Series or instalments: What payment option is best suited for your financial settlement

One of the main objectives of the court when resolving financial matters between divorcing parties is to try and separate their finances and sever the financial bonds between them. Rebecca Patience and Grace McGarvey from our divorce and family law team discuss the different payment options available, and how they affect settlement terms.

Following separation, it is necessary for divorcing couples to consider how their assets will be divided. It is often the case that a financial settlement will involve a payment from one party to another, this is known as a lump sum payment.

Where an agreement has been reached for one party to pay the other a significant amount of money but there are insufficient capital funds available to attend to payment immediately, it will be necessary for the parties to consider how the lump sum is to be paid. The aim is to enable both parties to move on with their lives independent of each other.

The two options for lump sum payments:

• Parties could agree that a series of lump sum payments be made, in accordance with section 23(1)(c) of the Matrimonial Causes Act (MCA) 1973

Or

• Parties could agree that the lump sum be paid in instalments, in accordance with section s23(3)(c) of MCA 1973.

What is the legal difference between a series of lump sum payments and a single lump sum paid in instalments?

It is crucial for parties to understand the difference between both types of payment structures before agreeing settlement terms. There are several differences between the types of lump sum payments which are outlined below:

• If the agreed order is a lump sum payable by instalments the parties run the risk of it being varied by the court later down the line if any issues arise. In particular this may be a risk to the receiving party where the payer successfully applies to the court to extend the time for payment. It is extremely rare for the court to consider varying the amount and the current judgments available suggest different approaches from different judges, some of whom believe it is impermissible.
• A series of lump sums is not capable of variation. This provides more certainty to both parties as to the quantum of lump sum that is to be paid. However, it is more restrictive with strict deadlines for the payments to be made, giving the payer no flexibility. For example, if the payer was to be made redundant, they would still be liable to attend to payment of the series of lump sums ordered.

In the case of Hamilton v Hamilton [2013] EWCA Civ 13, the court was asked to consider the difference between the two types of lump sum payments. A problem arose when the wife made the first instalment as agreed, then paid part of the second instalment and refused to make the remaining payments. When the husband applied to the court to enforce payment, the wife responded by applying to the court to vary the terms of the original order.

The court decided to vary the original order, giving the wife a significantly longer period of time to attend to payment of the lump sum. The court made it clear in this case that a lump sum payable by instalments could be varied. It stressed that it is essential for parties to clearly record in any financial settlement whether they intend any lump sums to be variable.

When considering settlement terms, divorcing parties must give this issue thought and they should make sure the consent order that sets out the agreement reached with the court, clearly records the parties’ intentions regarding variability.

As drafting consent orders can be very complicated, we strongly suggest detailed advice would be needed in relation to entering into any such agreement. If you would like to arrange an initial consultation with a member of our divorce and family law team, please contact Harrison Drury on 01772 258 321.