Financial issues on divorce

Divorce and the break up of any relationship, family and home is traumatic and stressful. Concerns about finances can soon make the process adversarial and more complex. You should aim to negotiate a divorce settlement that provides for each party and any dependents, with any assets divided fairly

First financial arrangements upon separation

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, paying bills even if you have left the marital home.

Reasonable payments should not affect the final agreement adversely, but 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 an interest (at the Land Registry) 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).

Ensuring financial provision for children

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.

Key factors in determining a divorce 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.

Negotiating a divorce settlement agreement

The process will be easier and less expensive if you and your spouse cooperate to negotiate a fair agreement.

Options include negotiating directly between yourselves, using a family mediation service or collaborative law, or involving your lawyers.

For example, you might use a lawyer’s advice on what to reasonably expect as a benchmark for your negotiations, before later involving them in the final details. Drawn-out legal arguments should be avoided because they are expensive and both spouses can end up worse off.

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 also 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.

Negotiating agreement between yourselves is more likely to deliver a reasonably satisfactory outcome than if the court imposes a solution.

There is no set time limit on the financial negotiations and you can get divorced without having reached a final agreement. However, if you remarry without having reached agreement, you may lose your right to make any financial claims.

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.

The divorce settlement

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. Issues to consider include:

  • Who will retain the family home, or whether it will be sold to allow you both to purchase a smaller home.
  • Whether either of you will pay continuing maintenance to the other or agree a one-off lump sum payment. A clean break provides greater certainty to both parties, but can be difficult to arrange if capital is not easily available.
  • What financial arrangements will be made for any dependent children (you cannot make a clean break in regard to any child maintenance obligations).
  • 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.

If you expect to receive maintenance, you should understand the potential risks:

  • Maintenance payments are uncertain: your spouse could apply to alter payments if circumstances change (eg: they become unemployed or if you start living with someone else).
  • You would normally cease receiving maintenance if you remarry.
  • Maintenance payments will cease if your former spouse dies. However, you may be able to make a claim against their estate.

As part of the overall negotiation, you can protect yourself against such risks, for example, by requiring your former spouse to take out appropriate life insurance (for your benefit).

Before finalising any agreement, make sure you clearly understand its overall effect on your long-term financial position.

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