Financial Settlements in a Divorce

Thanks to the adoption of the no-fault divorce laws in England and Wales, no one has to take the blame once a marriage is over. Therefore common concerns like who will cater for the children, where you will live and who gets which property does not have to be a hassle. This should shorten the divorce process and minimise its chances of being problematic. It could even ease your financial burden in the long run.

A divorce financial settlement refers to the official agreement between you and your ex-spouse on how you will divide your financial resources once the divorce is finalised.

The financial statement spells out how the funds will function after the split. It is a binding legal document usually submitted to the courts for formalisation.

This comprehensive post will serve as your guide if you are wondering how to go about financial settlements in a divorce. We have outlined everything you need to know, including why you should get a financial settlement, its components, when you should agree, how the finances are divided, and where to get expert legal counsel. Let us get started.

Why Should You Get a Financial Divorce Settlement?

You may be surprised, but a divorce does not end the financial tie with your ex-partner. In fact, in England and Wales, you must have a consent order from the court to settle the divorce.

You should get an official financial settlement in a divorce to eliminate the chances of unresolved claims occurring in the future despite being separated.

That is why you should get a legally binding order detailing the financial settlements that you and your spouse have agreed to.

What Should You Have in a Financial Divorce Settlement?

Before you get your divorce financial settlement signed off by a judge, ensure you give evidence of the following:

• Income
• Pensions
• Assets and debts
• Investments, savings and shares

You can even decide to share a snapshot of your finances. Additionally, you must also state the financial terms of your separation agreement. For instance, you will have to clearly outline what will happen to the funds given for child support.

When Should You Agree on Finances?

Financial divorce settlements usually take place simultaneously with divorce proceedings. As you finalise them, it is best to consult our team of experts to put your best foot forward. Here is where you will realise that to obtain a consent order from the courts, you must offer a snapshot of your present financial situation and not how things stand at the time of the separation.

Reaching a financial settlement in a divorce will depend on how well you negotiate with your ex-spouse and the complexity of your financial situation.

Before you start sorting things out, you must receive the proper guidance and know your options to avoid financial problems. So you must be emotionally prepared to discuss how you will divide your resources and what this means for your future.

However, divorce can become costly and prolonged if one party feels pressured during the negotiations.
Organising your divorce financial settlement before remarrying or entering a civil partnership is also wise. Civil partnerships will affect the claims you make. You must remember that divorce termination and civil partnerships can take between 9 to 12 months.

How Are Assets Divided During a Divorce?

Before you determine how the assets will be distributed, ensure you first split everything equally. Then you can decide what’s fair and what each of you will need after the split.

Afterwards, a family law court will assess your agreement to ensure it’s just. Among the factors the judge will take into account are:

• Mental and physical disabilities affecting either party
• Your standard of living and expenses
• Family assets and finances
• You and your partner’s age
• Furniture and appliances
• Your marriage roles
• Marriage duration
• Business assets
• Income level
• Vehicles
• Debts

These assets are divided following directives from Section 25.

Section 25 Factors

According to Section 25, the court must pay particular attention to the following factors where appropriate:

The welfare of The Children

According to Section 25, the needs of the dependent children always come first. Therefore, the children are the topmost priority, with a contract outlining their housing and child support.

Inheritance

You or your ex may raise the topic of future inheritance. However, future inheritance is typically not taken into consideration because of its uncertainty. So when couples split, inheritance is sometimes spent on care expenses.

If the asset was given to only one of you and wasn’t spent in the marriage (for instance, buying a new house or a vehicle), it may not be a marital asset. However, it can be considered if you cannot meet the available assets’ needs.

Business

The value of a business may be taken into consideration by the court. This covers partnerships, limited businesses, and single proprietorships. The value of a firm might be crucial, especially if it has been in operation for a while and has a high market value.

A forensic accountant will need to value the business if you retain it. Often, a combined valuation determines this. A firm must be valued, which is a complicated process that heavily depends on the nature of the company undergoing valuation.

It is unlikely that the court will order the sale of the company or the transfer of direct interest to the opposing party, but one spouse can keep the business while giving their partner other assets in exchange. If the family business were the primary source of your income, it would be retained by all means.

Financial Resources and Earning Capacity

Every case depends on the parties’ respective incomes. The court may consider bonus and commission payments when determining income and then examine the past of such payments to determine what is likely to be received soon.

Courts will also assess extra benefits and privileges like business cars, gas, phone bills and pension payments. Your and your ex’s current and potential income will also be considered. Both of you are expected to maximise your earnings.

With young children to be cared for, this might be challenging. There are cases where the court ruled that when the youngest child enters high school, the parent with whom the children spend most of their time should return to work.

However, since each case is unique, the rules here are not set in stone. Sometimes, both parents need to work full time to cater for their financial expenses even when the children are young.

The parties’ current and possible incomes are crucial because they affect mortgage capacity, a critical element linked to housing. The wages of your current partner are also an issue. The rules dictate that the new partner’s income may be considered if a spouse is cohabiting or has remarried. It will free up more of the payee’s income for maintenance payments to the former spouse or children.

Since the parties’ financial resources and asset values are crucial, the court will distribute the available assets despite the parties’ demands.

Property, according to the court, includes assets, such as:

• real estate and interests in real estate, like tenancies
• savings
• life insurance
• investments of all kinds
• trust interests
• pensions
• retirement annuity trusts
• shares
• business interests
• the contents of a couple’s home
• livestock
• vehicles

You and your spouse’s current and potential assets are other factors that courts consider.

The Quality of Life You Enjoyed Before Separating

This factor applies when the assets involved are huge and beyond both of your needs. The standard of living element is not considered when all of the assets are only enough to accommodate your needs.
Most of the time, divorce usually lowers the standard of living of both couples. But this does not occur in cases where you and your ex have significant assets and can still maintain a high lifestyle individually.

Bad Conduct in One Spouse

When dividing assets during divorce, spousal conduct is often overlooked. Bad conduct is enough reason for you to file for divorce, but it will not be considered when dividing assets. Deplorable behaviour, in this case, includes attempted murder, rape, domestic violence, and child abuse. If you are a victim of any of these acts and want to retain assets, please seek legal counsel first.

Contrary to popular misconceptions, if one party was a victim throughout the marriage or was cheated on, they will not retain all or more assets. Even though this behaviour might cause divorce, the judge won’t consider it when splitting the assets.

Many consider this unfair and claim that they are an innocent victim. While it is a weighty matter morally, these complaints have zero weight legally.

The Benefit Value One Party Might Lose

Although it is one of the less important aspects, it is still imperative, particularly in the circumstances involving pensions. The surviving party shall not be classified as a widow upon death following divorce.
The survivor is unlikely to be granted any benefits under the late spouse’s pension unless stated explicitly to the contrary. Any pension rights lost during a divorce must be considered when determining the final settlement. The losing party must compensate by receiving other assets or a pension sharing order.

Domestic Contributions

The Courts have emphasised that each parent’s commitment to the children’s upbringing is equivalent to that of the primary breadwinner. Since there can be no prejudice, each party’s contributions are viewed as equal.

Domestic contributions are not weighed similarly to economic activity. In fact, the Courts clarified that you should not underestimate them. Contributions can include assets introduced into the marriage from the start and cash or other assets one of the parties received as a gift or inheritance throughout the union.

This is controversial, especially when significant assets have only come from one side of the family.
Need usually takes top priority over contribution. Before considering the source of the assets, the Courts will first consider each couple. Then they will look into the domestic contributions when the marital assets are considerable.

Disability

If one or both parties has a physical or mental disability, it will impact their income and earning potential, housing demands, expenses, and life expectancy. The court will carefully consider this aspect before concluding the financial settlement in a divorce.

Entitlement After the Divorce

Different factors determine what you are entitled to during a divorce. Since every case is unique, neither side is promised any particular entitlements.

Although every case is unique, here are some marital assets that you are liable for:

• Savings and investments
• Life insurance policies
• Child support and spousal maintenance fees
• Property such as family homes
• Pension
• Furniture and appliances
• Vehicles
• Businesses

These should be the assets you both acquired while married, otherwise known as marital assets.
On the other hand, the wealth you accumulate before or after the marriage is regarded as a non-matrimonial asset. If a prenuptial agreement were in place, it would protect these resources. Such assets include gifts and inheritances obtained from one side of the family.

You must divide the debts and loans you had with your ex-spouse throughout your marriage before concluding your financial settlement. This covers your credit card debt, overdrafts, and mortgage.

The Length of a Marriage

In most cases, the length of your marriage or civil partnership increases the likelihood that the judge will divide your assets evenly. But that is not always the case. The court will consider balancing your financial situation to accommodate you and your ex’s demands.

The judges will also consider the period you lived together before officially marrying. This is referred to as seamless cohabitation.

Long marriages and civil partnerships

Despite who provided the majority of the wealth, 50/50 shares are typical for couples who have had a lengthy marriage or civil partnership. Long marriages and civil partnerships are those that have been in existence for at least 15 years.

Short marriages and civil partnerships

A short marriage is one that lasts up to five years. If you and your spouse had equal wealth before getting married or entering a civil partnership and currently have comparable salaries, the court could:

• Seek to put you both back in the financial situation you were in before getting married or entering a civil partnership.
• Demand that you each retain your assets.

The court will aim to reach a “clean break settlement,” in which neither you nor your spouse has to fulfil any financial obligations to the other.

How Do You Settle Finances in a Divorce

There are two primary ways you can settle your finances in a divorce, namely:

Reaching a Friendly Financial Agreement

In the United Kingdom, you can agree on a financial settlement without consulting lawyers or mediators as long as your issues are not challenging. Such instances include not being married for long or getting along well with your partner.

But to formalise your arrangements in this DIY divorce, you must initiate dissolution proceedings. You should also obtain a consent order which will dictate how you divide your pensions, savings and property. The consent order will specify how your assets will be divided. These include child and spouse maintenance, house, finances, investments and savings.

When you have this copy, you must request the court’s approval by sending signed documents, which will cost you around 53 pounds. A solicitor must draft the consent order to confirm that it is legally binding. If you want to lower the costs while speeding up the process, you can use a less costly online solicitor service.

Disagreeing, So You Seek the Help of a Court

If you cannot agree on how you should settle your finances because your issues are complex, then consult a divorce attorney. Such instances include lack of communication, a long marriage and challenging financial hurdles. You can also apply for a court order to allow a family law judge to resolve the issue on your behalf.

There must be proof that both of you attended at least one mediation session for a court order to be valid. But if there were instances of domestic violence and involvement by social workers, then this process will not apply.

Remember that getting divorced in England and Wales will not prevent you from pursuing financial claims in future against your ex’s income. Due to a separate legal system in Scotland, however, divorcees cannot file a claim for financial support after divorce.

Child-Maintenance

If you have children, you and your ex-spouse are financially responsible for raising them until they reach at least 16 years old. If you cannot come to an amicable agreement, you should involve Child Maintenance Services.

They will help you decide who will live with the children and what payments each of you will be contributing, considering your earnings.

Suppose the parent responsible for child maintenance lives abroad, then you should ask the court for a child maintenance order. You can also apply for a court order if there are schooling costs to be made and the responsible parent is rich.

Spousal Maintenance

Spousal maintenance is the regular payment a spouse will give to their ex-partner who cannot live financially independently.

Here are some financial aspects to consider first before reaching a spousal maintenance agreement:

• The income that both you and your spouse make
• The amount the non-independent spouse needs for sustenance
• The earning capability of the non-independent spouse

If the marriage does not last for at least five years, spousal maintenance will not apply. In rare situations, one party can access it shortly under term orders. Spousal maintenance can apply for life if a couple was married for long or an ex-partner is unable to work.

If one of you quit your job to care for the kids, you will likely receive:

• 50% of the shared assets
• Half of the pension eligible to your ex
• A substantial amount of the ex’s income until their retirement

If you are a young couple who have not stayed long in marriage, you will walk away with what you came with.

Preparing for a Financial Statement

Before finally deciding on a financial settlement, you should organise your finances and agree with your partner on who will secure which possessions.

Joint Accounts

If you have credit cards, joint accounts and loans with your partner, consult your bank immediately if you decide you are separating. You can even request the bank to change your standard bank account setup or open a separate account for any pay or benefits.

You should also freeze your cards to minimise any risks of money mishandling. But you should not request access to that money anytime soon because your partner may refuse to unfreeze it.

You can decide to close your account if:

• You two have to agree on this.
• You must settle any outstanding debt

When you don’t do this, you will both have access to the funds and will be liable for the debt in case of anything. Remember, it will not be half each, but you will be responsible for the entire debt.

Warning: If your spouse is listed as a second card holder on your credit or store card, you are accountable for all of their purchases. If they often use a credit card, call your card provider but don’t deny them access to cash, especially if they rely solely on it. You do not want the divorce to be more unpleasant than it usually is.

Pensions

Pensions are separated differently. For example, you might get:

• A portion of your ex’s current pension fund deposited in your pension plan.
• The entire pension when your ex retires
• Amounts from other assets, such as the family house or your retirement savings. These may be used to balance the value of your ex’s pension.

Other Financial Matters

Apart from assessing your financial situation individually, it would be best if you also did it jointly. Evaluate your financial situation with these in mind:

• Your possessions
• How you will divide your assets
• The amount you owe each other

You will need to understand whether you will continue to pay your premiums, life insurance, mortgages etc.

How are Assets Divided in a Divorce Settlement?

In approximately ⅓ of all divorces in the UK, shared assets are valued between £500,000 and £1 million. Often, real estate accounts for the majority of these assets. The value of the assets is not always as significant as the property concerned, especially if it is the family home.

There are no set rules to how you can divide assets in a divorce settlement, but here are some guiding principles you can follow:

50/50 Division

Fair asset division is the goal of divorce. An equitable division is not equal ownership but that each couple should be treated equally regardless of who the sole breadwinner is. Whether a breadwinner or homemaker, you are similar in the laws’ eyes. When deciding on a financial statement, each couple’s roles are not considered but only what you require going forth.

Children’s Needs

In any situation, the dependent children’s needs always come first. You must provide for their accommodation, including the needs of the parent they will be living with. Sometimes, you or your partner may retain the marital home.

Depending on the available assets, the court will try to accommodate you and your ex-spouse. Often the housing needs of you and your ex are similar, especially if the parenting responsibilities were split evenly.

Future Needs

The court will first look at the needs of the family to be accommodated. After establishing whether the assets are marital or non-matrimonial, the judge will divide them. When accounting for unequal contributions, surplus assets may be split unequally after the housing needs of you and your ex are met.

Section 25

An equal distribution of the assets is the foundation for how assets are divided. The court will consider all the relevant circumstances, including Section 25, and then apply them to your case. The yardstick of equality states that, unless there is a compelling reason, you should share assets equally between you and your ex.

Clean Break

Some couples choose the clean break settlement to cut financial links. Here is where all financial responsibilities are discharged to stop ongoing economic ties within the parties. A clean break usually includes the sum for spousal support. This amount could be a one-time payment put into a savings account or channelled in a way that often provides income.

When the court mandates a clean break settlement, you and your spouse are released from financial obligations. Child support payments, however, cannot be included in a clean break agreement because they are a sensitive issue.

Mesher Order

A Mesher order is when the court postpones the sale of the family home, for instance, when your youngest child turns 18. This permits one of you to continue raising the children in the family home while knowing that you must sell the house after the trigger event.

Martin Order

If you have no children, the court can issue a Martin order. This order delays the sale of a property and grants one party access to the house until they get married or for the rest of their lives.

Does Cheating Affect a Divorce Settlement?

The reason for your divorce does not affect the financial divorce settlement. Therefore, the court will not rule that one partner should receive less if they cheat. If you find it challenging to find a solution to your dilemma, do not hesitate to seek a mediator for the way forward.

What Will it Cost to Appear in Court?

The amount you will pay going to court is determined by the number of appointments you require and whether there will be a final hearing. There is a set amount of £275 for legal fees, but it will vary based on the attorney’s experience and your area. The court hearing sessions can last between 6 months to one year.

However, it would be best to have more amicable arrangements between you and your ex to minimise your expenses on court costs. But you do not have to force the meetings, especially if your relationship was toxic. You are offered legal help to cover the court expenses in such a case.

The Declaration of Trust

When you purchase a property, there is a document you should sign referred to as the Declaration of Trust, otherwise known as a Deed of Trust.

It comes into play in the following ways:

• When several people are interested in a property
• It captures the records of everyone interested in the property
• Outlines each individual’s shares and what will happen to them. For example, if all owners want to sell or if one shareholder desires to buy out the other.

In the case of a partner with weaker earning potential, the court usually overturns the Declaration of Trust to meet their needs.

The incredible thing is that there is usually a postnuptial contract you can obtain to safeguard your property.

How Can You Protect Your Pension During Divorce?

• Your divorce financial settlements usually include your pension and are validated through a court order. Some of the ways you can handle court arrangements during divorce are:
• You receive a portion of your ex-retirement partner’s savings through the process known as pension sharing.
• Your former partner receives a portion of your pension. This is similar to receiving a maintenance payment from their pension pool and is termed pension attachment or retirement earmarking.
• A pension’s value is subtracted from other assets. This method of protecting your retirement is referred to as pension offsetting. For instance, your ex-spouse keeps the house, and you keep your pension.

Pension Sharing

In pension sharing, the pension of the sole breadwinner is typically the most significant asset in a marriage (second to the family home). It, therefore, needs proper consideration. Before December 2000, a divorced spouse who hadn’t worked during the marriage had no pension rights.

Due to the prompt division of pension funds, it often contributes to a clean break settlement. The court will divide the pension pool as part of a Pension Sharing Order. The amount to be transferred is established the day before the date on which the pension sharing takes effect. The scheme managers divide the pension as a percentage of a given amount.

Pension Attachment

Sometimes, the court issues pension attachment orders instead of pension sharing. Unlike pension sharing, there must be a pension scheme to pay the partner who is not a member. This amount could be a certain percentage of monthly portions or a flat fee when the scheme member retires.
A pension attachment has its drawbacks. For starters, if the pension scheme member passes away without life insurance and before retiring, it can prohibit a clean break settlement. This will result in the loss of monthly payments to the other party.

Can You Claim Property After Divorce?

A divorce does not end the financial links between two people. There isn’t a deadline for claiming possession of your ex’s property after the court verdict. Therefore, there is the risk of a former spouse filing a claim after the termination of the divorce.

To prevent this, you should acquire a financial consent order that the courts use to distribute resources following a divorce. Send an email to our experts at mail@austinkemp.co.uk for legal guidance.

Does Cohabitation Affect My Divorce Dissolution?

After your divorce or civil partnership dissolution, it’s crucial to know that cohabitating with a new partner or even thinking about it could impact how your divorce and dissolution settlement is resolved.
The family court may view cohabitation as proof that you have a secure financial future even if that is not the case. They can consider this when deciding how to divide the property and whether or not you qualify for maintenance payments.

What Part Does Prenuptial Agreements Have in Divorce?

Before starting a divorce settlement process, examine your prenuptial agreement to ascertain what you agreed on.

Your financial situation and what would happen to your money and other assets if you were to file for divorce or dissolve your civil partnership are covered in the prenuptial agreement.

This will apply if you and your partner signed the contract before marriage or entering a civil partnership.

You can contact our expert family solicitors for assistance.

Is There an Appeal for a Divorce or Dissolution Settlement?

Yes, you can appeal for a divorce or dissolution settlement. Due to the complexity of the matter, however, you should consult legal counsel before filing an appeal.

Do You Have to Pay Divorce or Dissolution taxes?

Paying taxes during your divorce or dissolution taxes will depend mainly on the following aspects:

• If you transfer wealth to your partner while married, you will not have to pay capital gains tax. But if you move the assets after your relationship ends, you will have to pay the taxes.
• If you transferred your family home, you are not eligible to pay taxes. Regarding the potential tax implications, you should get independent financial counsel.

What Significant Mistakes Do Couples Make When Settling a Divorce?

There are various mistakes spouses make when nullifying their divorce or civil partnership, including:

Not Seeking a Financial Order from The Court

You and your ex may formally agree to divide the marital assets, but you may fail to get a court-approved financial consent agreement. Even though a contract is in writing, it has no legal standing as a divorce settlement in the absence of an official court-approved order.

Not Consulting Legal Counsel

You and your ex must seek separate legal counsel whenever there are significant assets or complicated financial arrangements. You should not ignore this, especially if one of you is in a better financial position. Getting expert legal counsel can level the playing field and lower the risk of an unfair settlement.

Disregarding Sources of Income and Assets

It’s crucial to completely list all of your and your spouse’s assets and income before filing for divorce. Apart from the legal requirement for disclosure of all assets and income, failing to reveal some property items during your divorce can result in issues later on.

Neglecting All Options

You can handle divorce in various ways, and different strategies will work for particular couples. You and your ex-partner will not agree on every aspect of your divorce, so it would be best if you sought the way forward.

You might consider using collaborative law or mediation if you find it beneficial. Most parents don’t get full custody of their kids, so you should know your options. You should also know what works for you and still give your kids the best.

Short-Term Thinking

Sometimes couples consider their immediate demands over their long-term goals. For instance, you may continue residing in your marital home without realising that it can prevent you from receiving future spousal support or pension-sharing agreements.

Attempting a “Do-It-Yourself” Online Divorce

Many spouses look into the prospect of obtaining a “do-it-yourself” divorce online to minimise expenses, time, and disputes. They may appear more convenient, but online divorce packages do not give separating spouses all the necessary tools and resources.

Emotions

The divorce proceedings are often emotional. Thus, they may alter how you make decisions leading to poor choices in the long run. To prevent conflicts, blackmail or greed accusations, one spouse may agree to a lesser estimate of the actual worth of the assets.

Delaying Speaking to a Divorce Lawyer

You should consult a lawyer as soon as you decide to get a divorce to avoid all possible mishaps. You can avoid these pitfalls by planning, understanding the divorce process, and relying on the counsel of an expert. After all, a divorce settlement solicitor has been through the procedure enough to avoid making errors. It would help if you learned all you could before getting a divorce.

Settle Your Divorce Finances With Us!

Are you looking to dissolve your civil partnership or settle your financial divorce proceedings? Our family law divorce experts can resolve the matter for you.

Please do not hesitate to contact us so that we can provide you with quality advice on how you can confidently go about it. We will ease the load for you and smoothen the process.

Get in touch with our divorce solicitors today for a simplified and quicker divorce proceeding!