Thursday, January 16, 2014

One Lump or Two? – financial orders in divorce cases

Brought to you by our friends at Stephens Scown Solicitors

When making financial orders, the courts can provide for a series of lump sums, or one lump sum payable by instalments. 

The distinction between the two types of order can be crucial, and vaguely worded orders can have serious consequences for clients in divorce cases. 

Under Section 23(1)(c) of The Matrimonial Causes Act 1973, the court can order payment of ‘lump sum or sums’.  The court can only order the payment of a lump sum once, but that can include a series of lump sum payments. 

Section 23(3)(c) also provides that an order for the payment of a lump sum can be by instalments.  That is where the problems can begin, because Section 31 of The Matrimonial Causes Act 1973 also provides that an order for the payment of a lump sum by instalments can be varied.  As this provision does not apply to an order for the payment of a series of lump sums (i.e. more than one lump sum in the same order) then by inference, such an order cannot be varied. 

Section 31 is a wide ranging section which means that the court can not only vary instalments, but discharge an order or suspend any provision temporarily. 

In the case of Masefield v Alexander (1995) the court decided that it could vary a lump sum order by extending time for payment, even though the order was made under Section 23(1)(c) which refers to ‘lump sum or sums’.  The key was that the application to extend time did not strike ‘at the heart of the lump sum order’.  This was followed in the case of Hamilton v Hamilton where the court found that if the order had been made under Section 23(1)(c) then there was no power to vary and the type of the payment could not be extended by ‘any significant period’.

In October 2006 Coleridge J in Lamont v Lamont expressed the view that some orders have provided for a series of lump sum payments, were in reality lump sum orders by instalments. He went on to say that the drafting of the order in a specific manner should not enable the parties to avoid the courts power to vary under Section 31. 

Distinction was made where a series of lump sums through divorce, being “cases where there are a series of truly separate lump sum payments paid and payable, referable for instance to different events, either in time or in terms of events which give rise to the arrival of resources in someone’s hands, for example, upon the death of a parent or the selling of a business or an event of that kind”.  Otherwise Coleridge J expressed the view that where a case had been settled on a single overall figure, the reality is that a lump sum payable by instalments means that such an order can be varied, and the power of the court cannot be excluded by what he called “a bit of wording”. 

The whole thing came up for decision again in the case of Hamilton v Hamilton [2013] EWCA Civ. 13.  In this case, Mr Justice Baron decided that he did not agree with the views of Coleridge J in Lamont.  The earlier case of Masefield v Alexander was upheld so that apart from the limited exception as to timing, an order for a series of lump sums under Section 23(1)(c) is not variable. 

However, the Judge went on to say that that was not the end of the matter.  Baron J made it clear that where the parties do not agree what the terms of the Order actually were, then the court can assess what the parties intended.  If the language of the order is not clear, then the court is entitled to look at the surrounding facts and circumstances. The test is objective, as the court is not looking to assess the subjective beliefs of the parties, rather it had to look at the factual matrix objectively in order to interpret what was agreed through solicitors.

In Hamilton, Baron J decided that the parties had in fact agreed a lump sum of £450,000, which was to be paid in instalments over time, and therefore could be varied.  

Baron J concluded her judgement with the observation that if the parties had agreed on the payment of a series of distinct lump sums, as opposed to the lump sum by instalments, then they should say so clearly in the preamble to the o
rder. In other words, the divorce solicitors/lawyers acting for the parties should spell out clearly what was, and what was not, agreed.    

Stephens Scown Divorce Solicitors in Exeter are a top-rated team who advise clients on a wide range of legal issues including divorce and family finance. For more information please visit: http://www.stephens-scown.co.uk/personal/family/   

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