Resolving finances on the breakdown of marriage.

A recent High Court divorce decision in England that touched on Bermuda highlighted the difficulties inherent in resolving the division of family assets upon divorce.

Since 2000, courts including the Supreme Court of Bermuda have been concerned with 'equality' and 'fairness' when dividing family assets.

The Supreme Court must have regard to section 29 of the Matrimonial Causes Act 1973, and apply the principles of equality and fairness against the following considerations:

the income, earning capacity, property and other financial resources which each party has or is likely to have in the foreseeable future

the financial needs, obligations and responsibilities of the parties

standard of living enjoyed by the family before the breakdown of the marriage

the age of each party and the duration of the marriage

any physical or mental disability of either or both

contributions made by each to the welfare of the family, including any contribution made by looking after the home or caring for the family

the value to either of the parties of any benefit which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

The Courts must exercise the section 29 considerations so as to place the parties, so far as it is practicable, and, having regard to their conduct, just to do so, in the financial position they would have been if the marriage had not broken down and each had properly discharged his or her financial obligations and responsibilities towards the other.

During marriage, the assets of husband and wife are normally considered joint assets. On divorce, however, one spouse generally takes the position that the assets of the family have been acquired through his/her efforts and in 'fairness' he/she should be awarded more of the assets.

Conversely, the other spouse will feel that his/her contribution has been one of support, care and the raising of the family, thereby enabling the breadwinner to acquire the earnings and assets that the parties enjoy.

When divorcing parties ask the Court to resolve their dispute over family assets, it can often lead to a complete breakdown in relations as accusations and counter accusations are made. This can be particularly harmful where children are concerned, and can also increase the legal costs of both parties, diminishing the financial pot available for distribution. A huge legal bill may not make any difference if the parties are fighting over a multimillion dollar family fortune.

However, in most cases, the financial pot is modest ? and the Court, the divorcing parties and their legal advisors must be creative in order to bring about a resolution that will preserve as much of the finances as possible to benefit both parties 'fairly'.

This may involve conditional orders involving the future sale of assets, some kind of continuing payments order or a clean break.

Some couples choose to enter into an agreement prior to marriage detailing how assets are to be divided in the event that the marriage ends.

Typically, it will list the assets of each and signify which assets are to be considered as joint and which will continue in present ownership.

Both agree not to make a claim on the declared assets of the other. Future assets and their distribution on divorce are also considered.

In the United States, these pre-nuptial agreements have been the vogue, particularly in celebrity marriages, and the courts have generally enforced such agreements. However, courts in Bermuda will not enforce pre-nuptial agreements as being contrary to public policy and, therefore, void.

However, with certain safeguards, the pre-nuptial agreement may be sufficient to at least allow the court to give effect to its terms even if enforcement is not possible. Much will depend on the facts of the case.

Increasingly, mediation is being viewed as a healthy alternative to resolving financial disputes in court, and as a more certain procedure than the pre-nuptial agreement. Mediation is conducted in an informal environment by a qualified mediator who is impartial.

The mediator does not and cannot impose a settlement on the parties but will facilitate a settlement. The parties will still need to have independent legal advice regarding the terms of the proposed agreement.

Mediation can be especially helpful where the parties approach it with a view to resolving issues. This includes being prepared to give full and frank disclosure of their respective financial circumstances.

In such cases, agreement can often be reached regarding the division of assets, and entered in court at the time of the divorce, as an order of the court. This may be important to the parties if enforcement of the agreement needs to be taken at a later date and it also brings finality to the issue of division of assets.

At present, Bermuda courts do not have the power to impose mediation on parties to matrimonial financial disputes. The overriding objective of the courts, however, is to encourage the parties to resolve their disputes ? and the parties themselves are wise to focus on settlement rather than on the matrimonial offence that has caused the split.

Only where the conduct involved in the matrimonial offence is 'grave and weighty' will it have any effect on the division of family assets.