Family Department Fact Sheet
Financial Matters on Separation
This document provides general guidance regarding the basic principles of financial matters on separation. Your family lawyer will be able to provide specific advice based on your circumstances.
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.
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 also 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.
If an agreement is reached and a Conditional Order has been granted in divorce proceedings, 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.
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 to 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.
When deciding how finances should be divided, there are a number of factors which will be taken into account, including:
- The needs of any children of the family,
- The length of the relationship,
- The earning capacity of each party, now and in the future,
- The state of health of each party,
- The contributions made to the marriage by each party,
- 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:
- The needs generated by the relationship between the parties;
- Compensation for relationship-generated disadvantage (e.g. where one party forgoes a career in order to focus on the upbringing of the children);
- 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.
The conduct of the parties or the blame for the breakdown of the relationship would only be considered 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 considered when finances are being considered.
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 considered in determining the settlement.
A periodical payments order can be made in favour of one party. This means one party is expected to pay 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.
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 considered. 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.
Sometimes separating couples do not wish to divorce or dissolve their partnership. 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.
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 when 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 a 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 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. 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.
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. (May 2023)
