Divorce and Financial Settlements

Divorce and Financial Settlements

Reaching a financial settlement when divorcing

When is an agreement a concluded agreement capable of being enforced? (A brief look at the Xydhias case)

On divorce, parties are able to agree a financial settlement (provided it complies with certain criteria e.g. that it is fair, reasonable, reached without one party being under duress, and within the law). Usually parties who are able to agree, (in contrast to parties who settle financial claims by making an application to the court), then draw this agreement up into a Financial Remedy Consent Order which is then lodged with the court to be approved by a judge. Once approved, this Consent Order is legally binding on the parties and is very difficult to vary.

In some cases, and these are quite rare, one party to an “agreement” may renege on that agreement before it is converted into a Consent Order and seek to argue that the agreement should not stand. This can obviously cause significant issues for the other party where they had thought they had reached agreement and had acted on that agreement to their detriment or by causing them to spend further time and money on otherwise settling their matter.

Where Party A (the reneging party) argues that the agreement should not stand, Party B (the other party) can issue a “Notice to Show Cause”, which requires Party A to show why the court should not convert the agreement into a Consent Order.

When deciding if an agreement should be deemed to be a concluded agreement and thus the parties held to it, the court can look at correspondence between the parties (even “without prejudice” correspondence i.e. that in which there has been frank discussion about settlement) and the parties’ dealings over the course of the matter. Where a Notice to Show Cause is filed, there will be a court hearing at which the court can ask for statements to be made by both parties (and their legal representatives if agreement was reached during the course of negotiations through solicitors).

In such cases, the court is not necessarily concerned with whether there was a concluded agreement on the ordinary contractual principles (i.e. of offer, consideration, acceptance, an intention to be legally bound, performance, and no duress), but more with whether the parties were “ad idem” (i.e. “in agreement”) at the time Party B says agreement was reached. The case of Xydhias v. Xydhias (1999) looked at this issue.

The process set out in Xydhias v. Xydhias [1999]. In Xydhias, the Court of Appeal, when upholding the earlier judgment, found that because the parties were of the same mind at the time of agreement they were able to make an order notwithstanding the fact that the husband in this case had changed his mind about that agreement later. The court was able to find that agreement had been reached and to make an order in those terms because of the following reasons (summarised at p.694 of Thorpe LJ’s judgment in this case) :-

1. There is a distinction between the substantive terms of an agreement in a divorce case, and the detail required to put it into effect.
The fact that a mechanism for putting the agreement in place is yet to be decided does not mean the agreement itself has not been reached.

2. The court may find that a concluded agreement has been reached, even though similar facts might not suffice to prove a contract at common law.
Thorpe LJ further clarifies that “a court has discretion in determining whether an accord was reached” i.e. the freedom to find that there is overall agreement without needing to trace a strict contractual path.

3. The court is looking for a broad indication that the parties were ad idem at the time of the agreement.
This can be found in the parties conduct or in correspondence etc.

4. A party will not be allowed, arbitrarily or unilaterally, to resile from a ‘done deal’. 
Thorpe LJ in the subsequent case of Rothwell v. Rothwell [2008] states that “as a matter of general law, there is no doubt at all that once the parties have arrived at a compromise, the court will uphold and enforce that compromise”.

The decision in Xydhias was sensible because it stopped Party A from escaping from a properly negotiated deal. It may suffice for Party B to write in these terms to Party A and put them on notice that they will seek the court’s approval of the agreement, upon which Party A will agree to convert the agreement into a Consent Order themselves. However, it may be that Party B is left with no choice but to issue proceedings for the court to determine that the agreement should be upheld and converted into a Consent Order. Clearly, it is sensible for any person in Party A’s position (and their legal advisor) to consider the cost implications of forcing Party B to go to court over this issue.

All information correct at the time of initial publication.