Getting a divorce can be an incredibly stressful and emotional time, and one of the most challenging aspects of a divorce can be the process of obtaining a financial settlement.
In this guide, we’ll take an in-depth look at divorce financial settlements, including what you might be entitled to.
What is a divorce financial settlement?
A divorce financial settlement is an agreement between both parties on how to split all relevant assets, such as property, savings, investments and pensions. Or, it is an Order made by the Court detailing the settlement by consent or after contested financial proceedings when the Judge has decided the terms of the settlement.
If you have any dependent children, and the settlement is negotiated and agreed by consent, then it can also include details of child maintenance payments; but the Family Court can only oust the jurisdiction of the Child Maintenance Service for 12 months.
In order for an agreed financial settlement to be made legally binding, the court must approve it by the parties detailing their agreement in a consent order which can be lodged with the court anytime on or after the Court has pronounced the Conditional Order in the divorce. This is the only way to ensure the agreement reached is legally binding and will protect your position, both now and in the future.
If you can’t agree on a financial settlement, you can ask the court to decide. This is typically more expensive and you will need to show that you’ve considered mediation as a way to resolve the dispute first.
How is a divorce settlement calculated?
When calculating a divorce settlement, the court will follow guidelines set out in section 25 of the Matrimonial Causes Act 1973. All the factors set out in this section are discretionary and the court must consider all individual circumstances relating to the case when making an order.
The following factors are considered by the Courts:
- Welfare of children – the needs of any children are paramount.
- Financial needs or obligations that each party of the marriage has or is likely to have in the foreseeable future
- Current income, earning capacity, property and other financial resources which each party has or is likely to have in the foreseeable future
- The standard of living enjoyed by the family before the breakdown the relationship
- The age of each party and the duration of the marriage
- Any physical or mental disabilities of either party
- The contributions each party made or is likely to make in the foreseeable future for the welfare of the family
- The conduct of each party
What is the average split in a divorce settlement in the UK?
In the UK, most divorce settlements will start with a 50/50 split or similar, although this is only the starting point. Factors which may change the division are:
- Needs of the children or the parties, as one party may require more to meet their needs or the needs of the children than the other.
- Contributions made by either party.
- Whether assets are matrimonial assets or non matrimonial assets.
The Court should only approve financial settlements that the Judge considers fair, so if there is a departure from equality, then you should explain why this is justified when seeking the court’s approval.
In many cases, the court will order a settlement that is driven by meeting both parties’ needs and those of the children. The allocation of assets in a divorce will reflect their welfare needs, taking into account where they will be living and who with. This can be one way that the assets are divided unequally.
Are divorce settlements always 50 50?
No, divorce settlements are not always divided 50/50 and divorcing couples should not go into a financial settlement expecting the assets to automatically be split evenly.
The division of assets in a divorce is usually based on what is deemed to be fair and reasonable, which will vary for each individual case. This can depend on a variety of factors such as the length of the marriage, financial contributions and the needs of any children involved and the needs of the parties themselves.
How does the court decide what is a fair divorce settlement?
The court will use guidance from the Matrimonial Causes Act 1973 to decide what is a fair divorce settlement; however, they have wide discretion as to the outcome. This can make it difficult to predict the outcome of a financial remedy case.
Broadly speaking, the court will consider the following principles where relevant:
- All circumstances of the case, in addition to the factors under section 25 of the Matrimonial Causes Act 1973
- The equal starting point of the matrimonial assets
- The first consideration must always be given to the needs of any dependant children
- The court will look at meeting the needs of both parties, ensuring housing and income needs are met. If the needs are met from the available assets and there is a surplus, the court may consider the origin of certain assets in deciding how the remainder is divided.
- The court is obligated by statute to consider whether a clean break is appropriate. If a clean break cannot be achieved due to one party still not having their needs met, the court may order spousal maintenance for a fixed period of time or in very rare cases for the duration of the parties joint lives.
What assets are you entitled to in a divorce settlement?
What you are entitled to in a divorce settlement depends on the various factors we’ve listed, and there are no specific guaranteed entitlements.
Each situation is unique and will be treated as such by the courts. However, the type of things you may be entitled to include matrimonial assets, such as:
- Money, like savings and investments
- Property, like the family home and any property owned individually
- Pensions
- Life insurance policies
- Businesses
- Furniture
- Appliances
- Vehicles
- Financial support – spousal maintenance & child maintenance if there are dependent children
How is a house divided in a divorce?
There are a few different ways a house can be divided in a divorce. The three primary options are as follows:
- Sell the property and split the proceeds either equally or in unequal shares.
- One party buys the other out outright. If the property is subject to a mortgage, then the consent of the mortgage lender will be required unless the mortgage is being redeemed.
- One party defers, realising their interest in the house until a later date such as when the children reach the age of 18 or finish their full time education. This is known as a “chargeback” arrangement, which allows the legal and beneficial ownership of the property to be transferred to one of the spouses.
However, this is under the condition that a portion of any future sale of the house must be shared with the former partner.
The above options will achieve a clean break order.
How are business assets divided in a divorce?
When a business is being divided in a divorce, it is important to first value your business in order to get an accurate report on what your business is worth, whether the business is shared between you and your partner or just owned by yourself. This will help to ensure the divorce is fair.
Dividing business assets can be a complex process, especially since a business may well be the largest asset of the marriage. You may require the expertise of lawyers, accountants and valuers to determine how it should be valued and divided.
Again, the courts will base their decision on a variety of different factors. Since many businesses will be considered a matrimonial asset, there is a high chance that the value of the business will be shared in the event of a divorce whether this be in equal or unequal shares and the court will also determine who should obtain or retain the business.
How are pensions divided in divorce?
There are three options for dividing up pensions as part of a divorce.
The first and the most popular method is Pension Sharing. A Court Order is required to split a pension and the court will determine the percentage division if the parties are not able to reach an agreement.
The second option is offsetting. This is essentially the value of the pension being offset against other assets. For example, if one spouse keeps their entire pensions, and the other is given alternative assets of the same value, such as property or cash.
Finally there is earmarking. This is when all or part of the pension is earmarked to be paid to one party when the other starts to draw pension benefits. There is no legal transfer of ownership and therefore if the pension member passes away then the spouse’s benefits would end so this is not usually a great option.
In order to ensure the best possible outcome, it is often necessary to obtain specialist advice from an independent financial advisor, an actuary and of course your family lawyer.
Is inheritance divided in a divorce settlement?
Inheritance is often treated differently by the courts in the context of divorce. While a divorce settlement can include inheritance, whether or not it will be added to the matrimonial assets will depend on several factors:
- Mingling of property – Where the inheritance ends up being combined with matrimonial property over time, it becomes difficult to distinguish between the two and is more likely to be added to the matrimonial pot. This could include instances such as when a portion of the inheritance is used to purchase an investment as joint stakeholders.
- Needs – Even if inheritance monies have not been intermingled with marital assets, the court will still share an inheritance if it is required to meet the needs of any child or party to the marriage.
- Matrimonial home – If an inheritance is used to purchase a matrimonial home, this is more likely to be considered as having been added to the matrimonial pot and divided accordingly.
Many couples are able to make their own decisions regarding the division of inheritance, and this will vary from couple to couple, but if not, then the court will determine the issue and the outcome will depend on the individual circumstances of each case.
Does life insurance become a part of a divorce settlement?
Whether life insurance is included in a divorce settlement depends on a number of things. In some cases, life insurance may be irrelevant to the settlement, especially if you hold individual life insurance policies. However, if you are dependent on your spouse for maintenance, then it will be important to consider insuring their life so that you have sufficient monies to live in the event of their death.
Joint life insurance policies will affect the settlement in different ways. For example, if you sell the house, have no children and go separate ways, the easiest option may be to cancel the policy. If one of you decides to live in the marital home, then you may wish to seek a transfer of the policy if the property is subject to a mortgage or if you have dependent children.
What to ask for in a divorce settlement
Like many divorcing couples, you may be asking yourself what you should ask for in your divorce settlement. Listed below are a mix of different things you should consider including in your divorce settlement agreement.
- A fair share of assets – The longer you and your partner were married, the more marital assets you will have likely accumulated during the marriage. Consider assessing your circumstances and keeping what you will require in the long run and what is a fair division.
- Marital home – As we’ve mentioned, your marital home plays a crucial role in a divorce. You should think about whether you want to remain in the home or start afresh elsewhere. Do you need to see a mortgage advisor to assess your borrowing capacity and look at your outgoings and what you can afford?
- Retirement and investment accounts – As we’ve mentioned, your divorce will probably alter your plans for retirement. Since you can’t work forever, it makes sense to seek out a fair share of the retirement and investments you have built during your marriage.
- Debt – Who is to take responsibility for any debts that have accrued during the marriage? Do these debts need to be refinanced?
- Child support – The starting point is to look at the Child Maintenance Online Calculator and then look at your child’s needs. If an agreement cannot be reached, then this is usually a matter for the Child Maintenance Service not the Family Court.
Do you need to go to court for a divorce financial settlement?
Financial settlements can be agreed without the need for court intervention. In these situations, the parties may have been able to agree a settlement directly with each other or may have agreed a settlement with the assistance of a trained mediator, or after a period of negotiation and financial disclosure between solicitors.
If so, then the parties should still seek to involve the court by submitting a consent order for approval to ensure that any agreement reached is legally binding and only the court can dismiss future financial claims to ensure that the agreement reached is in full and final satisfaction of all financial claims arising from the marriage.
However, to obtain a Court Order by consent, this can be done without the parties having to attend court as the documentation can be submitted electronically for the Judge to consider in the absence of the parties and their solicitors.
In other cases, negotiation/agreement may not be possible and couples may have to enlist the help of the court to obtain a financial settlement. This will likely be the more expensive route and you will have to prove that you have considered mediation first which usually involves attending a Mediation Information and Assessment Meeting with a trained mediator.
Our Family Law Solicitors at VM Family Law can help with financial settlements during a divorce, can assist during mediation and ensure that the entire divorce process runs as smoothly as possible. Get in touch with the team today for support.