Posted by Peter Hillyard, client operations manager at Legal Futures Associate dospay [1]
Hillyard: Client accounts may not seem neutral
When significant matrimonial assets are sold before a final financial order is agreed, holding the proceeds safely and neutrally can present real practical challenges.
Traditionally, funds might be placed in a solicitor’s client account but this approach is not always appropriate. Issues of trust, regulatory constraints and prolonged holding periods can all complicate matters, particularly where emotions are high and financial agreement is yet to be reached.
Why solicitors’ client accounts may not suffice
While client accounts remain the standard holding method, they can raise concerns in the divorce context. One spouse may question the neutrality of the other’s solicitor.
At the same time, the Solicitors Regulation Authority imposes strict limitations under its accounts rules, particularly regarding the safeguarding of client money and the prohibition of long-term passive holding.
Where the sale occurs well in advance of settlement, these accounts may not offer the security, neutrality or regulatory comfort required.
The benefits of escrow in matrimonial asset sales
A bespoke escrow arrangement offers a reliable alternative. Acting as an independent third party, the escrow provider holds the sale proceeds under a clearly defined agreement. This mechanism ensures funds are released only when pre-agreed conditions are met – typically the approval of a financial order or a signed settlement.
Critically, neither party’s solicitor acts as gatekeeper; this fosters trust and eliminates bias. Moreover, escrow arrangements provide transparency through documented terms, audit trails and defined triggers for disbursement.
They also protect against prolonged or uncertain timeframes, allowing funds to be held safely and flexibly outside the solicitor-client account structure.
Practical application in divorce proceedings
Where early sale of assets is necessary – be it property, shares or other high-value items – escrow provides a neutral ‘parking place’ for proceeds until distribution is agreed. It also mitigates the risk of disputes or accusations of mishandling, particularly when funds are substantial or there is mistrust between parties.
The escrow process involves agreeing the net sale proceeds, drafting a tailored escrow agreement, and appointing a neutral, experienced provider. Once funds are deposited, they are held securely and disbursed only when the agreed conditions are fulfilled.
Escrow agreements should also include provisions for non-cooperation or dispute, ensuring clarity in even the most complex situations.
Conclusion
For family lawyers, advising on asset sales ahead of final settlement, escrow offers an elegant and effective alternative to solicitor-client accounts.
It removes conflict risk, ensures regulatory compliance, and provides both parties with reassurance that funds will be held – and released – exactly as agreed.