Long division

Divorce is a complex financial process for clients at the best of times, but what happens when an individual with a complex injury, such as an acquired brain injury and is under the supervision of the Court of Protection, parts ways with their spouse?

Can the spouse claim the right to access compensation from an injury or negligence which is set aside for care? Should deputies discuss the potential for divorce (estimated to be a real potential for many couples where one party acquires a brain injury) and agree division terms from the start? An expert in family law, a Court of Protection deputy, and a wealth manager offer their thoughts.

 

The family lawyer: Jenine Abdo, solicitor, family law department, Simpson Millar

In this type of instance, where an individual is sadly facing a divorce after a relationship has soured post-accident or negligence, the main issue is funding. Funding the divorce proceeding itself means taking into account personal funding as a means of source. So whether that would be via their assets or via their compensation fund, it will have to be privately funded more often than not.

Unless the individual is a legal aid client, when it comes to having representation via an official solicitor or via the court protection, it has to be paid for, and this is before you look at dividing the assets between spouses.

When it comes to the statistics of the likelihood of separation, whether individuals with a head injury or lack of mental capacity are more likely to divorce their spouse than if they had never acquired the injury, there are various viewpoints.

Some practitioners cite statistics which show that victims of brain injury contribute to the divorce rate. However, there are others who will say that, actually, it wasn't the injury that caused the divorce; there were issues already at play beforehand because, sadly, divorce is on the rise.

I've often been asked, 'Why can't we cater for divorce funds and future financial agreements if a divorce arises at the pre-settlement stage?'

Being very close to the injury or negligence that occurred and caused the brain injury or change in mental capacity, the spouse may initially be dealing with the physicality of the injury and making sure their partner gets back on their feet, so to speak.

Then there is the guilt and the remorse. The cracks in a relationship may not start to show until years down the line, so it's hard to cater for a potential divorce and the financial issues during litigation.

Another reason is that every divorce process is different and hard to calculate for. Even being prepared with the divorce statistics and the possibility of pressure on a relationship post-accident, injury or capacity judgement, it is incredibly difficult to judge and prepare for potential divorce costs at an early stage, such as pre-settlement.

The layering of family law is also complex. I explain to my clients when they come to see me that they have got to view family law as an umbrella. There are various sub branches within this umbrella, including divorce, finance and children. They all work in conjunction with each other and no two cases are the same. Some cases may have child-related issues involved, some may not.

Additionally, in cases where there are victims of brain injuries or mental health issues as a result of an accident, a divorce process can be prolonged and the cost of the case may rise as the individual might take longer to articulate their case. If a deputy or another representative is required to represent an individual, extra costs will again be incurred.

Finally, the division of assets in these cases will make the legal process more complex and time-consuming than in other circumstances. The nature of these assessments and discussions will again add time and cost to the process.

It's difficult to generalise. There is only one act that governs financial proceedings in divorce law: the Matrimonial Causes Act 1973.

In other aspects of law, there have been concerns raised about the Matrimonial Causes Act, mainly because it cannot deal with issues such as those discussed above.

The Act states that when a spouse comes into money, whether it is via compensation or inheritance, their partner could potentially have a claim against it. Clients must be made aware of this possibility. Again, this has to be evaluated on a case-by-case basis.

You would generally have to show that the compensation was received for care or long-term medical treatment, future loss of earnings or other costs that were involved with an injury.

You would also have to explain and argue that those elements were not aimed to benefit the other party during their marriage. The problem is, especially with future loss of earnings, if a spouse had remained uninjured, they probably would have shared their income with their partner.

It's a difficult scenario that must be looked at on a case-by-case, judge-by-judge and county-by-county basis, because every family law court is so different. Unfortunately, there isn't a clear answer, particularly as the Matrimonial Causes Act governs divorce finance, so it is very murky indeed. 

 

The wealth manager: Dave Robinson, Chartered consultant, Frenkel Topping

As a wealth manager who specialises in advising recipients of personal injury or negligence awards, I had, somewhat naively, assumed that in the event that an injured party divorced after settlement, their award would be protected to at least some extent.

Having been involved as a financial expert witness for a number of claimant cases, I am now aware that it is not. It has been explained to me by instructing solicitors that the starting point in a divorce case is that a personal injury award becomes a marital asset, regardless of the nature of the claimant's injury, the form of the award and whether it is held personally within a personal injury trust, or under the control of a deputy.

A serious injury (particularly a head injury or perhaps an injury that might see an individual fall under the supervision of the Court of Protection) can obviously increase the potential for marital tensions to arise.

We have uncovered some research that indicates certain serious brain injuries can increase the likelihood of a marriage. Even more sadly, given that the award can be divided between the divorcing spouses as they agree or as the court directs, the breakdown of a marriage can have disastrous financial consequences for a seriously injured person.

A suitably qualified and experienced wealth manager and independent financial adviser can assist either the parties or the court in a contentious case, and decide upon an appropriate distribution of marital incomes and assets in any divorce situation.

However, if one of the divorcing parties has received an award of damages in respect of a brain injury, not only is the value of income and assets likely to be significant, there is also likely to be a need to take complex and potentially costly care needs into account. It is
also often the case that the injured
party is significantly disadvantaged in terms of their ability to earn a future income and rebuild capital compared
to their spouse.

In such cases, the advice of a financial expert can be a sensible starting point. Instructions will vary and can be single or joint party instructed, but, in most cases, the role of a wealth manager is likely to involve quantifying the brain-injured party's expected financial needs over the remainder of their lifetime, calculating how much capital and income will be required to meet them. Therefore, calculating whether any (or how much) residual capital or income is available over and above what is needed to meet the injured party's needs.

Case in point

X was in his 40's and some years previously had suffered a range of injuries, including a severe head injury as a result of a road traffic accident. The accident sadly coincided with the birth of his first and only child. His injuries caused dramatic behavioural changes that resulted in a breakdown of his marriage, resulting in his living alone and being supported by a team of carers for 12 hours a day.

A deputy was appointed to manage his finances, which included a lump sum award with a current value of approximately £3m and the property in which he lived. X was unable to work and required a significant package of care and support for the remainder of his lifetime.

His care was originally funded by a combination of NHS and local authority funding, but the NHS element was withdrawn partway through the divorce proceedings. The deputy was advised by care experts that spending funds to oppose the withdrawal would, on balance, not be appropriate. The local authority funding was subject to annual review. X was expected to live to between the ages 65 to 70. His wife sought maintenance for herself and the children, and capital to enable the purchase of a property.

I was instructed by X's lawyer to provide an opinion as to whether the residual award available to him would be sufficient to meet his needs for the remainder of his lifetime, and whether and to what extent any surplus capital would be available.

My opinion was based upon a series of financial models that examined X's likely future cash flow requirements under a range of various scenarios. The need for different scenarios arose because of the uncertainty surrounding X's care needs (particularly in later life) and the continued availability of statutory funding.

The starting point was to obtain up-to-date expert evidence in relation to X's health, life expectancy, future care regime and living expenses. This sets the timeframe for the models and identifies the likely future expenditure. X's income sources comprised various state benefits, an armed forces pension and the amount of the residual award was certain.

After building in assumptions about his future incomes, inflation, taxation and investment returns, it was then possible to calculate how much of the available capital would be required to meet his needs for life.

I calculated five different scenarios and reached the conclusion that the residual award would likely be exhausted around the time he reached the age of 60, up until the end of his life. There was a small possibility the capital would not be exhausted by this time, but this depended entirely upon the continued availability of statutory funding that, as I emphasised, was by no means certain.

In this case, when the legal team acting for X's spouse discussed my report with her, she instructed them to reduce her claim to an amount sufficient to fund a higher education course for their daughter. I was instructed to calculate this amount and the divorce settled amicably on that basis.

Modelling an outcome

Financial modelling techniques provide a very solid basis for examining such cases. Models can be adapted to examine various different scenarios. For example, what would be the effect of additional state benefits or statutory funding becoming available or being withdrawn?; how much would the capital need to reduce by if the injured party continued to receive a periodical payment?; or, is it feasible to make short-term provision for the spouse and children during their formative years, without compromising on the care regime?

If surplus capital does exist and capital is going to be divided, once each divorcing spouse's share of capital has been decided in principle, it may also be appropriate to seek the advice of a wealth manager as to which particular assets should be allocated to which spouse.

Investments, insurance policies and pensions can often be dealt with in different ways. Surrendering could result in significant charges. Some investments may have a risk profile, tax treatment or time frame that suits one spouse better than the other.

Equally, different assets may be more suited to one party's circumstances than the other. Getting the right ones into the right hands can potentially either reduce cost, or achieve a more suitable end result compared to a simple division of all assets in proportion. 
 

The professional deputy: Robert Thomas, director and Court of Protection Deputy, NewLaw

I act as a court appointed deputy for a number of individuals who lack capacity for a variety of reasons.
In this role, I am responsible for supporting my clients to make as many of their own decisions as they can. If it is found that a client is unable to make a decision, then I have to ensure decisions are made in their best interests subject to the authority given to me by the court.

As a deputy I help my clients with all aspects of their lives, which can sadly include divorce. When looking at divorce, our first step is to look at whether a client has capacity to give instructions relating to those proceedings. If they do not, then an appropriate person needs to be appointed to support them through
the litigation.

The litigation process is not the only thing they need support with as there are a number of practicalities we need to consider, including where everyone will live, access to children and finalising a financial settlement.

As financial deputies, our focus is on the finances and ensuring that a fair approach is taken in the divorce proceedings. Where our clients have sustained a brain injury, they will often have compensation to pay for their future needs. This settlement will be taken into consideration as a whole in the divorce. Our priority is to ensure that enough money is retained to pay
for those future care needs.

The court approaches each case on its merits and our job is to ensure the court is given all the relevant information to come to a fair decision for both parties.

It is inevitable that relationships can sour, and we believe it's important to plan ahead. Deputies need to talk to clients and their families about the importance of setting out what they would want to happen to their assets should they divorce in a nuptial agreement, either before or after marriage. This allows an agreement to be drawn up when emotions are not running high, to avoid future heartache.