Family Practice – Settling Finances in Divorce Guide

This month we are focusing on a survival guide for how couples can reach a financial settlement on their own when divorcing or ending a civil partnership. We will highlight key principles that should be considered and how the courts reach their decisions if a court order is needed. 

Overview of the law

When financial orders are made by the court, normally the spouses’ financial needs and the needs of any children of the family are the main focus of the case. When the assets involved in a case are more than enough to cover needs, then additional considerations may apply, such as what assets were brought into the marriage or the parties’ behaviour.

Making an agreement without going to court

Couples may reach an agreement between themselves, or may make an agreement with the advice of lawyers without going to court. Couples may also seek the help of mediators to reach an agreement. When couples are finding it difficult to agree, one of them sometimes starts a court case, but most of those couples still manage to agree eventually so that the judge does not have to decide the case and make a formal order. If an agreement is reached, then a couple may be able to obtain a “consent order” from the court. A consent order ensures that your agreement is binding and that if either party breaks the agreement, they can be taken back to court. When there is a pension that should be shared, then there is no choice but to get a consent order. 

Obtaining a consent order usually does not involve having to go to court in person, and therefore it can save on legal costs. In some cases the judge might ask to see couples when one or both parties are acting without the support of a lawyer. This allows the judge to be certain that the parties understand what they are agreeing to. In cases where the terms of the agreement are complicated, then it is sensible for the parties to seek legal advice.

Meeting the needs of the children first

Whether or not parties are able to reach an agreement, when children are involved the approval of the court may still be necessary. The reason for this is that while the aim of the law is to share out all the assets of both spouses (property, money, pension savings, etc.) in a fair way, the children’s needs always come first.

There are two key points to the courts’ approach:

1)    If there are “children of the family” under the age of 18, the law says that their welfare is the first consideration. If an agreement is made out of court, this is the starting point.
2)    Once the children’s needs are met, then the courts will consider the needs of both spouses.

What are “needs”? 

This is a very broad concept. It includes making sure that each of the spouses has a home and income for daily living costs, both in the short and long term (for example, it can include making sure each spouse has a pension for later life). “Needs” is not just the minimum each spouse needs to survive on: it is usually interpreted more generously, taking into account the standard of living during the marriage and for how long that standard of living was enjoyed. 

The standard of living enjoyed during the marriage can be measured by considering things like: 

•    What was the average monthly grocery bill? 
•    What sort of car (if any) did the parties have?
•    How often did the couple go on holiday as a family and where? 
•    How often did the couple eat out and where?
•    Were the children privately educated? 

It is important also to bear in mind that a spouse’s needs, and his or her ability to meet those needs, may be affected by age, by any physical or mental disability, or by illness.

In most cases neither spouse will be able to continue to enjoy the same standard of living as they did during the marriage, because the assets and income usually just won’t stretch that far. Resources that were just enough to support one household will likely not cover two. 

Housing is the priority, and the courts’ main concern is to make sure, as far as possible, that any children have a suitable home with their main (or “primary”) carer, and then to make sure, as far as possible, that the other spouse also has suitable housing. 

In cases where there are no children, both parties are earning similar amounts or there is a lot of money to go around, equal sharing of assets may be appropriate. The key question is whether a half share of the pot will be enough to cover each spouse’s needs. Ideally, if couples can share out their assets and become financially independent of each other, either straightaway or over time, then this is referred to as having a “clean break”. The courts will try to achieve a clean break if it is possible. 

A common point of dispute for couples reaching an agreement is often one party’s “bad behaviour”. This may be because one party had an affair or was uncaring or perhaps even violent during the relationship. Generally, the law says that the fact that one spouse is responsible for the marriage ending is not relevant to the financial arrangements on divorce. It is only in very rare cases that a spouse’s share of the assets will be reduced because of their bad conduct. Situations that might be considered would be serious financial misconduct such as fraud or heavy gambling. 

What resources can be used to meet needs?

If a case goes to court, the first thing the judge does is review all the assets to see how much there is “in the pot” to share out. Key points that are considered:

•    All assets and debts are relevant, and all assets can be used to meet the parties’ needs. Assets are not just those owned jointly by or held in the name of both parties. 
•    Often the family home will be the most important asset, and it does not matter whether this is actually held in one party’s name or was owned and lived in by only one party before the marriage.
•    Pensions are easy to overlook, but they are very important and can sometimes be the most valuable asset in the case. 
•    Each spouse’s ability to acquire assets in the future (e.g. by borrowing on a mortgage) and earning capacity are also relevant. If one spouse’s ability to work is limited because of child-care responsibilities, that will be relevant to deciding what is fair. Often this means that that spouse needs access to more of the couple’s resources following divorce, and may also need to receive spousal maintenance. 

Full disclosure is the first step in any negotiation between spouses, and each is expected to provide full information on their income and assets. In cases that go to court, there is a special form (Form E) for doing this. The courts treat failure to give a “full and frank disclosure” of all assets, liabilities and income very seriously and may impose hefty penalties or reopen a case at a later date. 

One final key principle divorcing couples should consider is that both spouses’ contributions to the marriage count. The law generally regards each spouse’s contributions as equally important, whether those contributions were earning money and acquiring assets, or raising the children and looking after the home. So a spouse who earned all the money (or more of the money) cannot simply say that the other spouse has little or no claim because they didn’t bring in any (or as much) money or property. 

DIY divorce?

Whether or not a couple should try to reach a financial agreement by themselves will vary from case to case, but in principle there is no reason why they cannot. In recent years there has been a push to make the law in this area more accessible and reduce the need for expert legal advice. Every case will be different, but noting some of the key areas where a separating couple can help themselves may make the task possible. Most divorces do not involve millions of pounds (what lawyers call “high value” cases) or complex business interests, trusts or other financial arrangements. Bearing this in mind, it is a positive development that couples can deal with financial issues themselves if they are willing to do so. There will of course still be cases where lawyers should be involved, including cases where there are concerns about an ex hiding or getting rid of assets. It may also be necessary to involve lawyers when someone has been cohabiting and there are significant assets to divide, as the law that applies here is completely different from that used by divorcing couples.