On divorce, how can you know what a fair financial settlement is going to look like? How much should you receive from your spouse or pay them? No formulas are available to give us a definitive answer; just a couple of key words being “fair” and “reasonable”.
So, what will fair look like in your case, when fairness, sometimes likened to beauty, is in the eye of the beholder?
In short, a financial outcome is likely to be deemed fair if both parties’ income and capital needs are met.
Capital assets when divorcing
When considering what a fair outcome might look like, the first step is the “computation exercise”. That is to say, the preparation of an asset schedule following an exchange by the parties of their full and frank financial disclosure. Once the parties can see the extent of their financial resources, they then consider from where those assets were derived and how they are now held. The general rule is that all assets acquired during the marriage (to include any pre-marital cohabitation) as a consequence of joint endeavours, will be classed as “matrimonial” regardless of in whose name they are held. Anything outside of this definition, such as inheritances or pre-acquired wealth is likely to be considered as “non-matrimonial”.
The importance of distinguishing the class of asset is that the starting point for the division of matrimonial assets (including capital and pension) is a 50:50 division. This is called the sharing principle. This principle does not apply to non-matrimonial assets. However, the family courts have an extremely wide redistributive jurisdiction and, in many cases, 50/50 is only the starting point and not the end point. This is because it is often the case that half the assets will be insufficient to meet the needs of the financially less well-off party.
What will a court consider when divorcing?
The first consideration for the court will be the welfare of any children of the family. This includes ensuring they have suitable housing. The other factors that are taken into account are set out in section 25 of the Matrimonial Causes Act 1973, as follows:
- The parties’ income, earning capacity, property and other financial resources, including likely future earning capacity.
- The financial needs, obligations and responsibilities which each of the parties has or is likely to have in the foreseeable future. The court will want to ensure that both parties can maintain a reasonable standard of living.
- The standard of living enjoyed by the family before the breakdown of the marriage.
- The age of each party to the marriage and the duration of the marriage. Longer marriages might result in a more equal split of assets, particularly as more of the assets were acquired in the context of the marriage.
- Any physical or mental disability of either of the parties to the marriage.
- 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 any contribution by looking after the home or caring for the family. There is no discrimination between the parties in their respective roles within the marriage. Both financial contributions, like earnings, and non-financial contributions, such as homemaking and childcare, are considered.
- The conduct of the parties. The conduct complained of must be significant enough so that it would be unfair to disregard it; it is more likely to be taken into account if it had a significant financial impact on the family’s welfare.
- Loss of future benefits. Inclusion of this factor enables the court to account, within the financial settlement, for any disadvantage a party may suffer as a result of the divorce – this can include losing pension benefits.
The court will consider the above factors in determining whether there should be a departure from equality when redistributing the available capital resources. If one party will be providing the children of the family with their main home but that party cannot afford a suitable property, the court may award them more than half the value of the matrimonial assets and in some cases, also a share of the non-matrimonial assets. This would only be fair however if the needs of the other party could be met with less than half the value of the assets. This balancing exercise is often harder where the asset base is smaller.
Income upon divorce
The sharing principle does not apply to income, that is to say, the court is not required to redistribute earnings or other income equally between the parties. Income can however be redistributed where required to ensure the needs of both parties and any relevant children are met.
Child maintenance refers to money paid by one parent to the other for the benefit of their children. It is paid to the parent who will be providing the children with their main home. The usual rate of child maintenance will be that determined by the Child Maintenance Service formula. This can be accessed online. Where the rate cannot be agreed between the parties by reference to this formula, either party can apply to the CMS for a formal assessment. The family court can usually only get involved in exceptional circumstances to include when the paying partly earns over the maximum earnings threshold (currently £156,000 gross per annum), or lives outside the jurisdiction of England and Wales.
Spousal maintenance refers to payments made by one party to the other to meet the income needs of the financially weaker party. The rate and term will be determined by reference to all the circumstances of the case to include the income and earning capacity of both parties and an assessment of their reasonable needs. Both parties have a duty to take all reasonable steps to maximise their earning capacity in light of their health, childcare responsibilities, skills and experience.
Considerations on Divorce
Every court-determined financial settlement on divorce that is made into a legally binding order will have passed the legal test of fairness; whether the settlement was agreed directly between the parties in mediation or otherwise, or imposed on the parties by a judge after 2 or more court hearings. The factors to be considered are the same for all types of cases, whether amicable or acrimonious. The rub is that fairness is an elastic notion and it can therefore be difficult to assess; particularly when emotions are running high.
Consulting with a solicitor early will assist in gaining an understanding of how the court might view fairness, given your particular circumstances, and this is in turn likely to help you to achieve an agreed settlement that meets the needs of all the family.
If you need help with any issue relating to this article, please contact us to speak to a member of our Family Team.
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