Most separating couples are understandably concerned about what they are entitled to on divorce. This article aims to set out the applicable law and process used to reach a financial settlement.
To a greater or lesser degree, most marriages involve some level of financial interdependence. One of the objectives on divorce is to unravel the financial ties between husband and wife as far as possible. However, it is not always practicable to bring interdependence to an immediate end, because the financial effects of having shared lives may be long-lasting. Shared responsibilities often continue well beyond the point of divorce.
What orders can the Court can make?
On divorce, a husband and wife have potential claims against each other in respect of capital, property, pension provision and income/maintenance.
The Court can make various orders in relation to both capital and income as follows:-
- A lump sum order;
- An order for sale of a property or shares;
- An order for the transfer of property or shares;
- A pension sharing order. Such claims can be dealt with by setting off the capital fund against other assets as part of an overall settlement or by sharing the pension funds themselves by way of a lump sum and/or maintenance. It is usually a feature in medium to long marriages where one party has a sizeable pension fund with the other party having little or no pension fund;
- Periodical payments for one of the party’s (spousal maintenance).
Orders are often combined in a bespoke, fact-specific way to ensure that a fair outcome is achieved.
Financial claims do not simply come to an end upon divorce and can only be finally settled by the making of a financial order within divorce proceedings.
How do I reach an agreement?
A financial order can be agreed between the parties by consent. Financial negotiations should take place “in the shadow of the law”. Both parties should take legal advice so that they have a broad understanding of the likely outcome in their case. Good advice on both sides will steer the parties to a realistic outcome. Inadequate or inaccurate advice can lead individuals to waste time and money pursuing claims that have no basis in law, and vulnerable parties’ may inadvertently sign away significant claims. Negotiations can be meaningful only if both parties are equipped with a working of knowledge of the law as it applies to their situation.
Each party is entitled to full frank and unambiguous financial disclosure from the other. Ultimately this can be regulated by the Court if either party refuses to provide the required information and documentary evidence.
After there has been full and frank financial disclosure by both parties, a specialist family lawyer will be able advise on the applicable law and predict the range of possible outcomes that the courts could impose.
If the parties cannot reach agreement between themselves, then the court has the power to impose a solution, albeit after a lengthy court process.
In practice it often prudent for the court process to be initiated and for voluntary negotiations to take place alongside the court process. If agreement is reached then the court process is terminated by consent.
What does the law say?
English law allows the courts a wide discretion regarding the redistribution of assets of spouses on the breakdown of their marriage, regardless of origin and legal ownership of those assets. The courts are guided in their decisions by statute (the rules laid down by Parliament) and a substantial body of case law (the more detailed principles worked out by judges as they decide the cases that come before the courts).
Parliament told the courts what they should consider when dividing up resources but it gave them little guidance as to what weight the judges should apply to the different factors. Although it is frustrating for clients, there is no mathematical calculation that the Court uses to reach a decision of how to re-distribute assets upon breakdown of a marriage. The courts have wide powers to divide finances and property between partners in the interests of fairness.
Section 25 of the Matrimonial Causes Act requires the courts to consider the following factors:
- first and foremost, the welfare of any minor children of the family;
- the parties’ financial resources: income, property and earning capacity;
- the financial needs and obligations which each party has/is likely to have in the future;
- the standard of living enjoyed by the family prior to the breakdown of the marriage/civil partnership;
- the ages of each spouse and the duration of the marriage;
- any physical or mental disability of either spouse;
- the contributions made by each party to the welfare of the family, including financial contribution and contribution made by looking after the home or caring for the family;
- the value to each spouse of any benefit which one spouse because of the divorce will lose the chance of acquiring (usually pension provision);
- in exceptional circumstances (e.g. where one party has hidden assets, threatened another party in order to prejudice proceedings etc), the conduct of one party.
The case law is extensive, but the headline principles can be summarised as follows:
- The court should consider an equal division of assets built up during the marriage – unless there are good reasons not to, e.g. the marriage was of short duration, some property can be properly categorised as “non-matrimonial” (e.g. owned before the marriage, or acquired during the marriage by inheritance or gift.
- Financial and domestic contributions must be treated as being equal.
- The court can award compensation to any party who has been disadvantaged financially as a result of the relationship (most commonly, but not limited to, spouses who have taken time off from or left a career to care for children).
- The courts will consider whether the benefits of the marriage should be shared e.g. the future earnings of the spouse who has been able, due to the contribution of the other party, to forge a successful career.