Managing trusts and tax

Publish date

14 August 2020

Dealing with finances in divorce – how does it work?

One of the main concerns for those taking advice from a family solicitor is often the “cost of the divorce”. In practice, the divorce itself does not normally cost very much. You do not even need to instruct a lawyer because the paperwork can be done on paper or using the government’s online website. It is often advisable to wait to apply for decree absolute until financial matters have been resolved as otherwise there is a risk that certain benefits might be lost, such as spousal rights under a pension.

Where the costs tend to be higher is when dealing with a financial settlement alongside the divorce. The majority of people say they simply want a fair financial settlement. The problem is fairness is subjective and people are often surprised that things they think are highly relevant may not be considered so by a judge. By way of example, it is irrelevant whose decision it is to end the marriage or if someone has committed adultery, unless they are planning to cohabit with a new partner (in which case the cohabitee’s financial position may be relevant when it comes to the court considering needs).

Section 25 factors

It is important to appreciate that there is no one right answer or fixed formula to calculate what is a fair and reasonable settlement. In any divorce settlement where there are children, the first consideration of the court is the welfare of any child of the family. After this, the judge has a checklist of factors (known as the section 25 factors) which they must take into account including:

  1. The current (and future) income, earning capacity, property and other financial resources of each of the parties
  2. The financial needs, obligations and responsibilities of the parties now or in the foreseeable future
  3. The standard of living enjoyed by the family before the breakdown of the marriage
  4. The age of each party to the marriage and the duration of the marriage
  5. Any physical or mental disability of either of the parties to the marriage
  6. The contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including by looking after the home or caring for the family
  7. The conduct of the each of the parties, if the court feels it would be inequitable to disregard it.

Clearly there can be conflicts with some of the points on the checklist. By way of example, the fact that one person has contributed all the assets to a marriage does not prevent the other party needing them, particularly if there are children.

In most cases, it is inevitable that it will not be possible for both parties to continue to have the same standard of living they enjoyed during the marriage and cut backs are likely to be required. There can also be much argument about what someone can reasonably be expected to earn going forward, particularly if they have an ongoing caring responsibility for the children.

When we see clients in an initial appointment, we try to give them an indication as far as we are able to at an early stage as to the matters the court will consider and what is likely to constitute a fair settlement. This is often helpful where people would subsequently like to have direct discussions with their spouse or attend mediation. However, it is often the case that financial disclosure is required so as to give a more informed indication based on the financial circumstances of both parties.

When it comes to dealing with financial matters, it is helpful to see a solicitor early on to talk through the benefits of resolving your case out of court, including direct discussions, mediation, collaboration and arbitration. Before agreeing any settlement, whether directly with your spouse or at mediation, you should have the benefit of independent legal advice from a solicitor.

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