The rise of the FDR and why it matters for High Net Worth Individuals
By Joanna Newton is a Partner at Stowe Family Law
Financial Dispute Resolution Hearings – What are they?
Over the past few years, particularly since the introduction of no-fault divorce in April 2022, family lawyers have seen a growing number of divorcing couples looking to resolve any potential financial claims against the other through less adversarial methods than heading straight for court.
Alternative Dispute Resolution methods include processes like mediation, arbitration, collaborative divorce, and the use of Private Financial Dispute Resolution hearings (pFDR)
Financial Dispute Resolution hearings have been a useful tool within Financial Remedy Proceedings (a court process by which a couple’s finances are addressed as part of their divorce or civil partnership dissolution) in reaching financial agreements and settling disputes without the need for the stressful and costly final hearing. These hearings are the second of, usually, three hearings within Financial Remedy Proceedings, and they tend to be where a financial agreement is reached.
The hearing follows on from a First Directions Appointment (FDA), where both parties and their respective lawyers come before a Judge. This is essentially a case management hearing where the parties and the Judge put all the relevant directions in place so that the contents of the matrimonial pot are understood by the time that the FDR hearing is reached.
The FDR hearing itself is when a separating couple come before a Judge, who provides their expert input into the couple’s financial disputes. The Judge will hear submissions from both parties (or their legal representatives) setting out their respective cases in brief, as well as their thoughts on what the ultimate outcome of their financial proceedings should be.
The Judge then gives an ‘indication’ to the parties as to what they would anticipate the outcome of the dispute would be, should the case move to a final hearing.
At this point, the parties are encouraged to negotiate between themselves and try to reach a compromise based on the Judge’s views.
If negotiations at the FDR prove to be fruitful and an agreement is reached, this is then drafted into a financial consent order, to be approved by the court. It is important to note that simply coming to an agreement at the FDR hearing is not legally binding, as it must then be drawn up by a lawyer and submitted to the family court for approval.
If an agreement is not reached, it tends to be that the hearing is successful to the extent that the separating parties have a better insight into what a final outcome may look like based on the knowledge delineated by the Judge. They can then continue negotiations outside of court through their respective solicitors.
How do divorcing parties need to prepare for their FDR hearing?
It is important that clients are fully prepared for this hearing, and financial advisers should be aware of the context around FDR hearings in order to properly navigate the needs of the client.
The first step is to ensure that there is full and frank financial disclosure and that this is exchanged with the opposing party and their lawyer. Key evidence should also be obtained, for example a pension sharing report, mortgage capacity report or business valuation, which clients may seek a financial adviser’s input on. It is only when all this information has been shared and the matrimonial pot has been quantified, that negotiations can begin.
This element is particularly important for High-Net-Worth individuals (HNWs) where assets, including finances, property, businesses, and investments, are of paramount importance.
What are the benefits for High Net Worth Individuals?
For High Net Worth Individuals, Financial Dispute Resolution can come with many benefits. They require the divorcing parties to lay out their financial situations and obtain professional advice from financial adviser and legal professionals so that matter can be dealt with effectively.
DIY divorces have risen in popularity in recent years. These are ‘what they say on the tin’ and a couple essentially take matters into their own hands and draw up a financial agreement (along with anything else they may need to arrange, such as children matters) themselves. However, these can be risky, especially for HNWs, and are liable to be rejected by the court if they are not deemed to be fair.
It is essential that all requisite financial information is provided in order for the most suitable settlement to be reached and parties to properly set out their case. However, it can be the case that such information is left out or not considered to be important when undertaking a DIY divorce and not seeking legal and financial advice.
Where protecting assets is of high importance, FDRs can be useful in their cost-effectiveness. Where an agreement is reached at this stage of negotiations, a protracted court battle and final hearing can be prevented, lowering costs.
FDRs encourage a more amicable settlement based on expert knowledge and transparency. Both parties have a say in the outcome and the Judge will not make a ruling at this hearing, meaning there is no forced outcome. This can help reduce the stress around what can, particularly for HNWs, be a worrying time.
Private Financial Dispute Resolutions
Unfortunately, due to how busy courts are, there can often be delays when it comes to listing an FDR hearing. Even when listed, they can sometimes be cancelled if the judge is unavailable, or an urgent matter appears on the court list. This can be frustrating and can also see costs being wasted (for example if a barrister has been booked to represent a party and have prepared for the same).
Consequently, there has been a rise in the advocation of private FDRs (pFDR). This is, as the name suggests, a hearing that is conducted outside of the court, in private. They are being embraced by the family justice system as reducing long and acrimonious final hearings, the congestion within the courts is eased.
PFDRs are designed to save time and emotional stress, as well as keeping costs down. They take place at a location of the parties’ choosing, usually a solicitor’s office or barrister chambers and can take place over the course of a day (as opposed to the hour that a FDR is normally listed for before a Judge). Furthermore, what would be the Judge in court proceedings becomes a pFDR evaluator and is agreed upon by the separating parties. There is, therefore, far more ownership within this process.
Family practitioners will often recommend pFDRs to couples who are struggling to come to an agreement and need more detailed and personalised legal input, or those with complex matrimonial finances. For this reason, they can be a valuable option for HNWs.
The evaluator, unlike a Judge in the court process, is specifically focused on the individual case at hand and can offer detailed insight and expertise. This is advantageous for those with complex finances.
Conclusion
As every divorce or dissolution is different, specific, and tailored advice will be needed for the unique situation. Where possible, an amicable split should be encouraged as far as possible. PFDRs are voluntary to sign up to, which tends to see parties being more engaged in the process, resulting in a higher chance of an agreement at this stage.
There can be added complexities in financial negotiations for High Net Worth clients who have substantial and complicated matrimonial and non-matrimonial assets. This may mean that they need extensive advice from financial and legal practitioners who will be able to advise on the specifics of their situation.
When it comes to financial negotiations, Alternative Dispute Resolution methods can be useful. Of course, there will always be cases where a couple is unable to come to an agreement and a final hearing is required. However, FDRs, particularly pFDRs can be useful tools in guiding a smoother process.
Financial Dispute Resolutions and their private counterparts have increased over the last few years as couples try to keep their divorce or separation as amicable, and cost-effective, as possible. For HNWs, these can be a helpful way of seeking an amicable solution to complex financial disputes.
