Asset Division Issues

Asset Division

The Irish courts have held that all of a spouse’s assets are potentially subject to property adjustment orders in judicial separation and divorce. Unlike many other jurisdictions, pre-marriage assets or those inherited from family are not excluded.

However, the source of the assets may be relevant in the exercise of the judicial discretion. Where, for example, a house has been inherited with strong family connections, this may be factor against the other spouse being granted a direct interest.

Family settlements entered into after marriage have been varied. Accordingly trusts through which property is indirectly controlled, typically settled as a discretionary trust established after marriage may be the subject of variation order where family assets are held through it. Where assets are promised to be left on a legal basis,  to a party to a marriage, they may be the subject of an appropriate order. There must be some evidence of actual promise, inducement or representation that this is the case. Where a parent has made a will, it may be revoked.

Disposals of assets within three years before commencement of proceedings may be adjusted.

Divorce &  Clean Break

The courts have held that parties may be living apart even though they are living in the same household. Consideration must be given to the mental and intellectual attitude of the parties.  They may be held to be separate if the circumstances so show.

The Irish divorce legislation requires proper provision rather than and does not provide for the same clean break, quick principle applied in other jurisdictions. The statutory policy is opposed to the concept of a clean break. The policy is not only clear on the face of the statutes, but was most widely discussed and is a subject of considerable debate around the legislation. However, the courts have taken a view that while a clean break right has not been established, the objective of achieving certainty and stability in obligations between the parties is desirable where the circumstances permit.

In a number of cases with very large assets, equal division was not required. A benchmark of a third might be a useful benchmark to fairness. While it is appropriate to value assets which could be valued at the date of trial, an order may be made which takes account  of a change in the value of assets after separation.

Criteria

The court looks at the role of the spouse in the family in particular. This includes the  spouse’s role in relation to the welfare of the family and contribution to looking after the home and caring for the family.

It must also have regard to the effect on  the earning capacity of each of the spouses of the matrimonial responsibilities assumed by each and the degree to which the future earning capacity of a spouse was impaired by reason of the spouse having relinquished or foregone the opportunity of remunerative activity in order to look after the home or care of the family.

A long-lasting marriage, especially in the primary childbearing and rearing years of a women’s life, carries significant weight especially if the wife has been the major homemaker and family carer.

Principles of certainty and consistency are subject to the necessity and fairness. Consequently, each case must be considered on its own facts in light of the principles set out in the law so as to achieve a just result. The absence of a clean break in the Irish law does not exclude a lump sum, where this was fair in the circumstances.

In some cases, judges have indicated that where there was a lengthy partnership of complimentary roles, a reasonably equal division of accumulated assets might be appropriate.

In cases involving  businesses and corporate assets, the corporate cost of payment of large lump sums should be factored in, in terms of tax , costs, fees and liabilities.

Assets Considered

What is required by proper provision may change if the circumstances change or the order cannot be complied with. Although, the courts will take account of fall in asset value, if this is attributable to risky  investment behavior by a spouse, this may operate as a factor against the spouse.

A number of cases arose during the financial crisis where there was dramatic falls in property value. The court held that where orders are impossible to comply with, they may need to be revisited.

The courts have held that where trusts have been created in the past which are not reviewable, the courts may take them into account in deciding the division of the assets.

The fact that assets are inherited may be taken into account as a factor leaning against their being divided equally.

The formulation under the Divorce Act is similar to but different to that in respect of divorce. The judicial separation legislation requires adequate and reasonable provision, whereas divorce legislation requires proper provision.

UK One-Third Rule

Historically, the English courts operated a so-called one third rule, by which the wife received one third of her husband’s income as maintenance plus one third of her husband’s capital and income. This was used as a starting point where the marriage had lasted for many years and the wife had spent a considerable time bringing up children. A lesser amount might be granted if the marriage lasted for a short time and/or where there were no children.

The Irish Supreme Court had indicated that the concept of a third share as a check on fairness may be useful in some cases, but it has no application in most cases. It may not be applicable to a family with inadequate assets. It may not be relevant to a family of adequate means; if such a sum could only be achieved by the sale of assets which would destroy a business, future income of the parties; or if it related to a property brought solely by one party to the marriage or other relevant circumstances. It may not be applicable to a situation where wealth has been created by one party through his or her endeavors to which the other party has no claim otherwise.

UK “Big Money” Cases

The House of Lords changed its approach, in so-called “big money cases” departing from th previous  reasonable requirements guideline. It indicated the courts should depart from equality only, where there was good reason to do so.

Financial needs should not be the only factor where the resources available exceeded needs, they stressed the work and value of a homemaker spouse. There should be no presumption of equal division but this should  be a yardstick. The House of Lords indicated the court should take into consideration the acquisition, property acquired during the marriage or before it. In that case, the spouse was awarded 40% of the total assets.

Subsequent cases have emphasised that case has not authority for an equal division  of assets in England and Wales. One effect of the judgment was that the role of the spouse as homemaker should be equivalent to that of the earning spouse.

The English approach had been which based on clean break provisions in the legislation. Provisions which enable clean break led to a practice of providing lump sums large enough to provide for future reasonable requirements, where available.

he Irish courts have rejected the UK approach. The Irish legislation does not contemplate a clean break to the same extent as the UK legislation. The Irish courts do not emphasise a single payment to meet a wife’s reasonable requirements under the Irish Divorce Act.

Proper provision is to be made in accordance with the statutory guidelines. However this does not prejudice the fact that proper provision may require a third to a half of assets in appropriate cases where there is no limitation on resources.

The discretion set out in the divorce legislation for judges is not unfettered. There are mandatory guidelines. The judge shall give reasons for the way in which the decision is exercised.

Non-Disclosure

The failure by the parties to disclose their assets fully may debar them from relief or be held against them. Where a separation agreements have been entered on foot of fraudulent information, the courts will readily make awards to rectify the effect of the non-disclosure. The courts will assess the difference in  consequence of the information deficit and  may make a lump sum accordingly.

Change of Circumstances

Even where divorce and separation agreements are stated to be final, an  application may be made for variation where there is a significant change of circumstances. Serious illness, windfall of changing needs or financial disasters, may constitute such circumstances.

If one spouse acquires wealth after a separation unconnected with a joint project during marriage, this does not in itself give the other spouse a right to further assets. If one spouse becomes significantly wealthier after concluding a separation agreement, there is no right for the other spouse to obtain more assets or money. The Court will look at all the circumstances and make proper provision without and not redistribute wealth.

The standard of living of a dependent spouse is to be similar to that enjoyed when the marriage ended, where possible. Needs such as a debilitating illness are a factor to be considered. Inherited assets are not to be treated as assets as joint marital assets. Each case should be considered specifically.

Spouses should not be compensated for their own incompetence or indiscretion to the detriment of the other spouse. Any exceptional change in the value of the assets, which was unforeseen at the time of judicial separation, is a relevant factor.

Misbehavior, or misconduct is not generally a factor allowing for variation.

Variations during Financial Crisis

Proper provision generally requires that the spouse has, where possible, enough assets to provide alternative accommodation and have a proper level of maintenance.

The courts during the financial crisis permitted variations of property adjustment orders where one partner’s spouse’s assets, income and ability to service debt had been radically affected by the financial or in particular property market collapse.

Although separation agreements freely entered are to be enforced, courts considered that it may be appropriate to contemplate a variation order to reflect new events. A property adjustment order under the Family Law Act 1995 cannot be varied but a new order can be made. Accordingly, a property adjustment order could be made.