Hoping for a clean break

Gaps have emerged in the divorce system that can heighten the financial impact of marital breakdown, writes CAROLINE MADDEN

GOING THROUGH a divorce is a traumatic process. In addition to the emotional upheav- al, it can also play havoc with people's financial health.

Since divorce was legalised in Ireland little more than a decade ago, a number of gaps have emerged in the system which should be given serious consideration before filing divorce papers, as they can heighten the financial impact of a marital breakdown.

According to Geoffrey Shannon, leading family law expert and author of Divorce Law and Practice, which will be launched next month by Minister for Justice Brian Lenihan, couples face a high degree of financial uncertainty when entering into divorce proceedings.

One of the first steps in a divorce is to value the pool of matrimonial assets, which includes everything from the family home to overseas property investments, shares, savings and so on. The courts then decide how this "marital cake" is to be sliced up by applying a long list of factors such as the length of the marriage. The decision is very much at the court's discretion, however.

"We need a tighter framework to give people an indication as to how assets will be reordered," says Shannon.

"Every case is different," says Muriel Walls, partner at McCann FitzGerald solicitors. There are, however, some constants. In a situation where the couple has children but no significant assets other than the family home, it is likely that the home will have to be sold, so that the parent who moves out (usually the father) won't be condemned to living "in bedsit land", Walls explains.

On the other hand, if the couple is wealthier, perhaps owning an apartment and holiday home, then the wife will tend to be given the right to remain in the family home, at least until their children have flown the nest. One certainty is that - unless the couple is substantially wealthy - the standard of living of ex-spouses will drop following a divorce, due to the cost of establishing and running two separate households.

The amount of maintenance awarded to one spouse (usually the wife) can also vary greatly depending on the circumstances. An interesting trend observed by Walls, which can affect the level of maintenance awarded, is that the courts now expect stay-at-home wives to begin making some contribution towards their upkeep by entering the workforce, which was not the case in the past.

Pensions are often overlooked, even though they may be the most valuable asset in the matrimonial pot after the family home. In big money or so-called "ample resources" divorce cases, individuals may have self-administered pension schemes, perhaps invested in property, easily worth in excess of €10 million.

If one spouse has a substantial pension and the other spouse, who perhaps worked in the home, has no pension, the court may grant a "pensions adjustment order", which may specify, for example, that part of the pension is to be paid to that spouse.

Apart from the "odd arrangement", as Walls describes it, of having to live apart for four of the previous five years in order to get a divorce (which is very long by international standards), another flaw in the Irish system is that divorcing couples are unable to achieve a "clean break" and draw a financial line under their split.

Even though the couple may have sorted out their finances when they separated, there is no guarantee that one spouse will not seek additional provisions in the divorce, according to Hilary Coveney, partner at Matheson Ormsby Prentice solicitors. "In the last 18 months or so, we've had a raft of cases about that very question and we now know that even if . . . your separation is full and final and that's it, it is possible to . . . return to the well for additional provisions," she says.

"Third-bite" cases are also cropping up, where extra provision is sought after the divorce has been finalised. Shannon believes the situation in this jurisdiction should be reviewed, with consideration given to the "deferred clean break" practice in the UK, where the time and circumstances under which the "receiving spouse" can return to the courts for a greater slice of the assets are limited.

Given the lack of clean-break provision in the Irish system, what else can people do to protect their assets? Pre-nuptial agreements are becoming more popular, with couples wanting clarity and certainty in relation to their financial matters in the event of a divorce.

However, the current position in Ireland is "anomalous", Shannon says, in that courts are not obliged to take into account the terms of a pre-nuptial agreement. Last year, a Government study group recommended that a degree of legal recognition should be given to such agreements, but this has yet to become a reality.

Walls says her firm receives a lot of enquiries on pre-nuptial agreements, mainly from people who have been divorced before and want to ensure their children from a first marriage will be provided for; from farmers concerned about protecting their farm; and from wealthy fathers whose children are getting married.

While it may be tempting to try to keep assets out of reach of an estranged spouse, Walls stresses that hiding assets is not allowed. If assets are given away or put in trust within three years of a separation or divorce, the courts will presume this was done for the purpose of hiding those assets.

Divorce is a complex process, particularly when large amounts of wealth are at stake. The taxation issues alone can be "hugely nuanced and complicated", Shannon says. Seeking expert advice - from a law firm, tax firm or private wealth adviser - is perhaps the best way of minimising the financial impact.