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The Basic Principles

When a married couple separate or divorce, or when a civil partnership is dissolved, there are usually a number of practical issues which need to be addressed. Divorce or dissolution proceedings only enable a marriage or civil partnership to be dissolved. In most cases (although pension rights may automatically be lost) finances will not be affected. So, for example, joint bank accounts or mortgages will remain in joint names. It is therefore very important for financial matters to be dealt with so that a fair division of all family property can be carried out.

 

Financial Information

All property – typically a house, car, savings and shares are matrimonial assets. A pension fund is an asset, even if the pension is in payment. If the parties cannot agree on a fair division of these assets, then the Court can order any of the property to be transferred from one party to the other or sold. It does not matter whether the property is in joint names or in the name of just one party to start with. Hopefully, even though a relationship may be over, a couple can still often reach a workable agreement in respect of their assets and liabilities (their debts). In the division of assets it is necessary to ensure that each party and any children of the family can be properly provided for, not only at the time of the separation, but in the future.

 

Solicitors can assist the parties in reaching agreement because even though every case is different, they can apply the legal principles to the particular circumstances of the case. It is important to remember that every case is different so even though friends and relatives may want to give advice, it is essential to get professional help.

 

The first stage, before any negotiations begin in respect of financial settlement is for each party to disclose their financial circumstances to each other. This is so that everyone has a clear picture of the true extent of the assets and liabilities. Only then can negotiations start with a view to reaching a workable agreement. It is worth remembering that if relations between you and your spouse are amicable, you can both save time and costs by gathering as much information as possible and by being open and honest in discussions about the division of finances. 

 

Agreement and Consent Orders

If an agreement is reached, and the Decree Nisi / Conditional Decree has been granted, the parties can apply to the Court for a consent order to set out their financial agreement in a binding order. This further acts as a safeguard as it is the only way to ensure that there are no other existing or future claims between the parties and is essential if a ‘clean break’ is sought. The Consent Order is drafted by solicitors and placed before the Court for approval. A Statement of Information is also completed which gives the Court an overview of your finances so that the Court can ensure that the financial settlement proposed is fair. The Court can refuse to make a consent order if the Court finds that the agreement does not provide a fair division of the matrimonial assets.

 

What happens if no agreement is reached?

You will be expected to attend a session with a Mediator before you can make an application to Court.

 

If agreement cannot be reached either with negotiation via solicitors, or in mediation, then either party may ask the court to decide how the finances should be divided by making an order. These proceedings are known as Financial Provision proceedings.

 

Even if court proceedings for financial provision have started, they can be stopped if the parties reach an agreement. Most cases end in this way avoiding a final contested hearing, which would increase both tension between the parties and emotional and financial costs. Also it is possible for the parties to agree terms of settlement that a Court would not be able to impose upon them. This means that an agreed settlement can be very flexible and is more likely to fit the circumstances of the case with both parties feeling that they have had a say.

 

Basic Principles

When deciding how finances should be divided there are a number of factors which will be taken into account, including:

(a) The needs of any children of the family,

(b) The length of the relationship,

(c) The earning capacity of each party, now and in the future,

(d) The state of health of each party,

(e) The contributions made to the marriage by each party,

(f)  The needs of both for income and capital.

 

It must be emphasised that the court’s objective is fairness to both parties. There is no place for discrimination on the basis that the parties have taken different roles in the marriage, e.g. with one party staying at home to look after the children and the other being the main earner. The Judge will consider what would be a fair division of the assets and give clear reasons explaining why. In many cases this may mean an unequal division of the assets. This is because the settlement needs to be fair based upon individual circumstances.

 

Three important principles may justify the redistribution of financial resources from one party to the other:

(1) The needs generated by the relationship between the parties;

(2) Compensation for relationship-generated disadvantage (e.g. where one party forgoes a career in order to focus on the upbringing of the children);

(3) The sharing of the fruits of the matrimonial partnership.

 

These factors will differ in importance from case to case and the ultimate objective is to give each party an equal start after separation.

 

Conduct

The conduct of the parties or the blame for the breakdown of the relationship would only be taken into account in the most exceptional circumstances (e.g. severe financial mismanagement or disposing of or hiding assets). Behaviour such as adultery or domestic violence is not usually taken into account when finances are being considered.

 

Contribution

The question of contribution is now approached in much the same way as conduct. Only if there is a huge difference between the contributions made to the welfare of the family by one party over the other, meaning that it would be inequitable to disregard such a contribution, will this be taken into account in determining the settlement.

 

Periodical Payments (Maintenance)

A periodical payments order can be made in favour of one party. This means one party is expected to pay to the other a regular sum to meet their financial needs. In such cases a clean break will not be obtained but it is worth bearing in mind that a clean break should not be achieved at the expense of a fair result and also there is no reason to limit a periodical payments order to a fixed term in the interests solely of achieving a clean break.

 

Assets

As stated every case is different depending on the individual circumstances and this includes what is considered as an asset to be included in the “pot” for division. The notion of family assets, i.e. those generated by the joint efforts of the parties, is now accepted widely. Such assets would include, in addition to the traditional family assets (i.e. those assets jointly gathered during the term of the marriage including property brought by the individual into the relationship or acquired by inheritance during the marriage), but also business or investment assets generated solely or mainly by the efforts of one party during the marriage.

 

The length of a marriage is also considered when looking at the division of assets. The nature and source of the property and the way in which the couple had run their lives might also be taken into account. However, in the vast majority of cases, the need of each party will be the overriding factor and upon the basis of achieving a fair settlement, such arguments will be irrelevant.

 

Separation Agreements

Sometimes separating couples do not wish to divorce or dissolve their partnership, or want to delay dosing so until they can do so based on 2 or 5 years separation. In these circumstances if agreement can be reached regarding the division of financial matters at the time of their separation, a formal separation agreement can be drawn up clearly setting out the terms of the settlement.

 

Such an agreement is not legally binding, but if it has been entered into correctly and is fair, the Court will usually uphold the terms of it in the event that future disagreements arise. For this both parties will have to seek legal advice and enter into full and frank financial disclosure.

 

On a later date, the separation agreement can be redrafted into the form of a consent order as detailed above.

 

It is important to remember that a separation agreement does not remove the power that the Court has to overturn the agreement and order a different settlement if it considers this fair. However, if the agreement is properly prepared and has been entered into freely with proper legal advice the Court is less likely to set it aside.

 

Any agreement or Court order obtained by fraud or where there has not been full and frank disclosure is open to later challenge. The Court will not hesitate to set aside any order obtained in such circumstances. The dishonest party may have to bear all the legal costs involved and may also be prosecuted for perjury. Honesty really is the best policy.

 

 

Pre / Post Nuptial agreements

It is possible to agree right at the outset of a marriage / civil partnership how any assets will be divided if you later separate. Whilst this is the last thing anyone will be thinking about on marrying or entering into a civil partnership, such agreements are becoming more common as couples see the benefit in negotiating these issues during happy times to prevent potential problems in the future.

A pre nuptial agreement is contract drawn up between future spouses / civil partners which sets out the agreement about how the parties would resolve financial / children matters in the event that of a separation. It is drafted, agreed and signed before a wedding / civil partnership takes place. A postnuptial agreement is the same, but is drafted, agreed and signed after the marriage / civil partnership.

These agreements are not binding and can be overturned by the Courts, but on the basis that both parties have had independent legal advice, there has been full and frank disclosure and both parties have entered into the agreement freely and voluntarily, the Court would view the agreement as an important statement of evidence about the mutual intentions.

Such agreements are chargeable at hourly rates and a quotation will be provided to you at the outset. The current hourly rates charged by our fee earners are detailed on the main family page.

An example of the fees involved in drafting a typical agreements where there are no business assets, overseas property, substantial inheritance prospects, trusts or large pensions to consider will be between £500 to £1000 plus VAT and disbursements. The costs will vary dependent on the assets involved and the complexity of the circumstances.  A full discussion will take place and fees will be agreed before work commences.

 

 

Step by Step guide to Financial Relief 

What follows is a basic outline of the Financial Relief procedure so that you are aware of what will be happening each step of the way. We charge fixed fees for financial proceedings which are set out on Fixed Fee Information Sheet: Financial Proceedings. A fee is charged for each separate stage.

 

Stage 1 – Negotiation without Court applications

This is the first stage in considering separation of finances following a separation. This will involve discussion of the options, consideration of the financial disclosure and negotiation with the other party or their solicitors to try and reach agreement.

 

A referral will need to be made to mediation if negotiation does not result in agreement. The mediation service will arrange separate initial meetings for both parties to attend called Mediation Information and Assessment meetings (MIAM). After this meeting the mediation service will determine whether the issues are suitable to mediate, and if so, arrange a mediation meeting. This can be a joint meeting between both parties, with a mediator present, or shuttled mediation where both parties remain in separate rooms with the mediator going between the two. Full financial disclosure is exchanged and the mediator will encourage negotiation and suggest ways to resolve the issues. There are usually 3 mediation meetings but there can be more or less, depending on the circumstances. If an agreement can be reached, the mediator will then draw up a memorandum of understanding which both parties will be asked to agree and sign. This can then be given to a solicitor who will draw this into a consent order.

 

If agreement cannot be reached following financial disclosure and negotiation, or at mediation, then either party may ask the court to decide how their finances should be divided by making an order. These proceedings are called ‘Financial Relief Proceedings’.

 

Stage 2 – First Directions Appointment

Once an application for financial relief is sent to Court, the Court will set a timetable for the proceedings which sets out what needs to be filed when, and gives a date for the first directions appointment (FDA) which is the first court hearing.

 

Financial Statement – Form E

Each party has to prepare a written financial statement, known as a Form E. These statements contain detailed information about your financial circumstances and require evidence such as bank / building society statements, payslips, valuations and accounts to be attached. The statements have to be exchanged no later than 35 days before the first Court appointment. The statement has to be accompanied by a signed statement of truth which means that you are making a solemn promise to the Court and the other party that you have told the truth in the statement.

 

It is beneficial to begin getting together the documentation which needs to be attached to the Form E as soon as possible. The following documents must be annexed to the Form E:-

  • Valuations of the matrimonial home and any other properties, obtained in the last 6 months.
  • Recent Mortgage statement for the properties described above
  • 12 months Bank Statements for all accounts
  • Surrender value quotations for all life insurance/endowment policies
  • The last 2 years Accounts for any business in which you have an interest
  • The last 3 payslips and P60 for the most recent year (also P11d for any employment benefits)
  • The last 2 years accounts for any self-employment or any Partnership of which you are a part.
  • Cash Equivalent Transfer Valuation (CETV) of all pensions
  • Details of any assets valued at over £500
  • Details of any liabilities (debts)
  • State Benefit awards

 

Once complete these are sent to the Court and to the other party. Following the exchange of Form E’s, each party considers whether further questions need to be answered or further documents required to determine the actual issues in the case.

 

Before the FDA, each party must prepare and send to the other party and to Court a statement of Issues in the case, a chronology setting out the important dates during the marriage / civil partnership, a questionnaire seeking any further necessary information and documentation and a statement of the legal costs incurred to date

 

The FDA

You will need to attend the appointment along with your solicitor. The appointment is held in private with a District Judge in Chambers. The District Judge will consider which questionnaires need to be answered, what further documents need to be produced and any other matters that need to be dealt with i.e. valuations of property or expert evidence. The District Judge will also “direct” how the case should be dealt with and timetable things like the filing of further documents. At this appointment the District Judge will give no indication about how he or she believes the matter should be settled, and instead it is usual for the matter to be listed for a Financial Dispute Resolution hearing (FDRH), or in exceptional circumstances i.e. non cooperation from a party, listed immediately for a Final Hearing.

 

Stage 3 – From FDA to Financial Dispute Resolution Hearing (FDRH)

If the issues are not agreed via negotiation or at the FDA, a Financial Dispute Resolution Hearing (FDRH) is listed. Further documents will need to be prepared for this hearing. Before the hearing each party has to prepare their answers to the others questionnaires, and provide any outstanding financial evidence. Property and pension valuations are usually received and any expert evidence. Once all the evidence is received, consideration will again be given to whether the issues can be agreed without the need to attend Court. If this is not possible, the FDRH will proceed.

 

Before the FDRH, each party must prepare and send to the other party and to Court an updated statement of Issues in the case, an updated chronology setting out the important dates a schedule of the assets and liabilities, confirmation of housing needs and mortgage ability and a statement of the legal costs incurred to date.

 

 

The FDRH

This follows the same procedure as the FDA, in that it will be held in private before a District Judge in Chambers. However, on this occasion more time will be allocated and discussions will take place prior to the hearing between solicitors to try and achieve a settlement. At this appointment the District Judge will explore all the issues and try and steer the parties towards an agreement. The Judge’s role is to try and guide the parties towards a realistic settlement and the Judge may well give an indication of how he or she thinks that the case should be settled. If the parties are still unable to agree terms, then the Judge will not make an order about how the finances should be shared at this hearing and instead will direct that the matter proceed to a Final Hearing.

 

Stage 4 – Final Hearing

The Final Hearing will be heard by a different Judge than the Judge who conducted the FDRH appointment. Therefore this Judge will not be aware of any of the discussions which took place at previous appointments.

 

Before the Final Hearing, each party must send to the other party and to the Court their proposals to settle the matter.

 

At the Hearing you will be represented by a solicitor, or a barrister and you will be called to give evidence, as will the other party, and will be cross examined. Experts may be also asked to come to Court to give evidence. The Judge will consider all of the evidence given orally at Court and the evidence in the Court bundle, and then make a final decision, giving reasons for doing so.

 

It is worth remembering that proceeding to a Final Hearing will have cost implications and it is therefore beneficial to fully engage in negotiations with a view to resolving the matter and achieving an amicable settlement prior to a Final Hearing. 

 

Even if court proceedings for financial relief have started, they can be stopped if the parties reach an agreement. Most cases end in this way avoiding a final court hearing which would increase both tension between the parties and emotional and financial costs. It is also possible for the parties to agree terms of settlement that a Court would not be able to impose upon them. This means that an agreed settlement can be very flexible and is more likely to fit the circumstances of the case with both parties feeling that they have had a say.

 

Any agreement or Court order obtained by fraud or where there has not been full and frank disclosure is open to later challenge. The Court will not hesitate to set aside any order obtained in such circumstances. The dishonest party may have to bear all the legal costs involved and may also be prosecuted for perjury. Honesty really is the best policy.

 

Pensions and Divorce / Dissolution

The Court will consider pension rights along with all other family assets in financial relief proceedings. Pension rights will be considered when deciding what maintenance and capital should be paid and what capital transfer should be made by one party to the other on divorce / dissolution.

 

The Court has powers to make a number of different orders in relation to pensions:-

 

Pension Sharing Order

A Pension Sharing Order enables the Court to divide pension at the time of divorce / dissolution. The share divided will depend on the individual circumstances of the case and may not be on an equal basis. Instead the parties are encouraged to negotiate the percentage split, or if agreement cannot be reached, the Court will determine what pension sharing order, if any, should be made.

 

In cases of pension sharing, it is very important to seek legal and financial advice to determine the pension value, what is an appropriate split for the pension, and to see whether the party receiving the pension share should become a member of the same pension scheme or set up an entirely new scheme by means of either an internal or external transfer.  This means that independent advice is usually required from a financial advisor who is specialist in pensions. There will be charges for independent financial advice which are separate from your legal costs.

 

Pension Attachment Orders

This type of order used to be known as an “earmarking Order”. In making this order the Court has the power to make either an immediate order which means that a percentage of the member’s pension is set aside for the other party to claim on retirement, or a deferred order, requiring one party to pay to the other a regular sum from their pension scheme. The Court can in addition, or instead of, make an order requiring one party to cash in the maximum lump sum they are entitled to take upon the scheme maturity and to pay either the whole amount, or a proportion of the same to the other.

 

The Court is also able to order that one party sign over all of the death in service benefits to the other party. This is useful as it provides security in the event of death.

 

In making a pension attachment order the Court can direct that the Trustees/Managers of the pension scheme carry out the terms of the Court order on behalf of the person with the pension rights.

 

It is not possible for the Court to make both a pension sharing order and a pension attachment order against the same pension fund.

 

Offsetting

This means that the value of a pension will be “offset” against another asset such as a house. It does mean that a clean break is reached. For example one party keeps their pension pot in exchange for transferring to the other party their share of the house. Whilst this does often seem the simplest option, it is very important that you take advice from a specialist. This is because by accepting the house, you are giving up all of your future rights to the other party’s pension. In these circumstances you need to make sure that you calculate how much retirement income you can generate in your own right either by saving or releasing the equity in the house at a later date.

 

There are methods of compromise where one party can offer a share in the equity held in the house to be released at a later date in return for a share of the pension.

 

CETV

A Cash Equivalent Transfer Valuation (CETV) or Cash Equivalent Benefit (CEB) statement set out the value in capital (cash) terms of the pension i.e. income and potential lump sum) that have been accused to date, or are in payment.

 

With a money purchase scheme, the CETV is the transfer value of the funds that have accrued to date. The transfer value may be different to the actual fund values depending on whether there are any penalties associated with the pension scheme.

 

The CETV of a final salary scheme rarely reflects the true value of the accumulated pension rights. This is because if the scheme is short of money, the transfer value may be reduced to reflect the underfunding position at that time. This is a very complicated area and in these circumstances, expert financial advice from a pension actuary will need to be sought.

 

As previously stated in cases of pension plans it is imperative to seek legal advice. Some pension plans may appear to have quite a modest value, but may be index linked and therefore likely to increase considerably. It is therefore very important in such cases to have the pension fund properly valued by a pension actuary. It is furthermore necessary for the intended recipient of a pension sharing order to have independent financial advice so that they can make informed choices regarding the pension rights apportioned to them.

 

February 2020

 

NOTE: The above is intended as a general overview for your information. It is NOT intended to replace proper legal advice. Each case is different and advice cannot be given without a proper analysis of your own circumstances.

THE FAMILY LAW TEAM

 

Please telephone 01782 26 24 24 for an appointment or alternatively email our team.

 

Family Law Fact Sheet – Financial Issues

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