Financial Arrangements on Divorce
Financial and practical issues are often far more pressing concerns than the divorce itself and many people in the throws of relationship breakdown can find the financial ramifications overwhelming. We provide practical and pragmatic advice to guide you through strategic and complex decisions from the moment you visit us until implementation of the settlement is finally concluded. This includes a multitude of areas, for example:
- Seeking assistance for payment of your costs by way of litigation funding or an order against your spouse to pay a sum of money for your legal costs (a “Legal Services Order”)
- Negotiating financial settlements, whether in court proceedings or otherwise
- Attending to financial disclosure and assisting to ensure full and proper disclosure is given
- Obtaining expert reports if needed, eg a pension report or business valuation (which can be complex) and helping you to understand and assess them
- Emergency matters such as interim maintenance (“maintenance pending suit”) or freezing orders to prevent assets being dissipated
- Enforcement of orders if they are breached
- Advising and assisting where orders need to be re-considered including variation of maintenance, or a capital payment in place of maintenance, to enable a clean break.
Determining “Fairness” on Divorce or Dissolution of Civil Partnership:
The court has a very wide discretion indeed when deciding how family assets should be shared and can alter the ownership of existing assets, order that assets be sold, or even overturn transfers of assets which have already taken place.
When deciding how the assets should be shared, courts must give first consideration to the needs of any children, whilst minors. Thereafter, the ultimate objective is to achieve a “fair” outcome between the parties and in doing so, courts must have regard to the factors set out in s.25 of the Matrimonial Causes Act which can be summarised as follows:
- The income, earning capacity, property and other financial resources which each of you have or are likely to have in the foreseeable future (including efforts to improve earning capacity if appropriate);
- The length of your marriage (including pre-marital cohabitation)
- Your ages and any physical or mental disabilities;
- The financial needs and obligations you each have or are likely to have in the foreseeable future;
- Your standard of living enjoyed prior to the marital breakdown;
- The contributions each of you have made or are likely to make in the foreseeable future (including contributions by way of looking after the home and children);
- The conduct of each of you, but only where such conduct is so bad it would be unfair to disregard it;
- The value of any benefits which might be lost (eg, pension provision).
The significance of each of these criteria and weight given to them will vary from case to case.
Increasingly, courts are also having regard to the terms of any pre or post nuptial agreements.
It is worth noting that courts will always consider an equal division of assets, and only depart from equality where such a departure is justified (eg, where the housing needs of the children require it). This is known as the “sharing principle”.
Court Orders on Divorce or Dissolution of Civil Partnership:
The court has very wide powers and can make a variety of orders, which usually include one or more of the following:
- Property adjustment orders (eg, orders for the sale of the home, or for its transfer from your joint names to one of your sole names);
- Lump Sum Orders (for payment of a sum of money by one of you to the other)
- Pension Sharing Orders (eg, where one of you has a larger pension than the other the court may order funds to be transferred from one pension scheme to another)
- Maintenance: These orders can be on an interim basis as “Maintenance Pending Suit” to tide you over until the case is finally concluded, or as a Periodical Payments Order as part of the final order.
Inherited or Pre or Post Acquired Assets:
Not all assets are viewed by courts as family assets.
Certain assets can be treated differently, but only where it is possible to achieve a “fair” outcome generally without recourse to them. However, courts have a very wide discretion and determining what might be a “fair” outcome can be a very subjective matter.
Notably, courts will often regard inherited assets or assets acquired by you before the cohabitation began or after you separated, as “non-marital” assets. It is therefore sometimes possible to ring-fence those assets out of the settlement.
When deciding whether or not an asset can be ring-fenced, courts will consider such matters as follows:
- The nature and value of the asset
- When you acquired the asset
- The length of your marriage
- Whether the asset still exists
- Whether the asset has been mixed in with other family assets, or was kept separately
- Whether the asset is needed in order to achieve a fair overall outcome
Generally speaking, the longer the marriage and the more the asset has been enjoyed by both parties during the marriage, the less likely it is to be ring-fenced.
Dealing with businesses in divorce or dissolution can throw up a range of challenging issues. Some of the most obvious might be:
- Correctly valuing the business and shares held in it, and the income stream available from it;
- Whether to treat it as a capital asset with a sale value, or an income stream, producing valuable income to support the family - or a combination of both;
- Making appropriate allowance for any inherited element of the business and third party interests;
- Taxation issues which may arise.
Business and share ownership can be very complex and finding ways to appropriately structure a settlement following relationship breakdown can be extremely difficult.
Family courts have a very broad discretion to deal with any assets as they choose, but they will try to avoid “shooting the goose that lays the golden egg”. This is a key concern where the business produces a significant income stream for the family, which will be the backbone of any future maintenance payments.
We have close links with accountants, tax experts and financial advisers, and can assist you in coming to efficient and fair solutions, taking account of the business needs and both short and long term needs of all parties involved.
Trust assets are often a valuable resource in a case. It might be that only one of you is entitled to benefit from the trust, but it is nonetheless a financial resource and as such, is relevant.
When considering overall “fairness”, courts are bound to take into account not only the assets as they now are, but also such assets as you “…are likely to have in the foreseeable future”. This may well include not only trust assets already received by you, but which you may shortly become entitled to benefit from.
In simple terms therefore, trust assets or an obvious entitlement to trust funds may be a key factor in a case. However trusts and their assets are rarely simple and there can often be very significant sums of money at stake.
Courts have an additional power in relation to some trusts, namely, to vary the terms of a trust, to make financial provision for one of you or, indeed, for your children. These additional powers relate to nuptial settlements, ie, where the trust is for the benefit of one or both of the married couple and it was created because of, or by reference to, the marriage. This is a complex area of law and determining whether a settlement is a nuptial settlement is far from simple.
In view of the complexity trusts tend to throw up, expert advice is usually required. We work closely with our private client department, tax experts and independent financial advisers to provide you with that advice and devise appropriate strategies to achieve a fair outcome for you.
Treatment of Pensions:
Nowadays it is not uncommon for pensions to be the largest assets in a case.
Courts have the power to deal with them in several ways, including pension sharing orders, pension attachment orders, and off-setting them against other assets (eg, typically, the wife may prefer to keep a larger share of the family home and the husband may prefer to keep more of the pension investments).
Pension sharing can only take place upon a Decree Absolute of divorce, dissolution of a civil partnership, or nullity.
All forms of pensions in the UK can be subject to pension sharing orders (except for the basic state pension). This applies whether they are still being paid into, are frozen, or are already in payment following retirement or draw down.
A pension sharing order will specify the percentage amount which is to be deducted from the pension holder (by way of pension debit) and paid to the other party’s pension scheme as a pension credit.
It is often necessary for the beneficiary of a pension sharing order to set up a pension scheme in order to receive a pension credit.
Pensions are complex and the law relating to them is constantly changing. It is often extremely difficult to assess the value of the pension schemes to the parties and, confusingly, the value may differ significantly in amount between the pension holder and the non pension holder, by virtue of their age or health. It is also difficult to quantify the loss of the pension benefits by virtue of the divorce. Expert advice is essential, from an actuary or other such pension expert.
We work closely with pension experts and can refer you to suitable professionals, to assist you in understanding the value of your pensions and any pension credit received, and in deciding how to invest any pension credit you may receive by way of a pension sharing order.
Procedure: Court Applications for Financial Orders (“Financial Remedy Proceedings”)
1. Financial application (Form A) filed with the court.
Court fee: £255
On receipt, the court sets a timetable, giving dates for certain steps to be taken plus a date for a hearing (the “First Directions Appointment” or “FDA”).
A hearing should be listed 12 – 16 weeks later.
NB: With a Form A, it is now necessary to file a form FM1 stipulating what efforts have been made to resolve the matter through mediation (please refer to our Mediation section for further information).
2. At least 35 days before the hearing date: Forms E
Both parties must prepare a statement of their financial position.
These statements are in a standard form. It is known as a Form E and is quite detailed, requiring numerous documents to be attached (eg, bank statements for the past year, p60s, payslips for the last 3 months, property valuations, pensions information and much more besides).
The obligation on both parties is to provide full financial disclosure, including such documents and information as is appropriate to give a complete picture.
3. At least 14 days before the FDA: FDA documents
- Statement of Issues
- Questionnaire and request for further documents
The first two of these documents deal with the basic background to the case, contextualising it for the judge.
The Questionnaire is an important opportunity to request further information or documents needed from the other party to complete their financial disclosure.
4. Court Hearing: FDA.
Parties and legal advisers must attend all court hearing in financial remedy proceedings.
The purpose of the FDA hearing is to consider what further information and documentation is necessary, if any, to enable the court to make a decision as to an overall financial outcome to the case.
The District Judge might therefore make various orders, for example:
- An order that the matrimonial home is valued
- An order that the pensions are valued
- An order that a business is valued
- A timeline for questionnaires to be answered (usually the order is for replies within 28 days)
- (NB amendments to questionnaires are often ordered).
- The next hearing date.
The FDA hearing is not specifically about trying to settle the case but it is not uncommon for negotiation to take place.
By agreement, additional orders can be made, eg, orders for interim maintenance to be paid at a suitable level.
It can often be a useful hearing generally, therefore, even though it is primarily procedural.
5. Court Hearing: FDR
The second court hearing is designed to encourage and help the parties to settle the case. This is known as the Financial Dispute Resolution hearing (FDR).
Prior to this hearing, both parties must attempt to negotiate and copies of offer letters must be provided to the court to assist the District Judge hearing the case.
It is a ‘Without Prejudice’ hearing, ie, offers can be made which will not subsequently be referred to in court if the case does not settle.
If an agreement is reached it will be made a court order by way of a Consent Order, concluding the case.
If no agreement is reached the District Judge will set a further timetable to prepare the case for Final Hearing. Orders may be made for updating financial disclosure etc.
6. Final Hearing:
A few weeks before the Final Hearing the parties may be required to submit statements setting out their case by reference to the factors laid out in s25 of the Matrimonial Causes Act (see above, “Determining “Fairness” on Divorce or Dissolution of Civil Partnership”)
Before the Final Hearing the Applicant and the Respondent must make proposals to settle the case and those proposals will be provided to the court adjudicating the matter.
The Applicant is required to prepare the bundles of documents and evidence for the court. There are rules on how bundles of documents are prepared and evidence and documents which are to be included.
The parties and their solicitors or barristers attend the Final Hearing.
The Judge will hear evidence and they will be subject to cross-examination. The judge will then make a final binding decision providing for the division of matrimonial capital and income.
Costs: The court may make an order requiring one party to pay some of the other’s costs in cases where conduct is deemed to have been very poor. This is rare. Usually each party pay their own costs, and no costs orders are made.
Few cases go all the way to a Final Hearing; most will settle at some point along the way.