Resolving the financial issues in divorce

Settling the financial issues arising from a marriage is a separate process from the divorce itself in UK divorce law (although the finances cannot be finally settled without divorce). There are three separate legal issues which may be involved in the divorce process:-

1. The divorce itself which is the process by which the marriage is brought to an end and at the conclusion of which the parties are free to re-marry if they wish. This part of the proceedings concludes with the granting of decree absolute.
2. Any question affecting the children of the marriage, if any.
3. The part of the process which resolves any financial issues between the parties to the marriage such as dividing pensions, dividing capital, any spousal maintenance etc.

The way UK divorce law looks upon it is that the divorce is the main issue and resolving the financial aspects is ancillary to the divorce. It is a misleading way of putting it because in practice the main dispute in any divorce is likely to be over the question of the division of assets and income. The reality of the matter is that husband and wife usually agree over the divorce (because they both accept that the marriage is over) and issues involving children are more often than not resolved by agreement. For instance, the ages of the children might mean that the only practical option is for the children to live with their mother and for their father to see them regularly. Often neither of these two issues of divorce and/or children presents many problems for the average divorcing couple.

Settling the financial issues  arising from the marriage can be a quite different matter and  disputes about money – the matrimonial home, pensions, maintenance etc – are common. It is, however, worth pointing out that many couples can, and do, resolve financial issues between themselves relatively amicably (it is difficult to be truly “amicable” in a divorce) and that even this part of the process can be fairly pain free. If a couple can reach direct agreement between themselves about these matters then the role of their lawyers can be confined to recording the agreement in suitably formal language and turning it into a court order. (This last part is very important. See the case of Wyatt v Vince to see what can happen if there is no court order).  A very good outcome can be achieved if both parties agree and it is also very much cheaper. Many divorcing couples do succeed in doing this and it is always worth encouraging wherever it is possible.

Indeed, no matter how fraught the relations might be between husband and wife it is always worth trying to keep direct communication open whenever that is possible. Conducting all negotiations through lawyers might be good for the lawyers but the couple themselves should always regard it as a last resort. Much can be achieved by direct dialogue and it is always helpful to remember that. You should also bear in mind that sometimes direct dialogue is not possible at first because tempers are running high. Later, when the initial heat has gone from the situation, constructive dialogue might be possible once more. It is always worth probing this and sometimes it is not a good idea to try and force matters too early in the proceedings. Some delay can occasionally be helpful.

Another preliminary point worth mentioning is that no court order formally settling the financial issues once for all can be made final before decree nisi. It is only after that point a court can make an order – even if it is a “consent” order which embodies an agreement which has been reached between husband and wife and turns it into a court order. There is also no time limit thereafter (although some rights might be lost on remarriage) during which the court must make an order settling the financial issues. Indeed, it might take very much longer to resolve the financial issues than it takes to obtain the divorce and so the final agreement (or order) may not be reached until after decree absolute – and sometimes long after. An important point to remember in this latter case is that a spouse’s right to apply to the court to decide the financial issues arising from the marriage may be lost on remarriage. Therefore if financial matters have not been resolved by the time of decree absolute it is absolutely essential that a spouse wishing to remarry should at least issue a court application to settle the financial issues before remarrying.

The fact that the divorce and the resolution of the financial issues are not necessarily decided at the same time is not widely understood and it does often cause confusion. Everyone has their  horror stories about the “divorce” of X which took “years”. What this usually means is that it took years to resolve the financial issues rather than to obtain the divorce. And, before one becomes too alarmed, there is no reason why it should take years for any of these issues to be determined. Even if resolving this does take longer than the divorce itself one would normally be talking in terms of months rather than years. Anyone who finds themselves in a divorce which is taking years should be asking some serious questions as to why that is the case. The vast majority of these disputes are resolved within months and there would have to be very good reasons why any case should take longer.

Virtually all clients want to know upon what basis the courts decide matrimonial property/maintenance claims.  In fact, the relevant principles are set out in Section 25 of the Matrimonial Causes Act 1973 (as amended by various later Acts). Nevertheless, it would give a very misleading impression if any client thought he/she could simply read that Act and work it out for themselves. That is just not the case and the reality of the matter is that only a person who is familiar with the decisions of the courts and how they arrive at their decisions on these particular issues could provide an answer in a given case. The Act lays down certain factors which the court must take into account but what it does not explain is how those factors are applied in practice.

It is also important to understand that, although the courts have power to impose solutions on people in the last resort, in practice the courts try to operate within the framework of what the parties want and so the outcome in a given case will depend as much on what the parties want as on the principles involved and/or the range of orders available to the court. It is perhaps easier to explain this by example. Take the following hypothetical instance:-

A husband and wife have been married for ten years. The husband works and the wife does not. There are two young children aged 8 and 9. The only capital asset is the jointly owned home subject to a mortgage. The equity in the house would not be sufficient to buy a suitable home for the wife and children outright. In fact, this is quite a common type of situation but it is important to appreciate that the outcome is not some formula which is automatically imposed by a court. It is what the parties themselves want that is really important and so there could be the following solutions based on the same fact situation:-

(1) The house is transferred into the sole name of the wife (on the basis that the children will very likely live with her and because the children need a home) and the husband pays maintenance for the children.

(2) The house remains in joint names with an an agreement that it be sold when the children cease to be dependent or when the wife remarries or cohabits for a period exceeding six months or when she voluntarily sells the property and that on such sale the husband receives x% of the equity and the wife y%. The husband continues to pay maintenance for the children.

(3) The agreement is the same as in (2) except that on the sale of the property the husband receives a fixed sum (say £10,000) rather than a percentage of the proceeds.

All of these outcomes (and more) are perfectly feasible options and it really does depend on what the parties want. It is also fair to point out that each of these courses of action has advantages and disadvantages which will come into the decision making process. Nevertheless, if you combine the infinite variety of financial circumstances with the equally variable personal characteristics of any marriage – length of marriage, age of spouses, whether there are any children etc – with the range of orders available to a court and the wishes of the parties themselves you will see just how many possibilities there often are. Picking one’s way through these options almost always needs professional advice so please continue if you would like to know more about how the financial issues arising from the marriage are resolved in practice.

Spouses involved in divorce in England always want to know on what basis the UK divorce law decides financial issues between husband and wife if the Courts have to decide the issue. Indeed, this is what is at the heart of most divorce cases. If there is a dispute it is more likely than not to be about money whether that is about periodical payments for a spouse, dividing the equity in the former matrimonial home or divorce and pensions. In fact, the relevant principles are set out in Section 25 of the Matrimonial Causes Act 1973 which, essentially, reads:-

”It shall be the duty of the court in deciding whether to exercise its powers ….. to have regard to all the circumstances of the cases, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.

25 (1) It shall be the duty of the court in deciding whether to exercise its powers …. to have regard to all the circumstances of the case including the following matters, that is to say –

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

(d) the age of each party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage;

(f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g) …the value to either of the parties to the marriage of any benefit (for example, a pension) which … (by reason of the divorce) ..that party will lose the chance of acquiring;…”

Copyright © Terry & Co. Terry & Co is not responsible for the content of external sites linked to this site. This firm is regulated by the Solicitors Regulation Authority SRA No 76180

Terms of Use                                                         Privacy Policy