Do you need a freezing injunction to protect marital assets?
8th September 2021 by Do you need a freezing injunction to protect marital assets?
Once a relationship has broken down, while many couples behave well sometimes their behaviour can go beyond what is acceptable or retrievable. In particular, disputes over who gets what in the financial settlement can prompt underhand dealings with either party but typically the economically stronger one attempting to conceal assets or reduce their value, for example, by building up debts (personal and/or in business), deliberately squandering money in gambling or expensive trips that they did not participate in before or even giving away valuable art or antiques.
‘If you are worried that your spouse is hiding, selling, or otherwise getting rid of assets to prevent you getting your fair share in the financial settlement after your divorce, then there are legal steps which you can take to protect your share,’ says Jonathan Talbot, head of the Family Department at Laceys Solicitors LLP. ‘However to make an application of this type is not easy as judges have shown general discouragement of applications of this type being made as a matter of routine rather than as an exceptional remedy in the very specific situations where there can be shown to be a very real risk of loss if an injunction order is not granted.’
A freezing injunction is a specific type of court order sometimes obtained in divorce proceedings to protect marital assets from dissipation. The order will prevent your spouse (or former spouse) from being able to deal with those assets and sell or transfer them to a third party.
Unfortunately, your former partner may take steps to rid themselves of assets in an attempt to lessen your entitlements in divorce. It may be of concern when a spouse withdraws large sums of money from their bank account, transfers property to a third party for little or no value, or if they transfer their shares in a company. All of these actions could significantly impact on your financial settlement. It is vital that you act quickly if you suspect your spouse may do this.
What assets does an injunction cover?
A freezing injunction can apply to all types of assets such as bank accounts, property, land, business shares, antiques and pensions. On occasion it can also apply to other jurisdictions, not just assets held in England and Wales. It is a draconian measure, but it will typically allow an amount of money for your former spouse to live off and ensure they can meet their normal day-to-day expenses, and payment of their legal expenses but it will not allow for extravagant spending, or transferring of assets to other parties.
How do I obtain an injunction?
If you suspect foul play, then the most important thing is to act quickly. Your solicitor will need as much detailed information as you can provide about the assets that are at risk and why you believe they are at risk. This information should ideally include the whereabouts of the assets, the value of the assets, why you believe they may be transferred, and any evidence you hold to confirm this such as witnesses, emails or text messages. If the asset consists of money held in an account the name of the institution whether a bank or a building society should be given together with the address of any branch associated with that account and ideally the account number. Once in receipt of this information we can advise you on your options and the prospect of obtaining a freezing injunction.
This type of court order is usually applied for without putting your former partner on notice, so they cannot remove or reduce the value of the asset before the initial hearing. If the injunction is granted, it will only be for a short period of time initially, until your former partner has the opportunity of coming back to court and having their say and explaining their position as to why an injunction may not be granted or the extent to which they are prepared to allow any order to be made. The court can then weigh up both sides arguments before deciding if the injunction should be extended.
To succeed in obtaining an injunction in these situations, you must satisfy a number of criteria including providing evidence going beyond mere suspicion that there is a real risk the asset will be transferred or removed to your detriment by your former partner so that to allow the transaction to proceed would be to your detriment in the later course of division of the marital assets. This is why as much evidence as you can provide both as to the likelihood of the transaction that you seek to prevent of taking place and the effect upon your application for financial relief were it to be permitted is important. If the court is satisfied that there is a risk of the dissipation of assets, the judge will move on to consider the ‘balance of convenience’ test. This means the court will weigh up all the facts and decide if the likely damage that would be suffered by you if the injunction was not granted is greater than the potential damage to your former partner if it was to be granted.
The court has a wide discretion when it comes to freezing injunctions and both your conduct and that of your former partner can be taken into account.
Undertaking as to damages
It is important to note that as an applicant you will be expected to provide an undertaking, which is a formal promise to the court that should it later be discovered that the injunction should not have been granted, then you will pay any damages to your former partner that they have suffered as a consequence of your application having been granted in their absence. This is used by the court in an effort to prevent malicious applications.
Advantages and disadvantages
The main advantage of a freezing injunction is that it will preserve the asset or assets you believe are at risk of disappearing. Prevention is much better and reliable than attempting recovery after the asset is gone.
Applying for a freezing injunction can also bring a financial dispute to a head and more often than not it encourages early settlement without the need for a final hearing. This can save costs in the long run.
However, if you apply for an injunction inappropriately, it could be costly for you in terms of having to pay damages to your former spouse.
Not all transfers of assets are aimed at devaluing your former partner’s estate. For example, your former partner may legitimately transfer assets by selling a property or business at market value. These transfers may be getting rid of one asset but they will usually mean an increase in another asset, typically cash in the bank. An injunction would not be appropriate in these circumstances as no detriment would be shown to have been caused by the proposed transfer.
How we can help
Applying for an injunction is not a step that is to be taken lightly, as an order for costs can and frequently is made against an unsuccessful applicant and it is important therefore that you seek early legal advice as delay alone could be a reason for your application failing. Obtaining early expert advice is important in order that assets can be preserved, and to ensure you obtain a fair settlement based upon the value of all the available assets.
If you would like any further advice on this subject or other family matters please contact either our Family department on 01202 377800 or j.talbot@laceyssolicitors.co.uk or our Mediation department on 01202 377993 or g.burden@laceyssolicitors.co.uk