Whether there has been an increase in divorces due to the pandemic or not, or whether some divorces were expedited ahead of Britain leaving the EU, in the first of two articles, David McFadzean of Nedbank Private Wealth explains why the firm is keen to focus on the issues divorce, dissolution and separation raise, and how holistic wealth managers can help those going through these proceedings.
David McFadzean, Nedbank Private Wealth
While it will still be some time before we can appreciate just how much of pre-pandemic life has changed permanently, some things already have. Others may have changed after the divorce between the EU and UK finally saw its equivalent of the decree absolute granted just after 11pm on 31 December 2020.
It was an abrupt ending neither side probably really intended – something that readers of eprivateclient are probably used to seeing. Among the many services not covered by the withdrawal agreement, there has been no replacement for the snappily titled Council Regulation (EC) No 2201/2003 of 27 November 2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility (commonly known as Brussels IIa), which previously ensured that judgments handed down in UK family law courts on children’s custody and financial splits were recognised across most of the continent.
The family law sector may also have been surprised by the news, published on 25 March 2021, which showed a fall in the number of divorces in England and Wales during lockdown. Between 1 April and 31 December 2020, the number of divorce petitions filed fell by 5 percent versus the same period in 2019. Scotland has yet to release any 2020 figures for its cases.
This came instead of the widely predicted increase given spouses, who might ordinarily have easily led relatively separate lives, were forced to cohabit for multiple months while working from home and, in many cases, home schooling their kids for the first time. It seems that the economic uncertainty factor which traditionally suppresses divorce has so far prevailed and parties are waiting for more prosperous times.
The falling figures are also in step with a longer-term trend that has seen divorces steadily decrease year-by-year since 2003. This high was achieved after four years of increases, with “24/7 lifestyles” and “very individualistic ways of living” cited as the main reasons. This was not something anyone achieved in 2020. Instead, perhaps, lockdowns led to couples trying harder to resolve issues given they had time together to work things out and/or reassess what is important to them.
Meanwhile, the uptick in divorce cases in the fourth quarter of 2020 may have been partly due to the pending EU-UK divorce. Any proceedings that had started over an hour before the New Year bells tolled were assured that any UK family court decisions would be respected on the continent as before. For all divorces initiated after that time and date, there remains doubt as to whether that continues to be the case.
However, there may be two further reasons why couples are not currently pursing divorce, but may yet do so.
The first is that UK COVID-19 restrictions are currently not set to end completely until June 2021. As such, individuals may be biding their time until that date passes and may even postpone decisions over the summer holidays to spend one final family holiday with their children. After all, although you may want to start the process, many will realise that being in the same house as the other party, with limited opportunity to go elsewhere, could result in unnecessary acrimony.
The second may be down to the Divorce, Dissolution and Separation Act 2020, which received royal assent in June last year, although this legislation only applies to England and Wales, which has different divorce laws from Northern Ireland and Scotland. Coming into effect in autumn 2021, the law allows parties to seek ‘no fault’ divorces.
This may be holding parties back given it removes the need to blame one party. It also shortens the minimum window between the initial petition and decree absolute (or final divorce order' as it will now be known) to six months. This is considerably quicker than the mean average time of 53 weeks for the same process for divorces in England and Wales being granted in 2020.
These reasons have led Nedbank Private Wealth to focus on divorce issues in order to support clients, as well as related professional partners. The focus included a series of three webinars, as well as other articles being published. Why? Because divorce remains one of the biggest challenges in people’s lives – particularly the financial aspects – regardless of which party you are advising.
It is even sometimes said that marriage may be the biggest financial risk women take and research has shown that marriage increases life expectancy for men and reduces it for women. Does divorce do the opposite?
Even today, the reality is that women are more likely to have taken a step back from their career during a marriage, will not restart work at the same level, or enjoy the same prospects after years out of the workplace and will often be paid less than men in the same age group. Years spent bring up children also means that they have often stopped paying into their pension.
Meanwhile, the Duxbury tables, which seek to assist in achieving the ‘gold standard’ of a ’clean break’ by attempting to find some equivalence between capital and income, are woefully inadequate with inherent actuarial biases. The rates of return assumed can differ widely from reality and they, of course, provide no guidance or advice for a party who may be receiving a lump sum that is significantly beyond any sum they have handled in the past.
In my many discussions with family lawyers over the years, I have sometimes been surprised that there can be limited understanding of the advantages that full-service holistic wealth managers provide versus the limited service offerings of many traditional discretionary investment managers and/or private banks to whom clients are often referred. For example, holistic wealth managers are best able to support either party (or both) before the Duxbury tables are considered.
This is because we can help both sides see what their best financial outcomes might be through a cashflow modelling process. We can also help clients manage their finances after the decree nisi/conditional order has been granted, for example, by ensuring that both parties benefit from the unlimited capital gains tax allowances between spouses before these cease to apply.
Additionally, the pandemic may also prompt some parties to request that their ancillary relief awards be varied using the Barder principles. Some post-pandemic circumstances must surely be exceptional enough to be measured against Lord Brandon’s four conditions, despite the unsuccessful challenges due to the 2008 Global Financial Crisis or the recent rejection by HHJ Kloss.
Again, we would urge both parties – and their professional advisers – to seek advice from a holistic wealth manager given the opportunity to really understand the ramifications of the changes in circumstances, rather than assume the worst.
Whatever is happening with your clients, get in touch to see how we can help you and your clients through our broad suite of services and individual support, which has helped see us pick up the title of best private bank in the City of London Wealth Management awards for seven years running.
David McFadzean has over 25 years’ experience in financial services and leads Nedbank Private Wealth’s teams of client facing professionals, including wealth planners, private bankers and investment, treasury and credit specialists. Although his own law degree is a distant memory, he keeps up with some of the challenges in the family law world via his wife, Samantha, a former family law practitioner and now judge in the Jersey Family Division.
More details about Nedbank Private Wealth’s services can be accessed here.