If you’re looking for the right legal advice on sorting out family finances following divorce or family breakdown, we can help. We have a team of five specialist lawyers at our offices in Salisbury, Fordingbridge, Andover and Amesbury and represent clients both locally in Wiltshire, Hampshire, Dorset and Somerset – and throughout England and Wales.
Dividing a family’s finances due to a separation is often the most difficult and highly negotiated aspect of divorce proceedings. The aim of any split is to achieve a fair result for both parties involved.
The following information is a basic outline of the court procedure used to achieve a financial settlement in a divorce and what factors are taken into consideration by the courts. The courts adopt a broadly similar procedure when dissolving a civil partnership.
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Divorce and Financial Issues – 3 practical steps to consider early on
• If you are the main earner or only earner in your marriage relationship, you may need to continue to pay the bills even if you have left the marital home. This may affect the final arrangement, but showing that you are willing to provide the necessary support will probably help to keep the emotional heat down, and will also show you in a good light should the situation end up in court. If you aren’t the main earner and should your spouse or partner refuse to provide for you financially until an final financial arrangement has been made, you can apply for a court order requiring them to do so in the interim.
• You may wish to consider close joint bank accounts and financial products if you’re concerned about the possibility of mis-use.
• You can also register an interest with the Land Registry on your property to prevent it being sold without your knowledge if your spouse is listed as the sole owner.
However regardless of whether you are the main breadwinner or not, our strong advice is to take very early legal advice – ideally before you consider taking the steps above or consider moving out.
Do your best to avoid a fully contested court hearing
Beware – a fully contested court hearing about divorce finances can be really expensive with regard to legal costs – not to mention very stressful for all concerned. Sadly, in this case, the only winners sometimes appear to be the lawyers.
It can also be a slow process, taking many many months to get to a final hearing. As a result, the vast majority of cases about divorce finances never make it to a contested final hearing – but instead reach a negotiated settlement at some stage, in which case a consent order is necessary – see below.
Our family lawyers are big fans of mediation –that’s why two of them are also fully qualified mediators as well as being family lawyers.
Sadly mediation doesn’t work for everyone, but those it suits find their divorce or relationship breakdown is often cheaper, quicker and much less acrimonious to resolve. In addition, a family mediator can really help children cope with family breakdown – knowing that their parents have co-operated and worked together in reaching a practical solution.
Click here to read more about family mediation
Splitting family finances –what financial information does the court consider?
In dividing assets between both parties the court will consider the following financial factors:
- The current income and future earning capacity of both parties
- Any financial resources each party has access to or is likely to in the foreseeable future
- Any property owned
- Any personal pension
- The financial needs, obligations and responsibilities of each party. In particular contributions needed for the care and welfare of any children involved
- The standard of living experienced by both parties as a couple prior to the marriage breakdown
- The age of each party and the duration of their marriage
- Any physical or mental disability or registered illness of either party
- Any significant conduct issues (worthy of court consideration).
The Importance of getting a Consent Order
Contrary to popular belief, the settlement of financial matters is not automatically included in the divorce process.
In fact, without a Court Order (which if agreed between the parties rather than ordered by the court, is called the consent order) you are not protected from any future claims from your ex-spouse which can leave you vulnerable years down the line if you come into money via an inheritance for example.
However, even if it transpires that your ex-spouse’s for further financial support from you fails, the legal costs involved in defending yourself may move expensive – and would almost certainly be more expensive than a negotiated Consent Order taken out at the time of the divorce.
As with any other legal settlement, asking the court to make a Consent Order [i.e. an agreed Financial Settlement] normally removes the need for both parties to attend court.
A final order in divorce is almost always essential because even if you have no assets and you part amicably, any decision is not legally binding without it. A Consent Order will normally enable each party to dismiss all financial claims [both now and in the future] against each other by virtue of their marriage to one another. Reaching a consent order normally involves some form of compromise on both sides – and coming to an agreement together enables many separating and divorcing couples to remain on much better terms with each other than if the case had been fully contested at court.
Many people are unaware pension benefits are taken into account in full by the court in deciding how to split a couples assets following divorce.
And that is really important because, after the former matrimonial home, a pension is often the most valuable family asset.
That’s why, if you have got a valuable pension, it’s absolutely essential that you appoint a solicitor who really understands divorce and pensions – sadly too many solicitors take the easy route, relying on the pension companies own valuation of the fund. Depending on the individual circumstances, our experienced team regularly appoint specialist and independent actuaries to accurately value the pension fund – a real valuation which can be sometimes be surprisingly different from the simple paper valuation provided by the pension company itself.
Although pensions can be difficult to understand, the three methods used for splitting pensions post-separation are in fact relatively straightforward.
1. Offsetting pensions against other assets
Pension offsetting is the simplest and fastest way of splitting a pension upon divorce. This method allows a partner to keep 100% of their pension fund, compensating their ex-spouse by sacrificing their full entitlement to other marital assets. Pensions are often offset against the value of the family home, for example, with the pension holder giving up some of the equity they would otherwise be entitled to. In order to offset your pension you must have it valued first and this can prove difficult because a prediction must be made regarding how much value will be lost through tax.
2.Pension Attachment Orders (also known as ‘pension earmarking’)
This option allows the total pension benefits to be paid out as normal when they retire to the main saver who must then give a % earmarked share to their ex-spouse. The advantage of this method is its usefulness in cases where the spouse earmarked for a share of the pension is in ill-health. Should they pass away, the full pension entitlement is placed back in the hands of the main saver. However, this method is severely flawed. Should the main saver die, their ex-spouse is left empty handed. Furthermore, any pension income received by the ex-spouse will be taxed before it reaches them.
3. Pension-sharing Orders (also known as “pension splitting”)
This option is perhaps underused. Pension sharing is a formal agreement establishing how pension funds will be split. This may mean that a fund manager pays out a one-off payment to the ex-spouse which must then be invested in a new pension scheme ie under these orders there is an actual transfer of a lump sum from the pension fund of one spouse into a fund in the name of the other. Both parties are therefore able to receive an income from a pension fund in their own name. Funds are rarely split down the middle. Instead, factors such as age, need and health will be taken into account and the aim will be to secure equal net retirement incomes for both parties.
Specialist pension schemes
In cases where an NHS, Military, Police, Fire Service, NHS or other government pension scheme is concerned, it’s essential to pay particular attention to the real value of the fund. It makes sense in complex cases like these, to make sure you get both specialist legal and financial advice. Rest assured that our divorce team regularly deal with these specialist pensions and have that expert legal experience and will ensure that such pensions are properly valued and take into account.
Divorce and home ownership
Many married couples will have owned their home jointly. As part of a relationship breakdown, you may prefer to leave your share of the former family home to someone other than your spouse.
In that case, if you currently own your home as joint tenants – you may want to convert into a tenancy in common, using a process called “severing the joint tenancy”. Click here to read more about joint home ownership.
The welfare of any children from the marriage will always be given primary consideration. Maintenance can be ordered to one party by the court for either an indefinite or set period, followed by a ‘clean break’.
You may decide that if the parent with the children earns considerably less than the other parent, then a larger monthly child maintenance payment should be made, or vice versa.
A ‘School Fees’ order, may also be appropriate if a child attends a private school.
Alternatively, if you have joint custody and both earn a similar amount you may decide not to factor in child maintenance.
A big issue here is whether or not there are any children.
If for example, your spouse has never worked outside the home and needs time to get the training needed to obtain a job in order to support themselves they many require spousal maintenance, albeit temporarily. Maintenance can be ordered for a specific fixed term period, especially if one party needs time to adjust before becoming financially independent.
Although you may not want to this, if you can reach a compromise you will have more of a say in how much you pay and for how long, rather than if it goes to court and you are forced to pay. Spousal maintenance is also more likely to be ordered or agreed in a long marriage than in any short one.
But, an immediate clean break is harder to achieve when a couple has children. As a result, other options might need to be considered, including:
Maintenance can also be capitalised i.e. one party is paid a larger lump sum to supplement their income.
Taking the case before a court
Parties will need to have obtained all the relevant financial information from each other prior to taking the case before a court. If this has not happened then either party can make a financial application to the court. A financial application is the formal process of gathering and presenting all the necessary information required prior to a court hearing. The following procedure is normally used:
- The applicant who issues the court application to resolve financial matters sends a notice to the court indicating what claim is being made.
- The court then books the case a first hearing within 6 to 12 weeks of the application.
- At least 5 weeks prior to the first hearing, both parties must have sent each other their completed Form E (a court document showing a full breakdown of their financial information) and enclosing the requested financial documentation. A copy of this form must also be sent to the court.
- At least 2 weeks prior to the first hearing both parties must provide each other with the following documentation; a list of what they consider to be the key issues, a timetabled history of the case and a questionnaire detailing any further financial information that they require from the opposing party.
The first hearing
The initial hearing of the case will be in a court before a Judge. It normally lasts around 30 minutes and the aim is to establish whether there are grounds for a potential settlement between the parties. The procedure is instigated via the completion of Form A (this form informs the court that you require a judge to decide how to divide your matrimonial assets) a fee of £255 is paid with this form.
If the financial procedure has been used then the court will begin by checking the reasonableness of the requests of each party contained in the pre hearing questionnaire. The judge will move the case along by looking at the all the information provided. At this point the court may feel that some vital information is still outstanding, if so, the judge will instruct either party to go away and come back with the appropriate information or documentation. For example you may be requested to produce a valuation of your matrimonial home, or it may be important at this stage to instruct a pension actuary when it is probable a pension order will form the basis of any financial settlement.
At the end of the hearing the court may order an appointment to be made for financial dispute resolution.
Financial dispute resolution
Unlike other forms of dispute resolution, this process is still heard in front of a Judge. It is however a more informal procedure than being in a court hearing. Solicitors from both parties will present brief details of the case to the judge. He/she will then attempt to recommend the parameters of a financial settlement by instructing how the family assets could be split fairly. It is in the best interests of both parties to try and reach an agreement at this point – to avoid the further stress, delay and costs of taking the case to a final hearing.
Not all cases can be heard in this way. If the Judge feels that the details of the case are too complex and therefore not appropriate for financial dispute resolution then he/she will recommend that the case move straight to a final hearing.
A final hearing is a last resort if no amicable settlement can been reached. At this point you will have to ensure that you have a solicitor or Barrister to represent you in court (note this will normally mean considerable additional costs). A final hearing normally takes place 6 to 9 months after the initial Form A was completed.
The final hearing is a formal court procedure usually lasting 1 to 2 days and will be heard by a different Judge than was present at any financial dispute resolution. Each party will be under oath and cross-examined by the opposition’s counsel. The court will take a detailed look at all the financial evidence provided and will pose questions concerning your individual financial affairs, for example; anything from your earning capacity to your household bills. However, this depends on the complexity of the matter and sometimes the court hearing can be listed for longer periods of time.
At the end of the hearing the judge will deliberate on the facts and produce a final order. This is a compromise settlement and hardly ever provides both parties with exactly what they want.
Splitting the family finances – the importance of appointing a specialist divorce solicitor
Divorce is always highly stressful and most people, sadly, find that after divorce, their standard of living suffers. Simply put, it is much more expensive to run two households than one. It is therefore particularly important that anyone considering a divorce should appoint a specialist divorce solicitor.
Most people are not aware of the tax implications when a civil partnership or marriage is ended. The tax changes actually come into effect when the couple separates, before the marriage or partnership has been legally ended through a divorce or civil partnership dissolution.
Divorce and the taxman
As part of the divorce settlement there may well be tax issues you will need to take into account, both in considering a fair financial settlement and in moving on with your life. Tax is often largely ignored by people going through the emotional pain of divorce.
For example, changes in taxation don’t wait for the finalisation of divorce – tax changes actually come into effect when the couple separates, before the marriage or partnership has been legally ended through a divorce or civil partnership dissolution.
Among the most tax issues you need to take into account are the following:
- Family businesses involving both people in the marriage or civil partnership as “business partners” may face a different tax situation.
- If the former partners or former spouses had pension plans in place, these can be affected. For example, a Pension Sharing Order may be created which means that both parties share a pension. Complex rules determine how pension credit affects lifetime allowances. This
Tax credits will be affected and need to be re-evaluated.
- Even though assets from a marriage or civil partnership are sometimes equally split, the person who actually owns the specific assets may have a higher tax liability.
- Inheritance tax planning may need to be taken into account once the marriage or partnership has been legally ended
- After the tax year of the separation, transfers between civil partners or spouses will usually incur Capital Gains Tax. In particular former matrimonial home may also be affected.
Depending on your circumstances, therefore, it may be really important to get specialist tax advice as part of your divorce settlement.
Here at Bonallack and Bishop, our family team regularly work closely with local accountants – and we also have a specialist CIMA qualified tax accountant as part of our extended team – and we’re more than happy to introduce you to him
Getting Divorced – Am I responsible for their debts?
Unfortunately, many people are not aware of what happens to debts when they go through a divorce or relationship breakdown.
You will both be liable for debts that are in joint names, even if you are unmarried. The only situation when this may not happen is if you both have a mortgage. Every other situation will require debts to be paid before you clear the liability.
If the loan is in the other person’s name you will not automatically be liable. However, there are certain situations in which you may be jointly liable. If the other partner can show that the debts came about as a result of the marriage, it may be considered a joint debt – for example o if your ex-partner took out a loan for a family holiday. However, the creditor will not pursue you if the loan was originally taken out in your former partner’s name.
If your ex-partner has been irresponsible in their spending activities, and spent a slot of money on things such as gambling, the Court will be less likely to look at that kind of unnecessary debt as a joint debt.
This is all taken into account when splitting family finances following divorce.
Unmarried couples face a quite different situation. A debt in your name is much less likely to be made a joint debt by the Courts, because they do not have the power to transfer some of the responsibility of your debt if to your former partner if you’re not married. This makes it much more difficult for you to get your ex-partner to help you pay off any of your individual debts.
Divorce and the business owner
Click here to read more about divorce and your business.
Divorce and family businesses
Click here to find out more about how divorce affects the family owned business
Going through divorce and bankruptcy at the same time?
Click here to find out more about how bankruptcy can affect your divorce settlement.
Prenuptial agreements and divorce
To help limit the risk of a financially damaging financial divorce settlement and to clearly set out expectations, many couples getting married, do so after signing a prenuptial agreement. If you are thinking of entering into a prenuptial agreement — make sure you consult a family lawyer who is a specialist in preparing pre-nuptial agreements.
Click here to learn more about pre-nuptial agreements.
Property transfer issues
if your financial settlement involves the transfer of the former matrimonial home, you will need to apply for consent from your lender to transfer, or apply to a new lender in instances where a mortgage registered over the property. As soon as our team receive approval from your lender, we will then draw up transfer deeds and implement the transfer of your property.
On completion of the transfer, an application will be made by us to the Land Registry on your behalf, to register the property as being under new ownership. A copy of the title deeds will be sent to you and any originals returned upon completion of registration.