Gregory baldwin
Divorce in a GFC
30
I N T H E BL AC K S E P T E M B E R 2 0 0 9
Till debt
do us part
should be reopened to give him a fairer split of the
one-time marital assets – based on current
­values.
The core of his claim concerns US$5.4 million
believed at the time of the settlement to be held in
securities with since-confessed and jailed-for-life
investment fraudster Bernie Madoff.
As the central part of the property settlement,
Simkin had kept all of the Madoff “investments” –
then worth US$5.4 million according to Madoff’s
written monthly statements – and he paid Blank
US$2.7 million in cash.
The GFC stifled the flow of fresh money into
Madoff’s coffers, leading to his confession that his
purported investment house was nothing more
than a gigantic scam. For years, he had relied
­solely on entrapping new investors in order to pay
By Michael Laurence
so-called returns to existing investors whose
money had not been invested into the markets. His
scam simply could not survive the severity of
here’s nothing quite like a
the GFC.
multi-million dollar divorce
According to court papers, Simkin’s lawyers
settlement to capture the pubclaim: “Laura has been unjustly enriched, having
lic interest. When movie,
received millions of dollars based on an illusory
entertainment or sports stars
and exaggerated value attributed to the [Madoff]
slug it out in the courts and
account. Allowing Laura to retain her asymmetripart with exorbitant sums of
cally large portion of the parties’ true assets would
money to end a relationship, it can become a
allow her to profit, at Steven’s expense, from
media circus.
Madoff’s fraud.
But what has been occupying many divorce
“It remains only fair and equitable for Laura to
Punam Denley, partner
and appeal courts all over the globe in recent
shoulder her share of that harm,” they add.
the International Family Law Group
times are arguments over often large financial
Without the savage bear markets and almost
settlements made during the global financial
unprecedented loss of investor confidence, it is
crisis and whether one party may have been
likely that the Madoff ponzi scheme would have
short changed on their share because of ­subsequent investment gone undetected for many more years and Simkin would not now be
losses. Another rising trend is couples who don’t fall into the “silly attempting to overturn his ­property settlement.
money” category enduring the relationship while they wait for
Simkin is not alone. This urge to challenge property settlements
shared asset values to rise or in attempts to make a percentage split because of the impact of the GFC is an international phenomenon. But
settlement, but delaying it until the “spoils” being divided show would-be litigants in countries such as the UK and Australia, for
some investment recovery.
instance, have little cause for optimism.
Relationship breakdowns have long been part of the collateral
Dominant among the ex-spouses dissatisfied with their property
damage of economic downturns as former high flyers head for the settlements are those who took listed shares – and also houses in the
job queue, lifestyles can’t be sustained or already shaky r­ elationships UK where values have plunged – while paying their spouses cash
crumble under financial pressure.
sums. By contrast in Australia, the large falls in housing values are
Among the more public cases to hit the headlines is that of New generally limited to the higher-end of the market.
York lawyer Steven Simkin and his former wife Laura Blank. They
London family lawyer Punam Denley told INTHEBLACK that there
reached a property settlement almost exactly a year before the GFC have been many attempts before the courts in the UK over the past
began in mid-2007 and, it seemed, their financial and personal lives two years to use the meltdown in asset values as grounds to set aside
would be severed forever.
divorce settlements.
Then the financial system that had put them in the multi-million
But then Denley, a partner of the legal firm The International
dollar bracket rapidly unwound and Simkin is still arguing before Family Law Group, quickly adds: “To my knowledge, none have been
New York’s State Supreme Court that their US$6.6 million settlement successful”.
Plummeting property and share values
have led to innovative attempts to reopen
divorce settlements.
T
The fear is that
many spouses
will rush to the
court to undo
their agreements
and orders
I N T H E BL AC K S E P T E M B E R 2 0 0 9 31
Divorce in a GFC
Denley says English Court of Appeal judgements have been
­ rogressively narrowing down the openings for disgruntled spouses
p
to overturn such property settlements, “The court was laying down
warnings to others who think they might have a stab at it.”
She is convinced that the judges do not want to “open the
­f loodgates” to litigation if a judgement was to allow the reopening of
property settlements on the basis of falling asset values. “The fear
is that many spouses will rush to the court to undo their agreements
and orders.”
Take the court case involving an attempt to overturn a property
settlement on the grounds of plummeting asset values attributed to
the GFC brought by financier Brian Myerson and his former wife
Ingrid. The English Court of Appeal earlier this year rejected
Myerson’s bid to set aside a so-called consent order (a court­endorsed property settlement) made in March last year.
As a key element of the 25 million pounds settlement, Myerson
kept shares then valued at 15 million pounds in Principle Capital
Holdings of which he was executive chairman, and was to pay
Ingrid a lump sum of 9.5 million pounds in cash
by lump sum and instalments.
By the hearing date of his appeal, his shares
had lost 90 per cent of their value. Myerson
claimed that an event had occurred which
invalidated the basis of the property ­settlement
agreement. “The new event,” says Punam
Denley, “was the financial meltdown in the
world markets, leading, he submitted, to an
unforeseeable and extraordinary fall in his
personal wealth.”
pound rescue package to stimulate the world economy by the G-20.”
It may seem hard to comprehend but there is a
reverse side to the equation as not all assets are
losing value during the GFC, as highlighted in
another recent case before the English Court of
Appeal. In that matter, Kim Walkden had unsuccessfully tried to overturn a property settlement
with her former husband Martin on the basis that
shares in his business were later sold for much
more than their stated value in the property
­settlement.
the value of Martin
Walkden’s shareholdings in the company, of which
he was managing director and substantial shareholder, was given at 216,000 pounds. Yet in the
same year of the settlement, the company was sold
for 3.7 million pounds and he received 1.8 million
for his shares. One of the Court of Appeal judges
hearing the case described it as the “flip side” of
the Myerson challenge.
By contrast, few Australians are litigating in an
attempt to overturn their property settlements on
the strength of the financial crisis.
Family lawyer Stephen Bourke, a director of
Certus Law in Canberra and former head of the
family law division with the Commonwealth
Attorney-General’s Department, suspects that
many ex-spouses are seeking advice from their
lawyers about whether property settlements could
be set aside after their assets had lost value. But
he says the clients would generally be advised that Australian law
rules out the ­reopening of property settlements apart from in limited ­c ircumstances including fraud, duress or non-disclosure.
Before the Full Family Court of Australia last August, Justice John
Faulks made it clear that the court had no role in revisiting property settlements because values may have changed.
In the judgement for a case relating to a children’s matter and to
property, Justice Faulks stated: “The court cannot maintain a shifting or adjusting balance sheet [concerning values of former marital
assets], even if changes occur relatively soon after the judgement or
orders.”
However, there is some matrimonial irony emerging from the GFC
and that is the apparent holding together of numerous troubled
marriages until asset values improve. “These couples decide they
can’t get enough out of the settlement until markets recover,” Bourke
says. And they realise that two can live cheaper than one.
David Hodson, a consultant with the International Family Law
Group in London, says there is “less family finance work around,
which is always the case during a property recession”. Hodson, who
also practises family law in Australia, says couples are more
Many couples …
are having so much
trouble coping with
their debts and
relationship during
the GFC that they are
separating
In the judgement for the Myerson appeal,
Lord Justice Thorpe stated that the fall in the
share value was a “natural process of price fluctuation” and was not
enough to set aside a court-endorsed or ordered property settlement. Lord Thorpe went through the various principles that may
lead to the setting aside of a property settlement including that
something “unforeseen and unforeseeable” had occurred.
In reviewing the Court of Appeal’s judgement, Denley questioned
whether the impact of the GFC could be regarded as a natural
­f luctuation in asset values. “Very many political and economic
experts and commentators across the world – including the politicians at the G-20 summit meeting – consider that the present
worldwide economic crisis is somewhat of a different event to the
‘general fluctuation’ in market shares as found in normal heathy conditions,” she says. (The G-20 summit was taking place when the court
gave its judgement.)
“Undoubtedly, the Court of Appeal wanted to make a policy
­statement to discourage substantial reopening of court orders; and
the outcome may be correct in this particular case,” Denley says.
Then she adds with a sting: “It might be said that the Court of
Appeal has misjudged the effects of the current economic climate,
which is so serious as to require a quite unprecedented 3.4 trillion
32
In the settlement,
I N T H E BL AC K S E P T E M B E R 2 0 0 9
­reluctant to separate and divorce at the bottom end of the market.
However, he believes that many couples with relatively few assets
are having so much trouble coping with their debts and relationship
during the GFC that they are separating. “Yet in the middle reaches
of the market, people tend to tighten their belts, stay together and see
it through; hoping that asset values will recover.
“Ignoring the big, silly-money cases,” Hodson adds, “most people
want to hold on to their houses. They cannot sell their houses; their
jobs are at risk. And this leads to delaying their separation.”
Then Hodson ominously adds: “Sooner or later the dam will burst
and couples may decide they cannot live together any longer.”
There are expectations among some British and Australian family
lawyers that the GFC will hasten the long-term trend of falling divorce
numbers.
In Australia, annual divorce rates have been continuously ­declining
in recent years, from 53,000 in 2003 to 48,000 in 2007, reports the
Australian Bureau of Statistics. And in the UK, divorce numbers fell
to 144,000 in 2007 – 20 per cent lower than their peak 16 years ago,
according to the UK Office for National Statistics.
The reasons for shrinking divorce rates are not, apparently, that
marriages are happier. Research by the Australian Bureau of
Statistics shows that fewer people are getting married, couples are
older when they marry and marriages aren’t lasting as long.
However, in the midst of it all, lawyers for some separating couples
are becoming quite innovative in their responses to the GFC.
A strategy being suggested by the family law team at Argyle
Lawyers in Sydney and Melbourne is for some wealthy clients to
reach an agreement now on the percentage division of their assets.
But then the couples could agree, if appropriate, to postpone the sale
of selected assets for two or three years. That’s if they can find a way
to ­communicate for that length of time. n
Further reading
The following titles are provided by the CPA Library. They can be accessed via
ProQuest, www.cpaaustralia.com.au/proquest. Contact the library on
1300 73 73 73 or email, [email protected]
“Marriages follow the ups and downs of the economy”, by Marilyn Gardner,
The Christian Science Monitor, November 2008.
MORE ON THE WEB
For judgements and articles on some of the big cases in the UK, including
Myerson v Myerson, see www.familylawweek.co.uk
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