Divorce Escrow: Holding funds during the sale of matrimonial assets

Introduction

In a divorce involving the sale of significant matrimonial assets, the period between completion of the sale and the final financial order can give rise to complex issues of trust and protection. One party may distrust the other party’s solicitors holding the proceeds; alternatively, the proceeds may be destined to sit in a solicitor‑client account for a longer than permissible period under the Solicitors Regulation Authority (SRA) Accounts Rules. In such circumstances, a bespoke escrow service offers a robust, neutral mechanism for holding funds until the parties’ legal obligations and settlements are resolved.

Why the usual route via solicitors’ client accounts may be problematic

When matrimonial assets such as the family home or jointly‑held investments are sold ahead of the final financial order, the net proceeds often need to be held pending agreement on distribution. Conventional practice might involve one party’s solicitor holding these funds in their client account. However key issues can arise:

• The other party may not feel confident that the solicitor is truly neutral, especially if they are the ‘seller’ party’s chosen counsel.
• Under the SRA Accounts Rules, solicitors must ensure money held in client accounts is appropriately managed and that the firm’s own funds are kept separate.
• The longevity of holding may put the firm at risk of breaching rule 5.2 of the SRA Code of Conduct for Firms (the duty to safeguard client monies) if the funds are not actively distributed in line with the clients’ interests.
• If the sale is completed significantly in advance of the financial order, the solicitors’ client account may not be the most appropriate locus for funds, given regulatory considerations.

In short, where trust is limited, or timing is uncertain, relying on one party’s solicitor to hold the proceeds can give rise to friction, delay, and regulatory risk.

What an escrow service offers in the divorce asset‑sale context

A professional escrow service is a neutral third‑party arrangement in which the sale proceeds are transferred into an escrow account subject to express terms (an escrow agreement) agreed by both parties and their advisers. This arrangement offers a number of benefits:

Neutrality and trust

By deploying a specialist third‑party escrow provider, neither spouse’s solicitor acts as the fund‑holder or gatekeeper. This fosters trust for both sides, as the escrow agent’s role is simply to hold and disburse funds in accordance with the escrow agreement.

Clear documentation and triggers

Escrow arrangements require the parties to specify the conditions under which the funds will be released (for example, when the financial order is approved, or when both parties sign a settlement agreement). This means the process is transparent and the escrow agent can act strictly on instruction, reducing ambiguity and risk.

Regulatory comfort

In scenarios where the solicitor may not be ideally placed to hold large sums for an extended period, or where one party is not comfortable with the solicitor being involved as holder, escrow sidesteps the issue. It alleviates concerns around the SRA client account rules by placing funds outside the solicitor’s client ledger entirely.

Versatility for timing and complex assets

If the sale completes early, but the financial order is months away, an escrow arrangement offers a safe “parking place” for the funds until such time as distribution is appropriate. It also allows for the structuring of investment, or permitted usage of the funds (subject to the agreement) until disbursement.

Conflict avoidance

When sale proceeds are held neutrally, the risk of one party asserting that the other party (or their solicitor) has misused the funds is reduced. Where the proceeds of a sale/divorce accumulate a large deposit in the client account, solicitors and law firms must be mindful of their duties under the SRA rules.

Practical steps when using escrow in divorce asset sales

For divorcing couples (and their solicitors/advisers) considering an escrow solution, here is a roadmap:

1. Agree sale and net‑proceeds scenario
   Before or at completion of the sale of the matrimonial asset, the parties (via their advisers) should agree the net proceeds position, after costs, tax and liabilities.
2. Draft an escrow agreement
   The escrow agreement should be drafted by the parties and their advisers and should include key terms: amount to be paid into escrow, what conditions trigger release (for example, a sealed financial order or consent order), who pays escrow fees, how disputes are resolved, what happens if one party fails to cooperate.
3. Select an escrow provider
   A neutral provider (a specialist escrow agent like us) should be engaged. The provider must have experience with legal/family situations and high‑value monies, and should be able to demonstrate robust governance, safeguarding and segregated accounts.
4. Deposit of funds
   On completion of the sale, the sale proceeds are paid into the escrow account rather than a solicitor’s client account. The funds are segregated and held under the escrow agreement.
5. Manage the interim period
   During the period until the financial order is made or agreement is reached, the escrow provider ensures proper records, and communicates with the parties/advisers as needed. Our online portal allows each party and their advisors to log in and check on the status of the funds at any time.
6. Release/disbursement
   Once the conditions are met (for example, the court‑sealed financial order is lodged, or both parties agree and sign off), the escrow provider disburses the funds according to the agreed split or instructions.
7. Fail‑safe provisions
   The escrow agreement should provide for events such as non‑cooperation by one party, failure to meet a deadline, or dispute between parties. The escrow agent should hold instructions for such eventualities (e.g., most usually, freeze and await court direction).

Typical scenarios where escrow is particularly beneficial

Several common circumstances in the divorce domain make escrow solutions especially appropriate:

• One spouse is reluctant to allow the other spouse’s solicitor to hold the sale proceeds for reasons of perceived bias or trust issues.
• The sale completes significantly before the financial order (or settlement agreement) is approved, meaning funds must be held safely for a period.
• There is uncertainty or complexity regarding the future distribution of the sale proceeds (for example, holding back for tax liabilities or further contributions).
• High‑value or non‑routine assets are involved (such as property, shares, art, aircraft) and parties require a clearly documented, neutral holding mechanism.

How bespoke escrow services from dospay can meet divorcing couples’ needs

At dospay we offer tailored escrow services designed for precisely the kinds of situations described above. For divorcing couples and their advisers, dospay can provide:

• A genuinely neutral escrow account holder, independent of either party’s legal adviser, mitigating concerns around solicitor‑client account handling.
• Customisable escrow agreements to reflect the specific conditions of release (for example, the signing of a consent order, or completion of a payment mandate).
• Transparent reporting and governance, with full audit trail of deposits, holding and disbursements - providing comfort to both parties and their advisers.
• Flexibility as to the timeframe of holding and dispute protocols.
• Support for high‑value funds or non‑standard asset sales, recognising the needs of family offices, significant wealth‑holders or complex matrimonial portfolios.

By utilising a specialist service such as dospay, divorcing spouses and their advisers can avoid the regulatory and trust pitfalls associated with solicitor client accounts, and ensure the sale proceeds of matrimonial assets are held with precision, neutrality and documented clarity.

Conclusion

In divorces where significant matrimonial assets are sold ahead of financial settlement, the period in which sale proceeds must be held demands careful structuring. Relying solely on one party’s solicitor to hold the funds may introduce trust issues, regulatory exposure and timing risk. A third‑party escrow service offers a robust alternative: neutrality, clear conditions for release, governance and flexibility.