an increase to her spousal maintenance due to what she says is her increasingly poor health (and thereby her reduced capacity to work). The application is opposed by the husband who, in view of his impending retirement, seeks a downward variation of the current order. Once the new level of monthly maintenance is set, both parties wish to capitalise the payments by way of a single lump sum giving the parties, at long last, the clean-break the law prefers.
Historically, joint lives maintenance, defined as payments made (usually) to the wife to meet her needs during her lifetime, was more commonplace due to the nature of family life as it was 20-30 years ago. At that time, the wife was frequently the home-maker and child-raiser, usually giving up her own career, while the husband would be the bread-winner. These days roles have shifted and it is more the case that both parties continue to work while also raising a family. For couples where life was defined by gender and where joint lives maintenance was previously ordered, uncertainty may lie ahead as the parties’ health and financial positions change.
The law in this area is complex and ever-changing. Established case-law states that for a variation application to succeed there ought to be a change in circumstances (Flavell v Flavell 1997) and that the courts should look at the case afresh when varying orders. However, more recently (Morris v Morris 2017), the court stated this would not necessarily always be the case and that a change in circumstances was not essential. This year will see the determination of Mills v Mills in the Supreme Court (our highest appeal court), a case involving similar issues to my current case which I am watching keenly.
Joint lives maintenance is an important issue that ought not to be overlooked by financial advisors and wealth planners when assisting clients look to the future. Advisors should be asking if clients are divorced and whether spousal maintenance is being paid or received. They should question both the term and quantum of the payments and, if possible, review a copy of the original court order. They should also consider the likelihood of whether, at some point in the future, the maintenance may be varied, up or down, and the impact that may have on both parties’ financial futures. If the maintenance is likely to be capitalised at a later stage, how might that affect financial planning.
There is little point, for example, making long-term investments only for assets to be sold to meet impending capitalisation. Nor should it be assumed that quantum will always remain the same (save for index-linking). It may also be useful to know whether either party in the divorce has deteriorating health or has experienced other material changes to their circumstances….it seems an ever-growing check-list for IFA’s.
If you have clients facing a similar situation following historic divorce and require advice about on-going spousal maintenance or its variation or any other family finance issues please contact us on 01785 223440