When couples divorce, it is advised and sensible for the parties to reach a final settlement in relation to their finances.
It is always hoped that the agreement can be by consent between the parties but failing this, an application for financial remedy can be made to the Court and ultimately, if agreement is not reached between the parties, a Judge will decide how the finances are settled.
The Press will often report the big money cases, especially when celebrities are involved, for example Paul McCartney’s £24 million plus divorce settlement was huge news with Heather Mills actually trying to claim a settlement of £125 million. In that case the Judge ruled that her claim was ‘an excessive, indeed exorbitant, claim’ Most Divorcing couples do not have assets anywhere near this but do however need to settle financial matters and try to achieve a clean break moving forward.
Financial proceedings within divorce are often referred to as ancillary relief proceedings as they are ancillary to the divorce proceedings. Indeed, a financial remedy cannot be ordered by the court unless it is made within or after divorce proceedings.
When considering a financial settlement all of the marital assets and liabilities are added to ‘the pot’ and then divided between the parties. The assets and liabilities will include all aspects of the parties’ finances including the former matrimonial home, pensions, items of value, debts and loans to name but a few.
The starting point for division of assets is 50/50. The Court, however, places the needs of the children foremost and therefore if there are children of the family, the parent who has primary care of the children may be awarded a greater portion of the family assets if it is necessary to ensure that the children’s needs are met. In addition whilst the starting point is 50/50 there may be reason for the court to depart from this position, if one of the parties’ needs outweighs the others.
Initially, parties are encouraged to try and negotiate a settlement by agreement. This can involve voluntary disclosure of the parties’ financial positions in an attempt to negotiate a settlement that is agreeable to both parties. If an agreement is reached, a Consent Order setting out the terms of the agreement can be drafted and submitted to the court for approval. This saves costs for the parties and minimises the tensions that can be created by litigation.
In cases where the parties cannot agree, either party can issue an application for a financial remedy. Before such an application is made, unless there are certain circumstances, the person who wishes to issue the application must attend mediation. The other party will be invited to attend mediation but does not have to attend. If mediation fails, a certificate will be issued confirming that the party has attended the mediation session and allows the party to make the application to court.
Once an application has been made, the court will order directions as to how the case will proceed. Parties will be given a date by which they must exchange with the other party and serve upon the court their Form E. The Form E is a document which sets out the parties’ current financial position and is completed by each party. The Form E requires various documents to be included with it such as mortgage statements, bank statements, pension statements and more. See link here: https://www.gov.uk/government/publications/form-e-financial-statement-for-a-financial-order-matrimonial-causes-act-1973-civil-partnership-act-2004-for-financial-relief-after-an-overseas
Once the parties have exchanged their Form E and have had chance to consider the contents and attachments of the other parties’ Form E, they are required to serve a chronology, a questionnaire setting out any questions they have to the other party regarding their disclosure and a statement setting out the apparent issues in the case.
The matter is then listed for a first appointment before a Judge. At the first appointment the Judge will consider the documents submitted by each party and will set directions as to when the questionnaire of the other party must be answered, joint valuations of assets such as the former matrimonial home can be ordered when the value is not agreed. The hearing is generally a short hearing which is attended by all parties but is held in private.
After the first hearing the matter will be listed for a Financial Dispute Resolution (FDR) hearing. By this point both parties will have received the other parties’ responses to their questionnaire and hopefully the issues of the case will have been narrowed. Parties are encouraged to use this hearing to negotiate a settlement without the need for further hearings. The Judge who hears this will give an indication as to what they would decide if the matter was in fact listed as a Final Hearing. This often brings parties’ minds together to try and negotiate a settlement having had the insight of what a Judge would order.
If agreement still cannot be reached, the matter will be set down for a Final Hearing. The Judge that heard the FDR will not conduct the Final Hearing to ensure that the Judge who makes the final decision is impartial. If a matter proceeds to a Final Hearing each party will give evidence as to their position and a Judge will make a Final Order. A Final Order can only be appealed if there has been an error in law; you cannot appeal because you do not like the decision of the Judge!
Throughout proceedings from the initial issuing of the application right through to the day of a Final Hearing, the parties are encouraged to continue to negotiate. If an agreement is reached at any time during the proceedings a Consent Order can be drafted and submitted to the court for approval, negating the need for any further hearings. This obviously offers the advantage of reducing costs and minimizing the stress caused through litigation.
The Court has wide powers to distribute the parties’ assets in order to achieve a fair outcome. Financial orders fall into two categories; income and capital.
The orders for income are maintenance pending suit and periodical payments.
Maintenance pending suit is a short-term order to provide maintenance until the court can make a periodical payments order. This is rarely applied for as the party applying must show that the other party is either not contributing at all or contributing so little that they are unable to make ends meet pending a final order. A periodical payment order is made as a Final Order and will order a party to pay a set amount to the other party, usually monthly. This is usually ordered for a set period of time but can be ordered as a life-long order in very rare cases. This is also known as spousal maintenance. Again, the courts prefer not to make this type of order as they are keen for the parties to have a clean break moving forward. If it is felt that periodical payments are needed, the court may choose to award a lump sum in lieu of the amount that they would have ordered in periodical payments in order that the parties can still achieve a clean break.
The orders for capital are lump sum orders, property adjustment orders, sale of property orders and pension orders.
A lump sum order is just that, it orders that one party pays the other party a lump sum of money.
A property adjustment order can relate to the former matrimonial home or any other property that the parties own such as shares, furniture or any vehicles. If the former matrimonial home is jointly owned with a mortgage and one party wishes for it to be transferred to themselves they may have to consider seeking independent mortgage advice. Where one party has primary care of the children of the family and their housing needs cannot be met through the sale of the property, an order can be made where that party remains in the former matrimonial home until one of a number of factors arise whilst the other party remains on the mortgage. Typically the remaining party will have to meet the costs of the mortgage and outgoings. The usual triggering points to conclude these types of orders are that once the youngest child attains 18, the party remaining in the property remarries or dies, the property will then be sold and the equity divided as ordered by the court.
If neither party wishes to remain in the former matrimonial home or if neither party is able to do so because of financial constraints, the court can order that the former matrimonial home, or indeed any other property that the parties own, be sold. The sums received would then become part of ‘the pot’ for sharing between the parties.
Many parties fail to recognise the value of pensions upon divorce.
Any pension which has been accrued during the marriage is subject to the sharing principal, pensions accrued pre-marriage can also be the subject of pension orders.
A court can make a pension sharing order to either reach equality or a division that the Court sees appropriate to the facts of the case. It will be necessary to obtain a cash equivalent transfer value (CETV) for any pensions held by the parties in order to ascertain whether, and to what degree, there should be a pension sharing order. If one party wishes to retain their pension, they may be able to consider a lump sum payment in lieu of a pension sharing order, depending on the agreement of the other party or the input of the court. It is often appropriate to instruct a pension actuary to consider if the quoted CETV’s are accurate, and/or to calculate what pension share is appropriate to equalise the parties pension income in retirement.
When considering how to divide the assets the court will have consideration for all circumstances of the case and the matters listed under S.25 Matrimonial Causes Act 1973. This states that the income, earning capacity, property and other financial resources which each has or is likely to have in the foreseeable future, specifically including any increase in earning capacity that it would be reasonable to expect a spouse to acquire should be taken into consideration. The courts will also consider income and earning capacity, property and other financial resources, potentially including resources of a new partner, welfare benefits, needs, standard of living, age and duration of the marriage, disability, contributions, benefits lost and in rare cases, conduct, when making a decision regarding financial matters.
The court will, whenever possible, seek to make an order which gives the parties a clean break. By this, the court look to make an order which will end all financial ties between the parties allowing both parties to have a clean break moving forward.
The financial aspects of a divorce can seem daunting, but it is essential that any settlement reached, whether through agreement or through the courts, is right for you as it will have an impact on your future.
Andrew Isaacs Law has a wealth of experience in this area of law and will be happy to guide you through the process ensuring that any settlement that is reached is the best possible outcome for your case.