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.

How much is that doggy in the court room?

We have all heard the expression 'a pet is for life, not just for Christmas', but what happens when its owners decide to part ways?

A recent article by Deborah Rook, entitled "Who Gets Charlie? The Emergence of Pet Custody Disputes in Family Law: Adapting Theoretical Tools from Child Law’’, examines the way pets are treated during divorce proceedings in different jurisdictions. Where arrangements for an animal cannot be agreed between parties, the family courts in England and Wales are forced to apply pure property law principles and, in doing so, the animal’s feelings, emotions and well-being are disregarded. It is effectively treated as just another item on the list of the parties’ property and is given to the person who can best prove they are its legal owner.

Rook calls for a new approach within English law, stating that it must “fit within the existing property paradigm but nevertheless recognise the special nature of this living and sentient property”. One such way to do this, Rook suggests, would be to create a test not unlike the well-established 'best interests of the child test' that is applied to the equivalent argument in respect of children.

However, whilst using the ‘best interests of the child’ test as a “useful eyepiece through which to view pet custody”, Rook accepts that it would not be appropriate, or indeed proportionate, to go so far as to replicate the test in the case of pets.

As a lover of animals, I fully sympathise with those who face losing their pets at an already deeply distressing stage of their lives. I certainly cannot imagine having my own pets taken from me at such a time. Despite this, and donning my recently-acquired trainee solicitor hat, I find myself agreeing with the arguments that altering the test and encouraging litigation would be a waste of costs and time in a court system that is already fit-to-burst.

To date there is little in the way of case law on the subject from the English courts, and, perhaps unsurprisingly, it is the US that is most frequently cited as creating the biggest waves in the field. Judges there are showing a growing willingness to give increasing emphasis to what is in the best interests of the pet in question, including considering the separating couple’s respective lifestyles, suitable surroundings for the animal and whether it has attachments to particular individuals.

In Raymond v Lachman, for example, the New York appellate court allowed a cat to “remain where he has lived, prospered, loved and been loved for the past four years”. There have also been awards of shared custody, visitation and maintenance payments to owners, and there is even a market for specialist pet custody mediators.

Whilst arguing over the family pet may seem a little trivial and disproportionate in terms of costs, it is often seen by parties as a yardstick in financial proceedings, with disagreements over the family pet threatening to derail negotiations. Many people have very strong emotional ties to their pets and can seek to cling on to what they represent of their old life at a time of otherwise great instability and chaos. Despite this, it is highly unlikely the law will change any time soon. Application of a test comparable to the 'best interests of the child' test encourages costly litigation due to the unpredictability of the outcome.

The animal charity Blue Cross have recently devised a 'pet-nup' which aims to provide for what happens to a pet when a couple separates. Whether or not these agreements will be enforced by the courts remains to be seen. In the absence of a pet-nup, and perhaps in any event, with an already crowded court system I would suggest quarrelling pet-owners are best advised seeking alternative methods of dispute resolution, such as mediation or arbitration.

Posted by Emily Halley, trainee in the Family practice group.

Emily graduated from the University of Bristol in 2010 with a degree in Mathematics and Biology. She went on to study the GDL and the LPC at the College of Law in London (Bloomsbury), gaining a Distinction in both years.

Is January really 'divorce month'?

If you believe everything you read in your Sunday morning newspaper then January is supposed to be the time of year when family lawyers are inundated with disgruntled couples, clamouring to separate after having one too many arguments over the festive season.

However, after spending January with the B P Collins family practice group as part of my training contract, I struggle to find truth in this urban myth.

Throughout this seat I have come to appreciate how divorcing someone is simply not a rash action made after a tricky holiday period but a long-considered decision. Even where one party has made the decision quickly (perhaps after discovering infidelity) it is never a decision that I have seen taken lightly.

In my experience people who have thought rationally and sensibly about the future of their relationship will approach the process of resolving any consequent dispute (whether relating to children or money) with similar care.

Some people will agree everything between themselves, around the kitchen table so to speak, and will just come to us to make the agreement legally binding. Others will have no alternative but to go to court, perhaps where they need to establish the jurisdiction of the English court for their case.

However, many couples will fall somewhere in between these two extremes: they need some professional assistance to decide children or money queries, but they want to retain ultimate control over the outcome rather than ceding it to a judge (although, even when court proceedings are started, negotiations almost always continue alongside).

Since joining the Family practice group, I have been surprised by the number of flexible options available to separating couples and how the solicitors here will often tailor a bespoke solution to those particular individuals both in the agreement itself and the method of reaching that agreement. Mediation and solicitor negotiation are two alternatives I have seen work well.

Mediation involves an independent and impartial mediator facilitating discussions directly between the separating couple. With the informed guidance of a solicitor in the background, combined with the neutrality of the mediator, this can be a very successful means of resolution which allows the individuals concerned to retain control and find the appropriate solutions by working together, albeit with an experienced professional present to guide discussions and help “sense-test” potential outcomes.

Whereas a Solicitor negotiation requires a delicate balance between pursuing the client’s objectives and advising on what is within a reasonable band of outcomes. It is the solicitor’s role to obtain the best possible agreement for their client, while always keeping them informed of what the best alternative to the negotiated settlement is. Solicitors must help the client assess the cost/benefit analysis between conceding on certain points to avoid the stress and expense of an on-going battle, without losing sight of the client’s goal.

The advantage to allowing a solicitor to negotiate is that the individuals do not have to have direct contact with their former partners. Many couples, particularly with children, prefer not to have direct discussions, but rather to keep the heat out of potential disputes by allowing their solicitors to resolve things at arms-length.

The myriad of options available in the family arena has inspired a genuine interest in the different ways of resolving disputes and I look forward to exploring this from a different angle in my next training seat in the Litigation & Dispute Resolution group. 

Posted by Rebecca Mitchell, trainee in the family 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.

How jurisdiction can affect a divorce

Since moving to the B P Collins LLP family practice group over three months ago, I have become very familiar with the procedure for divorce in the courts of England and Wales. 

Divorcing a spouse involves at least two simultaneous aspects: the financial settlement and the actual dissolution of the marriage, which is the divorce itself.  It is generally agreed amongst responsible practitioners that the dissolution of the marriage should be an uncontroversial process.  One spouse making unnecessarily critical allegations about the other in a divorce petition is not only unnecessary for a divorce to be processed, but could also be counterproductive when negotiating over finances, which is usually the pressing issue of the case.

It is often my job as a trainee to draft the initial divorce petition as, in the vast majority of cases, this is both straightforward and uncontested. However, while divorce proceedings are considered simple once they have begun, it can be trickier to determine where they should be started. 

Many of the firm's family clients have international connections, this may be because their spouse has a different nationality or some or all of their assets are based abroad. This may mean that more than one country could have jurisdiction to hear the divorce. Where a divorce is heard is significant because that country will usually also be where the finances are decided. There are very different approaches to finances on divorce even in jurisdictions that are geographically close (for example, England and Scotland). Therefore where to start the divorce takes on a wider significance as it is part of securing the most advantageous financial outcome for our clients.

The courts of England and Wales will either accept or refuse jurisdiction of a divorce petition and the way they decide this depends on whether the parties are habitually resident in the European Union (EU) or a non-EU jurisdiction. 

EU law governs where cases should be heard. Divorce cases are governed by the Brussels II bis Regulation.  The Regulation is binding in all EU states except Denmark and it says that, for most of the EU, jurisdiction will lie with the state of the couple’s habitual residence or of their nationality. However, if the English court is making the decision, nationality is not a relevant factor, jurisdiction will be decided by the state the couple is habitually resident or domiciled in.

Everyone is born with a domicile of origin. This is retained unless one acquires a domicile of choice in a different country.  To do this a person must sever all personal, social and economic links with their domicile of origin and demonstrate a definite and permanent intention to regard their new country of residence as their permanent home.

For non-EU divorce cases, again, the state in which the couple is habitually resident will have jurisdiction.  However, if either the petitioner or the respondent is domiciled here, the court of England and Wales will accept jurisdiction.

In both regimes a “first past the post” system is in place, meaning that the country in which divorce proceedings are first issued will have jurisdiction of the proceedings. Sometimes this can lead to a “race” between lawyers in different countries who are rushing to lodge their papers with their court first.

This in particular can be problematic for English wives who are living abroad or are married to a person of foreign nationality because perhaps they could be subject to less favourable proceedings in other countries if their husband issues his petition in a foreign territory first.

I have learnt that this complicated area makes it all the more important for separating individuals with foreign connections to take legal advice at the earliest possible stage and for lawyers to act quickly where the circumstances dictate.  

Posted by Matthew Crockford, trainee in the family practice.

Matthew started his training contract with B P Collins LLP in January 2012. He graduated in 2010 from The University of East Anglia with a 2:1 (Hons) in Law before moving on to the Oxford Institute of Legal Practice to study the LPC, achieving a Distinction. In his spare time Matthew enjoys playing football (mostly 5-a-side) and watching Tottenham Hotspur FC whenever possible.  Interestingly he used to be in a heavy metal band, but grew out of the idea!