What am I entitled to on a divorce financial settlement?
You may have noticed that Mediate UK’s tag line is “Find Your Future.” This is because our service is all about helping our clients agree a fair financial settlement on divorce or separation that puts the needs of any dependent children first whilst focusing on both your future needs.
Family law is very much set up the same way – it is your future needs, not your past contributions, that is the overriding factor in most divorce settlements in the UK.
The law relating to a financial settlement on divorce can be highly complex. One of the main reasons for this is that the Court has a very wide discretion in deciding who gets what. Other than for child maintenance, there is no accurate calculator that can tell you, based on your circumstances, what a fair financial settlement on divorce should be. This is very much deliberate – as each case, each family and each set of circumstances is likely to be different. For family law, unlike say, criminal law, the ambiguity is deliberate and regarded as a positive.
The law itself is very general in that it merely provides a list of what the Court may take into account. This list is derived from Section 25 of the Matrimonial Causes Act 1973.
The decisions made in previous cases in England and Wales can sometimes be helpful in showing how the Courts have applied these Section 25 factors. However, every case really is different and previous cases usually provide no more than general guidance.
The reality is that there are very few hard and fast rules in deciding who gets what on divorce. The upside of this is that the Court retains a great deal of flexibility to enable it to make whatever order is deemed to be fair on the particular facts of each case.
The downside of such a flexible approach is that this can sometimes create uncertainty in predicting the outcome of a case. The law cannot on the one hand be flexible and adaptable and yet still be rigid and clear cut. These factors obviously work against each other.
This is why it is perfectly normal for people going through a divorce or separation to get completely opposing advice on the same situation from different solicitors. And both solicitors would be correct in that differing advice. Similarly separate judges at court could give completely different judgements given the same facts.
All of this sounds very complicated and it is easy to see how some couples have spent hundreds of thousands of pounds, even millions of pounds, arguing their cases through the judiciary. It is little wonder that the courts and judicial system want to put the decision making back in the hand of the people affected by it the most, and are recommending family mediation as a method of dispute resolution when you cannot agree between yourselves.
So where does this leave you and your situation? How do you decide how to reach a fair divorce financial settlement?
Well, set against this background, there are some guiding principles which can be extracted from established case law and statute.
The main rules of division can be summarised as follows:
Fair division.On divorce, the aim is to divide the assets fairly. Fairness does not necessarily mean an equal division. What it does mean is that the parties must be left in the position of equal standing and that there must be no discrimination between the respective roles of breadwinner and homemaker - which are regarded as equal. In other words, the roles each party played in the marriage is not considered an important factor when agreeing a financial settlement on divorce. Instead, you should focus on what of you realistically need moving forwards.
Needs of children.First consideration must always be given to the needs of the dependent children. In practical terms, this usually means that accommodation must be provided for the children and, therefore, the parent who looks after the children for the majority of the time. In some cases, this will require one of the parents to retain the matrimonial home. Ideally if the available assets permit, the Court will always look to accommodate both parties. If both parents have agreed to share the child arrangements equally, then their housing needs are likely to be equal as well.
Section 25 factors.The starting point is an equal division of the assets. The Court is under a duty to consider all the circumstances of the case and in particular the Section 25 factors (see below) and then apply these to the facts of the particular case. Having considered the Section 25 factors, the Court may order an unequal division of the assets. The general rule – called the yardstick of equality is that assets should be divided equally unless there is a good reason to the contrary.
Future Needs.First and foremost, the Court will always look to meet the needs of each party to be accommodated. If these needs can be met from the available assets and if there is then a surplus, the Court may go on to consider dividing the remaining assets taking into account their origin. This may require dividing the assets into matrimonial and non-matrimonial property.
Matrimonial property comprises those assets that have been acquired during the marriage from the joint enterprise of both parties. Most assets in most divorces comprise entirely matrimonial property.
Non-matrimonial assets are those assets that have accrued outside the marriage ie. assets brought into the marriage by either party at the outset, assets that have accrued post separation or those assets that have been received during the marriage from a source wholly extraneous to the marriage. Examples of the latter include gifts and inheritances received from one side of the family. Once the reasonable needs of each party to be housed have been met, then any surplus may be divided unequally to take into account any unequal contributions.
The financial contribution made by each party is one of the Section 25 factors. In practical terms, this is only likely to be relevant in cases where the assets are substantial – as future accommodation need trumps the origin of the asset.
Financial Clean Break.Wherever practical, the Court will seek to achieve a financial separation between the parties. This is called a clean break. This means that there will be no ongoing financial links between the parties save for child maintenance, if relevant.
If a clean break cannot be achieved immediately, then the Court has the power to order spousal maintenance for a fixed period so as to achieve a clean break in the future. Very rarely, the Court may decide that a financial clean break is not possible and order spousal maintenance for life. In practice, most financial settlements are on the basis of an immediate clean break. But spousal maintenance should always be considered and subsequently dismissed if need be.
The section 25 factors
As stated above, the Section 25 factors relate to Section 25 of the Matrimonial Causes Act 1973.
Under Section 25, the Court has a general duty to take into account "... all the circumstances of the case".
The phrase 'all the circumstances' enables the Court to take into account whatever factors it deems to be relevant, even if they are not specifically referred to in Section 25.
So what are the Section 25 factors and how are they applied in practice?
Section 25 says that the Court must focus specifically on the following, where relevant:
- Welfare of the children.
- Financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future.
- 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.
- The standard of living enjoyed by the family before the breakdown of the marriage.
- The age of each party to the marriage and the duration of the marriage.
- Any physical or mental disability of either of the parties to the marriage.
- The contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family.
- The value to each of the parties to the marriage of any benefit which by reason of the dissolution of the marriage that party will lose any chance of acquiring.
- The conduct of each of the parties if that conduct is such that in the opinion of the Court it would be inequitable to disregard it.
Let’s now look at each of these factors in order
1. Welfare of the children
At the beginning of Section 25, the Court is directed to take into account the needs of any dependent children. This must be the 'first consideration' of the Court ie. the needs of the children always come first.
2. Financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future
Whilst the various Section 25 factors are not ranked in order of priority, if they were need would be at the top of the list.
In short, need trumps all other considerations. By far the vast majority of cases are decided solely on the basis of need.
The Court will always look to provide viable accommodation for the dependent children and the parent with whom they spend the most amount of time. In some cases, this consideration will consume all of the assets leaving nothing immediately available for the non-custodial parent. In this scenario, it is possible that an order will be made for a deferred sale of the matrimonial home, which is usually referred to as a Mesher Order.
If there are other assets available, then the Court will next look at providing accommodation for the other parent. Clearly, this is of great importance when the children will enjoy regular stays with the other parent.
In cases where there is to be a shared residence order, it may be argued that both parties have an entirely equal need in terms of accommodation. If the parties have similar incomes and resources then it could be argued that equal need plus equal resources results in equal outcome ie. an equal division of all assets, but this very much depends upon what assets are available.
In cases where the assets are substantial and far exceed the reasonable needs of each party to be accommodated, it may be that the other Section 25 factors will be of greater importance.
In considering need, the Court will always look at the respective incomes and outgoings of each household. This may require a detailed analysis of the budget for each household.
If one or both parties have remarried or cohabiting, or intend to do so imminently, the Court can take into account the new partner's income and resources. If the new cohabitee or spouse is to provide accommodation, then this can have a major impact on the ultimate outcome. If the needs of the divorcing party to be accommodated are met by their new partner's resources, then that party may find it difficult to claim a need to be accommodated using the assets of the marriage. This can cause difficulties in cases where the new relationship is short lived or where there is a factual dispute as to whether a party is in fact cohabiting.
3. 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
The income of each party is often a critical aspect of each case.
In considering income, the Court may take into account bonus and commission payments. The Court will often look at the history of such payments and assess what is likely to be received in the foreseeable future on the basis of what has been received in the past.
Courts will also take into account fringe benefits and perks such as company cars, petrol, payment of phone bills, pension payments, etc.
The Court will take into account not only the current income of each party, but also potential income. The general rule is that each party is expected to maximise their income. This can cause some difficulty where there are young children to be cared for. There are previous cases where the Court has decided that the parent with whom the children stay most of the time, should return to work when the youngest child attends secondary school, but there are no fixed rules in this difficult area and financial necessity may require both parents to work full time even when the children are young.
The income and potential income of the parties is also important in that it determines mortgage capacity, which is often a critical factor directly linked to providing accommodation.
Another common issue is the income of any new partner. The rule is that if a party has remarried or is cohabiting, then the new partner's income can be taken into account in so far as it releases more of the payee's income for maintenance to be paid to the former spouse or children.
Clearly, the value of the assets and financial resources of the parties are critically important. Whatever the needs of the parties, the Court can only divide the available assets.
The Court adopts a very wide definition of 'property'. It covers just about every kind of asset including real property and interests in property such as tenancies or contingent interests, savings, life policies, investments of any kind, trust interest, pensions, retirement annuity trusts, shares, business interests and chattels including contents of the matrimonial home, livestock, cars and any other assets of value.
Courts can also take into account not only the assets that each party has now, but also the assets that are likely to be received in the foreseeable future.
The issue of future inheritance may be raised by one or both parties. The general rule is that future inheritances are not taken into account. They are not guaranteed, families can fall out and the inheritance can easily be spent on care costs. Inheritance already given can be a contentious issue as well. There may be an argument that it is not a marital asset if it was gifted to one of you only and it has not been ‘invested’ into the marriage – e.g. spent on house renovations or holidays. However it can be taken into account if the needs from the available assets cannot be met.
The Court can take into account the value of a business. This includes sole traders, partnerships and shares in limited companies. The value of a business can be extremely important, particularly so after a long marriage and where the business is of significant value.
If the business is to be retained then it will need to be valued by a forensic accountant. This is usually done by way of a joint valuation. The valuation of a business is a complex exercise and the method used to value the business very much depends upon the nature of the business itself.
In practice, it is extremely unlikely that the Court would order the business to be sold or for the other party to be given a direct interest. The more common approach is for the business to be retained by one party and for the other spouse to receive other assets in lieu. The family business is usually the main source of financial support for the family and for this reason it will be preserved wherever possible.
Pensions are another asset that will be taken into account.
Pensions are valued on the basis of their Cash Equivalent Value (CEV). Despite its name, the CEV of a pension cannot be regarded as a readily available liquid asset. A pension fund is nothing more than an income stream over which the parties do not have much control. That said, in cases where there is a significant disparity in the pension provision for each party then this should be taken into account.
This is sometimes achieved by allowing the party with the lesser or no pension provision to retain a greater share of the other assets. As to calculation of the amount of the set off, this is something of a dark art for which there is very little judicial guidance. It is generally considered that a pound now is worth more than a pound in a pension fund – but age, future tax rate and health can all come into play. A barrister review can help to agree a fair off-set if you are unable to agree between yourselves. You should also consider advise from a Pension on Divorce Expert (PODE). A recent Pension Advisory Group (PAG) report warned against the fairness of mixing assets by way of off-setting. Expert advice is always recommended in such circumstances.
Further, offsetting assets is clearly not possible in cases where there are no other matrimonial assets to be divided.
Pension Sharing Order
This is where the court will order that a pension is shared now and a percentage is transferred into a new pension fund for the receiving spouse. It is recommended to take good financial advice when setting up a new pension fund as not all funds are equal and your age, job and health can all be factors to take into consideration. Some pension companies will split the pension fund within the existing fund. You should always contact your pension provider to see how they operate such requests to share a pension and what fees are involved. You will also need to agree how these fees will be paid.
Pension Attachment Order (Earmarking)
This is where the pension company will pay a percentage of the monthly payments to the other party when the pension comes into payment. It is rarely used and should take legal advice and financial advice if you are considering this as it may not be the best option for your situation.
4. The standard of living enjoyed by the family before the end of the marriage
This factor is usually only relevant in cases where the assets are substantial and far exceed the reasonable needs of the parties. In a needs case where all of the available assets are taken up accommodating one or both of the parties, the standard of living consideration is of lesser importance.
The reality of divorce is that the standard of living for both parties is likely to reduce.
However, in cases where the assets are substantial and where the parties were able to maintain a good or high standard of living during the marriage then this can be a relevant fact.
5. The age of each party to the marriage and the duration of the marriage
The age of each party can have an important bearing on the decision of the Court. If the parties are young and are financially independent, then almost certainly a clean break will be agreed so that there are no ongoing links between the parties.
Younger parties will also retain a larger mortgage capacity than those parties divorcing in their 50's or older. Mortgage capacity can be crucial to the issue of retention or sale of the matrimonial home.
The length of the marriage is also an important factor. The longer the marriage, the greater the obligations between the parties and the more difficult it may be to achieve immediate independence upon marital breakdown.
In the case of a short childless marriage, the Courts will generally seek as far as possible to return the parties to their financial position as it was at the time of the marriage and impose a clean break settlement. A clean break financial settlement may not be possible in the case of a long marriage, where one party has taken a career break to raise children and is now disadvantaged in the labour market with far less income and earning capacity. These factors should be taken into account in dividing the capital assets. If one party has a far greater income, the other party may receive a greater share of the capital as part of the balancing exercise required by Section 25.
In short marriage cases where there are young children, the shortness of the marriage may be of lesser significance. This is because the children will almost certainly restrict the ability of the parent who spends the most time with the children, in returning to immediate full-time work and thereby achieving financial independence.
What must also be borne in mind in considering the length of the marriage is that in some circumstances, the Courts can now take into account pre-marital cohabitation. There is case law which suggests that where the cohabitation moves 'seamlessly' into marriage, then this can be taken into account as one of the 'circumstances of the case'.
Recent case law W v H (divorce financial remedies) 2020 also raised the issue of fairness with arbitrarily ring-fencing or apportioning pension that was accrued before the marriage, when it may be required to meet needs - especially if the marriage is a long one.
6. Any physical or mental disability of either of the parties to the marriage
If either of the parties is physically or mentally disabled, then this may impact on income and earning capacity and also their accommodation needs, expenses and life expectancy. If relevant, all of these factors can be taken into account.
7. The contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family including any contribution by looking after the home or caring for the family
The Courts have on many occasions made it clear that the contribution of the parent in raising the children is entirely equal to that of the main breadwinner. The contribution of each party is seen to be entirely equal on the basis that there must be no discrimination. The Courts have made clear that domestic contributions should not be undervalued simply because they cannot be quantified in the same way as economic activity.
Contributions also cover assets brought into the marriage either at the beginning or monies or other assets received during the marriage by way of gift or inheritance by one of the parties. In practice this can be a very contentious issue, particularly in cases where substantial assets have been received from only one side of the family.
The reality is that need trumps contribution. First and foremost, the Courts will always look to accommodate the parties before taking into account the source of the assets. On this basis, contributions are only likely to be relevant only in cases where the matrimonial assets are substantial.
8. The value to each of the parties to the marriage of any benefit which by reason of the dissolution of the marriage that party will lose any chance of acquiring
This is one of the lesser factors but can be very relevant, especially in cases involving pensions. Upon death after divorce the surviving party will not be regarded as a widow. Unless specific provisions are made to the contrary, the survivor is unlikely to receive any entitlement under the deceased's pension. Any loss of pension rights on divorce must be factored into the overall settlement, so that the party losing out should be compensated by receipt of other assets or by way of a pension sharing order.
9. The conduct of each of the parties if that conduct is such that in the opinion of the Court it would be inequitable to disregard it
Conduct in this context means exceptionally bad behaviour. Many years ago, the English Courts decided that in dividing assets on divorce they would only take into account misconduct if it could be regarded as exceptionally bad.
In practice, conduct is very rarely taken into account in dividing assets on divorce. Whilst conduct may easily satisfy the test of unreasonable behaviour for the purposes of obtaining a divorce, this is very different from satisfying the test that conduct should be taken into account in division of the assets.
Examples of exceptionally bad behaviour include attempted murder, extreme violence or extreme child abuse. If you are considering using this factor as an argument for more of the matrimonial assets, you should definitely take good independent legal advice.
One of the common divorce myths is that the innocent party will retain all or most of the assets on divorce, where the other party has committed adultery or not behaved particularly well. This is simply not correct. Whilst such behaviour may be grounds for divorce, the Court will not take into account such conduct in dividing the assets. Some people find this concept unfair and will often plead that they are the innocent party. These arguments may well have great moral force but legally, they carry little weight.
Divorce Settlement Guide: What am I entitled to?
When facing divorce proceedings, whether as the one filing for divorce, or the respondent, one of the most concerning issues will be the divorce settlement. Divorce can be a costly process – especially if you are unable to reach an agreement between you. Understanding the 11 ways to reach a financial settlement on divorce, the advantages and disadvantages of each option and, ideally, agreeing which dispute resolution method(s) to try – even if you don’t agree on the divorce settlement, will save you both a lot of time, stress and money.
What are matrimonial assets?
Matrimonial assets, also known as marital assets, are the financial assets that you and your spouse built up during the period of marriage. This is different to non-matrimonial assets (see below).
Matrimonial assets can include the following when acquired during the marriage period:
- Family home
- Other real estate
- Cash in the bank
- Furniture & appliances
- Stocks, bonds and mutual funds
What are non-matrimonial assets?
Non-matrimonial assets are financial assets which were acquired before or after the period of marriage. Each of the examples above, if acquired outside of the marriage period, would be considered a non-matrimonial asset. They can therefore be treated differently to matrimonial assets.
Are non-matrimonial assets excluded from divorce settlements?
Not necessarily. A divorce settlement and division of assets will depend on various specific circumstances and pre-arranged agreements that might be in place.
Some non-matrimonial assets may be excluded from financial settlements, but this may not necessarily be permitted.
For example, a non-matrimonial asset such as an inheritance may be used during the period of marriage to buy a car, house or other asset. The resulting asset would be classed as a matrimonial asset. The issue of future needs, will be a more significant factor in determining whether non-marital assets should be included in a financial divorce settlement.
Common Questions on Divorce Financial Settlement
Are assets split 50/50 in a divorce UK?
Not always and this is a common misconception. It is not a rule that matrimonial assets must be split 50/50 on divorce; however, it is generally a starting point.
The court’s aim is to divide assets in a way that is fair and equal, but this does not necessarily mean half and half. A number of factors will be considered by the court, including:
The relative needs of each party – a spouse in an economically weaker situation may be judged as needing more as part of a fair settlement.
Child Arrangements – a spouse responsible for caring for children may be awarded more in order to ensure their wellbeing.
Future earnings – a spouse who has sacrificed career progression, and therefore future earnings, in order to care for children may be awarded more capital.
Matrimonial assets will be split equally to the best of the court’s ability; however, they will determine what can be considered ‘equal’ based on your circumstances.
Are debts matrimonial assets?
Yes, if you and your spouse have accrued any debts during the term of your marriage, these will also be split as part of your divorce financial settlement. This includes your mortgage, credit cards, overdrafts, loans and any other commitments.
It does not matter whose name the debt is in.
How to work out your assets on divorce
Before any discussions about financial settlements on divorce, you must first work out exactly what your assets are in the eyes of the court. Here are a few things to consider:
Property Value:This includes the family home and any additional properties owned. Also, be aware of your remaining mortgage balance and how much equity you have. Most people take the average of three estate agent valuations, but you may also need to have an independent surveyor value the property if it is a unique property, or if you cannot agree the value.
Total Debts:This includes your credit cards, any car finance, overdrafts or other financial commitments. It can include money you owe to friends and family.
Savings Accounts:Even if they have just a few pounds in them
Total Household Income:What is the disposable income of your household?
Valuable Items:Make sure to get any expensive items you own valued; this includes jewellery, cars, appliances, furniture and other household items.
Investments:If you have an investment portfolio, you should seek the advice of an independent financial adviser to get a valuation of your investments.
Money owed to you:If anyone owes you money, you are due a tax-rebate, financial claim refund, (such as PPI) or possibly a redundancy payout.
Do you legally have to declare all assets?
Yes. It is mandatory that all assets are declared before divorce proceedings get underway. This includes both joint and sole assets. Attempts to hide assets may result in the court penalising you in the financial outcome and when deciding on who should pay for legal costs. Such activity can be considered fraudulent and can even result in being sentenced to jail.
How do I protect my assets during a divorce settlement?
How matrimonial assets are divided is ultimately the court’s decision; they will seek to do so in a way that is as fair and balanced as possible. It is therefore difficult to ‘protect’ any assets.
If you suspect that your spouse may be taking unethical steps to hide assets before divorce proceedings get underway, there are a number of ways you can tackle this.
However, you should always speak to a solicitor and get tailored legal advice, and never make assumptions.
How do you make the financial divorce settlement legally binding?
To make your divorce settlement agreement legally binding, you should draft a consent order and get it approved by a court. This is important because, if your agreement is not legally binding, the court will not be able to enforce it, should there be any issues later.
The consent order can also ensure you both have a clean-break, depending on the divorce settlement you have reached.
What do I get in a financial divorce settlement?
What you will receive from a financial divorce settlement will be what you and your spouse, or a court, determines is fair. This may not necessarily be your ideal settlement; however, so expectations should be managed. A good way to do this is, if you are unable to do so between yourselves, is to try family mediation. The family mediator will work with you both to go through a tried and tested method of family mediation, that works in 90% of cases. Any agreement reached can be made legally binding through Mediate UK’s fixed fee consent order package.
How is the family home divided in a divorce?
For most divorcing couples who own a property, the family home is probably the biggest asset involved in any settlement. What happens to the family home can be one of the biggest causes of stress and friction, so it is important to understand how a family home is divided.
A separating couple will usually cease cohabitation ahead of the divorce proceedings – they will then often consider one of the following options:
Sell & Split:This involves both people moving out and selling the family home. This money, if sufficient, can then be split in order for each party to buy another home.
Buying Out:One spouse can arrange to buy the other out of the property, thereby making them sole owner.
Transfer Value:This involves one spouse transferring part of the property value from one person to the other. The departing spouse would no longer own any of the home but would maintain a stake in the home value. If sold at a later date, they would receive a cut.
Leave Ownership Unchanged:This would involve one partner continuing to live in the house, but actual ownership of the property remaining shared.
Mesher Order:This is exclusive to England and Wales and involves postponing the sale of the property until a later date, for example: when the youngest child moves out. The sell value of the property will then be divided as the court sees fit.
How is a mortgage split during a divorce?
During a divorce, a mortgage will ideally be split so that only one spouse ultimately has their name on it. This does not always happen and depends on the circumstances of the marriage.
If you are divorcing, you must continue to pay your mortgage, even if the family home is uninhabited. If you have a joint mortgage, you will have both taken equal responsibility for the repayments. This does not change if one or both of you moves out.
The following are some commonly chosen options:
- Sell the property and pay off the mortgage
- Continue to pay the existing mortgage
- Transfer ownership to one spouse
When does a financial settlement have to be reached in a divorce?
A divorce can be a lengthy process and there is no set point in this process when a financial settlement must be legally agreed. It is certainly advised that an agreement is reached before either spouse remarries. They should also be concluded before the decree absolute is pronounced as you could leave yourself open to issues on pensions etc.
Mediate UK strongly recommend that a settlement is negotiated and agreed, if possible, prior to the divorce proceedings. This will avoid any complications, delays or further legal costs. It can also help with the emotional side of the divorce – knowing where you will be living and how much you can afford to spend can help to relieve a lot of the worries and stress involved with the divorce process.
Our divorce packages include a solicitor to each to manage the divorce and a legally binding clean break consent order and this is all processed once you have agreed all the child arrangements and financial settlement for divorce.
Having it all sorted and agreed in principle beforehand means the court will be able to agree the financial settlement order shortly after the decree nisi is declared.
How do I stop a spouse taking money from a joint account before divorce?
It isn’t unheard of for a spouse to make large withdrawals from a joint account without your agreement ahead of a divorce. This may result in losing money. Be aware that you will also be liable for any debts that are run up in your joint account. Precautions can be taken, such as the closure of a joint account or cancellation of joint credit cards ahead of divorce; however, this can cause potential issues if your spouse requires money for living expenses.
If the bank is notified that the owners of a joint bank account are going through a divorce or separation it can decide to freeze the account until you both agree on how the balance (or debt) is to be settled.
If you have concerns that this may happen, you can ask the bank yourself to freeze the account, use family mediation to reach an agreement on what will happen, or take independent legal advice on the options open to you
Can we use a family mediator to agree a financial divorce settlement?
If you and your spouse are struggling to come to an agreement on a divorce settlement, a highly recommended course of action is to use a family mediator.
This can be particularly helpful if you and your partner cannot discuss your divorce without arguing, if you wish to avoid going through a lengthy and expensive court process, or if you simply wish to have an impartial but expert input to help guide you through the process.
What if we have a Prenuptial agreement?
A prenuptial agreement is a contract that a couple may choose to sign before they get married. Also known as a ‘prenup’ this sets out agreed terms relating to what happens to money and other assets in the event of a divorce.
If you and your spouse signed a prenuptial agreement, it is vital that you check it to ensure you are aware of everything that was pre-agreed. You should also make sure your family solicitor is fully aware of it and has a copy for their records and reference.
For more information on how prenuptial agreements work, we recommend getting a consultation with a suitably qualified family solicitor.
Are business assets included in a divorce settlement?
Yes, business assets can be included in a divorce financial settlement. As with all matrimonial assets, this will depend on your personal circumstances. If an agreement between you on a business cannot be reached, the court will determine what they believe to be a fair and equal split.
A family business is likely to be seen as a source of income rather than an asset in the same sense as a family home or savings fund. With this in mind, even if one of the partners has no involvement in the business directly, or did not build it up, they may still be entitled to some of its value.
One example of this is if a spouse offers matrimonial support, looks after children and in effect facilitates the work and success of the other through their business.
Will grounds for divorce affect the financial settlement?
It is unlikely that the particular grounds for divorce stated will influence the outcome of a financial settlement. Unpleasant behaviour or adultery will not generally have an impact on the divorce settlement.
Exceptions may be made for extreme behaviour and circumstances, such as violence or abuse which may have a lasting impact on one of you. Another example could be reckless or unfair spending or sabotaging of matrimonial assets.
What is spousal maintenance?
Spousal maintenance is money paid by one spouse to their former spouse after a divorce has been finalised. It is usually paid when one divorcee does not have a means to support themselves financially outside of the marriage – a common instance is following a marriage when one person was the sole earner.
Spousal maintenance payments may be required depending on the following factors:
- The ability of each person to support themselves and/or their children and to earn money
- Living standards pre and post-divorce
- Special needs or disabilities
- Length of marriage
- Age of divorcees
In simple terms, if after a long marriage, one partner has not been working or earning for a number of years, they will have more difficulty supporting themselves independently after the divorce.
In this instance, a divorce settlement may offer that person a percentage of their former spouse’s income for a period of time after.
Child maintenance is dealt with separately and is a different area of law.
What happens if a former spouse refuses to pay maintenance?
If you or your former spouse refuses to keep up with maintenance payments, a financial order may be issued by a court to the spouse refusing to pay.
The courts can issue enforced payments. One example of enforced payments is a requirement for the former spouse’s employer to automatically pay the other a monthly salary percentage.
If you are in a situation where a former spouse is refusing to keep paying maintenance, you should contact a solicitor for advice immediately and contact a family mediator.
Can a divorce be granted before financial settlement?
Yes. You can apply for a decree absolute before you have even started talking about the financial settlement. But it is not recommended. Ideally you will both have reached an understanding on the divorce settlement prior to starting the divorce process, but if you are unable to reach agreement, you can file an application to court for a financial order once the decree nisi is pronounced. You will need to show the court you have at least considered family mediation, by attending a MIAM before you can submit such an application, unless one of the 15 exemptions to a MIAM exists.
Example of a Financial Settlement on Divorce
Martin and Angela had been married for 12 years. They co-habited for 3 years before that and have two boys aged 8 and 10.
Martin earned £45,00 per year as an engineer and Angela earned £16,000 per year working part-time for a design agency. They used family mediation to reach an agreement.
They agreed the children would stay primarily with Angela but see Martin twice per week and more during the school holidays.
Step 1: Assets
They have a 5-bedroom family home valued at £550,000. After mortgage and cost of sale, there would be approximately £300,000 equity.
They have £26,000 in savings
Martin has a pension valued at £250,000. Angela has a pension valued at £25,000
They made a full financial disclosure, but had nothing else of significant value.
Step 2: Non-marital Assets
Martin had been gifted a watch from his grandfather that was worth £8,000. He had disclosed it as an asset but they agreed it was not a marital asset.
Step 3: How to divide up fairly
They agreed Angela needed a 3-bedroom house. Her mortgage capacity, once she had claimed universal credit and child benefit and child maintenance was £85,000.
Martin could borrow £202,500 on a new mortgage. They both wanted a 3-bedroom house, so the children could have their own rooms at both parents’ properties. A 3-bedroom house in the same areas as their school cost £320,000.
Angela – Needed £320,000 less £85,000 mortgage = £235,000
Martin – Needed £320,000 less £202,500 = £117,500
As they needed more in funds (£352,500) than they had in realisable assets (£326,000), Martin agreed that he would buy a smaller 2-bedroom property and get a bunk bed for the boys. He purchased a 2-bedroom house for £280,000.
They agreed to divide the pension up 60/40 in Martin’s favour to reflect the fact he was taking less of the marital assets now (pension offsetting).
Step 4: Future budgets and Sense Check
They both calculated their future budgets based on these arrangements. Martin had high mortgage costs, but earned more. After meeting his reasonable needs and child maintenance costs, Martin had £300 left over each month. Angela had a monthly deficit of £180 per month on her reasonable budget. They agreed that Martin would cover this shortfall of £180 from his surplus budget, for three years, until their youngest went to secondary school and Angela was confident she could then increase her hours at work.
Sorting out a financial settlement on divorce is not as straightforward as a simple 50/50 split in many cases. If you focus on your future needs; see it as a problem solving exercise that you both need to work on and look forwards, not back then you are more likely to reach an agreement between you. If not, then family mediation can certainly help in most cases, leaving you more money in the family pot and therefore more options. Going to court should always be regarded as a final option due to the costs, stress and time involved.
Mediate UK are an award winning business and the top-rated family mediation service in England & Wales. If you reach agreement through us, we can also help you make it legally binding, saving you time and money.
This ultimate guide has been produced by Ali Carter Dip M.(B.inst) F.inst.Pa.
Ali is the Managing Director of Divorce Ltd, a Mediator, Divorce Negotiator and has been previously through a divorce himself. He has helped clients in over 2000 divorce or separations since 2010.
Find out more about family mediation to resolve your financial settlement