One of the main principles of the law regarding finances following a relationship breakdown is that any ongoing financial ties between the parties should be severed. This allows both people to move on with their lives and start afresh. Often, it will be difficult to achieve, for example if one parent will have primary responsibility for the children and cannot work full time, or where an immediate distribution of the money available will simply not lead to a fair result.
However, the Supreme Court in Birch v Birch recently had to grapple with the problem where a final decision had been reached to end those ties and one person later sought to change this. The wife had given an undertaking, which is a solemn promise to the court, to release the husband from his obligations under the joint mortgage and, more importantly, to sell the house if she had not managed to do so by a particular date. Exactly the same effect could have been achieved by an order of the court rather than a promise by the wife. As the date approached, the wife applied for permission to delay the sale by another seven years.
Deferred orders or agreements regarding the sale of property are common. This is particularly so when children are very settled in the family home or are perhaps reaching important milestones at school and need to remain in the local area. Often there will not be enough money to buy two new houses, at least in the short term. It may also not be possible to release a party, who may be renting another place to live, from the joint mortgage on a family home. The Supreme Court decision in Birch v Birch may therefore cause some concern for those considering such an agreement since the date envisaged for a sale may later be postponed further. The case also refers to the practical consequences of remaining on a mortgage whilst living elsewhere – not only does non-payment impact credit ratings, but an existing mortgage will generally mean a lower borrowing capacity to fund the purchase of a new home.
In Birch v Birch the lower courts dismissed the wife’s application, holding that the court had no power to vary an undertaking for the sale of property. The Supreme Court stated that, although an undertaking cannot be varied as such, the court can release the person from his or her promise and would perhaps only do so by accepting an alternative promise in its place. Where the undertaking could easily have been substituted by an order of the court for a sale of the house, the principles applicable to any changes to the final decision ought be the same. It was decided that the court does have the power to vary an order for sale and the wife should at least have been given an opportunity to argue her case.
Whilst focused on rather technical points, the Supreme Court decision clarifies the law as follows:
- One off payments, a decision regarding each person’s shares in an asset or the transfer of one party’s share in an asset to the other are final decisions regarding capital assets that cannot later be varied.
- However, if a sale (whether by an order of or a promise to the court) is included to give effect to the distribution of capital assets the terms of that sale can later be varied with the permission of the court.
- When deciding whether the terms regarding the sale should be varied the court will look at all the circumstances of the case. The welfare of any children will be given first consideration, but this may be outweighed by other considerations. Important factors will be what (if anything) has changed since the date of the final decision and the harm that could be caused to either party by the court’s decision.
However, the Supreme Court emphasised the important difference between the court considering an application and deciding that the variation of an order for sale is appropriate.
Birch v Birch demonstrates some of the difficult issues that can arise, even when parties believe everything has been concluded, but it does not change the ultimate aim of the court, which is to achieve a fair and reasonable outcome for the parties and their children.
If you require advice about varying an existing order, or if you are currently negotiating financial arrangements following a relationship breakdown, our Family Finance team is here to help you.