Withdrawing from financial agreements – How to handle the situation?

There is little more frustrating than when two parties have reached a financial agreement, and then one party changes their mind, withdrawing from financial agreements.

It can take a long time to reach an agreement so, for that to then unravel, can cause the party relying on it to feel as though they are back at square one all over again – it can be particularly hard to cope with if they have taken steps in reliance of that agreement, trusting that the other will follow through with it, such as marketing a property for sale.

There are examples of cases where an ex-spouse has reneged on an informal agreement many years after the divorce was finalised – famously, in a high-profile case a couple of years ago, the ex-wife of the owner of energy company, Ecotricity, brought a claim 20 years after they had divorced and 25 years after they had separated. The Court ordered that, even though the husband’s wealth had been built up long after the separation, the wife was entitled to a sum from him.

Options if your ex-spouse decides withdrawing from financial agreements is a good idea

Verbal

If you and your ex-spouse have reached a verbal agreement between you, it is unlikely to be binding in any way, even if you and your spouse have implemented the agreement, including selling the family home and dividing the proceeds of sale, for example. If they go back on the agreement, it will be important to take legal advice to consider how you might be able to secure your position – there will have been reasons for the decision that was first made, and if they remain relevant, it may be that the agreement is still appropriate, and should be pursued more formally.

Written

A written agreement holds marginally more weight than a verbal agreement, but its enforceability will depend on various factors. The Court would want to see that you each had a clear idea of your respective finances (income and capital assets) and, ideally, that you had each received independent legal advice. Unless there is a Consent Order (see below), a written agreement absolutely isn’t binding, but, in some circumstances, Courts have been known to make an agreement written up between the parties into a binding Order if the agreement was fair at the time it was entered into.

Mediation

Mediation can be an excellent way of helping two parties come together to reach an agreement. At the end of the process, if an agreement is reached, the mediator will most likely record that agreement in a document which each party will sign. Importantly, either party can still withdraw from that agreement at any time. Once an agreement has been reached in mediation, the mediator should always advise that it is recorded in a Consent Order (see below) in order to ensure that the agreement is binding.

Exchange of correspondence between solicitors

If an offer has been made and accepted, then there is an open agreement. While not entirely binding like a Consent Order (see below), if a Court finds that the agreement was reached, and that the agreement is fair (ideally reached with the benefit of legal advice on both sides and the exchange of financial disclosure), then the party seeking to rely on the agreement can apply to the Court for the agreement to become binding. This is a Notice to Show Cause application and, in the event that you have to make the application, and are successful, it may be that the Court orders that your ex-spouse pays your legal costs.

Consent Order

The only way to ensure that your agreement is binding, is to record it in a legal document called a Consent Order. It is important that this is done by a solicitor, who will be able to ensure that all other potential claims end at the time of the agreement. If an ex-spouse reneges on an agreement that is recorded in a Consent Order, then you are able to return the matter to Court in order to enforce the agreement – and a Court will often make an Order that the party who has gone back on the agreement should pay the legal costs of the one enforcing the agreement.

There are occasions when an ex-spouse is legally permitted to renege on the terms of a Consent Order – namely, where circumstances change so dramatically after the agreement, that the Court is willing to reconsider the settlement. Case law suggests, however, that there are exceptionally few cases where a change in circumstances would be sufficient reason to renege on an agreement – most recently, the Covid-19 pandemic was considered to be insufficient reason for the Court to re-open agreements which had been reached, despite the far-reaching consequences for individuals in relation to employment and business in particular.

Summary | Withdrawing from financial agreements

There are a myriad of variations on the above examples, and the exact circumstances of your matter could make the agreement more or less binding and enforceable. It is essential to take legal advice as soon as one party indicates that they are intending to withdraw from an agreement reached – the very fact of you failing to take action could be taken to be implicit acceptance of their decision to renege on the agreement.

If you have any situations which invlove withdrawing from financial agreements our Family team can help you with finances following divorce or separation.