A guide to financial divorce settlements

When a marriage breaks down, one of the most fraught and potentially acrimonious issues is reaching agreement over the division of finances.

The law on financial settlements is complex. English family courts have a wide discretion, and each case is considered on its own circumstances. The law is designed this way to provide the courts with the ability to provide the best outcome for each family. While this means that there are no set rules, which can seem daunting, it does give the court flexibility to make the order it deems fair in the particular circumstances. The starting point is to consider what financial assets and income you have between you, then what you will each need in the future and how those needs will be met.

In this article, family law partner Isobel Mundy explains the approach the court take towards divorce settlements.

Financial remedy orders

Financial settlements can be agreed directly between spouses. However, if the spouses cannot agree or would prefer for it to be dealt with by the court, one spouse can make an application for a financial remedy order. If the court has decided on the financial settlement, it will make it binding by recording that settlement as an order.

If a settlement is made by agreement, while it is not strictly necessary to have a financial order, the agreement can still be recorded and submitted by consent to the court, which is then approved.

Without such an order either party may still make financial claims against the other, even many years after divorce.

Matrimonial assets

All the matrimonial assets (i.e. those acquired during the marriage by both spouses) are considered during the settlement and the usual approach is for these to be shared equally unless there is a good reason not to do so.

Both parties must disclose all financial resources, including property and business interests, savings and investments, pensions and income from all sources with documentary evidence, for example, property valuations, business accounts, bank statements, evidence of pension transfer values and payslips.

The parties must also provide a detailed budget and evidence of housing and any other capital needs – for example, the provision of a car or funds to refurbish a new home. Other information required by the court relates to the background of the marriage, respective roles and contributions, noting that the roles of ‘earner’ and ‘homemaker’ are regarded as equal, and of the standard of living during the marriage.

Deciding how to split assets  

Once a full picture of the matrimonial finances has been established, the judge will decide how to split the assets. Each case is judged on its own merits; however, the following is a summary of the court’s approach:

• The starting point is an equal division of assets against which the court is required to consider several statutory factors which may or may not result in an unequal sharing.
• The aim is to share assets fairly, leaving both spouses in a position of equal financial standing.
• First consideration is given to the needs of any children. Practically speaking, this means that while the court will try to house both parties, the priority is ensuring that children and the parent who looks after them for the majority of the time have accommodation. If both spouses care equally for the children, or if there are no children or they are now independent, then their housing needs are likely to be regarded as equal.
• There is a distinction to be made between ‘matrimonial’ assets (i.e. those acquired during the marriage) and ‘non matrimonial’ assets (e.g those owned pre-marriage or inherited). However, English judges have to take account of and do order property transfers, payment of lump sums and maintenance from any source, if such an order is necessary to meet a spouse’s needs.
• Likewise, there is no assumption/ formulaic approach to calculating maintenance which can be for a short term only or paid on a long-term basis. The court has the power to order capitalised maintenance where a one-off capital sum is paid by one spouse to the other.

Divorce proceedings

In order to make an application for financial remedy, one spouse must first issue divorce proceedings, for which it is necessary to satisfy the court that the marriage has broken down due to either adultery, unreasonable behaviour, desertion, separation for more than two years or separation for at least five years.

Jurisdictional requirements  

The court must also be satisfied that either one or both spouses are or have been habitually resident in England, domiciled in England and have lived here for six months or that both parties are domiciled in England.

Competing jurisdictions

If one spouse is not a UK national, it is important to consider the possibility that divorce proceedings could be commenced in another jurisdiction, taking the authority for financial issues away from the English courts. The approach of the English courts is very different to that in other countries and can mean potentially that one spouse is disadvantaged. It is important in such circumstances to investigate fully the approach of the relevant country and to consider whether urgent divorce proceedings should be commenced in England or whether the other jurisdiction would be better in the circumstances.

If you are considering or ready to start divorce proceedings, please contact Isobel Mundy to discuss your position and how best to move forward.