Divorce of any length or cost and under any circumstance can be an incredibly difficult time. Not only are you ending a relationship of often years, sometimes decades, but there are countless areas to navigate in order to ensure you are fairly compensated and supported as you embark on a new chapter.
Divorcing partners need to consider the identification, valuation, and division of assets, in order to reach a final divorce settlement that is agreeable to both parties. Careful thought about the practicalities of what this might entail is important, as the impact of dividing one household’s finances and assets between two separate people rarely comes without complications.
Only in extreme circumstances should the reason or grounds for divorce affect the final settlement as this should always be fair to both parties and give priority to the welfare and needs of any children or dependents.
There are several important things to understand and consider before embarking on a divorce settlement that involves the division of marital assets.
What is a divorce settlement?
Simply speaking, a divorce settlement refers to an agreement that lays out the financial terms of a divorce, including the division of various assets and property, as well as any agreements reached relating to child maintenance, school fees (where applicable) and spousal support.
The process for splitting assets
Usually, the first stage in the process is for each spouse to make a ‘full and frank disclosure’ to the other of their financial circumstances. This should include all assets along with any money owed from loans or credit cards.
Careful consideration then needs to be given to each party’s post-divorce capital and income needs and each must keep the other informed of any changes in financial circumstances throughout the process.
Gov.uk advises, ‘When you divorce or end a civil partnership you and your ex-partner need to agree how to separate your finances.
This includes deciding how you’re going to divide:
You might get things like:
- a share of your partner’s pension – including State Pension or private pension plans
- regular maintenance payments to help with children or living expenses
You can usually avoid going to court hearings if you agree how to split your money and property.’
The Money Advice Service has a useful online calculator that can help you establish a clear picture of your financial circumstances.
It’s worthwhile considering using a divorce solicitor and financial advisor who are experienced in divorce and financial matters as they can help you to review your assets and advise the most tax-efficient way in which to divide them.
Once both spouses have reached a point of agreement, they should then apply for a financial remedy order, or consent order to make the agreement official and legally binding.
This consent order is unique to both spouses and details the division of assets and may also include how spousal and/or child maintenance payments will be managed. If the court decides that a consent order is not fair, they may ask for it to be amended.
However, if an agreement between spouses cannot be reached, this will lengthen the time a divorce can take to complete, and/or the cost of a divorce. A family mediation service can be extremely useful in helping come to an arrangement that both spouses are happy with and at the end of mediation you’ll receive a document showing what you have agreed, however, this agreement is not legally binding, therefore you will need to draft a consent order and get a court to approve it to ensure the agreement is legally binding. The consent order can be based on what you agreed in mediation.
However, it may be that talks break down completely and if this is the case, divorcing parties will need to apply to the court and start a process where a judge will help them to work out what the financial remedy order or consent order should look like.
Can you appeal settlement decisions?
In theory, a final settlement decision shouldn’t require appeal as both spouses should not have signed or agreed to the legally binding document unless they were happy with its contents. However, there are instances where an appeal might be relevant, such as one spouse feeling they have been misled by the other when agreeing to the consent order, or perhaps circumstances have changed so much that the consent order needs to be reviewed.
Although rare, appeals can be successful. A successful challenge will be one that can provide evidence that relevant facts were not disclosed when the original order was agreed, fraud and misrepresentation (a spouse deliberately tried to hide assets), a significant change in circumstance or that undue influence or pressure was placed on one spouse to sign the settlement.
If you wish to appeal a settlement decision, it is imperative that you act immediately, or as soon as you believe there are grounds for appeal. It is also worth considering that a judge or court will not agree to overturn a consent order if it is decided that the ‘new information’, or the reason why one spouse feels the consent order should be revoked or reexamined does not make a material difference to the original ruling.
The assets that are taken into consideration
Broadly speaking, assets that need to be considered within a divorce settlement include the family home, any other property owned by either spouse, pensions, savings, business interests, and other investments – but they are really anything that has a value.
It is important you identify and properly value all of your assets. This can be a laborious process, but it’s important that it is done right. Even assets that cannot be readily liquidated for their value must be included, such as patents, businesses, or publishing rights. Assets can also include anything with future value, such as pensions, a tax refund, or accounts payable.
Both spouses must disclose all assets, itemise them and provide a fair market value in either case – and this includes jointly held assets and those acquired prior to the marriage.
‘Fair’ doesn’t always mean ‘equal’
When it comes to the splitting of assets, ‘fair’ doesn’t always mean ‘equal’. If a 50/50 split of assets ensures that both spouses’ needs are met, then this is how the court will agree to divide them.
However, more often than not, an exact 50/50 split is not feasible. Perhaps an unequal division is needed to meet the particular needs of one party, or maybe some assets are ‘non-matrimonial’ such as inheritance or post-separation accrual.
This is why it is so important to consider the individual needs and circumstances of each party when deciding on the division of assets. The court will look at what will enable the needs of both parties to be met, with the first consideration being any children involved under 18.
A good example is if one spouse is a stay-at-home parent and incurs the majority of childcare responsibilities, they might need a higher share of financial support in order to assist them in getting back into the workplace, compared to the other spouse who already has a stable job with a good salary.
So, divorcing parties should consider the term ‘fair financial settlement’ rather than a straight 50/50 split, a more accurate description when anticipating the contents of their final divorce settlement.
Homes and property
The most common divorce asset is the marital home. However, holiday homes and other income-generating properties such as rental properties must also be taken into account.
These could be considered an asset, an income stream, or both.
Other miscellaneous property-based assets such as timeshares, vacant land, or even parking spaces must also be considered in a division of assets as they will still hold a value.
Different types of property bring their own complexities and various forms of paperwork. A fair divorce settlement will take into account not only the value of each but the complexities of its valuation, taxation, potential for liquidation and income generation.
Assets in high-net-worth divorce settlements
In a high net-worth divorce, one of the key things to do is to determine the assets each spouse owned before the marriage and the combination of assets accumulated throughout the relationship. This can be incredibly complex and not always easily or quickly agreed upon, so it is important that you engage with an experienced divorce lawyer to help you navigate settlements in this area.
Take property for example – in higher net-worth cases it might be spread over several countries making it harder to value and divide. In higher net-worth divorces, assets such as jewellery, cars, clothing and accessories will also typically hold much more significance and value.
Divorce Online states that the average joint marital debt in the UK (not counting mortgages) is £10,000, so it is important to consider how any debts will be treated upon separation.
Most assets that have built up during the course of the marriage will be added to a total asset pot that, as part of a divorce, will be divided up between both parties.
In the same way, any debts which have accrued during the marriage will usually need to be deducted from this pot before it is divided.
It doesn’t matter if the marital debt or debts are in only one spouse’s name or if they are jointly named – all will usually be deducted from the total asset pot before it is split. Of course, if the amount of debt is higher than the total assets, an arrangement will have to be reached to ensure ongoing repayment of these debts.
If a spouse has incurred personal debts, such as credit card debts, and the card is solely in their name, that one spouse is responsible for the repayment of these. However, a court could order a payment towards them if the spouse with the credit card debt can prove that the debts were jointly raised – or spent on something both spouses used or experienced.
Joint debts such as a joint mortgage cannot easily be divided after divorce. Each former spouse will be responsible for the whole joint debt (including their former partner’s share).
Interestingly, the responsibility for any debts held by a spouse before they married depends upon the length of the marriage, because as time passes, they could be seen as part of the joint financial situation. Also, in the case that non-matrimonial debt ends up being intermingled with matrimonial finances, it can be difficult to distinguish one from the other. In this case, it is more likely that it will all form part of the overall matrimonial pot.
Debt can be an incredibly complex issue and it is where a divorce solicitor can really add value and help reduce emotional stress during divorce settlement conversations.
Pensions, investments and savings
Moneyhelper.co.uk states, ‘Investments and savings will generally form part of your financial settlement if you divorce, or your partnership is dissolved. Dividing them should be relatively straightforward if you can negotiate with each other. But you may need to value them and pay tax or charges if you sell or transfer them or cash them in.’
Your divorce settlement agreement should also take any pension rights into account.
There are three ways of dealing with personal or workplace pensions at the point of divorce – pension offsetting, pension sharing and pension attachment orders. All offer slightly different ways to split or share a pension asset. The options for dealing with state pensions are different however and will depend on the date each spouse reaches state pension age.
Assets owned by either party, whether it be the family home, other properties, savings, or pensions, can be divided by the court during a divorce and this includes businesses or any business interests.
When considering a co-owned business asset, a business valuation is important to accurately report what a business is worth, whether the business is shared between you and your partner or privately owned by just one of you, to ensure the divorce is fair.
The most common method to do this is for both parties to instruct one impartial financial appraiser to act as a single joint expert. This is far less expensive and less time-consuming than each party instructing their own financial appraiser.
How business assets are divided in divorce depends very much on the type of business and the other assets in the marriage. Instead of sharing the value of the business, it could be possible to share the income generated from the business.
In a scenario where a family business is involved, contention associated with the divorce and dividing of assets could negatively impact the performance of the business.
For this reason, the court will try to preserve a family business and leave it with one owner and give the other spouse a larger share of the other assets or explore whether funds could be raised from the business to buy out the spouse’s share.
Spousal maintenance is a regular payment made by a former spouse to their ex-husband or wife and is usually only paid where one partner can’t support themselves financially without it. The amount they could receive depends on how much they need to live on, how much income they already generate and their earning potential in the future, and of course if children are involved.
Where one spouse has a much higher income than the other, there may need to be a period of ongoing financial support in order to avoid undue hardship or negative impact on the well-being of any children.
Spousal maintenance payments will continue for whatever time period is agreed to in the divorce settlement, such as up until the point that the recipient re-marries or children leave home. All of this, including the amount, will be determined based on individual circumstances and will be clearly outlined in any divorce settlement.
In some cases, there’s enough money to ‘buy out’ or ‘capitalise’ the financially weaker person’s maintenance claim. Moneyhelper.org.uk explains, ‘This is done by calculating an amount of money that the receiving person can be given. They can then invest and receive an income from it, instead of getting maintenance payments.
A lump sum payment doesn’t have to be paid in one go, although it often is. It can be paid in more than one instalment. For example, a part payment when the court order is made (or very soon afterward), followed by other payments when the house is sold.’
Alternatively, arranging a ‘clean break’ ends any financial ties between spouses meaning there are no spousal maintenance payments required. A court order should be obtained to set out the financial arrangements and state that there is to be a clean break.
At Hegarty, our family law specialists draw on years of experience to guide our clients through the entire divorce process, including the ins and outs of agreeing a mutually beneficial and agreeable divorce settlement. If you require practical, helpful advice and support regarding any aspect of divorce, please contact us to make an appointment today.