Clients interested in filing for a divorce application often ask: “What am I entitled to in a divorce settlement?” Unfortunately, there are no definite answers or any hard and fast rules governing this question. Since each family’s circumstances and assets vary, the jurisdiction of the court cannot be ousted in financial matters.
Dividing money and assets solely using the court can be a lengthy and exorbitant process following a divorce. Therefore it is recommended to try and achieve an agreement over financial matters before ultimately leaving it for the courts as a final resort.
Who gets what in a divorce settlement?
Even though it is up for the courts to decide whether the terms of a divorce agreement are ‘fair’ and equal’, the following guidelines aim to help you achieve some semblance of the settlement or an idea of what to expect to receive following a divorce.
A good starting point is an analysis of your financial position. Usually, a solicitor will help you break down your assets into three main categories:
- Income (e.g. salary, income from rentals etc)
- Capital assets (e.g. properties, savings, shares)
This will help identify any assets you own or any liabilities you have incurred. This is an important step as it is legally required for both spouses to disclose their full financial positions in order to reach a justified settlement. Failure to do so can potentially result in a hefty court fine or future legal proceedings.
With a good overview of your financial situation at hand, it will now be easier for you to split them between your spouse and yourself. This division will have to be made very carefully, bearing in mind the several factors that are to influence these decisions in order to keep them proportionate and fair. At this point, it is helpful to see how courts usually divide money and assets in a divorce.
How will the courts approach this matter?
In the UK, the courts decide on financial matters within divorce proceedings on the grounds of ‘fairness’ and ‘reasonableness’. In doing so, the court also adheres to various factors that are set out in section 25 of the Matrimonial Causes Act 1973. These factors include:
- the welfare of any children under the legal age
- the financial resources, income and earning capacity each party has or will foreseeably acquire in the future
- the standard of living of the family prior to the divorce
- the obligations or responsibilities of each party (including any foreseeable obligation)
- the age of parties and duration of marriage
- any physical or mental disability or either party
- the conduct of the parties and any contribution made by them for the welfare of the family
- any benefit which, due to the dissolution of the marriage, a party will lose the chance of achieving (such as a pension).
The courts aim to help both parties be independent of each other as soon as possible. Fundamentally, courts can order a lump-sum payment or periodic payments to help one spouse or the other recover financially. However, battling over financial matters in court can be costly and time-consuming. It is much safer for couples who are seeking a divorce to find an agreement and resolve the divorce in a collaborative manner that protects the interests of both parties involved and their children.
Let’s take a closer look at how some important assets can be divided following a divorce:
The family home:
Provided that the divorcing couple owns a home, it is probably the largest and most important asset that has to be divided. This division will largely be dependent on a number of factors such as the amount of money you and your partner make, the welfare of your children and the value of the house. In most cases, couples would have ceased to cohabit prior to divorce proceedings. The following options can then be considered:
- Buying out your ex-partner: One spouse can become the sole owner if they buy the other out. This can be complicated due to pending mortgage payments. It is advised to speak to your mortgage company for a different arrangement unless you can afford to cover it all by yourself.
- Selling and splitting your home: This option can make sense if you have paid off all or most of your mortgage. An estate agent will be able to help you value your house. Both partners can move out and sell the home in order to split the money and buy their own properties after the divorce.
- Mesher Order: Via a Mesher order, the sale of the home can be postponed to a later date. This is usually done for the welfare of the children involved. The house can then usually be sold when for example, the youngest child completes their secondary education or moves out.
Note: The fact that the family home is owned by either spouse will not be able to prevent the court from changing the ownership of the house. The family home is treated as matrimonial property as it plays a central part in the marriage.
What happens to the mortgage?
If the family home is to be retained by one spouse and there is a mortgage on the house, it is possible that the bank will not release the outgoing spouse from their responsibilities in terms of repayments. Therefore the mortgage payments will have to be paid regardless of whether the home is inhabited or not. This leaves the parties with the following options:
- Transfer ownership of the home to one spouse
- Keep paying the existing mortgage on the house
- Sell the property to pay off the mortgage
What about my business assets?
Business assets are also included in a divorce settlement. It is for you and your spouse to sit and decide on how to divide these assets. The courts will normally treat such assets as sources of income rather than property. Bearing this in mind, it is possible that a spouse with no involvement in the business may be entitled to some sort of share in it.
For example, a housewife may be entitled to a share in business assets of her husband since she cared for their home and children and therefore enabled her husband to build these business assets.
How are pensions divided?
It is possible to claim a share in your ex-partner’s pension. However, this is only possible where the judge grants a ‘pension sharing order’. Otherwise, you would lose access to your ex-partner’s pension and any spousal benefits arising out of it.
How a pension is divided largely depends on how much it is worth. In most cases, some percentage of it can be moved to the other spouse under ‘pension sharing’.
Is my inheritance to be divided as well?
Assets that are obtained through an inheritance are not generally considered matrimonial assets. This means that they can possibly be set aside during the division of assets in the divorce process.
However, in cases where matrimonial assets fail to meet the needs of both parties, inheritance may be considered by the court and divided among the two partners.
Division of other finances
Other finances include but are not limited to:
- Personal belongings such as jewellery
- Any other valuables such as collectables or pieces of art
- Any debts or liabilities incurred such as overdrafts
It is not easy to divide everything you own. It is ideal, however, to reach an agreement over through open communication with your spouse in order to avoid a costly legal battle.
Note: When trying to value goods you own, it is recommended to estimate using their new values. For example, a good estimate for the value of a home entertainment system should not be the price it would sell for – rather it should be the price of replacing it with a new system.
A prenuptial agreement is a written contract which a couple may enter into prior to marriage. This allows them to have a greater degree of understanding and control over their legal rights as a partner. It also explains their rights over money and property should they ever choose to file for a divorce in the future.
It is imperative to be aware of all terms and conditions mentioned in a prenuptial agreement if you and your spouse signed one.
What about Spousal Maintenance?
Depending on individual circumstances, one party may be entitled to spousal maintenance. Usually, this is when one spouse does not have the means to support themselves financially after a divorce or where one spouse was the sole bread-winner in the family.
While there is no specific formula for calculating spousal maintenance, it is dependant on a number of factors:
- Each spouses’ capacity to earn money and support themselves
- The standard of living prior to and after the divorce
- Any special needs or disabilities of either spouse
- The duration of the marriage
- The age of both partners
It is imperative for a spouse to pay spousal maintenance where it is required. Failure to do so could lead to legal action in the form of a court-authorised financial order.
The spouse with greater custody of children is to be paid child maintenance by the spouse with lesser custody or care of their children. It is encouraged that partners make their own child care arrangements since every parent has a responsibility to provide for their children until the age of 16.
If an amount is not agreed upon, an application can be made to Child Maintenance Services (CMS) who will calculate the total amount you are liable to pay as maintenance.
What will happen to our joint account?
Some couples prefer to use a joint account after they separate for purposes such as child maintenance etc. This leads to several disagreements over money and one partner could potentially run an overdraft springing both account holders into debt.
Therefore, it is recommended to close any joint accounts you may have and open separate accounts instead.
Using a divorce and money calculator:
The Money Advice Service (MAS) runs an online tool designed to help you estimate a divorce settlement. It is recommended to practice caution while using an online calculator as the results are based on some assumptions which, if untrue, could produce significantly inconsistent results.
Do I need to get a financial order?
Where there is no disagreement over the financial settlement following a divorce, it is advised to write a ‘consent order’ to the court. This order will contain the terms of the settlement and once reviewed and approved by a court, becomes legally binding. This is also called a ‘clean break’.
In the absence of such a financial order, there will be far less financial certainty as it is possible that one party may seek an order later to alter the settlement and this may lead to potential claims.
However, there are circumstances where it might not be desirable to have a ‘clean break’. This can be where there is some uncertainty regarding one partner’s financial position. For example, if one spouse’s income or assets are set to significantly increase in the future, a clean break might not be desirable.
For more information, head over to our family law section.