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The beginning of the end

1 November 03

Some golden rules to ensure that a negotiated financial settlement is translated into an effective and problem-free separation agreement

by Tom Quail

It is satisfying after having concluded complex negotiations and finally reached agreement on the financial issues, to be left with the relatively straightforward task of drafting the separation agreement.

Before you relax, however, remember that the separation agreement is only the beginning of the end. It is important that the agreement to be drafted reflects what has been agreed.

An improperly drafted agreement will leave you at the very least with an unhappy client who wants you, at your firm’s expense, to raise an action to have the agreement set aside in terms of section 16 of the Family Law (Scotland) Act 1985.

At worst, if the agreement cannot be challenged as the parties are divorced, the only remedy left to your unhappy client is to intimate a claim against you for professional negligence and lodge a complaint with the Law Society for unsatisfactory service.

With that in mind I have set out some hints to allow you to:

(a) close your file having done a professional job for your client;

(b) be properly paid; and

(c) have a client who thanks you for your patience in difficult circumstances following the breakdown of his/her relationship and who is happy to recommend you and your firm to others.

1. Schedule of assets and debts

It is crucial to include within the agreement or as a schedule to the agreement all of the items of matrimonial property and debts which have been taken into consideration in arriving at the terms of the agreement.

If the client advises you not to obtain a valuation of any particular asset or if the clients wish to insert an agreed value of any asset (whether it be the matrimonial home, a transfer value of a pension or an actuarial valuation of a pension in payment), the agreement should reflect this. When specifying individual assets such as bank accounts, endowment policies and pension plans, you need to see written documentation that these assets do exist rather than relying on your client’s understanding. At best the account numbers and policy numbers may be incorrect. At worst you may be left with an assignation for a policy which does not exist, which you only discover when the assurance company writes to you when you are attempting to intimate the assignation to them.

The inclusion of a schedule will also ensure that if at a later date prior to divorce, any issue arises as to the fairness or reasonableness of the agreement, it will be clear from the agreement which matrimonial assets and debts were taken into consideration when the agreement was originally signed. If the client harbours the view that he/she did not receive a fair share of an asset a few years after the agreement has been signed, the agreement will refresh the parties’ memory. A schedule will considerably reduce the scope for a successful challenge under section 16 by detailing all the assets; if the agreement is to be challenged as being unfair or unreasonable because there has not been full disclosure it will improve the prospects of success of that challenge as it will be clear from the agreement that an asset was not disclosed when the agreement was signed. When considering a potential challenge of an agreement remember that an unequal sharing of matrimonial property is not necessarily an unfair sharing: Gillon v Gillon (No 3) 1995 SLT 678.

2. Detail both parties’ income

It is important to include the parties’ income if there is to be continuing financial support in the form of periodical allowance or if the agreement is to include an element of child support. If a variation of periodical allowance is sought on a change of circumstances, it allows the court to identify the parties’ income when the agreement was signed and whether or not the change in circumstances justifies the court in varying the level of continuing financial support.

3. House sale or transfer

When drafting a clause in relation to the sale or transfer of the matrimonial home, before signing you should obtain:

(a) the title deeds to the property which is being sold/transferred. This will confirm the proprietors and whether title to the property is in joint names or the sole name of one of the parties; and

(b) a Form 10a/12a report from the Land Register and a search in the Register of Inhibitions and Adjudications against the parties as disclosed as the proprietors of the property.

Prior to including a clause in the agreement for a transfer of title you need to establish that the title is in joint names. You also need to be satisfied that the party to whom title is to be transferred will obtain a valid and marketable title. This would not be the case if one of the parties were inhibited or had been sequestrated.

An up to date search will also disclose the existence of any second secured loan over the property. The consent of all secured creditors is required to allow the transfer to go ahead. If there is a loan which has not been disclosed and has not been taken into account, this may involve a re-negotiation of part of the agreement or the amount of any capital sum. If the secured creditor’s consent cannot be obtained it would prevent a transfer of the title and the terms previously agreed would have to be re-negotiated perhaps to deal with a sale.

4. Sale of the matrimonial home

If instructed in a sale and your firm is to carry out the principal conveyancing representing both parties, remember that before you can take instructions on an offer there has to be a written agreement in place. If it is not possible to have a separation agreement in place dealing with all the assets, there should be an agreement in place which deals with the sale of the house only.

Such an agreement should include the following provisions:

(a) How the net free proceeds are to be divided;

(b) A prohibition on diligence of the net free proceeds by the parties;

(c) Liability for the expenses of drawing up that agreement and

(d) It should make clear that either party can still pursue a capital claim or any other order in terms of the 1985 Act.

Do not, unless there are other substantial liquid assets available or there is a possibility of repossession by the lender, have an agreement to the effect that the net free proceeds will be placed in a joint account until an agreement regarding all of the other assets is in place. Most individuals, unless they have other substantial capital assets, will need their share of the free proceeds to acquire another property.

If possible attempt to reach an agreement on all financial issues. Resist any pressure from the purchaser’s solicitors, if an offer has been received, to reach an agreement on the house only. If the husband has assets such as a high value pension or a business asset, the wife’s claim for a capital sum can often only be funded from the husband’s share of the equity in the matrimonial home.

5. Don’t act for both parties

Not only is it an obvious conflict of interest leading to a claim for professional negligence or inadequate professional service, it is also a ground for setting aside an agreement in terms of section 16 of the 1985 Act: Worth v Worth 1994 SLT (Sh Ct) 54. If the parties wish to instruct one solicitor, represent one party and correspond with the other party making clear that you cannot provide that other person with any form of legal advice. Each item of correspondence sent to the other party should make this clear and should also state that he/she may wish to take independent legal advice. The normal wording of the clause in the agreement stating that “the terms of the agreement are fair and reasonable and that both parties have obtained legal advice” should be re-worded to reflect that one of the parties has been advised of his or her entitlement to take independent advice but has declined to do so.

6. Contact arrangements

When dealing with the clause in relation to contact include a paragraph or a sentence which allows both parents to take their children out of the United Kingdom for a holiday for a period not exceeding three weeks. Otherwise the parties could be breaching the provisions of section 2 of the Children (Scotland) Act 1995 by so doing.

7. Evacuate special destinations

Have a clause which deals with evacuation of a special destination in a title deed in case one of the parties dies before the clause which deals with the sale or transfer of the house has been implemented. The inclusion of such a clause would avoid having to go to court as occurred in the case of Redfern’s Trs v Redfern 1996 GWD 13-776.

8. Joint loans

Try if possible to organise debts to avoid continuing joint liability. If this is not possible ensure that the client is aware, if not responsible in terms of the agreement for the loan repayments, that the creditor can recover the full amount from either party. In such a situation the agreement should state that the right of relief, from the other party, should be for the full amount of the outstanding balance and not half the balance.

9. Pension sharing

When dealing with a pension sharing order the following points should be remembered:

(a) The pension sharing order must be annexed to the agreement;

(b) It must be registered in the Books of Council and Session;

(c) It requires to be intimated to the pension trustees; and

(d) It only takes effect after divorce.

Within the agreement you should provide for the possibilities of:

(i) the pensioner dying;

(ii) the-non pensioner dying;

(iii) the pensioner retiring; and

(iv) the pensioner transferring his/her pension to another scheme.

As a pension sharing order only takes effect upon divorce it is important that the divorce follows as soon as possible after the agreement has been signed.

10. Child support

In view of the new Child Support Agency Regulations it is important that the provisions for child support in the agreement should mirror the Child Support Agency provisions, which are essentially 15% of net income for one child, 20% of net income for two children and 25% for three or more children. The amount of child support is reduced if the children stay overnight at least one night a week with the parent with whom they do not reside.

If your client wishes to pay more than the legal requirement, this should be confirmed in writing. At the same time advise your client that the Child Support Agency can intervene and make an assessment a year after the signing of the agreement.

11. Wills

A separation agreement does not revoke the terms of a will even if it bequeaths the former matrimonial home to the other spouse to whom your client has paid a substantial capital sum in exchange for the house being transferred to your client. It is important to ask a client if he/she has an existing will. If the client states that a will does not exist, confirm this to the client in writing. If a will exists ask for sight of it, and if it is not provided to you confirm in writing that you have not had sight of the will and that you are unaware of its terms. It is in any event an appropriate time to consider changing or making a will.

12. Read the agreement over

Doing this before the agreement is signed will allow you to satisfy yourself that the agreement accurately reflects what had been previously agreed. If nothing else it will probably throw up the odd typographical error.

Read over the agreement to your client before he or she signs it. It is crucial that the client understands what he/she is being asked to sign. Sending the agreement to the client for signature is not good practice and should be avoided. If the agreement has to be sent to the client for signing, it should be accompanied by a letter confirming:

(a) the heads of agreement which had previously been reached;

(b) that the agreement which you have prepared reflects this;

(c) that the client should read the agreement carefully before signing; and

(d) that if there is anything in the agreement which the client does not understand or with which the client is not in agreement then he/she should speak to you before signing.

Once you have read over the agreement to the client and the client signs it, the client should be sent a copy with a letter confirming that the agreement was read over to the client before signing, the client understood its terms, was satisfied that it reflected what had previously been agreed including the wording and on that basis the client signed the agreement.

While these points do not cover all the potential pitfalls in drafting an agreement, hopefully they touch on the main issues which if considered will allow you to close your file with some comfort.

Tom Quail is a Partner in Ketchen & Stevens, Glasgow, and is accredited by the Law Society of Scotland as a Specialist in Family Law