Divorce settlements

Divorce settlementsThe break-up of your relationship, family and home in a divorce is almost inevitably traumatic and stressful. Concerns about finances can make the process more unpleasant and complicated. You should aim to negotiate a divorce settlement that provides for each of you and any dependents

First steps before the divorce settlement

If you are the main or only earner in a marriage, you may need to continue providing financial support to your spouse before reaching any final agreement. For example, you might continue paying bills even if you have left the marital home.

Reasonable payments should not affect the final divorce settlement. Failing to provide necessary support is likely to provoke hostility.

Conversely, if you are financially dependent on your spouse, ask for suitable arrangements to be made. If your spouse refuses, you can apply to the court for an interim financial order, requiring them to meet your financial needs until final agreement is reached.

At the same time, there are some immediate steps you can take to protect yourself financially:

  • If you are concerned that your spouse will abuse them, you could close joint bank and credit card accounts (although you may need to make separate arrangements for your spouse's reasonable financial needs).
  • If your spouse is the sole owner of the family home, you can register your home rights to prevent the home being sold without your agreement.
  • Get legal advice if you think your spouse is trying to hide or shift assets (eg overseas or in trust).

Children and finances

The first priority is to look after the welfare and financial needs of any children, more specifically, children under 16 and older children who are in full-time education or have special needs.

Children's needs include having a home. In practice, this may mean they and one parent continue to live in the family home, but this is not automatically the case - particularly where limited total assets are available. To meet both parents' financial needs and the children's, it might be necessary to sell the family home.

In addition, the parent who no longer lives with the children will normally provide financial support. You can negotiate an agreement on child maintenance between yourselves or involve the Child Maintenance Service.

A fair financial settlement

There is no simple way of calculating a fair financial settlement.

Whether one party is responsible for a marriage's breakdown or 'at fault' (eg has committed adultery) rarely impacts on what is legally considered to be a reasonable financial settlement.

Instead, key factors to be taken into account (apart from the needs of any children) include:

  • Each spouse's income and other financial resources. The focus is generally on proven resources, for example, actual income, rather than prospects. Any pension entitlements are also taken into account.
  • Each spouse's financial needs.
  • How long you have been married and how old each spouse is. The longer the marriage, the more likely it is that the less wealthy spouse will be entitled to a substantial share of the assets and/or continuing maintenance.
  • The contribution each spouse has made. Importantly, looking after the house and children can be as valuable a contribution as going out to earn an income.
  • The family's standard of living prior to the marriage's breakdown - although this is usually only relevant if substantial assets are available. In practice, in most divorces both spouses end up financially worse off due to the higher cost of running two households.

Your lawyer can advise you what would be reasonable in your circumstances.

If you have a prenuptial agreement, this is likely to affect the outcome. The court will usually uphold a prenuptial agreement unless it is unfair.

Divorce settlement options

The right agreement for you will depend on your circumstances and objectives. Any agreement must take into account all assets and sources of income, and balance the different interests of the parties involved.

If it is possible, a clean break agreement - where you settle your financial claims against each other once and for all - may be the best option as it gives you more financial certainty.

Alternatively, one of you may agree to pay the other continuing spousal maintenance. This might be temporary - for example, providing support while the dependent partner resumes a career - or continue indefinitely. Both of you need to be aware that maintenance payments can be varied or brought to an end if circumstances change.

Key issues you need to consider include:

  • Who will retain the family home, or whether it will be sold to allow you both to purchase a smaller home.
  • How any pension fund entitlements will be shared out, for example, by splitting the fund or offsetting it against other assets.
  • What will be done about any life insurance or other investment policies, for example, whether one spouse agrees to continue paying premiums.
  • What changes you each wish to make to your wills. Once you are divorced, your former spouse automatically ceases to be a beneficiary.

Negotiating the divorce settlement

As with other aspects of the divorce, you should aim to negotiate agreement between yourselves as far as possible. As well as keeping costs down, negotiation is more likely to deliver a reasonably satisfactory outcome than if the court imposes a solution.

As a starting point, you should both fully disclose your financial positions. Failing to do so may mean that agreements are later overturned.

You will each need to work out your key objectives. For example, one of you might be keen to retain the family home or the family business, while a non-earner's priority might be to secure a regular monthly income through maintenance payments.

Once you have reached agreement, you should apply to the court for a consent order. This allows the court to check that the agreement you have reached is fair. It also limits the ability of either spouse to later ask the court to change financial arrangements, and makes it easier to take action if your former spouse fails to honour his or her commitments.

If you cannot reach agreement between yourselves, you will need to apply to the court for a financial order.

When to agree your divorce settlement

There is no set time limit on financial negotiations and you can get divorced without having reached a final agreement. However, it is common to wait for financial agreement before the decree absolute.

Finalising the divorce before you have agreed your divorce settlement can be risky, particularly if you are financially dependent on your spouse:

  • If your spouse dies, you will no longer automatically inherit. You will also no longer be entitled to a spouse's pension.
  • If your spouse is the sole owner of the house you live in, you no longer have an automatic right to live there. You may need to get a court order to protect you.
  • If you remarry, you may lose your right to make any financial claim.

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Checked by: Mark Lyne, barrister at Five Paper chambers