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Divorce and the City No Longer a Bonus

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There have been tales in Family Law circles recently of difficulties arising between ex-couples when one half works for an investment bank. Given the fabled salaries and bonuses of investment bankers, I found these stories a little odd, until one of my old clients got in touch with me last week. Divorced in 2006, she had been married to an investment banker herself but things had changed radically when her ex-husband's employer stopped paying his bonus in cash and instead awarded him deferred shares.

The Court order I had secured for her six years ago will probably have to be revisited, since it was assumed at the time that her ex-husband's bonuses would continue to be paid in cash. Now it has been replaced by deferred shares, this arrangement is unworkable.

How has this situation arisen? Well, in general terms, English law assumes that when divvying up the marital pot, assets should be shared equally (this doesn't take into account post-nuptial agreements, which are binding, and pre-nuptial agreements, which are not but which are often taken into account by the judge). This assumption has meant that the financially poorer partner - frequently the wife - often gains a very favourable settlement. As far as my client was concerned, she received a lump sum, maintenance payments from her ex-husband's salary and a share of his annual bonus every year.

But now many investment banking bonuses are being given as deferred shares, so my client is probably going to have to be a lot more flexible about when she receives her share of her husband's annual bonus and so we will have to seek a new agreement. Both parties are keen to avoid acrimony and indeed the expense of going to court, as both realise that nobody has a crystal ball with which to gaze, hopefully, into the future. There is no doubt however that these days one cannot assume bonuses will be paid in cash - or paid at all in some cases - and that as far as deferred shares go, we all know share prices go down as well as up.

I would add that years ago it was not uncommon for bankers going through a divorce deliberately to defer their bonuses, their income magically plummeting prior to going to court. A good divorce lawyer and forensic accountant swiftly see through this charade, but the current economic uncertainty makes this sort of situation very complicated.

 
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