Divorce and informal lending from family and friends

Having joined the firm in April as a paralegal, I am now undertaking my first seat with the family group. So far I have been involved in a number of interesting cases, ranging from complex high-net worth financial disputes to cases involving children arrangements. My tasks have been extremely varied and have included drafting documents and correspondence, putting together trial bundles, liaising with counsel and attendance at court. Each case has been as fascinating as the last, primarily due to the subtle nuances unique to each scenario and the engaging human aspect of working closely with clients. 

One issue that has come up on several occasions is how the family courts treat loans from family members and friends within financial remedy proceedings. It is common for family members or close friends to lend each other money on the basis of a verbal agreement and with little or no formalities in place. Of course, when life is running smoothly, this causes no problems. 

"But divorce can put such casual arrangements under the spotlight."

Getting divorced can involve two different sets of proceedings. First, divorce proceedings, which consist of a straightforward paper application to the court to bring the marriage to an end. Second, if the parties cannot agree between themselves, financial remedy proceedings to settle their financial affairs. 

Financial disclosure is part of the financial remedy proceedings. This involves comprehensively setting out a party’s financial circumstances, including income, assets and liabilities with supporting documentation such a bank statements, tax returns and payslips. This is so that the court can see what there is in the marital ‘pot’ to be divided. A loan falls within the category of liabilities to be disclosed. 

If the loan in question is a commercial loan, which is commonly referred to as a ‘hard loan’, the borrower will have a contractual obligation to repay it. It will be clearly documented by a loan agreement with the lender and it may be secured against an asset. The borrower will repay the loan according to the loan agreement, which will specify what interest will apply, when payments will be made and what will happen if repayments are not made. 

However, it is rare that monetary agreements within families are formalised in the same way. If one of the parties to the marriage borrows money from a family member, there is often no written evidence, a low or zero interest rate and a relaxed approach to repayment. This can mean that these loans are classed as ‘soft loans’. As a consequence, the court may treat the loan differently, such as construing it as a gift which does not need to be repaid, or that, even if repayment was intended, there would be no consequences if this was not effected or effected over a longer period than previously anticipated.

Talking about formalising money arrangements with family members is frequently seen as awkward and unnecessary. It is a rare parent who will ask for newlyweds to sign a loan agreement.

"However, it is important to be realistic and consider what life might throw at you."

If you are planning to loan money to a family member, it is a good idea to have a loan agreement signed by both parties which details the terms of the loan, including the fact it is to be repaid. There is also the option of securing the money against, for example, a property or another valuable asset. Such steps may jar the fluidity of family life, but could prove crucial protection in the event of a subsequent divorce. 

Posted by Katherine Yu, trainee in the family practice group.

Katherine started her training contract with B P Collins in May 2015, after joining the firm as a paralegal in April 2015. Katherine graduated from the University of St Andrews with a joint honours degree in International Relations and Modern History. She went on to study the Graduate Diploma in Law at the College of Law and the Legal Practice Course at BPP in Holborn.

Guest post: My work experience at B P Collins

Alice Russell has just finished her second year reading law at the University of Durham. She spent a week sitting with the firm’s family group.

Every budding lawyer will be familiar with having to complete application after application, writing cover letter after cover letter in the hope of attaining that highly coveted training contract. I myself am at that ‘exciting’ stage. Thankfully, I have had a week of work experience with the family group at B P Collins to break up the monotony.

"To say the experience has been an unexpectedly brilliant one would be an understatement."

At previous placements, I found myself stuck in a corner reading through files and frequently the only answer I got to my questions was "yes, I do take milk", so I expected much the same from this week. It is true that I have done my fair share of filing and photocopying, but this was only a portion of what I got to experience. I was told as soon as I arrived that I would not be doing any task that a trainee would not be given which, I admit, did terrify me somewhat.

I soon found myself attending client meetings, typing up attendance notes, extracting information from particular files to make chronologies and attempting to dig up old deeds (and failing). 

On one occasion I was even lucky enough to go to court. Although the experience was not as glamorous as Harvey Spector and Alicia Florrick make it out to be (no gun fights or shouting – at least not at the hearing I attended!), the experience was still a real insight into how our legal system works and I took the down-time in between the hearing to grill a trainee on her time at B P Collins.

"It quickly became apparent to me that work within the family group is exceptionally varied." 

One aspect of the experience that I found surprising was the amount of investigative work that is involved. I was asked to pour over bank statements to look for irregularities and to figure out which documents the opposing party might be unwilling to divulge. For one of my last tasks, I was asked to piece together a map for a particular area of land, on the hunch of a solicitor that someone was not being entirely truthful with regards to its ownership.  

The only down side to my week was the fact that it has gone too quickly! B P Collins has surpassed all my expectations. 

"You can guarantee that the firm will be receiving my application for a training contract shortly."

Workplace stress as a disability

In my role as a trainee of the employment group, I recently attended a seminar at barristers’ chambers in London on the topic of “Stress as a Disability” within the workplace. The seminar explored employers’ responsibilities towards employees experiencing stress, which can be considered a disability under the Equality Act 2010.

Under the Act, an employee has a disability if they: 

(1) have a physical or mental impairment that,
(2) has a substantial and long-term adverse effect on their ability to carry out normal day-to-day activities. 

To be considered as “long term”, the effect on the employee’s ability to carry out normal day-to-day activities must have already lasted 12 months, or be such that it will last for at least 12 months.

Stress conditions can therefore amount to “mental impairments” if they cause long-term symptoms affecting an employee’s daily life; for example, low mood, anxiety, inability to sleep, loss of appetite or inability to concentrate. 

What makes it more difficult for employers is that an employee does not need to have been diagnosed with a specific medical condition such as depression or anxiety to be “disabled” for these purposes; in some cases, it will be sufficient for the employee merely to alert their manager to some of the symptoms mentioned.

Of course, most employers want to ensure that their workforce is happy and healthy.  They also usually recognise that providing support to an employee with stress-related symptoms can prevent their condition from deteriorating (which, in turn, could help prevent that person taking a long period of sick leave and the employer having to organise cover for their role). 

"But do employers really need to go out of their way to assist employees complaining of stress?  The short answer, as you may have guessed, is yes."

Employers have a duty to make “reasonable adjustments” for employees suffering from a stress condition that could amount to a disability.  This could include reducing the employee’s workload, responsibilities and/or hours, transferring them to a different position or department, and offering them counselling.

Employers that fail to make reasonable adjustments could find themselves facing discrimination claims from disgruntled current or ex-employees.  Even worse is that compensation for discrimination claims (unlike claims for unfair dismissal) are uncapped – so employers found liable could be forced to make big pay-outs.

However, using the criteria set out in the Equality Act 2010, it can be difficult for employers to determine whether an employee complaining of stress does in fact have a disability and, if so, what steps should be taken to handle the situation effectively.  

"This is where the employment practice group comes in."

While the group does, of course, act for employers (and, indeed, employees) in discrimination claims, a large part of its work involves advising employers on day-to-day employment law matters and, in particular, how to avoid potential claims. 

So, for example, a client’s HR manager might contact us for advice about managing the return of an employee that has been signed off work for stress.  Depending on the circumstances, we might advise them to:

(1) get an assessment of the individual’s health from an Occupational Health professional; and/or
(2) arrange a return to work meeting with the employee to discuss matters including likely triggers of stress and formulate a return to work plan; and/or
(3) carry out an ongoing risk assessment of the employee.

An alternative scenario might be a client asking us for more general advice about dealing with stress in the workplace, in which case we could suggest that they introduce training to help managers identify symptoms in employees and respond appropriately. 

We could also offer to review the company’s policies, such as its sickness absence management policy, to ensure that the correct procedures are in place to deal with such situations.

Attending the seminar was a valuable experience and highlighted to me some of the specific skills that an employment lawyer must have; in particular the ability to respond to frequent changes in legislation and case law, to think creatively to assist employer clients and pre-empt potential claims as well as dealing with existing ones, and to make tactical considerations in connection with such claims.

Posted by Elisabeth Kynaston, trainee in the employment practice group.

Elisabeth Kynaston started her training contract with B P Collins in February 2014, having previously worked at a legal publishing company and a legal advice centre in East London. She graduated from Durham University with a first class honours degree in Ancient, Medieval and Modern History. Elisabeth has completed the Graduate Diploma in Law and Legal Practice Course at the University of Law, Bloomsbury, both with distinction.

Deeds of Variation – a taxing issue

A quick glance at the daily newspapers and tuning in to radio call-ins and it is clear that the upcoming events in May are grabbing the media's attention. People are expressing their opinions as to who they think will win and who the big losers will be; how money could be better spent and whether current leaders should be replaced come the end of May. With not only the Premier League looking like it will culminate in another epic battle, but the FA Cup Final also taking place (which deserves a mention if only for my beloved Reading being within touching distance of gracing the occasion with their presence), May is on a lot of people's minds.

But moving away from issues in the sporting world, there is an even more significant event happening this May – even more important than the ten-strong B P Collins team tackling the London West Tough Mudder event, which is taking place in the name of supporting the mental health charity Mind. Yes, I am of course referring to the general election taking place on May 7, when millions of people will mark their ballot papers to vote for who they want to represent their constituency in Parliament.

In the run up to this, the Chancellor’s annual Budget was announced recently, whereby George Osborne set out the Government's intended spending plans.

Here in the private client practice, I was delegated the task of being on 'Budget Watch' to identify any news which would affect our working practices and the advice that we provide to clients, so that it could be posted on to our various social media channels for clients to be kept informed.

Amongst the introduction of the Personal Savings Allowance (which allows the first £1,000 interest an individual receives from their savings in a tax year to be tax free) and the Help to Buy ISAs for first-time buyers, the issue announced by the Chancellor of the Exchequer which caught our attention was that the use of Deeds of Variation is to be reviewed, and a report to be completed by the Autumn.

Whether this is just a political ploy used to undermine Labour leader Ed Miliband – as he and his brother David were alleged to have used a Deed of Variation with their mother Marion to vary the terms of their father’s will, so as to move ownership of a proportion of the family home into Ed and David's names – or not, will come to light in due course.

Tax avoidance has been a topic which the media have devoted many column inches to over the last few years, no less so than throughout the recent scandal involving HSBC. The announcement in the Budget to review Deeds of Variation may be a technique used by the Government to show the public that they are serious about tackling tax avoidance and that these instruments are one means for the wealthy to avoid tax.

Nevertheless, it should be remembered that these are useful documents which can help families re-distribute an estate so that it is as tax efficient as possible. 

In my first month in the practice group, I was asked to draft a Deed of Variation for an elderly client who was receiving an inheritance from their sibling, but as they had a sizeable estate already, they wanted to vary the sibling's will so that the inheritance was divided equally between their four children instead. This was opposed to the client gifting the money to the children directly; as such gifts are classified as 'Potentially Exempt Transfers' or 'PETs', and are included in an individual's death estate if made less than seven years before death. As inheritance tax was payable on the sibling's estate anyway, the use of the Deed of Variation meant that double taxation was avoided.

There are of course strict requirements that the Deeds of Variation must comply with in order to be held valid. Firstly, they must be created within two years of the death of the relevant person; it must be in writing and be signed by all of the beneficiaries who are wishing to divert their inheritance.

There are a number of situations in which it is useful to consider having a Deed of Variation, including where an individual has been omitted from the deceased's Will, or their inheritance is not seen as adequate based on the value of the deceased's estate.

A Deed of Variation can also be used to reduce the rate of inheritance tax that applies against an estate by varying the Will so as to give 10% of the deceased's net estate to charity, which qualifies the estate for the 36% rate of tax as opposed to the 40% rate. Money going to a charity registered in the EU from a deceased's estate does not attract inheritance tax as they enjoy 'charity exemption'. Of course this will not be beneficial to all estates and therefore professional advice should be taken by the executors and beneficiaries.

If you have any queries regarding Deeds of Variation, or other issues regarding estate administration, or you wish to discuss estate planning measures that you can take in order to minimise the inheritance tax that your estate will incur, then please contact a member of our private client team.

So as May draws ever closer, all preparations and discussions become increasingly more heated and intense, both in and between the political parties ahead of the election, but also for the B P Collins' Tough Mudder team, with team members frantically preparing their training regimes. I know that, for me, my labrador Bertie is starting to lose his patience with my exercise regime infringing on his walks which have been replaced with runs, as he is perennially unable to pace himself and so ends up exhausted after 200 metres. Let's just hope that the political party leaders all pace themselves for the general election better than Bertie does.

Posted by Thomas Bird, trainee in the private client practice group.

Thomas Bird started his training contract with B P Collins in September 2013. He graduated with a first class honours in International Business in 2010 before completing a Masters in Law at the University of Sheffield, attaining a commendation. Thomas worked as a paralegal within the Litigation and Dispute Resolution team for 3 months in 2012 and also gained legal experience at a well-respected firm in Leeds in 2011.

The case for and against an online dispute revolution

The internet, the modern means for doing almost anything, but what about solving disputes?

Online Dispute Resolution (‘ODR’) already exists (in relation to starting a claim only) in some forms e.g. money claim online. However, this year, an advisory group set up by the Civil Justice Council are going to explore the possibility of expanding ODR for disputes under £25,000.

Canada and the Netherlands currently offer systems of ODR and many have been using the popular auction website eBay's ODR system successfully for a number of years, resulting in over 60 million resolved disputes. So, is it time for us to jump on the bandwagon too?

It is easy to see the benefits of ODR, which aims to make the civil justice system more accessible, cost-effective and quick through e-negotiation and e-mediation.

Convenience is a substantial benefit of ODR, as disputes can be resolved from the comfort of one’s home where communication between both sides and mediators can occur at a flexible pace. This gives parties time to think carefully about what they want to say, eliminating the risk of things being said in the heat of the moment.

A further benefit from the extension of ODR will be to the courts that continually struggle with an increasing caseload. ODR will remove minor disputes and free up valuable Court resources.

Despite the benefits, ODR will also have disadvantages. One of the main benefits of mediation is face to face communication, allowing parties to show emotions connected with disputes and gauge each other's reactions. This element of human interaction often helps bring disputes to an end, which may mean that ODR may become harder to resolve.

Opponents of ODR argue that it creates a two tier system for solving disputes: one cheap and cheerful and the other expensive and exclusive. But this may not be a bad thing?

For substantial matters solicitor involvement and traditional court services are vital. However, for smaller disputes, solicitors’ involvement and court fees can often become disproportionate. Some argue that ODR is a technique to edge out lawyers but already many people with smaller disputes represent themselves as litigants in person. The expansion of ODR could implement a simple system to help those in these circumstances, not taking work away from solicitors but improving the system for those who would have never paid solicitors fees anyway.

ODR’s most substantial problem is that it assumes all parties will have internet access. An Office for National Statistics report in 2013 stated that 73% of adults in Great Britain accessed the internet every day, but what about the rest?  How many adults never have any access to the internet?  In addition, access to the internet is very different to having the ability to utilise any online system set up by the Civil Justice Council.   

As use of the internet expands, it seems logical to create efficient mechanisms of dispute resolution through this entity. Certainly for substantial or complex disputes, the traditional systems are required but an alternative ODR system for minor disputes will undoubtedly extend access to justice for parties involved in smaller disputes.

The litigation and dispute resolution practice group at B P Collins LLP is well equipped to deal with a dispute of any size. For further information and advice please contact a member of the team by calling 01753 279039 or emailing disputes@bpcollins.co.uk. 

Posted by Lucy Newman, trainee in the litigation and dispute resolution practice group.

Lucy graduated from the University of Nottingham in 2011 with a degree in Politics and American Studies (International Study). She went on to complete the Graduate Diploma in Law and Legal Practice Course at the University of Law (Bloomsbury).

After working as a paralegal in the Real Estate team for a large city law firm, Lucy joined B P Collins LLP in September 2014.

The damaging consequences of receiving poor legal advice

Coming to terms with the fact that one day you may not be able to support your loved ones is tough, so it pays to take a recommended professional's opinion. Despite being only four weeks into my training contract I have already witnessed the damaging consequences of receiving poor legal advice, often from unregulated parties.  New clients have contacted the Private Clientpractice group requesting further assistance on trusts they have already created based on the advice of others.  One particular Will and Trust writer has been the source of many people's misery and what makes this particular circumstance so deplorable is their professional looking website and specialist TV advertising, enticing the public to use their services.     

One of the most shocking examples of this is a recent case which I have been assisting in, that relates to a couple who set up three trusts, the first involving their family home and the others a rental property they jointly own.

Like many others, this couple were hoping to prevent their children being faced with high inheritance tax charges upon their death. Unfortunately the trust writer failed to provide them with any information on the tax implications that would arise in creating the trusts.

With the help of this  trust advisor, the couple transferred the family home into an ‘interest in possession’ trust, with the couple holding the life interest in the property, meaning despite not being the legal owners they were free to live in the property for the rest of their lives. The rental property was transferred into two discretionary trusts, which mirrored each other, meaning the value of the property  was effectively removed from their estates.

However, the couple had not been informed that all lifetime transfers into relevant property trusts are immediately subjected to inheritance tax, meaning that the family home, which was valued at £380,000 and the rental property, valued at £300,000, were subject to inheritance tax payable on both transfers. Thankfully for the couple their combined nil rate bands were available and equated to £650,000, therefore no inheritance tax was payable up to this amount. Nonetheless because the combined value of the properties equated to £680,000,   £30,000 over the nil rate band threshold, the £30,000 was immediately liable to inheritance tax at 20%.

As one can imagine, this couple who were trying to avoid inheritance tax charges on their deaths were not too thrilled to discover that inheritance tax was still due. To make matters worse, because the couple continue to live in the family property it will still be included as part of their estate for inheritance tax purposes when they die and their children will be taxed anyway. However, the transfer of the rental property into trust had effectively removed it from their estates for inheritance tax purpose on death.

In addition to the advice on inheritance tax, advice on capital gains tax and income tax should have also been provided. The transfer of the properties into trust triggered a disposal for capital gains tax purposes. Luckily for the couple there were two relief's available to them to eliminate the tax payable.

Firstly, Principal Private Residence Relief could be claimed for the family home, meaning that no capital gains tax would be payable on this. Secondly, the couple could claim holdover relief for the rental property meaning they would not be liable for the capital gains tax themselves. Instead the trustees  in acquiring the property for the original acquisition value that the couple  first paid will be liable for the capital gains tax on the property’s rise in value when they dispose of it.

The downside of all this to the couple  is that from the date the trusts were created, they   could no longer receive the income  from the rental property, as this would have to be paid into the trust and the trustees will have to pay the income tax on this.

Many will be surprised to learn about the numerous tax liabilities trusts can create and those who wish to create them must ensure they receive sound advice beforehand. For this poor couple the tax advice came too late but this certainly highlights the importance of instructing a quality solicitor who can advise you on the multiple implications of any transaction you wish to make.  

Posted by Lucy Newman, trainee in the private client practice group.

Lucy graduated from the University of Nottingham in 2011 with a degree in Politics and American Studies (International Study). She went on to complete the Graduate Diploma in Law and Legal Practice Course at the University of Law (Bloomsbury).

After working as a paralegal in the Real Estate team for a large city law firm, Lucy joined B P Collins LLP in September 2014. 

Complex immigration rules made simpler with expert legal advice

The subject of immigration is rarely out of the news. Having gained first-hand experience in business immigration matters while with the top ranked B P Collins LLP employment group, I can see why.

The rules on immigration are in a constant state of flux. This year alone, we have seen the introduction of the Immigration Act 2014, changes to the Immigration Rules and changes to several of the policy guidelines, to name but a few. How does anyone keep up?

The changes reflect the Government's tougher stance on immigration as well as a shift of responsibility onto those who directly benefit from migration, for instance employers and education providers.

In most circumstances, a business that wishes to employ workers from outside of the European Economic Area ('EEA') must apply for a sponsor licence.

I have assisted with one of our business immigration matters from start to finish and soon realised that obtaining a sponsor licence is not as straight forward as it might seem at first glance.

Our client is the UK branch of a USA parent company that wished to bring an experienced employee of the USA parent company into the UK to train its employees.

Before considering an application for a sponsor licence, we reviewed our client's contracts and handbooks, advised on the suitability of different visas for its intended migrant worker and assessed whether the proposed migrant was eligible under the Points Based System ('PBS').

Each type of migrant visa requires the migrant to meet specific qualifications and remuneration in accordance with the PBS. After all, there is little point in applying for a sponsor licence if the intended migrant does not meet the requisite requirements for the Certificate of Sponsorship (CoS) or the visa application.

After obtaining the sponsor licence, we advised our client on how to assign a CoS to the USA migrant worker through the Sponsorship Management System.

As well as advising our client, we also liaised directly with the USA migrant to ensure all of her paperwork was in order in preparation for her visa application.

Any inaccuracies could have resulted in our client's sponsor licence application being rejected or the intended migrant being unsuccessful. Thankfully, it all went off without a hitch!

We also advised our client on its continuing responsibilities as a sponsor licence holder. The home office has powers to downgrade, suspend and revoke sponsor licences where they believe the employer to be in breach of the licence conditions.

As recently as 4 September 2014, UK Visa & Immigration (UKVI) has introduced further guidance on the responsibilities of those who sponsor migrant workers, with an emphasis on the repercussions of failing to meet them.

The guidelines reflect changes that were arguably already in motion. Statistics released on the www.publications.parliament.uk show a 178.4% increase in Tier 2 and Tier 5 sponsor licence suspensions from the third quarter of 2013 to the fourth quarter.

Sponsor licence holders should take heed of the recent changes and last year's statistics. It is essential that all licence holders are aware of their increased responsibility. They must have the appropriate procedural compliance checks in place to ensure they are successful in their application for a sponsor licence and to avoid their licence subsequently being downgraded, suspended or revoked.

Posted by Rebecca Mitchell, trainee in the employment practice group.

Rebecca started her training contract in September 2013 after graduating from Newcastle University with a 2:1 (BA Hons) in History. She undertook the Graduate Diploma in Law at Kaplan Law School and has recently completed the Legal Practice Course with distinction.