FAMILY/MATRIMONIAL: An Introduction to Sheffield and surrounds
Chambers and Partners
Commentary – Alison Fernandes – Hall Brown Family Law
2022 has certainly been one to remember in family law. The much welcomed arrival of no fault divorce is perhaps the shining highlight of the year compared to the dour face of tough financial times as the UK heads into a global recession. In the South Yorkshire region, this has resulted in reduced/stalled property prices with growth slowing, more difficult lending conditions with higher interest rates and overall higher living expenses.
Commercial growth in the region has slowed as a result of consumer confidence and spending power grinding to a halt combined with higher wage demands and increasing overheads including transport. Having said that, there are good general prospects for the region particularly in the manufacturing sector where the fall in sterling against other currencies makes goods manufactured in the region more attractive.
What has this meant for family law in the region? Financial strains remain an underlying cause of, or at least add pressure to, family breakdown for married couples, civil partnerships and also for cohabiting couples. This brings to the fore the importance of cost effective methods of dispute resolution to ensure family resources are retained within the family rather than spent on expensive litigation. ADR uptake therefore appears on the up, with more couples opting for mediation, arbitration and private financial dispute resolution hearings.
I anticipate there will be a continued growth in demand for arbitration in the next 12 months, particularly as it is no longer reserved to the wealthy but is being used by those with more limited resources as the benefit of speed (compared to the already over-stressed court system) and cost becomes more attractive. For the wealthy, famous or simply those who wish to ensure your personal affairs remain private, arbitration is the only means of allowing a contested case to remain out of the public eye, as Mostyn J recently determined standard anonymization of judgments should not take place as it is unlawful to do so. He reminded family law practitioners of the need to make a specific application for reporting restrictions which would then only be made once the Court had applied the balancing exercise.
Similar, we’ve seen a rise in litigants in person (LIPs) where one or both parties in court proceedings represent themselves, sometimes with the benefit of legal advice in the background but more often without that advantage. This goes right across the area of private family law. Some legal commentators say this is causing even more backlogs in the court system as LIPs grapple to understand the system and make inappropriate applications or otherwise take more judicial time. Others say this is the natural response to the end of Legal Aid and a shortage of liquid cash to fund legal representation.
Where parties are asset rich but income poor, they can of course consider taking a litigation loan to fund their legal representation and this is becoming more common. In part this seems to have been driven by the requirement to at least apply for a litigation loan before a court will consider making a Legal Services Order requiring the opponent in court proceedings to contribute towards the financially weaker party’s legal fees. However, the litigation loan market has become more competitive with interest rates coming down, albeit remaining substantially higher than personal loans. It remains to be seen whether recession and higher Bank of England base rates will reduce the market for such funding.
The court decision in WC v HC [2022] setting out the distinction for soft loans from family towards legal fees and living expenses, and hard commercial loans, has also driven clients to deliberately seek out litigation loans. This is unfortunate as whilst friends and family may be prepared to make informal interest free loans to fund legal fees and living expenses on an interim basis, such loans are seen as “soft”, which means they are not generally taken into account as a pressing need when dividing the available resources of a couple. In contrast, the hard commercial litigation loans, with high interest, will be taken into account. Couples are therefore effectively forced to incur interest if they want their debt taken into account or enter a tightly drafted loan agreement with a friend/relative which could place undue pressure on that relationship at a time when support from friends and family is often an emotional lifeline.
Legal costs in general in relation to family law cases have come under increasing scrutiny, and rightly so in some cases but creating additional work and thus incurring more legal costs in most cases. As family law has a history of following changes in civil law, future changes may include costs bandings for specific types of family proceedings such as injunctions and directions hearings, although I would hope that judicial discretion will always be available as some cases are inherently more complex than others.
A change that is definitely on the horizon is the extended period divorcing couples will have to transfer capital assets between themselves without incurring Capital Gains Tax on a no gain/no loss basis. With effect from 6 April 2023, the window of CGT free transfers is due to be extended from transfers within the tax year of separation to a period of up to 3 years from the year of separation. This will be particularly helpful for couples where the transfer of capital assets might be delayed for some reason including the sale of property, which could be delayed due to a slowdown in the property market or possibly deferred payment for assets. Often where SMEs or family businesses are involved, cash flow and liquidity issues mean payment for a departing spouse's business interest/shares is made over an extended period of time. Sometimes this can have CGT consequences and the extension of up to 3 years will be welcomed by many and ease financial pressures.