Financial Settlements on Divorce – A Practical Guide

A. Principles Which Deal With The Division Of Assets On Divorce

As every marriage is different and therefore as every divorce is different, no rigid rules apply to the division of assets on divorce. The law is very flexible as it has to be adaptable to every different kind of divorce. It is not the case that in every divorce the assets are divided 50/50. An equal division of assets may be appropriate in some divorces, but in others it will not.

As rigid rules do not apply, there are broad factors which need to be taken into account when considering the division of assets in every divorce. Those principles include the following:

• Welfare of the Children - where there are children, in each and every divorce they are the first consideration. In practice that usually means ensuring that the children's housing needs are met and that their day to day needs are also catered for. Where there are limited assets available, that will usually mean that the children's main carer (usually the wife) will receive most or all of the liquid assets of the marriage to enable them to re-house the children.
  
• Available Capital, Income and Other Resources – before any family solicitor can properly advise upon the realistic division of assets of divorce, the full extent of those assets needs to be identified. The home and other assets need to be valued. In the case of pensions, up to date valuations need to be obtained. The family court will not only look at the income of both the husband and the wife, but also their earning capacity. For example, if a wife is not working, there may be an issue about how much they could potentially earn if they were to return to work. Business assets will usually need to be valued. Financial support from parents may also be a relevant consideration. Where either the husband or the wife is in a new relationship and is cohabiting, their new partner's financial affairs may also be taken into account.
  
• Financial Needs – it is necessary to work out not only what the children will need to be re-housed, but also the re-housing needs of both the husband and the wife. Future income needs will also need to be calculated. It is usually necessary for each spouse to prepare a breakdown estimating how much they need to meet all of their outgoings on a monthly basis.
  
• Ages and Length of the Marriage – generally speaking, the longer the marriage, the larger the claims arising upon divorce. When looking at the length of the marriage, it is now usual to look at the date when any pre-marriage cohabitation started; it ends when the husband and the wife separated. Age is usually a consideration when looking at earning capacity and pension needs upon retirement.
  
• Standard of Living Enjoyed before the Breakdown of the Marriage – this is usually taken into account in the context of balancing the overall available assets and resources as against the needs of the husband, wife and the children.
  
• Any Physical or Mental Incapacity – although not relevant in most divorces, this can have a significant impact where it is relevant.
  
• Contributions – the role of a wife as a homemaker and mother is seen as an equal contribution to that of the husband as the breadwinner. In nearly all marriages, such contributions are viewed as the same. Contribution arguments are however relevant where either the husband or the wife had significant assets prior to the marriage or where significant assets have built up during the period of separation. The introduction of inherited assets to the marriage can also be viewed as a relevant contribution.
  
• Bad Behaviour or Conduct – this is rarely taken into account in a divorce unless the behaviour is extreme.
  
• Loss of Pension Benefits – now less relevant in the light of the court’s power to order pension sharing, this is something that could be taken into account on divorce.

B. Recent Changes In Divorce Law

The checklist set out above has been in existence since the early 1970s. It is interpreted quite differently now to have it was interpreted in the 1970s. High-profile divorces often lead to the law being changed. The most significant divorce case is White v White in 2000 and was followed by the divorce cases of Miller v Miller and McFarlane v McFarlane in 2006.

Since White v White in 2000, the court also has to consider the “yardstick of equality”. That does not mean the assets of the marriage are divided equally in every divorce, but where certain factors apply, there is a strong argument for an equal division of the assets of the marriage. A 50/50 division will usually take place in the following circumstances:

• Where the assets of the marriage are large and are therefore sufficient to meet the housing needs of both the husband and the wife
  
• The assets were built up during the course of a marriage.

Issues also arise on what are “matrimonial assets” which should be divided equally. This is an uncertain area of the law at the moment. Arguments often arise over whether assets owned before a marriage should be viewed as matrimonial assets and the same issues arise over inherited assets or assets built up during the period of separation.

C. Power of the Court On Divorce

Family courts have surprisingly limited powers to make financial orders on divorce. In simple terms, a family court can only order the following:

• Payment of Lump Sums – the court can order one person to pay to the other a lump sum or a series of lump sums. For example, the court could order the husband to transfer to the wife his interest in the matrimonial home and for the wife to pay the husband a lump sum by way of exchange. A husband may pay to his wife a lump sum instead of paying her future maintenance.
  
• Sale or Transfer of Property – the court can order the sale or transfer of all forms of property, although the most common is the family home. The court could order for the property to be sold and also state how the proceeds of sale are to be divided. The court can also order for the property to be transferred from one person to the other.
  
• Spousal Maintenance – the court can order one person to pay to the other maintenance. It is most common for the court to order a husband to pay maintenance to their wife. The maintenance can be paid for joint lives, until the wife’s re-marriage or for a fixed period of time. In many cases it may not be appropriate for the husband to pay his wife spousal maintenance in which case the court will order a “clean break”.
  
• Pension Sharing – since 2000, the court has had the power to order the division of pension policies. For example, one of the husband’s pensions could be divided in two, with half of his pension being transferred into a new pension fund for the wife.
  
• Creation or Variation of Settlements – although this is quite uncommon, the court can vary family settlements / trusts if they are nuptial settlements. The court can also create settlements in respect of family property, for example, ordering that the family home remains in joint names until, say, the youngest child reaches 18 at which point the property would then be sold.
  
• Child Maintenance – the court only has limited powers to make orders in respect of child maintenance. Where a figure for child maintenance is agreed, the court can rubber stamp that. If there is a dispute over the level of child maintenance payable, then either parent needs to apply to the Child Support Agency (CSA).

D. Procedure to Obtain A Financial Settlement On Divorce

• Voluntary Disclosure – in most divorces an agreement can be reached with the help of solicitors that financial information will be produced on a voluntary basis. It is usually necessary for both the husband and the wife to provide full details of their finances to include such items as bank statements, payslips, P60s, pension valuations etc. Once financial disclosure has been exchanged, it is then usually possible to reach a negotiated settlement through solicitors.
  
  Once a settlement has been agreed, that can be converted into a court order. Only an order made by the court within divorce proceedings constitutes a final and binding agreement. Orders can be made by the court without the need for any attendance at the court itself.
  
• Court Procedure – in some divorces either the husband or the wife may not be willing to produce their financial disclosure on a voluntary basis. In other divorces it may be impossible to reach an agreement. In either case, an application can be made to the court to timetable the financial process. This is known as an application for “ancillary relief”.
  
  The court process is slow and can take at least 12 months to go from beginning to end. If a prompt agreement cannot be reached, at least the court process guarantees that progress will be made. Negotiations usually continues throughout the court process and as soon as an agreement is reached, a court order can be made and the court timetable is automatically brought to an end.
  
• Collaborative Law and Mediation – Collaborative Law is a relatively new process which has arrived from the United States. The idea is that the husband, wife and their solicitors should enter into a binding agreement which commits them to reaching a financial settlement and which prevents them from applying to the court. Negotiations are carried out in four-way meetings with the husband, wife and their solicitors present. The negotiations should focus upon the wishes and needs of the couple and their children.
  
  A further option is mediation. A mediator is usually a trained family solicitor. The husband and wife would attend a series of sessions with an independent mediator who will try and assist them in reaching a negotiated settlement.
  
• Interim Financial Arrangements – if one spouse is failing to support the other, an emergency application can be made to the court for an order for “maintenance pending suit”. That is an order that one spouse pays to the other a fixed monthly sum until the divorce is brought to a conclusion. Such a remedy may be necessary where, for example, the mortgage is not being regularly paid.
  
  Where there is a risk that one spouse may be trying to hide or dispose of assets, the court can also make orders for injunctions freezing assets until the divorce has been concluded. The court will however only make injunction orders where there is good reason to do so.

Call 0870 164 2372 now for a consultation with a Pannone Divorce Solicitor or Lawyer.