Financial Issues in Divorce and Separation.

Matrimonial, or marital, assets are the financial assets acquired during the period of marriage/civil partnership, and typically include:

• Family home
• Other property such as holiday homes and rentals
• Pensions
• Savings and investments
• Bank and building society balances
• Stocks, bonds and mutual funds
• Businesses
• Vehicles
• Furniture and household contents

Financial assets acquired before marriage/civil partnership or after separation are usually treated differently. These are known as non-matrimonial assets. While these assets may be excluded from any financial settlement, that is not necessarily the case. Assets acquired prior to marriage/civil partnership, but then used to acquire items during the marriage/civil partnership, could be included in the financial settlement, for example.

You should also determine the extent of any debts which have accrued during the period of marriage. It is especially important to organise any debts which are in joint names (joint credit cards or loans taken out together) because creditors can pursue either one of you individually for the debt. As such, should your partner stop making repayments, that obligation would fall solely upon you.

We have a vast amount of experience in unravelling complex financial relationships and will support you throughout the process. We will advise you on the extent of your personal obligations for any debts accrued during your relationship and on the process for financially separating yourself from your joint obligations.

During the financial settlement process, both you and your partner will continue to spend money on living expenses, so may need access to jointly held and accrued funds. Occasionally, situations arise when a spouse or partner makes large withdrawals from a joint account without agreement or seeks to run up large debts in your joint names. If you are concerned about the possibility of your partner acting in this way, contact us and we can explain the precautions which can be taken.

In circumstances when one party to the divorce or separation does not have the means to support themselves or any dependents financially, arrangements are usually made for on-going payments. This situation can arise where one party was the sole earner in a relationship. Payments can be for a fixed term or for life.

We have vast experience dealing with these matters and will work together with you to ensure a smooth and reasonable result. We can also advise you of your legal options if a former partner fails to keep up their commitments to on-going payments, including arranging for a court order enforcing payment.

In most cases, a financial order from a court is required. Our focus is always on working together with our clients to achieve an amicable out of court settlement whenever possible, backed up with a financial consent order. If you are unable to reach an agreement, then an application can be made to court for financial aspects of your divorce to be determined.

We will act on your behalf in these proceedings, using our knowledge and experience to seek to ensure a fair and satisfactory outcome. The court will consider the length of your relationship, the range of assets, the specific circumstances of each party (including health and earning capacity), the needs of any children of the relationship and the reasonable income and capital needs of each party.

It is vital to make your financial settlement legally binding because changes to your circumstances following divorce or separation can result in a financial claim. This can happen if one party to the proceedings earns or inherits a large amount of money post-separation, or if one party re-evaluates matters and decides that they have been treated unfairly.

There are cases where changes in financial circumstances decades after a separation have resulted in successful claims. To avoid the possibility of this happening, we will ensure your financial settlement is legally binding.

Some couples choose to agree what will happen to their assets, in the event of a breakdown of the relationship, at the outset. Pre-nuptial agreements (or prenups) of this sort are not fully legally binding but will be considered by the court and followed, providing certain requirements are satisfied.

Our experienced team has worked on pre-nuptial agreements for people from a wide range of backgrounds and understand both the legal requirements and the practical sensitivities. We will ensure your arrangements abide by the guidelines and fully recognise your wishes.

If you have a prenup in place, it is important that you discuss the agreement with us to ensure you are clear about what was agreed.

Provision needs to be made in any financial settlement for the position of each party in retirement. There are three main ways that pensions are dealt with on divorce.

Pension sharing

Pension sharing is a common, tax efficient, approach. The value of the pension held by one party is split, ensuring that each partner has their own pension. This allows for a clean break in financial arrangements, and each partner can then deal with their share of the pension pot as they wish.

Pension offsetting

Another option is to offset the value of the pension against other assets, allocating assets of a different nature, such as the family home, to the other person. This allows one partner to keep the whole of the pension, while the other partner is adequately provided for. This is also finalised on divorce, so allows for a clean financial break.

The offsetting process may involve one partner receiving a greater share of the family home, or other property. We will work together with you to accurately value all your assets to ensure that any division is fair.

Pension attachment order

A less common option on divorce is pension attachment (previously known as earmarking). This involves some or all of the pension benefits due to one partner being ordered to be paid to the other.

There are a number of difficulties with this approach, including the fact that the second party has no control over their pension income – it only starts to be paid when the pension holder chooses to retire. Payments under a pension attachment order also stop when the pension holder dies, or if the recipient remarries. These factors, plus the fact that this approach does not involve a clean break financially, means that pension attachment is rare, with most people choosing pension sharing.

State Pensions

A basic State Pension cannot be shared on separation or divorce. It is possible to increase your own basic State Pension by using your former partner’s National Insurance contributions, without impacting the State Pension they receive. Any additional State Pension entitlements could be ordered by the court to be shared.

For people who own one, the family home is usually the biggest asset involved in any divorce or separation settlement. Arrangements regarding property can often be the biggest cause of stress between the parties, so getting advice on your options is key. We will ensure you fully understand your rights and the choices available to you.

Usually, people stop living in the same house on separation or divorce and choose from one of the following:

• Sell the property and split the money
• One party buys out the other, taking full ownership of the property
• The property is transferred, leaving one party with full ownership, and the other with a right to a share of any sale proceeds at a later date
• Both parties continue to legally own the property, although only one person remains living there
• An order is made that the property will be sold at some future date (often when all dependent children leave home), with the proceeds of sale being divided at that point as the court decides

Mortgages on divorce or separation

If you have taken out a joint mortgage, both parties are responsible for repayments. This means the lender can require either one of you to make repayments if the other stops paying. In circumstances where the property is not sold and the mortgage paid off, mortgages are usually reviewed so that only one person is named as the borrower.

Couples involved in running a business together will need to make arrangements following separation or divorce. It can be a complex process to determine the value of a business asset, and the court may well treat a family business as a source of income rather than an asset – this may mean that a party, who had little or no involvement in the business, may be entitled to a portion of its value.

Negotiations will need to take place to settle the value of the business assets, and how the company will be run in the future. Most people choose to make a clean break, with one partner exiting the company through a transfer or buy-back of their shares. We have experience dealing with these situations, and we will support you through each step of the process.

Under English law, cohabiting non-married couples do not have the same rights as married couples. The concept of a “common law” husband or wife is a myth. As such, if you choose not to get married or enter into a civil partnership, the most sensible choice is to enter into a cohabitation agreement, which sets out each person’s rights and obligations during the cohabitation and upon separation.

Where such an agreement exists, the process of separation is straight-forward. If there is no cohabitation agreement, there is often little that the family law courts can do if the couple cannot agree between themselves how to divide up their property. The distribution of disputed assets will often be determined purely on the basis on which the property is owned, so it is important to take this into consideration when purchasing items of significant value or importance.

If an unmarried couple with children separate, the law is designed to protect the welfare of the children, so, if the couple cannot agree the financial or living arrangements, the court can be asked to make a judgment.