Financial Settlement in a Divorce – a Solicitor’s Guide 🏠💔
Jun 12, 2020 | Christopher Dolton
The division and distribution of finances and other assets can become a particularly fraught and acrimonious part of the divorce process. If an application has to be made to the court to resolve the issue of financial settlement in a divorce, the judge will decide the matter having regard to the factors the law requires be taken into account; however, that leaves the judge with a wide discretion as to who is entitled to what. The Court’s decision will be made on a case-by-case basis, and only after consideration of a wide variety of influencing factors.
What is a financial settlement in a divorce context?
Financial settlement is the point in the divorce process at which the distribution of assets and other financial agreements, including ongoing support, are decided upon and recorded as a binding financial order.
Sometimes a financial settlement can be agreed upon without the need for the Courts’ intervention. In these cases, a period of negotiation and financial disclosure between solicitors can be enough to arrive at an accord.
In other cases, negotiations will not be possible. There are many reasons why a couple might not be able to agree on a financial settlement in a divorce, but the next step is always the same: in cases where mediation and negotiation fails, it falls to the Court to reach a resolution.
How are assets split in a divorce?
The basic guidelines the Court will follow when deciding the division of assets are set out in section 25 of the Matrimonial Causes Act 1973. This section begins by addressing the most important factor to be considered in a divorce case: whether the case involves dependent children. If it does, the Act states that the Court must make the needs and welfare of the children the first point of consideration.
Following this rule, section 25 of the Act sets out a number of matters that the Court may have regard to when exercising its powers. These include:
a) Current and future financial assets: the Act states that “the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future” will be considered. This process begins with financial disclosure submitted by both parties to the Court. Existing assets will be valued, and the Court will also consider how earning potential might change in the future – for example, if one party has to reduce their working hours to meet their responsibilities as a single carer for their children. If either party is cohabiting with a new partner, their partner’s financial status may also be considered.
b) Current and future financial needs: as with future earning potential, the Court will attempt to account for the future financial obligations each party will likely have. Primarily this means the cost of re-housing each party – which will be particularly important for whoever will be taking primary care of any children. The Court will ask for a breakdown of estimated outgoings from each party to help them account for this.
c) The family’s standard of life before the breakdown of the marriage. The court must try and maintain for both parties the same standard of life enjoyed during the marriage – in so far as this is possible – unfortunately, in reality divorce usually means that it is not possible to maintain this standard and a fall in the standard of living for both parties is often inevitable.
d) The age of each party and the duration of the marriage. In the case of short marriages, pre-marriage contributions become more relevant. For a younger couple who have no children and have only been married a short time, the Court may, depending on needs being met, settle upon a clean break order – an order that prevents either party from making a financial claim on the other. For older parties, childcare, pensions and earning potential all become considerations.
e) Any party’s physical or mental disability: this is often not a relevant factor, but when it does come into play the Court will usually require supporting medical evidence to be provided by a GP or consultant.
f) Contributions any party has made to the welfare of the family: this can be a particular point of contention between divorcing parties. One thing that the Matrimonial Causes Act does make clear is that the definition of contributions includes “any contribution by looking after the home or caring for the family,” meaning that in instances where one party worked and one took on homemaking responsibilities in a marriage, the Court will consider them equal contributors. Things become less clear where one party has brought significant assets into the marriage, amassed assets since separation, or has acquired inheritance during the marriage. In these instances the Court will consider the needs of each party, the length of the marriage, whether the assets have already been intermingled with matrimonial assets, and any other relevant factors.
g) Benefits any party is likely to lose access to following the divorce: this usually relates to pensions, which are covered in more detail below.
h) The conduct of each party: this is very rarely taken into account unless the Court considers that it is an exceptional case in which it would be unfair to disregard the conduct in question due to its seriousness.
The act defines similar considerations to be made in regard to any dependent children involved: their financial needs and resources, any physical or mental disabilities, and their current or future education needs.
What are your rights to property after separation or divorce?
There is no straightforward formula for determining what happens to a shared property after divorce. The starting point in terms of entitlement is equality, but the judge will consider all of the factors outlined above, any one of which may result in the actual division being something other than equality. The most important factor is usually each parties’ housing need and their ability to meet it. The economically weaker party may need a greater share of the assets to meet his or her needs, especially if he or she has additionally to house children.
It’s important to note that like other aspects of the financial settlement, once the Court is involved they can exercise their power to block or force the sale of a property or decide on the distribution of proceeds from a sale. In cases where a property is held in only one party’s name, for example, the Court can help to protect the other party from losing out if they feel it necessary, although in cases where someone doesn’t have their name on a property’s mortgage, it is always best for them to try to protect their position as soon as possible themselves by notifying the Land Registry of their interest.
How is a pension split in divorce proceedings?
In longer marriages the question of what happens to each partner’s pension becomes a significant consideration. Pension arrangements are usually dealt with by the Court in one of three ways:
1. Pension sharing: one party is given a percentage share of their former spouse’s pension pot, which is transferred as a lump sum.
2. Pension offsetting: one party retains their pension, but in exchange gives up their claim on another asset, such as the family home.
3. Pension attachment: in this arrangement, a portion of the pension is paid regularly to the other party, similar to a maintenance payment.
These options only relate to private pensions: government guidelines state that the basic state pension cannot be shared if a marriage or civil partnership ends.
How Elite Law Solicitors can help
Christopher Dolton is a solicitor in our Family Law and Divorce team and can provide specialist legal advice in relation to financial settlement in a divorce.
If you have any queries relating to any of the issues discussed in this article, please get in touch with Christopher by calling 0800 086 2929, emailing email@example.com or completing our Free Online Enquiry Form.
The content of this article is for general information only. The information in this article is not legal or professional advice. If you would like legal advice you should contact a qualified solicitor, such as those within our firm.