Author: Kelly Edwards

Check out our Managing Partner, Kelly Edwards commenting for The Telegraph.

https://www.telegraph.co.uk/family/relationships/how-to-live-together-cant-afford-to-divorce/

Although we advise and represent many high net worth (HNW) people during their divorce, most of our clients are anxious about paying their legal costs, especially if the matter goes to the Family Court. HNW people are often wealthy in assets but short on liquid cash.

The perceived cost of litigation costs often results in people choosing to forgo legal advice and represent themselves in Court. This is a mistake as if your spouse has instructed an experienced divorce lawyer you will be at a significant disadvantage. Furthermore, it is extremely difficult for someone not trained and experienced in family law to successfully navigate the legal system and instruct expert witnesses etc.

There are several options available to cover your legal costs whilst your financial settlement is being agreed upon.

Self-funding

This is where you use your own capital to pay for your legal expenses. If you are in a financially stronger position than your spouse, you may choose to fund their legal costs. This will work to your advantage if it mitigates the risk of your spouse taking out a commercial loan at a high-interest rate, therefore reducing the capital available to be divided in the financial settlement. However, this should not be an open-ended commitment and your spouse should be encouraged to have a backup plan in case you have to withdraw your financial support.

Family and friends

If you receive financial help from a family member or a friend, make sure you ask your Family Law Solicitor how long they believe your divorce case will take to settle. Also, agree that notice will be provided if funding has to cease to ensure you do not continue to run up legal costs without any ability to pay them.

If the money from family and/or friends is in the form of a loan, it is always best to have a legal agreement drawn up. For example, you could agree that you will pay the money (plus any agreed interest) loaned for legal costs back once you receive the funds from your share of the financial settlement. The other reason for documenting the loan is so it can be presented in the Family Court as a debt that needs to be repaid.

Remortgaging your property

If you have enough equity in your family home, you can apply to remortgage your property. The advantage of remortgaging is the interest rate will be lower than that of a personal loan and the loan can carry on after your divorce is concluded.

Personal loan or credit cards

Personal loans are available from many financial institutions including high street banks, independent lenders, even Sainsbury’s and Tesco. Your financial circumstances and the value of the loan will determine the interest rate. You will also need to pay an administration fee.

A bank will require confidence that you will receive a substantial financial settlement. To this end, an undertaking from your Solicitor and you that the debt will be paid will be required. Other third-party lenders may require security such as a charge over your property before they lend you any money.

Sears Tooth agreements

A Sears Tooth agreement is a deed that assigns the settlement you receive from your divorce to your Solicitor who will pay themselves in full before handing over the rest of the funds.

The agreement will need to be signed and witnessed after you have received independent legal advice. Furthermore, you will need to tell the Court and your spouse that you have entered into a Sears Tooth agreement.

Sears Tooth Agreements are now very rare as they are inherently risky for Solicitors and generally not necessary given the introduction of litigation loans, as discussed below. They also require the Solicitor to cover any disbursements themselves. However, experienced divorce lawyers who know that their client will receive a high-value settlement may enter into one if it means getting their client’s case over the line.

Litigation funding (also known as a litigation loan)

Litigation funding for divorce is essentially where a commercial lender loans you the funds you need to cover your legal costs and disbursements. The loan is repaid from the financial settlement you receive when your divorce is concluded.

Because the lender needs reassurance that they will get their money back, they may secure certain assets against the loan, for example, any property you own or valuable artwork but many do not. The lender will make an assessment of your case (guided by your solicitor) as to the likely outcome and how bug a loan you might need.

Although your divorce lawyer can advise you on how to obtain a commercial loan, you must receive legal advice from an independent Solicitor before you sign the loan agreement.

Court-ordered interim financial provision

If the financially weaker party in a divorce has no income or capital to meet their legal costs, and for whatever reason they cannot obtain a litigation loan, the Court can order the financially stronger party to pay. This ensures both parties can fairly pursue their case. A separate hearing will be held to determine if an interim financial provision is suitable. The Court will consider the following:

• Is the dependent spouse’s case reasonable and are they taking every opportunity to settle the matter early? An example of this is trying mediation to resolve any disputes rather than insisting on going straight to Court. Any history of domestic abuse within the relationship will mean it is highly unlikely that mediation will be a suitable dispute resolution alternative.
• Have commercial lenders been approached?

Your Solicitor will advise you on the risks of an interim financial provision application and the steps that must be taken beforehand – court should always be seen as the final resort for legal fees funding.

Final words

Having the finances available to see your divorce case through to the end can result in shorter court proceedings and encourage your spouse to settle early. At Edwards Family Law, we will explore every avenue that suits your financial situation to allow you to receive our specialist, astute divorce law advice.

Edwards Family Law is a niche London-based firm specialising in high-net-worth divorce and international family law. To find out more about divorce and financial settlements, please phone +44 (0)20 3983 1818 or email contact@edwardsfamilylaw.co.uk. All enquiries are treated in the strictest confidence.

It is well known that legal costs in divorce cases can easily escalate out of control, especially where proceedings continue over many months or even years. The recent divorce case of Xanthopoulos v Rakshina heard in the High Court is a perfect illustration of just how high these costs can be; described by Mr Justice Mostyn as “exorbitant”. Here we will take a closer look at the costs accrued in this case and what can be done to avoid such outcomes following separation.

What happened in the case of Xanthopoulos v Rakshina?

The case of Xanthopoulos v Rakshina, heard in the High Court in April 2022, concerned a Greek-born resident of Russia, Lazaros Xanthopoulos and his wife, Alla Aleksandrovna Rakshina. Ms Aleksandrovna is described in the judgement as the 75th richest woman in Russia with assets of over £300m and as holding a senior role with a Siberian supermarket. The parties married in Moscow in 2006 and separated in 2020. A Russian court agreed to the divorce in March 2021, but a financial remedy was not finalised at this time. Mostyn was highly critical of the parties on the basis that their filings missed the deadline set, and their skeleton arguments exceeded the 350-page limit by some 1,500 pages. On this matter, Mostyn stated:

“This utter disregard for the relevant guidance, procedure, and indeed orders is totally unacceptable. I struggle to understand the mentality of litigants and their advisers who still seem to think that guidance, procedure, and orders can be blithely ignored”. He also stated that he “struggled to find the language that aptly describes the exorbitance of the litigious conduct of the parties”.

The High Court was asked to consider a range of costs by the parties. In total, costs have amounted to between £7.2 million and £8 million, including £5.4 million incurred prior to the High Court hearing. This is eye-watering by any measure. Summing up his concerns about these costs, Mostyn stated:

“Figures like this are hard to accept even in a conflict between the uber-rich…to run up in domestic litigation costs of between £7 million and £8 million is beyond nihilistic. The only word I can think of to describe it is apocalyptic”.

Strong words indeed.

Explaining how the system could be improved to avoid such high legal costs in family law disputes, he recommended that statutory measures be put in place to limit the scale and rate of costs. Alternatively, he suggested that the Family Procedure Rule Committee need to find a solution to the problem.

Echoes of the past?

This case may remind some of the fictional inheritance case of Jarndyce v Jarndyce in Charles Dickens’ Bleak House. The plot of this imagined case concerned a vast inheritance and legal proceedings that went on for so long that by the end, the entire estate had been swallowed up in legal costs, hence rendering any final decision moot. Explaining just how futile the proceedings were in the first chapter of Bleak House, Dickens writes, “Jarndyce and Jarndyce drones on. This scarecrow of a suit has, over the course of time, become so complicated that no man alive knows what it means. The parties to it understand it least; but it has been observed that no two Chancery lawyers can talk about it for five minutes without coming to a total disagreement as to all the premises”.

The story of Jarndyce v Jarndyce was itself inspired by historical examples of legal cases in which legal proceedings have gone on for decades, such as in the case of Sir George Downing in the late 1700s, which lasted for more than 40 years.

Admittedly, the more recent High Court case of Xanthopoulos v Rakshina did not lead to costs which exhausted the marital assets; it is nevertheless a reminder of just how far family disputes can extend if not kept in check.

How can divorce costs be kept under control?

The single most effective way to keep divorce-related costs under control while achieving a mutual and amicable outcome when it comes to financial and other agreements following divorce is to use Alternative Dispute Resolution (ADR). ADR includes a range of non-confrontational methods of reaching an agreement even on highly complex matters, such as mediation, negotiation, and arbitration.

Family law Solicitors who are members of the organisation Resolution have the skills and training to resolve matters such as child and divorce disputes outside of the court system. Resolution was founded over 40 years ago and is made up of family Solicitors who advocate a non-confrontational approach to family law issues, providing a better outcome for families and their children.

Outcomes are often much better than traditional court-based litigation as parties are encouraged to work together to find a mutual agreement. This results in improved compliance with any outcome reached (i.e. a long term willingness to abide by what is agreed between the parties) and helps to preserve relationships for the benefit of any children involved in the proceedings.

Furthermore, in most cases where mediation, arbitration, or negotiation are used to reach a financial resolution following divorce, costs are typically much lower than traditional court litigation.

Final words

As Mostyn makes clear in his remarks in the case of Xanthopoulos v Rakshina, legal costs for divorce proceedings need to be capped or controlled in some way to prevent endless litigation, wrangling, and the excessive use of court time. As such, the courts do not offer the optimal route for such disagreements, even where settlements can reach millions of pounds. ADR methods such as those advocated by Resolution are not just for straightforward disputes of lower value; they are equally suited to highly divisive high-net-work divorce proceedings.

Edwards Family Law is a niche London-based firm specialising in complex family law cases following the breakdown of a relationship. We are members of Resolution, an organisation of Family Law Solicitors that abide by a Code of Practice that promotes a non-confrontational approach to family law practice.

To find out more about financial dispute resolution and financial orders following divorce, please phone +44 (0)20 3983 1818 or email contact@edwardsfamilylaw.co.uk. All enquiries are treated in the strictest confidence.

The meaning of “real need”, as interpreted by English courts in post-Radmacher divorce cases, is analysed by Joanna Blakelock and Kate Pooler, a partner and an associate solicitor at Edwards Family Law.

The Supreme Court case of Radmacher v Granatino [2010] 2 FLR 1900 still leads the pack for the validity of nuptial agreements. Upon divorce, the starting point is that all marital assets are shared equally, otherwise known as the “sharing principle”. Generally, the aim of a nuptial agreement is to “contract out” of the sharing principle and restrict financial claims on divorce to “needs-based” claims only.  

Suffice to say, the English court is not bound to uphold nuptial agreements as a “contract”. However, Radmacher established the presumption that the terms of a pre-nup will be upheld and approved by a court. It therefore falls to the party who does not want to be bound by the agreement to argue why its terms should not be followed.

So, what is “real need”?

Radmacher decided that if a nuptial agreement left a former spouse in a “predicament of real need” then it would probably be unfair to hold the parties to that agreement. “Real need” was interpreted at a very low level in Radmacher and only required that a spouse was not left “destitute”.

Since Radmacher there has been relatively little guidance from the courts about the meaning of the phrase “predicament of real need” and where there has been guidance, judges have taken a range of views in this discretionary area.

One view: Fairness will not equate to near destitution…

In the 2016 case of WW v HW (Prenuptial agreement: Needs: Conduct), the couple’s pre-nup stated that neither party would have any claim to the other’s pre-marital, gifted or inherited property on divorce. Their relationship lasted 12 years and they had two children. The only joint asset was the former marital home which was worth GBP4.5 million, to which the wife had contributed 86% of the purchase price. The wife had inherited assets of circa GBP27 million.

“Radmacher requires the court to consider the pre-nup’s fairness in all the circumstances of the case at the time of the divorce.”

The judge made clear that the husband’s claim was limited to needs (on account of the pre-nup) but was concerned the husband would be left in a “predicament of real need” if the terms of the agreement were upheld.

The judge questioned whether the husband’s needs should be interpreted as “the minimum amount that is required to keep him from destitution” and whilst he judged that the presence of the pre-nup itself reduced the parameters of a needs award, this was not to the point of only saving the husband from destitution. He awarded him a housing fund of GBP1.7 million on a lifetime basis (with 45% of this sum reverting to the wife in 2027); a capitalised income fund of GBP215,000; and child maintenance payments of GBP18,000 per child, per annum.

Normal “reasonableness” considerations are still relevant

In the 2018 case of KA and MA (Prenuptial Agreement – Needs), the wife advanced a needs-based claim for GBP6 million (the pre-nup would have resulted in an award of only GBP1.6 million). In total, the judge awarded her GBP 2.95 million.

The judge said that Radmacher requires the court to consider the pre-nup’s fairness in all the circumstances of the case at the time of the divorce, which included the wife’s contributions to the marriage, the standard of living the family enjoyed, and which the husband (and the children whilst with him) would continue to enjoy. The judge was very careful to avoid too great a discrepancy between the children’s standard of living with each parent. These are the kind of “needs” considerations that would be taken into account in a divorce in the absence of a pre-nup. The judge awarded the wife a capitalised income fund for life at a rate of GBP100,000 a year (albeit with a 25% step down when the parties’ child reached the age of 21 or completed tertiary education). It is noted that she would have ordered GBP150,000 a year had the pre-nup not existed, demonstrating the role of a pre-nup in constraining a “needs based” claim.    

Another view: a nuptial agreement should not markedly reduce a normal “needs” assessment… 

In the more recent 2019 case of Ipekçi v McConnell another judge took another view. The couple had a pre-nup which, if upheld, would not have left the financially weaker party (the husband) “destitute” on divorce, but would have meant that his financial situation would be seriously strained.

The wife was an heiress with beneficial interests in trusts in the United States worth around USD65 million. The judge went beyond Radmacher, stating that he did not think that a valid pre-nup should result in a needs assessment that is “markedly less than needs assessed in ordinary circumstances. If you have reasonable needs which you cannot meet from your own resources, then you are in a predicament.” In any event, the judge deemed that the pre-nup fell short of compliance with the Radmacher principles and decided not to hold the couple to its terms. The husband was awarded a lump sum of GBP1,333,500.

The law is still uncertain; protect yourself

There remains uncertainty and inconsistency in the exercise of judicial discretion when it comes to the interpretation of Radmacher.

Nonetheless, if the effect of the proposed terms is designed to satisfy the financially weaker party’s housing and income needs, taking account of a reasonable standard of living, then the terms are likely to be considered “fair” and will be upheld by the court. Put another way, if the pre-nup inadequately provides for the financially weaker party, the agreement is unlikely to be worth the paper that it is written on and could lead to costly litigation, which undoes precisely the certainty that is initially sought. It is important to get the balance right.

Nuptial agreements certainly have a place in today’s family law climate, serving an important function of certainty and security for both parties. It is crucial to take early legal advice on the personal circumstances of individual cases. Enough time should be left for sufficient disclosure to be produced and shared, for adequate advice to be provided to the financially weaker party, and for negotiations to take place.

One of the most contentious issues in high net worth (HNW) divorce cases is the continuing payment of school fees. Often this is because when a couple divorces, the income of both parties reduces, making it much more difficult to cover private school fees. In the recent case of de Renner v Galbraith-Marten [2022] EWFC 118, The Hon. Mr Justice Mostyn ruled that a King’s Council did not have to pay for his daughter to attend private school. The father’s other two children attended state school, as he himself had done as a child, and the court accepted that the father could not afford private school fees for all three children. Furthermore, the father had never intended for any of his children to be educated privately.

The Hon. Mr Justice Mostyn concluded:

“The mother has emphasised to me repeatedly that the father was deprived of parental responsibility in Australia (but not here) and that accordingly, in her opinion, hers is the only parental voice that should be heard on the question of education. The father should have no say or other input, according to her, other than to pay. In my judgment to force him to do so would be a gross injustice which I am not prepared to contemplate.”

The issue of who pays for private school fees following a divorce is a serious one when considering the welfare of the child. For example, if they are already in a private school, being removed and enrolled in a state school adds to the instability already generated by the divorce itself. On the other hand, the older and more settled the child is at their private school, the greater the scope for potential harm.

Is private schooling a ‘need’ in terms of a divorce financial settlement?

As we have previously mentioned, the court must consider all the factors under section 25 of the Matrimonial Causes Act 1973 when deciding the outcome in a financial remedy application in the event of a divorce or dissolution. These factors are:

The resources available to the parties, both capital and income, being both extant or reasonably foreseeable;

The financial needs of each party, considering the needs of dependent children and any disabilities; The duration of the marriage and the age of the parties;
The conduct of the parties (but only in exceptional circumstances);
The standard of living enjoyed by the parties;

Any benefit either party will lose as a result of the divorce; and
The contributions of each party to the marriage (both financial and non-financial).

Although, in an ideal world, it would preferable to be able to say more categorically whether or not private schooling is viewed by the court as a ‘need’, it is simply not possible to do so. This is because the court will look at all the facts relating to the matter, for example, the financial situation of both parties now and in the future, both in terms of income and capital, the intentions of both parents regarding private education and the age of the child (or children) and how settled they are at their existing school.

How can I ensure that my ex-spouse pays all or part of the private school fees?

If possible, it is always preferable for couples to work out a financial settlement following divorce between themselves. This can be done through negotiation between themselves or with the assistance of solicitors, and can be assisted alongside by the process of mediation. This can be much quicker and cheaper than going to court. Another great advantage of keeping the matter between the parties and out of court is that alternative dispute resolution methods are confidential, thereby safeguarding your child’s privacy.

If your child (or children) are old enough, you may wish to consider child-inclusive mediation. This would provide the children with the opportunity to attend mediation to express their own views on their schooling, and how any

changes, either to fee- or nonfee-paying education, might affect them. Whilst their comments and views would not be binding on the parents following those discussions, it can be a powerful indicator to parents as to their children’s wishes and feelings in the context of the matter as a whole, which can sometimes crack the case one way or another.

As members of Resolution, we are committed to helping HNW couples resolve their family law disputes in a respectful, non-confrontational manner. Mediation and other alternative dispute resolution methods provide a way to communicate effectively on important matters, such as your child’s education, and reach an agreement that is beneficial for the entire family in the midst of what is often a very difficult period in the family’s life.

Once an agreement is reached, our family law solicitors can present it to the court and have what you have agreed made legally binding in the form of a Consent Order.

If you require advice on paying school fees following a divorce, please do not hesitate to contact us.

Edwards Family Law is a niche London-based firm specialising in high-net-worth divorce, separation, and international family law matters. To find out more about divorce and financial settlements, please telephone +44 (0)20 3 983 1818 or email contact@edwardsfamilylaw.co.uk. All enquiries are treated in the strictest confidence.

In a social climate which sees fewer and fewer couples deciding to get married, or enter into civil partnerships, the subsequent separation of cohabiting parties is causing increasing difficulty in circumstances where they are simply not afforded the same financial rights on separation as divorcing couples or in the dissolution of partnerships.

Despite considerable pressure from family law solicitors, barristers, and judges, and family law groups such as Resolution, there is still reluctance amongst politicians to change the law in England and Wales so that it recognises the legal rights of cohabiting couples.

For unmarried parents who require financial provision to provide for their children following the end of a relationship with a high net worth (HNW) person, there is some light at the end of the tunnel.

Alongside an application for child maintenance to the Child Maintenance Service (CMS), an application for financial provision for the benefit of the child(ren) of the family can be made under Schedule 1 to the Children Act 1989.

What does Schedule 1 to the Children Act 1989 say?

Schedule 1 provides the Court with limited powers to make financial provision available for the benefit of the child(ren) of a relationship, where the parents were not married and have subsequently separated.

Needless to say, Schedule 1 also comes into play in circumstances where a child has been born to a mother, even after a very brief or fleeting relationship with the father.

It is possible to apply for the following orders:

• Periodical monthly maintenance payments for yourself on the child’s behalf (or to an adult child directly, where applicable);
• Secured periodical payments for yourself on the child’s behalf (or to an adult child directly, where applicable);
• Lump sum for yourself on the child’s behalf (or to an adult child directly, if applicable);
• Settlement of property for the benefit of the child, reverting to the paying party at the end of a specified term; and/or
• A transfer of property outright to you on the child’s behalf (often held on trust for them) (or to an adult child directly), but this is only likely to happen in very specific and limited circumstances.

Who can make an application under Schedule 1 of the Children Act 1989?

The Court can make a periodic payment order in respect of:

• Topping up the CMS maximum assessment amount, if the non-resident parent’s income is greater than £156,000 gross per annum. The Court will need to be satisfied that the circumstances of the case make it fair and reasonable for a top up order to be made;
• A regular payment for school fees or vocational training; and/or
• Meeting any reasonably foreseeable recurring expenses associated with the child’s disability (if they have one).

When would a Schedule 1 lump sum order be made?

Lump sum orders can be made by the court for the purposes of enabling liabilities and expenses already incurred in connection with the child to be met. These can even include the costs of their birth in some circumstances, or costs more generally which have been incurred in maintaining the child, even where those expenses were incurred prior to the application (as long as the application is made without unreasonable delay).

Specific future expenses and foreseeable liabilities can also be claimed. Whilst the court’s discretion is wide, the welfare of the child is paramount. Provision might be made, for example, for furniture for a new home purchased for the benefit of the child, a car to transport the child, or indeed a sum to be invested for future school fees. Lump sums are not, however, designed to be maintenance ‘by the back door’ for the resident parent.

How does the Court decide whether an order should be made?

The welfare of the child is a paramount consideration of the court in deciding these cases, and the standard of living enjoyed by both of the parties to the proceedings will also be considered. If, for example, the non-resident paying party is very wealthy and enjoys a luxurious standard of living, incredible accommodation, designer clothes and numerous international holidays each year, the court is likely to want to see the child’s standard of living when they are with the resident parent to be comparable, and will look at their suggested ‘reasonable needs’ in light of this.

The Court will also consider very similar factors to those listed under section 25 of the Matrimonial Causes Act 1973, namely:

• The child’s financial requirements;
• Any physical or mental disabilities relating to the child;
• The current and future income, earning capacity, and financial needs and obligations of the parents;
• How long the child is expected to be in education or vocational training;
• The income, earning capacity, and property of the child; and
• The way the child was being or is expected to be educated.

How long do Schedule 1 orders last?

Unless the child is attending further education or vocational training, or has a disability, periodic payments will usually end when the child turns 18 years. If the paying party dies during the term of payment, the direct payments will of course stop, but whilst an existing order is in place, and if the child remains a dependent of the paying party, an application can be made under the Inheritance Act 1975 for a claim against the deceased’s estate.

If property has been settled or transferred, it will normally be returned to the financially stronger party once the child turns 18 or finishes their secondary education, but will sometimes only revert once the youngest child finishes their tertiary education. If special circumstances apply, such as an adult child with a continuing disability, the term might be even longer still.

Where does this leave us?

Applications for orders under Schedule 1 of the Children Act 1989 are normally extraordinarily complex and require the advice and representation of a family law solicitor experienced in HNW separation.

At a high level, these types of cases tend to involve people in the public eye where privacy is also a significant issue to weigh and manage. It is vital to instruct a law firm that understands the need for strict confidentiality and can manage media enquiries. Edwards Family Law can also support you through private processes of dispute resolution, outside of the more public court proceedings, with processes such as mediation, Early Neutral Evaluation, private FDR hearings, and Arbitration.

To discuss any points mentioned in this article, please contact our office.

Edwards Family Law is a niche London-based firm specialising in high-net-worth divorce and international family law. To find out more about Schedule 1 application, please phone +44 (0)20 3983 1818 or email contact@edwardsfamilylaw.co.uk. All enquiries are treated in the strictest confidence.