There are various reasons why you might want to delay issuing divorce proceedings, from not wanting to have to apportion blame to the cost of dealing with matters. However, there are several very good reasons why you should avoid delay if at all possible, some of which we will explore below.
The process of divorce separates you from your spouse, however this does not mean you are completely separated. Unless you obtain a financial order from the Court, you may still be financially linked to your former spouse and you are vulnerable to them making an application for financial remedy.
In terms of a financial link, this could be anything from joint bank accounts to joint loans or credit cards. For example, if you have separated from your spouse and they have agreed to take over payments of a joint debt, you are still vulnerable as creditors will look to recover any debt from you in the event of a default. Further, if you have a joint account and your spouse incurs an overdraft, you will be jointly liable for this debt.
Turning to the situation where you remain married or where you divorce but do not deal with the finances, you remain vulnerable to a claim from your former spouse. Even if you have limited resources now, your financial situation may improve or you may come into a lottery win or a large inheritance in the future. While there are arguments to exclude post-separation wealth, the court has a wide discretion and the only way to be completely sure you are protected is to deal with your finances by making an application to the court.
While you may know your spouse very well, in our experience you can never tell how a person will react when it comes to divorce and financial separation. Even the most placid person can react in unexpected ways when faced with the potentially emotionally charged situation brought about by a divorce.
One of the main risks is one party dissipating matrimonial assets. Essentially this involves either disposing of assets with the intention of reducing the value of matrimonial assets available for distribution or being reckless as to whether the value reduces through disposition.
In the situation where the assets available for distribution are substantial, it is possible for the Court to correct this misconduct by awarding party 1 a larger percentage of the remaining assets to equalise them based on party 2’s dissipation. However, where the assets available for distribution are not as vast, there are often not sufficient assets remaining in order to do this.
While there are remedies available through the Court to rectify the situation, the simple fact of the matter is that if the money is not there it cannot be distributed. You would therefore likely have to wait for a substantial amount of time to be put in the position which would have been easily achievable prior to the dissipation of assets. Further, there is a substantial cost to dealing with dissipated assets in court and you may not be able to recover these costs from the other party.
Capital Gains Tax (CGT) is payable when you transfer an asset, such as a property, if there has been an increase in its value from the time you purchased it to the time you transfer it.
Transfers between spouses are usually exempt from CGT, however this is not the case for separated spouses. If spouses are separated, exemption from CGT is only available in the tax year of separation. If the property transfer happens after that, there may be a CGT liability.
You should always seek advice from an accountant in respect of your tax liability.
This may seem like an obvious point, but it is one worth making. Until you are divorced you can never fully move on with your life, there will always be that connection to the past which stays with you.
Further, while it may seem like the last thing on your mind at the time of separation, many people go on to meet someone else and decide to re-marry. While some websites promise a “quicky divorce”, this is a myth. The current average time to obtain a divorce in England and Wales is 53 weeks due in part to fixed time frames in law which must be complied with. You do not want to be in the situation where you have to put your wedding on hold to deal with your divorce.
A word of warning here, if you divorce without dealing with your finances and then subsequently re-marry, you fall into what is known as the “remarriage trap”. This means that you are barred from making an application to the Court to deal with your finances, however this does not mean that your former spouse is also barred.
It is therefore important to deal with both the divorce and the finances at the same time, even if you do not have any substantial assets to deal with. Entering into a clean break consent order now will cost substantially less than if your former spouse issues a claim for financial remedy further down the line and you have to engage in Court proceedings.
Austin Kemp is a specialist family law firm with years of experience in dealing with divorce and finances. We are able to advise you on the best way to deal with your matter and can support you through the process to ensure that you are fully protected. Contact us today on 0845 862 5001 to chat to one of our solicitors who will talk you through the way we can help you.