How Proper Divorce Settlement Agreements Structuring Saves Millions

Most divorce settlements that fail were not unfair. They were unperformable. The division each party accepted was one both could live with; what went wrong was the machinery – a property that could not be transferred because the lender would not release a borrower, a payment with no account attached to it, a shareholding the company’s own documents would not let anyone move.

Fairness is negotiated. Performance is drafted. What follows is about the second of those: the distance between a term both parties accepted and a term that can actually be carried out.

Write it so a stranger can perform it

The test to apply to every clause is whether someone with no knowledge of the marriage could carry it out from the words alone. “The husband shall transfer the Dubai property to the wife” fails that test. Which property, identified how; by what date; who prepares and pays for the transfer; what happens to the mortgage over it and who obtains the lender’s agreement; who pays the registration costs; and what happens if the transfer is refused.

Payments deserve the same treatment. State the amount, the currency, the recipient account, the day of the month, the first and last payment, how any adjustment is calculated and by whom, what evidence of payment is acceptable, and what happens if a payment is late rather than missed. Settlements that describe outcomes rather than mechanics generate the second dispute themselves.

Not everything transfers like money

A bank payment is instantaneous and needs nobody’s permission. Much of what is divided in a settlement is neither.

• Property. Transfer needs registration and, where there is a mortgage, the lender’s agreement. A lender that will not consent to a transfer, or will not release one spouse from the loan, can make an agreed clause impossible to perform. Ask the lender before signing, not after.
• Company shares. The constitutional documents and any shareholders’ agreement may restrict transfers, require other shareholders’ consent, or trigger pre-emption rights. A clause transferring shares in breach of those documents is a promise the transferor cannot keep.
• Assets held abroad. An obligation about property in another country will usually need something done in that country. Say who does it, at whose cost, and by when, and take advice there before the wording is fixed.
• Entitlements that depend on employment. End-of-service and similar entitlements accrue and change. Fix them by reference to a stated date and a stated method rather than to a figure that will be out of date by completion.

For each obligation, ask who else has to agree for it to happen. Anything requiring a third party should carry a fallback: an alternative asset, a payment in lieu, or a mechanism for returning to the table with something to decide rather than nothing.

Where a business is involved

Where one or both parties hold a business, the settlement stops being purely a family matter. Transferring or charging shares can affect control, licensing and banking arrangements, and can breach obligations owed to co-shareholders or lenders.

Workable settlements usually keep the business intact and settle the value another way: a buy-out at a valuation reached by an agreed method on an agreed date, paid in instalments and secured, rather than a transfer that leaves two former spouses as shareholders in a company one of them runs. If a shareholding does move, the mechanics of that move – consents, registers, resolutions, licence updates – belong in the agreement rather than in an assumption that someone will sort it out.

Confidentiality and non-disparagement terms are worth including where a business or its clients could be affected by the dispute becoming public, and they need to say what may be disclosed, to whom, and what happens on breach.

Children’s arrangements are drafted differently

Financial terms are meant to be final. Arrangements for children are meant to work, and courts retain the ability to look at them again in the child’s interests. Drafting them as though they were financial terms produces provisions that are both rigid and unstable.

Set out the practical framework – schooling, travel and consent to travel, the handling of medical decisions, how time is arranged during holidays, how changes are proposed and agreed – and include a route for resolving disagreement that does not begin with a court application. Keep the financial provision for children clearly separate from the provision between the spouses, because the two may be treated differently later.

Decide now where it will be enforced

The divorce itself proceeds before the court with jurisdiction over the parties’ personal status. The financial settlement is also a contract, and the question of where its terms would be enforced is worth answering while the terms are being written rather than when they are being broken.

The DIFC and the ADGM are common-law jurisdictions with their own courts, and where the parties, the companies or the assets in question sit within them, advice on which forum is appropriate for the contractual obligations is worth taking before the agreement is finalised. Where enforcement is likely to be needed before an onshore court, take advice on how the agreement would be presented there before the wording is settled; a clause that is ambiguous on the page does not become clearer in the hands of the person asked to enforce it.

Include a dispute clause that fits the size of the disagreements likely to arise: a short period for the parties or their lawyers to try to resolve the point, then mediation, then a named forum. Give each stage a time limit so the process cannot be used to delay a payment.

Build in the review you will need

Circumstances change. Incomes fall, a party relocates, a child’s needs change, an asset turns out to be worth much less than assumed. Agreements with no mechanism for any of this force the parties back to court for every adjustment.

A variation clause requiring changes to be in writing and signed, a defined trigger for reviewing continuing payments, and an obligation to exchange specified information at that review will handle most of it. Where a payment depends on something uncertain – a bonus, a sale, a business result – say what evidence must be produced and when, so that the review is a calculation rather than an investigation.

The performance test

Put every obligation through the same test one last time before signature: could the person named carry it out, by the date stated, without a permission that has not already been given? Assets should be identified precisely enough for a registrar to find them. Payments should carry an amount, a date and an account. The obligations most likely to fail should carry a fallback, and the disagreement most likely to arise should have a route out of it written into the document.

A term that survives that test can be performed by people who were never in the room. A term that does not is one the parties will end up negotiating a second time, from weaker positions than they hold today.

Related Services: our family and private client team advises on separation agreements, financial settlements and their enforcement.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.

Nour Attorneys Team

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