Private ClientFILE June 2010

HIPs Scrapped

On 21 May the Government announced the abolition of Home Information Packs with immediate effect.  Describing HIPs as 'needless red tape' Housing Minister Grant Schapps said that home sellers will now be able to get on with marketing their home without having to shell out hundreds of pounds upfront.  The only remaining requirement is the provision of an Energy Performance Certificate, but this can now be done at any time up to exchange of contracts.

Mike Dibben of Brethertons LLP Solicitors commented:  'The Government has taken a sensible and pragmatic line.  Since the previous Government introduced HIPs millions of pounds have been spent on the provision of packs of documents that were of little advantage to anyone.  The original intention was two-fold - to provide information to prospective buyers about the legal and physical condition of a property before they made an offer, and to speed up the conveyancing process.  In reality prospective buyers rarely read the pack before making an offer, and the requirement for sellers to get the pack before they started marketing often slowed down the sale process.  Moreover the previous Government had decided that the inclusion of any form of survey in the pack was too controversial and dropped what for buyers would have been the only document of real interest.

‘Many estate agents believe that the cost of the HIP deterred speculative sellers from putting their houses on the market to see what interest they might get.  While that had a positive effect of reducing cases of half-hearted sellers marketing their houses and later changing their minds, it did mean that there were fewer homes for sale.  The abolition of HIPs is likely to boost the estate agents’ books, which will have two effects.  First it will provide more choice for buyers, and secondly it should reduce the risk of prices increasing too quickly owing to shortage of supply.  Both should have a healthy impact on the residential property market.'

Save A Fortune On Family Legal Fees Advises…Lawyer!

A new legal product this year, and first in the UK, has been launched by regional law firm Brethertons LLP. FAR  £egal is a Fixed Price Ancillary Relief service  product which has been designed to bring down the cost of divorce by the Head of The Brethertons Family Law Team Linda Jones.

FAR £egal makes it easier for couples to ascertain the likely costs of their divorce before they commence proceedings to settle their financial arrangements, known as Ancillary Relief.  Ancillary Relief applications seek to resolve the financial arrangements on divorce and determine how the matrimonial assets including the house, pensions and other finances are divided. This area of Family Law can often run into tens of thousands of pounds in professional fees, depending on the amounts involved and also the length of time that couples continue to fight before either settling out of court or taking their case before a judge.

One of the fears when considering a divorce, is how much is it likely to cost overall. Getting divorced can be costly both financially and emotionally, particularly if the end of a relationship becomes painfully drawn-out through the Courts. Many firms already provide a fixed price for a basic divorce, but it’s the Ancillary Relief aspects of divorce where the fees can really spiral out of control.

Linda Jones explained:

“Couples who wish to get a basic divorce can do so for about £500, but it’s the Ancillary Relief aspects that can really increase the legal fees for couples who are in dispute over their joint finances and property – which can often take divorce disputes into thousands of pounds. FAR £egal is a 4 stage process, which depending on the parties willingness to resolve matters, may result in Ancillary Relief Proceedings concluding for £1450 plus VAT.

At each of the stages, the client receives detailed advice from an experienced matrimonial lawyer, who will guide and support the client through what may be an emotional and sometimes tortuous journey.

• Step 1. Disclosure – Financial Disclosure and Negotiation
• Step 2. Directions – From Issue of Application to first Directions Appointment
• Step 3. FDR – Financial Dispute Resolution Hearing
• Step 4. Final Hearing - From FDR to attending a final hearing.

I believe that FAR £egal  our totally new approach to dealing with Ancillary Relief cases will help to make  fees more transparent and competitive so that if someone gets involved in a dispute they know what the fees are likely to be from the outset.

In today’s economic climate, divorcing clients tell us they want cost-certainty and fee transparency. Many couples have been putting-off their divorce because of the Recession as couples who want to divorce have not been able to sell the principal; financial asset the matrimonial home. With the housing marketing showing signs of recovery divorce lawyers anticipate a large increase in the number of instructions into 2010 as couples regain financial confidence and independence.”

Thank you Brethertons - Will Aid’s Top Performers!

Will Aid solicitors across the country pulled out all the stops during November 2009 to raise money for the Will Aid charities and once again Brethertons LLP came out on top being the number 1 firm in the West Midlands for the money they helped raise!

During the Month of November, Brethertons LLP in Rugby and Banbury
devoted their time to preparing Wills and instead of being paid for their services, donated the fees to charity.

Elizabeth Young, Partner and head of the Private Client department at Brethertons said:

“We have been participating in Will Aid for a number of years and feel it highlights the importance of making a Will yet also benefits a worthy cause at the same time. Our clients have been pleased that we worked so hard to raise money for the various charities involved and particularly surprised that we received no payment for the service we were providing during the scheme. It was hard work but well worth the effort”

In a letter received from Shirley Marsland, Will Aid campaign manager, she said:

“What a brilliant result. Thanks to your hard work, Will Aid 2009 has raised a truly astonishing £1.25m in donations. This is more than has ever been raised before and your firm in particular can feel justly proud of your amazing achievement in raising a massive £7195.00 making you the 6th most successful fundraising firm in the country during this campaign!

It can’t have been easy coping with the extra workload involved. We really appreciate the time and effort that you have put into seeing so many Will Aid clients. Many of them have contacted us to say how impressed they have been with the service they received.

The Will Aid charities are absolutely delighted with the funds that they have received for their vital work - particularly at a time many other sources of income are experiencing a downturn.

We are now planning for the next campaign in November this year and very much hope that your firm will take part.”

HS2 Rail Link Raises Fear

The publication by the Government in March of a white paper proposal to construct a new railway linking London and Birmingham called HS2 has caused considerable fear and opposition in the towns and villages close to the route.  The new line would cut through what is currently quiet and picturesque countryside through deep cuttings and over embankments up to 20m high.  Up to 14 trains an hour would run each way at speeds of up to 250mph from 5am-midnight, 7 days a week. 

Pending a decision on the proposal by the Government there is considerable uncertainty.  Homeowners in villages close to the proposed line have already found they are unable to sell their houses as would-be buyers fear noise and inconvenience from the line and look elsewhere instead.  The white paper currently proposes a very restrictive ‘exceptional hardship scheme’ which only offers compensation to those who are unable to sell their property for any more than 85% of its value, and only if they live very close to the line and are having to move for one of a number of set criteria, such as a result of job relocation or a need for sheltered accommodation.

Brethertons LLP have held two seminars aimed at landowners and homeowners who are affected by the scheme.  Those attending included individuals and representatives from groups such as parish councils and local action groups set up to fight the scheme.  Visitors were able to get first hand-advice from planning specialists and legal counsel on the legislative process, rights to object and compensation available.

Car Turning Area Creates Right Over Property

A landowner who allows another person or persons to make use of their land may lose the right to prevent the use if it persists over a long period. Where such use continues for more than 20 years, an ‘easement’ (the right of use over someone else’s property) is created.

In a recent case, a woman claimed an easement had arisen over land near her garage, because she had used the land to turn her car around so that she could reverse into the garage, thereby allowing an easier exit. The owner argued that no easement existed because, during a period of time within the 20-year period, the access to the land had been obstructed, requiring the garage owner to access the turning area by driving over land owned by a third party.

The court found that an easement did exist. It was the use of the land in question that was relevant, not the route by which the land was accessed. The fact that the woman had been obliged to cross a third party’s property when her normal access route was obstructed did not prevent a right of way from arising.

However, the court did consider that the landowner could build on the land provided that sufficient space was left for cars to be turned around: the right did not extend to the whole of the landowner’s property.

If you have land which you allow other people to use, it is important to make sure that you preserve your rights over it unless you are happy that these may be lost. We can advise you on the appropriate steps to take.

Chef Entitled to Second Helping of Justice

Celebrity chef Marco Pierre White’s recent appearance in the Court of Appeal led to a decision that should serve as a reminder that in divorce proceedings it is important to follow the rules relating to the use of documents belonging to the other party.

Mr White married in 2000 and he and his ex-wife have three children. After a prior separation, they separated finally in 2007 and Mrs White filed for divorce that year.

Mrs White claimed that her husband had threatened to hide or dissipate assets and so she began removing documents and seeking evidence regarding the true state of his finances. This included intercepting his post: one of the letters intercepted was from Mr White’s daughter from his first marriage and another was a contract from P&O.

Mr White claimed that his ex-wife had taken the documents under instruction from her solicitor (a claim she and he both denied) and claimed damages for breach of confidence, misuse of private material and wrongful interference with his property. Although he was unsuccessful in court, Mr White appealed to the Court of Appeal on the point of wrongful interference with property.

The copying of documents (including taking them and returning them immediately after copying) is in general permissible in such circumstances, but the use of any force or deception to obtain documents is not. Because the parties to divorce proceedings are required to make full and frank disclosure of their finances, copies of relevant documents can be admitted in evidence.

The Court was not persuaded that Mr White’s claim should be struck out and found that he had an arguable case for wrongful interference. The issues will therefore have to be argued out in court once again.

Divorce and the Company Director

Divorce is almost never easy and the financial negotiations can be protracted and difficult, particularly when there are business interests involved. In this article we consider some of the issues surrounding divorce for company directors. In the first section, we deal with directors who are, effectively, senior employees of the companies of which they are directors. We refer to them as ‘employee directors’. In the second section, we consider the additional issues that can affect directors of companies in which they have a controlling or substantial shareholding, whom we refer to as ‘equity directors’.

What follows deals with only some of the potential areas for dispute, all of which must be thought through.

General Principles
Firstly, there are some general principles the courts will apply no matter what the circumstances. These are:

1. The behaviour of the parties (unless highly reprehensible) is not normally relevant to the settlement. Divorce is not about blame, it is about negotiating a deal which achieves the necessary objectives
2. The first priority of the court will be the welfare of any minor children; and
3. Unless you have a pre-nuptial or post-nuptial agreement (and the former are only persuasive, not binding), the court will start from the premise that ‘matrimonial assets’ (those built up during the marriage) should be divided equally.

Employee Directors
The position of an employee director on divorce is essentially the same as that of any other employee. However, directors often have more complicated remuneration schemes – involving benefits in kind, performance-related bonuses and significant pension schemes. Working out the appropriate amount of remuneration that should be regarded as continuing income for the purpose of calculating maintenance payments can be a problematic area.

One common area of dispute is when one of the divorcing couple has given up a promising career (the most common circumstance is when a wife gives up work to care for children) to support the other spouse in furtherance of their career. Some of the largest divorce settlements in the history of the UK courts have been made in such cases.

One other particularly difficult area is that of future income in the form of bonuses or pensions. Normally, the courts will not look too far ahead when determining the value of likely but unearned income, but in a recent case, in which a husband failed to reveal that he was expecting a substantial increase in income, the court did revise his ex-wife’s maintenance payments. Allowing an ex-wife a proportion of her ex-husband’s pension income when he retires is also commonplace.

There may be trusts or Inheritance Tax plans which have to be rethought. Issues involving foreign domicile or foreign property may also give rise to additional complexities.

Equity Directors
The position regarding equity directors is more complex, because there are normally several additional areas of potential dispute. For equity directors, there are questions of business value and, in the common circumstance in which both spouses are shareholders or managers of and/or are remunerated by the company, further practical difficulties arise.

In these circumstances, there can be numerous points of contention, such as:

• What is the value of the company?
• Does the value of the company depend on a particular individual?
• What is the value of a particular shareholding (particularly if it is a minority shareholding)? The provisions of the company’s articles are also often in point here
• How are the business assets (e.g. property) owned and by whom?
• Can the divorcing couple continue to be involved together in the business?
• What are the tax issues raised by the proposed arrangements (e.g. transfers of assets out of the company, sales of shares)?
• Can the necessary non-compete clauses and employment law issues be dealt with?
• Will the proposals cause problems over guarantees with the bank?

Divorce is seldom straightforward, particularly where there are assets in the family worth arguing about, and it is definitely an area where the old adage that ‘you get what you negotiate, not what you deserve’ is often true.

If There is Downwards Variation, There Has to be Upwards Variation

In a recent divorce case, an ex-wife claimed that the level of the periodical payments fixed by the court when calculating ancillary relief was incorrect. She had been awarded £113,000 for herself and the children plus periodical payments set at £120,000 for her and £12,500 for each of the couple’s twin boys. The ex-husband had also agreed to pay the children’s school fees and for extras.

The woman’s ex-husband, who in the year of their divorce earned £552,000, had since seen his earnings increase to £1.86 million per annum. His ex-wife claimed that she should therefore receive enhanced financial support. Her appeal was made on the basis that the judge had fixed the amounts at too low a level after finding in her favour on many aspects of the case. The court had found that she had moved to London in order to enable her husband’s career to prosper and had compromised her own career in order to take care of the couple’s children.

The Court of Appeal held that the judge in the lower court had failed to give sufficient weight either to the points found in the ex-wife’s favour or to case precedent and had not awarded her enough money. The ex-wife’s periodical payments were therefore increased to £140,000 for her and £15,000 for each of the children.

The Court concluded that if periodical payments can be reduced in cases where a former spouse ceases to earn as much money as they did when the order was made, this must also apply in the reverse scenario.

Assessing Mental Capacity – New Guidance

One of the conditions which must be satisfied for a will to be valid is that the person making it must be of sound mind. With an ageing population, cases involving disputes over a testator’s mental capacity are becoming more common – it is estimated that up to two million people in the UK suffer from some form of dementia or brain injury.

Case law developments in this area and recent legislation in the form of the Mental Capacity Act 2005 have led the Law Society and the British Medical Association to develop new guidelines to assist doctors and lawyers to assess mental capacity. It is a useful guide for anyone who has to care for or is responsible for someone whose mental capacity is in doubt.

The guide can be purchased from the Law Society or from a number of online booksellers although, at £39.95, you might prefer to wait until a copy finds its way to your local reference library.

Farming Family Overturn Will

In a bitter contest involving members of a Norfolk farming family, two brothers have persuaded the court to overturn their late father’s will on the ground that he was mentally incapable when he created it.

The man had made an earlier will, executed in 2001, which left his two sons the family farm on which they had worked all their lives, subject to a life interest in favour of his wife. His two married daughters, both of whom had moved away, were bequeathed legacies of £15,000 each.

The man’s wife died in 2006. At that time, the daughters returned and discovered the contents of their father’s will. Within a week, one of the daughters had driven her father to the office of their solicitor, where a new will was executed. This divided the bulk of the estate between the two daughters.

In a hearing which lasted three days, and contained more than its fair share of accusations of impropriety, the will was deemed by the court to be invalid. Crucially for the brothers’ case, there had been no attempt to check the man’s mental state, despite his age (89) and the fact that his wife of 65 years had been dead for less than a week when the new will was made.

If you have an elderly relative who wishes to revise their will, we can advise on how best this can be achieved in order to minimise the risk of a later, successful challenge.

Should You Give Your House to Your Children?

If you are facing the possibility of having to fund care home fees or are concerned about there being an Inheritance Tax (IHT) liability when you die, it may be tempting to think about gifting your house to your children, so that when the day comes, it is out of your estate. In many cases, however, this will fail to produce the desired result. Here’s why…

If you gift your house to your children but continue to live in it, then the gift will normally be a ‘gift with reservation’, which means that the property will be treated for IHT purposes as having never left your estate. If, however, your children dispose of the property, any increase in value after the gift to them has been made will normally make them liable for Capital Gains Tax (CGT) on the increase. If you retain it, the increase will be free from CGT if the property is your principal private residence.

Similarly, if you give your house to your children, your local authority may still take account of the value of the house when assessing your contribution to your long-term care costs.

Other points to consider before relinquishing ownership of your property are:

• If you wish to raise funds for whatever reason, you will not be able to obtain a loan based on the equity you had in the property
• If a child divorces or is made bankrupt, you may lose the property, which may also happen if the property is used as security for a loan on which the borrower defaults;
• If your children need cash, they may exert pressure on you to leave the property so that it can be sold; and
• If your child predeceases you, their beneficiaries will be the new owners and may prove to be more difficult to deal with.

Giving away a major asset requires serious thought. If you are considering the problems of IHT planning, wealth preservation or funding care, contact us for advice.