Bye Bye Brussels – the EU Divorce Bill

Theresa May is currently negotiating what the UK should pay to Brussels on its divorce from the EU. There could be a hefty price to pay to extricate itself from this long-standing relationship which has endured since 1973.

Which begs an interesting question; how do the UK’s obligations to Brussels compare to the obligations of a former spouse seeking an exit from a marriage after 44 years? We consider this below and promise it won’t be as dry a topic as it might sound!

Divorce from Brussels

Divorce from spouse

What is the divorce deal?

Brexit negotiations will involve three separate but interrelated deals: a ‘divorce’ settlement, a transitional arrangement and a deal on the UK-EU’s long-term relationship.

Currently the UK makes annual contributions to the EU Budget. Those will stop when we leave, although the Prime Minister has made clear the Government’s willingness to make “appropriate” payments to the EU for participation in “specific programmes”. What those payments might be and which EU programmes we want to participate in will be part of the discussions on a transitional arrangement and the UK-EU’s long-term relationship.

The divorce bill settlement is a separate issue from any continuing contributions. The European Commission expects the UK will pay an exit bill when it leaves the EU. In its negotiating mandate, the Commission outlined that an “orderly withdrawal…requires settling the financial obligations” and that “the methodology for the financial settlement…has to be established in the first phase of the negotiations”.

This is the financial agreement reached between parties when they permanently separate from one another. It will deal with whether the family home is transferred to one party, or sold, and how the other assets will be divided.

The divorce deal may also include ongoing payments of maintenance from the wealthier spouse to the other, and provision for any children.

Why do we face a divorce agreement?

The EU is an organisation with assets and liabilities. The EU has been clear that when the UK leaves, it is expected to pay off its share of the liabilities: this is referred to as the Brexit ‘divorce bill’ or exit bill. There have been no official estimates published of the size of the bill. In the opening negotiations both sides will seek to agree on the methodology for calculating the bill, and the actual figure will be finalised at the end of negotiations. The Commission has now published its opening methodology, although as expected this does not give a figure for the bill’s size.

After parties have been married, the law says that they have financial obligations towards one another, as a result of their relationship.

These obligations will endure until they are formally dismissed in a legal document.

Agreement can be reached by way of amicable negotiation. But if these break down, sometimes the gloves need to come off, and a court application is necessary.

How much might this cost the parties?

The Financial Times in November 2016 originally reported that the European Commission was seeking an exit bill of €60 billion, based on comments by Michel Barnier, the EU’s chief negotiator on Brexit. In February, the same author writing for the Centre for European Reform (CER) estimated that the bill could range from €25–73 billion. Bruegel have given a similar range for the bill, at €25.4–65.1 billion. Most recently, Alex Barker, writing again in the Financial Times, put the net bill at €55–75 billion, based on a €91–€113 billion gross figure

Legal costs can vary considerably for couples getting divorced.

At the very least, the couple will face a court fee of £550.

In terms of what a potential settlement could cost, just this year the English court awarded an estranged wife £453m in one of biggest UK divorce settlements. However, many deals are done without going to court, that can reach the billions if the parties are very wealthy and the marriage has been lengthy.

 

How do we work out the figures for this divorce bill?

Calculations are based on what we owe, and what we can offset. The quoted figures have a large range due to varying methodologies of calculating the bill. The lower band €25 billion represents minimal obligations to the EU and maximum UK receipts, while the top-end €75 billion comes from maximising the UK’s obligations and minimising its receipts. The gross figures of €100 billion includes some extra obligations and does not take any account of any receipts owed to the UK.

There are a number of factors that will be taken into account when working out what one party should pay the other. The starting point is working out what assets are in the marriage, then how to divide them.

How assets are divided is based on the ages of the couple, their earning capacities, the standard of living the couple enjoyed, and the fact one party gave up their career to care for the parties children.

Could we walk away without paying anything?

The Lords’ EU Financial Affairs Committee reports that the “strictly legal position of the UK on this issue appears to be strong”. If negotiators fail to agree on a political financial settlement, it could become a legal case in the International Court of Justice or the Permanent Court of Arbitration, both located in The Hague. The result of such a court case would be hard to predict. However there have been suggestions that this international arbitration solution would be preferable to a political settlement.

After anything other than the shortest of marriages, it would be very unusual for the wealthier party to get away without paying anything towards their spouse.

If the parties cannot agree, they can make an application to the Family Court for a judge to determine their claims against one another.

If parties do not reach an agreement before they divorce, their financial claims will remain open against one another, potentially forever assuming they do not remarry. It is therefore important to reach a deal before divorce in order that there is no prospect of claims being reissued in the future.

And will we have to go on paying divorce?

The Prime Minister has ruled out continuing “vast payments”. But she has made it clear that the UK would contribute to programmes which offered value for money. But that will be settled as part of the negotiations on the future relationship.

Obligations for parties can continue long after the marriage has ended. Sometimes there will be longstanding maintenance payments from one party to the other, or alternative there can be a clean break where no more obligations exist.

Written by Hazel McNaught