Property Adjustment

Adjustment Order

The judicial separation and divorce legislation allow a court to make a property adjustment order in the context of judicial separation or divorce. This applies both to the family home and to all classes of assets, including businesses. It includes an interest in a pension fund.

Upon an order for judicial separation or divorce, an application can be made by either spouse or another person on behalf of a dependent family member for a property adjustment order. A property adjustment order orders the transfer of a property by one spouse to the other or to the dependent member of the family or someone on their behalf.

Property may include any assets, including buildings, land, money, cars, movables, and shares. It most commonly occurs in respect of the family home and is often in favour of the spouse, who continues to look after the children.

Order Issues

Where a property adjustment order is made by the court, a court order is made requiring the person addressed to transfer the property. The court office lodges a copy of the property adjustment order with the Land Registry. The property adjustment order cannot be made in favour of a spouse who has remarried.

The power to make property adjustment orders does not apply to a family home in which either spouse resides with a new spouse after remarriage.

There is provision for a party to apply to the court for a variation of the order. However, on making the order, the court may itself make an order removing or restricting the application of the right to apply to vary the order.

The court may award a life interest in the family home to be held in trust for the spouse and/ or dependents. It may establish a trust based on real property or liquid assets.

In addition to property adjustment orders, orders may be made:

• conferring on one spouse the right to occupy the family home to the exclusion of the other for life or for such period as the court specifies.
• directing the sale of the family home and the division of property between spouses and other persons having an interest.

The court is to have regard to the proper and secure accommodation needs of the dependent spouse and dependent family members.

Discretion

The legislation gives a very broad discretion to the court. Until relatively recently, there was limited provision for reporting on family law cases, so that there was limited access to the practices and norms exercised in such cases by the courts.

A property adjustment order may be made based on divorce or judicial separation. It may be made later during the lifetime of the spouses. In certain cases, the court may only make an order at a later stage after divorce where there is a significant change in circumstances within the meaning of section 22 of the Family Law Divorce Act.

The legislation specifically requires the courts to have regard to the terms of separation agreements entered.

This right to vary the property adjustment order during life, was not in the original judicial separation legislation but was incorporated in 1995. The right ceases when the applicant spouse remarries.

Transfer Terms

The transfer need not be absolute. It may refer to a share or interest, e.g. for life or a right of residence in the property. It may be subject to conditions and subject to obligations to be undertaken by one spouse or the other.

An order may be made that property is to be settled for the benefit of a spouse or dependent member of the family. A settlement may comprise a series of limited interests or successive interests in the property.

It may, for example, include a right of residence, a right of ownership for life or a right to occupation, residence or ownership for a certain period. It may, for example, provide that the spouse and children are permitted to occupy the family home for a period, after which it must be sold and the proceeds divided in a particular manner.

If there is an existing settlement for benefit of the children or the spouse, the court may order a variation of it. This includes a settlement made by the spouse but also for third parties on behalf of the spouse. The provision applies to ante-nuptial and post-nuptial settlements.

Ancillary Property Orders

In the context of the grant of judicial separation or divorce, the court may also make orders in relation to any of the following matters:

• determining the shares of ownership beneficial and legal, and make e orders for the partition of the property
• safety orders and barring orders
• orders dispensing with consent under the Family Home Protection legislation
• adjournment of possession in mortgage possession proceedings
• restriction on disposal of household goods and items

The court may make ancillary orders requiring any one or more of the following:

• transferring to one or more spouses or a dependent member of the family, or specified persons for their benefit, any property to which the other spouse is entitled in possession or in reversion (future interest);
• the settlement to the satisfaction of the court of property to which either spouse is entitled for the benefit of a spouse, a dependent member of the family or one or more or all of such persons;
• the variation for the benefit of either spouse or dependent members of the family or any existing pre-marriage or post-married settlement, including one made by will or codicil on the spouses;
• the cancellation or reduction in the interest of either of the spouses under any such settlement.

In a case where the High Court has taken account of land which was used by a spouse as if it was his but was owned by his father, the Supreme Court held a property adjustment order to be inappropriate in the absence of a proprietary interest even whether by agreement or estoppel in the spouse concerned.

Shares

In some cases, the courts have refused to make orders which would be disruptive to an existing business or where properties are linked to a particular business. The courts are less inclined to exercise discretion to order its sale or order its transfer in circumstances where this would adversely affect the business. The court might instead direct a lump sum to be paid in cases where the spouse had significant resources.

Shares in private companies may be very difficult to value. See generally the sections on valuation in relation to the methods adopted for the valuation of shares in private companies. There is generally very little market available in respect of the shares in private companies.

The courts have emphasised that the taxation effect of order should be taken into account. The extraction of monies from a company may have a significant tax cost which should be factored in.

Where it is necessary to realise assets, the costs, taxation, and professional expenses should be factored in, in assessing the overall appropriateness of the order in the context of the various relevant factors provided by the statute.

The value of the assets of a company may be greater than the value of the shares in the company because there are tax costs in distributing the assets. The shareholder’s real tax cost and company law blocks on the individuals receiving dividends and distributions from the company’s assets are relevant.

Settlements

A property adjustment order may be made in respect of a pre-marriage settlement or a post-marriage settlement. The settlement must be made on the spouses. This is a wide concept which includes arrangements which confer a benefit on a spouse or either of them in their capacity as husband and wife and provide for or is made with reference to their marital status.

A settlement ought to be interpreted in broad terms. In a tax context, it refers to documents and arrangements and is significantly broader than settlements in traditional land settlements. It covers any trust, covenant, agreements, arrangements or transfer of assets if the arrangements confer a benefit on the spouse or either of them in their capacity as husband or wife.

Trusts are commonly used to shelter assets in the family. In the case of a discretionary trust, the beneficiary has no specific entitlement to interest unless and until the discretion is exercised in their favour.

A settlement has been held to include a pension which was for the benefit of a spouse, where one spouse could surrender or potentially confer a benefit on the other. There is separate specific legislation in respect of splitting interests under pensions.

The Irish courts have taken a broad approach to the concept of a settlement and held that it covers arrangements which confer a benefit on the spouses or either of them in their capacity as husband and wife and is provided for with reference to their marital status.

An instrument may be a settlement, notwithstanding that one spouse only has a possibility as part of a class of beneficiaries and/or potentially a large class of beneficiaries. The motivation for the establishment of the settlement is irrelevant.

Even if an instrument which may potentially benefit a spouse is not technically a settlement under the legislation, then the court will may still have regard to it in terms of the adjustments of assets between the party.

Discretionary Trust

A 1997 High Court case indicated that the courts do not have the power to vary discretionary trust made before marriage, even if the spouses are potential beneficiaries. However, such a trust can be considered by the court in making its orders in the context of other financial resources that the spouse has or may have in the future.

A discretionary instrument may allow for a potential benefit to which regard may be had. The Irish courts have held that the discretionary trusts to be a settlement for the purpose of the provisions. The case has been criticised; by FJWTM/CNRT, a Trust Corp Services Limited.

The courts will have regard to the prospective ability of one party to control the trust. In particular, where a spouse has maintained effective control of the trust, it is likely to be potentially subject to a property adjustment order.

In other cases, where the spouse did not have the ability to control the trust, the court has taken it into account to a more limited extent. This is particularly so, where trust assets are intended to meet a specific case of need or where trusts are established for intergenerational purposes.