Financial settlement in a divorce: Everything you need to know

Divorce not only marks the end of a marital relationship but also begins the complex process of disentangling the financial interdependencies that have been built throughout the relationship.

A financial settlement in a divorce is a crucial component that ensures both parties can move forward with clear expectations and provisions for their future financial needs. This comprehensive guide explores everything you need to know about obtaining a financial settlement during a divorce.

Understanding financial settlements

A financial settlement in divorce refers to the legal agreement that dictates how a divorcing couple’s assets, debts, pensions, and other financial responsibilities are divided. Arranging a fair financial settlement is essential to prevent future legal disputes and to ensure that both parties’ financial needs are met.

In many instances, a financial settlement in a divorce can be successfully negotiated without resorting to court intervention. This often involves a process of negotiation and thorough financial disclosure facilitated by solicitors, which can lead to an amicable agreement between the parties.

However, there are situations where reaching an agreement through negotiation remains unfeasible. Various factors may impede direct negotiations, leading to an inability to agree on a financial settlement. When mediation and negotiation do not yield a resolution, an application to the court may be the last resort, for their assistance in determining an outcome for the parties.

The scope of financial settlements

Financial settlements can encompass a range of financial elements, including:

• Property and real estate: Decisions on whether the matrimonial home could be sold, one party should buy the other out, or if other arrangements should be made.
• Savings and investments: How joint savings, stocks, bonds, and other investments are divided.
• Debts: How to split any outstanding liabilities such as loans and credit card debts.
• Pensions: Division of the pension pots accrued during the marriage, which may require the instruction of a pension expert.
• Spousal maintenance: Ongoing financial support from one spouse to another for a specified period of time.
• Child support: Separate from spousal maintenance, the consideration of whether additional financial support for the children, such as funding private school fees are required. Child maintenance is an additional factor which in the first instance is determined by the Child Maintenance Service.

How are assets split in a divorce?

What are the guidelines to splitting assets?

When  deciding the division of assets in a divorce, the court follows guidelines set out in Section 25 of the Matrimonial Causes Act 1973, which places a strong emphasis on fairness and meeting the needs of all involved parties, especially dependent children.

Here’s a breakdown of the key considerations the court takes into account. Each factor will be considered on the specific facts of each case which is why legal advice is always encouraged when trying to reach a financial settlement.

The welfare of children

If children are involved, their needs and welfare become the primary concern. The court will ensure that there is adequate financial support for them.

Evaluation of financial resources and prospects

The court considers both current financial resources and future earning potential. This includes a thorough assessment of all assets, income sources, and the likely financial situation of each party in the future. If a party has reduced their work hours or if there are new partners whose financial standing could impact the case, these factors will be taken into account.

Future financial needs

The future financial requirements of both parties are meticulously reviewed. This often revolves around the cost of establishing separate homes. A detailed forecast of anticipated expenses forms a critical part of the proceedings when considering whether there is a need for spousal maintenance.

Lifestyle considerations

Maintaining a standard of living comparable to that enjoyed during the marriage is the aim, although it’s acknowledged that post-divorce, some reduction in living standards may be inevitable due to the division of resources.

Age and length of the marriage

The age of the parties and the duration of the marriage can affect decisions, particularly when it comes to long-term needs such as retirement planning. Shorter marriages may lead to financial orders that reflect pre-marriage asset ownership more strongly.

Health and disability

While not always relevant, the physical and mental health of each party can play a role in the division of assets, especially if these factors significantly affect future earning capacity or healthcare needs.

Contributions to the marriage

Contributions, both financial and non-financial (such as homemaking and childcare), are recognised equally. The court assesses the input each party has made towards building and supporting the family life.

Loss of benefits

Consideration is given to the benefits any party will lose post-divorce, with a focus often on pensions, which might require specific advice on the equitable division of the same.

Conduct of parties

Only in exceptional circumstances does the conduct of either party come into play; typically, financial decisions are made irrespective of marital conduct unless it is egregious enough to warrant consideration.

These principles ensure that financial settlements are justly tailored to the needs of the individuals and any children involved, aiming to mitigate the upheaval that divorce can bring.

At Moore Barlow, we prioritise providing expert guidance that aligns with these legal frameworks, ensuring that you are fully informed and adequately represented throughout your proceedings.

How are each types of assets split in divorce?

Dividing assets during a divorce can be a complex and contentious issue, with each party seeking a fair share of the marital assets. The way assets are split depends largely on the laws of the jurisdiction, but in England and Wales, the division is based on the principle of fairness and the aim to meet the financial needs of both parties. Here’s how various types of assets are typically considered and divided in a divorce:

Property

Property, including the family home, is often the most significant asset to be divided. The court will consider factors such as the length of the marriage, the needs of any children (consideration of their ages and the impact of moving), and each party’s financial situation. Options for division might include one party buying the other out, selling the property and dividing the proceeds, or deferring the sale until a certain point (such as when children reach adulthood).

Pensions

Pensions are typically one of the other major assets.  The court can decide on several options, including:

• Pension sharing: Dividing the pension assets at the time of divorce, giving each party a separate pot for the future. It is likely that a pension report may be needed to determine the percentage of the pension to be shared.
• Pension offsetting: Balancing the pension value against other assets. For example, one spouse keeps the pension, while the other receives a greater share of the property. Specific legal advice should be obtained if you are considering this option.
• Pension attachment: Part of one party’s pension payments is redirected to the other party when it starts being drawn.

Savings and investments

These include bank accounts, stocks, bonds, and other investment vehicles. Each party’s contributions and the timing of asset acquisition (before or during the marriage) are typically considered. Assets accrued during the marriage are usually split equitably, although exact splits can vary based on each party’s financial needs and future earning potential.

Businesses

Dividing a business can be complicated. The court will need to assess the value of the business and decide whether it should be sold, one party should buy the other out, or whether other assets should be adjusted to compensate. Considerations will include the role each party played in the business and their future ability to manage it effectively.

Personal belongings and other assets

Items like cars, furniture, and artwork are also subject to division. These are usually divided based on who used them most or who has a greater attachment or need, however, consideration will be given to whether they are a gift or where inherited, for example.

Debts

Responsibility for marital debts is divided similarly to assets. Factors include who incurred the debt and why, and each party’s ability to pay them off.

In all cases, the overarching goal is to reach an outcome that is equitable and meets the needs of both parties, while also considering the children’s needs. Often, couples are encouraged to reach an agreement through mediation before resorting to court proceedings, which can be both costly and stressful. If an agreement cannot be reached, the courts will apply the above principles to decide the division of assets.

Legal process of a financial settlement

The process of reaching a financial settlement typically involves several key steps:

Mediation and collaboration

Many couples choose mediation to reach an agreement. This method involve neutral third parties who help guide the discussion and resolution without the adversarial nature of court proceedings.

Initial disclosures and negotiations

Both parties disclose their full financial details, which form the basis for negotiations. Transparency is crucial here to ensure fairness and thoroughness in the settlement.

Court proceedings

If an agreement cannot be reached through mediation or negotiation, the matter may proceed to court. A judge at the final hearing will then make a decision based on the financial information and circumstances of both parties.

Consent order

Once an agreement is reached, either through negotiation or court, it is formalised into a consent order by the court. The order is lodged with the court for approval and once sealed, is legally binding.

Importance of legal advice

A financial settlement is a critical element of the divorce process, requiring careful consideration and expert handling to ensure fair and equitable arrangements are made. It provides both parties with a foundation for their financial futures and helps prevent potential conflicts. Understanding the full scope of financial settlements and seeking appropriate legal counsel is paramount in managing the divorce process effectively, safeguarding assets, and ensuring that all parties’ needs are addressed.

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