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."

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.

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!

Things are not always what they seem… in Family

Family is my first seat and I have always been interested in the subject. However, when I was contemplating what working in a family law practice would be like, I thought the focus would be on soft skills such as empathy when liaising with clients and confident negotiation when trying to reach a settlement on behalf of our client.  Certainly this is the case, but I have been particularly struck by the financial skills required, including an in depth understanding of business accounts.

As most people know, one of the important tenets of English family law is establishing what all the assets are worth – only then can the effect of any proposed financial settlement be truly understood. In situations where one, or both, of the parties have their own business it will usually be necessary to ascertain the value of that business.  Through a number of cases I have assisted on during my seat, I have gained quite a good understanding of the options in these circumstances. This has been a fascinating and somewhat unexpected aspect of my work.

For example, a balance sheet valuation is the most straightforward and involves an assessment of the tangible assets less any money owed on those assets. This is most appropriate for a business that is merely a sum of its parts – perhaps a string of investment properties held in a formal company structure for tax reasons. If the business is a service provider the balance sheet valuation is not necessarily the most appropriate way to determine the value. 

In such a case it is more likely that a forensic accountant would be involved and the exercise becomes much bigger and more expensive.  The accountant reviews the company accounts for the past few years to understand the nature of the business against the backdrop of the economic climate specific to the business.  The profit a business is making will be crucial to its value as any potential purchaser would use this as a guide to what return they could expect to see on their investment. Where possible, a single joint expert forensic accountant will be appointed by the parties.  How to divide the business, if there are not sufficient assets outside the company to achieve a fair division between husband and wife, is another complex area on which the forensic accountant can provide advice. 

Seeing all of this at first hand has really opened my eyes to how different areas of law interact with one another. It has certainly made me more open-minded about the seats I choose as, even if I do not think I am likely to specialise in a particular area, I can now fully understand how useful it is to have a good grounding in a cross-section of practice groups. It also makes me appreciate working at a full service law firm, like B P Collins, where colleagues with a range of expertise are available at a phone call. 

Posted by Tina Jeffery, trainee in the family practice group.



Tina Jeffery started her training contract with B P Collins in August 2012 following a long career in the RAF. She holds a BSc and an LLB from the Open University and completed her Legal Practice Course at City Law School.