In this post, we will provide a full guide on financial settlements. Giving you an indication of what is involved in the process and how you can best navigate it.

What is a financial settlement in divorce?

A financial settlement in divorce, also known as a divorce settlement, is a legally binding agreement (although all agreements between divorcing couples, whilst they can be a contract, ultimately a court can always interfere with them if the Court does not believe they are fair and are not guaranteed to be upheld) or court-ordered resolution that outlines the division of assets, liabilities, and financial responsibilities between spouses ending their marriage.

This settlement encompasses various financial matters, including the distribution of property, savings, investments, pensions, and the allocation of debts.

It may address issues like spousal maintenance and child support, ensuring that the financial needs of both parties and any dependent children are considered.

The goal of a financial settlement in divorce is to establish a fair and equitable distribution of assets and financial support, taking into account the circumstances of each spouse and the standard of living during the marriage.

It is a crucial component of the divorce process, providing legal clarity and financial security for both parties as they move forward separately.

The process to decide on divorce financial settlements

The process to decide on divorce financial settlements in the UK is based on individual circumstances and whether the parties can reach an agreement amicably.

If an amicable agreement can be made then they will usually go down the route of mutual agreement and ultimately the drafting up of a court order which can be sent to the court and approved by a judge without the need for the parties’ attendance.

If this is not the case, then the courts will have to get involved to settle any financial settlement disputes.

Here’s an overview of these two processes:

Mutual agreement

A mutual agreement usually occurs when both parties have a more positive relationship and can work together amicably. Parties that choose this path can experience a smoother settlement process and face less resistance.

A typical mutual agreement might involve couples that have less complex financial matters and can easily communicate their desired terms and conditions.

If this method can be achieved it can save time and money for both parties as you will experience less friction and come to an agreement more smoothly.

A mutual agreement does not have to exclude third party representation. Third party representation can be present during negotiations and mediation.

If you enter negotiations you can call upon the help of your solicitors so that you can get help and advice to come to an agreement that works for you.

Once a settlement is agreed you should have your solicitor draw up a consent order.

A consent order legally binds your financial settlement which will detail how assets are split between the two parties as well as child custody if specified.

The consent order will then need to be signed by both parties and sent to court where a court fee of £53 will need to be paid.

For more information on this topic please read our blog on divorce settlements split 50/50 in the UK.

What is mediation?

Mediation is when a neutral third party, known as a mediator, facilitates discussions and negotiations between divorcing spouses to help them reach a mutually agreeable solution.

The primary goal of divorce mediation is to promote open communication and cooperation between the spouses and to assist them in crafting their own divorce settlement rather than relying on a court-imposed decision.

Court intervention

If an agreement between the parties cannot be reached then court intervention is needed. This process will be more costly and take longer but is sometimes unavoidable to get a deal that suits your needs.

After all, the opposing party could be refusing to disclose assets or be asking for completely unrealistic outcomes.

Either party can apply for a financial order which means they must provide financial details to the court by a certain deadline. These details help the judge when it comes to dividing up assets.

When your case is brought to the attention of the court they will refer to the Matrimonial Causes Act 1973 and the following topics will be their main focus:

1. Welfare of the children

If there are children involved in the divorce process that are under the age of 18, their needs will be a primary concern to the Court.

In the event the living arrangements or contact arrangements for the children are in dispute, the court can also deal with these under the Children’s Act where their welfare will be of paramount consideration.

2. Financial needs of both parties

The court will assess the financial needs of both spouses. This includes their income, earning capacity, and any financial obligations or responsibilities they may have.

A detailed budget of each household will be needed by the court.

If one of the parties is with a new partner or cohabiting they can take into account the income of the partner also insofar as it alleviates a divorcing spouse’s need for income and assist with their own personal outgoings.

In exceptional circumstances a new partner’s income and resources can have an effect on how assets are divided between divorcees which can then cause difficulty later, as the relationship could end or be short lived.

Income of parties

The court will consider the income of each party, including their current income, potential future income, and any other financial resources available to them.

If you also receive company perks such as a company car, phone, pension or mileage allowance then this will be taken into account also.

Future assets can also be looked at when it come to the income of both parties, these include:

Inheritance

Inheritances during a divorce may be brought up by either or both individuals.

The typical guideline is that future inheritances are typically excluded from consideration. This is because family relationships can sour, and the inheritance might easily be used for healthcare expenses.

Previously bestowed inheritances can also be a contentious matter.

It may be suggested that it should not be regarded as a shared marital asset if it was specifically given to one party and has not been “invested” in the marriage, such as being used for home improvements or vacations.

Nevertheless, they may come into play if the existing assets cannot fulfil the necessary financial requirements.

Business

Any type of business involved in the marriage including sole traders, partnerships and limited companies can be considered.

The value of a business could be extremely high, therefore it is of utmost importance when it comes to the division of assets.

How the business is valued depends on the very nature of the business. There is no standard way of valuing a business and the process can be quite complex.

In reality, it is highly improbable for the court to mandate the sale of the business or for the other party to be granted a direct stake in it.

The prevailing method typically involves one spouse keeping ownership of the business while the other receives alternative assets as compensation.

Since the family business often serves as the primary financial foundation for the family, every effort is made to safeguard its continuity.

Pensions

Pensions can be seen as an asset and will be taken into account. To value a pension they need to be valued on their CEV (cash equivalent value).

Parties involved have very little control over their pension and it is seen as nothing more than an income stream.

With that in mind, there may be huge disparities in the pension provision for each party involved which needs to be taken into account.

A court may divide a pension using one of the following methods:

Off setting – If a party has a lesser pension or no pension at all then they may be entitled to retain a greater share of other assets.

Pension sharing order – This is when the court orders the pension to be shared now and then a percentage is transferred into a new pension fund for the other party.

Pension attachment order – In this case, when the pension eventually does come into payment, the pension company will pay a percentage of the monthly payments to the other party.

3. Standard of living for each party

The standard of living that each party enjoyed during the marriage is a relevant consideration.

The court may aim to maintain a similar standard of living for both spouses, to the extent possible.

Although, the standard of living is likely to reduce for both parties unless the assets are substantial and both parties can maintain a high standard of living from their division.

4. Duration of marriage

The length of the marriage is an important factor. Short marriages may result in different financial settlements compared to long-term marriages.

If the parties are young and financially independent this can prompt a quick agreement with less friction involved in the settlement process.

If however the parties are married a long time there are usually greater obligations and dependencies involved, which makes settlements more intricate and complex.

5. If any party is disabled

If one or both parties have a disability that affects their ability to work or support themselves, the court will take this into account when making financial orders.

6. Contribution of both parties

The contributions made by each spouse to the marriage, both financial and non-financial, will be considered. This includes contributions to the home, family, and career sacrifices made for the benefit of the family.

What this means is that both the ‘breadwinner’ and stay at home parent are both seen as equals in the eyes of the court.

The court has made it clear that there should be no discrimination when comparing the value of domestic contributions and financial contributions of parties.

The contributions brought into the marriage at the beginning or during will also be taken into consideration e.g. gifts or inheritances.

These can cause disagreements especially when they are highly valuable assets. The needs of the parties involved will take precedence over where contributions come from.

Do you have to go to court for a divorce settlement?

As discussed, you can come to an agreement on the settlement without having to go through the courts.

Although, in some scenarios it makes more sense to get a settlement through the courts. The aim is to get a fair deal for both parties but this does not always mean that it is an equal division of assets.

The following scenarios make it more of a preferable option to apply to the courts when reaching a financial settlement:

Owning a business – The division of a business’ equity can be a complex process when it comes to a settlement. The courts will have more experience doing this which can make it a more attractive option to get a fair deal.

Financial dependencies – When there are financial dependencies involved, such as child support or spousal support, the courts can help ensure that these financial obligations are clearly defined, legally binding, and enforced. This can provide security and consistency for the dependent party.

Presence of dependencies – This is when dependencies such as children or elderly person(s) are involved. The courts can help establish child custody, visitation, and support arrangements or arrangements for the care of dependent adults.

Reluctance to agree – Sometimes one or both parties refuse to cooperate, this can also be known as stonewalling. If this is the case then the court can intervene and facilitate the process and allow for a solution to take place.

Disparity in assets – When there is a significant disparity in the assets of the parties involved, courts can help ensure a fair distribution. They can take into account factors like contributions during the marriage, individual financial needs, and the duration of the marriage to make equitable decisions.

What is the Matrimonial Causes Act 1973?

The Matrimonial Causes Act 1973 is a significant piece of legislation that governs divorce and matrimonial law.

Section 25 of the act outlines the legal procedures and principles that guide divorce and financial settlements between married couples.

The court will refer to section 25 when deciding on the division of marital assets. They will evaluate both parties’ financial requirements, duties and responsibilities going forward.

They will also look at:

Living standards experienced by both parties before divorce.
Current age of parties involved.
Duration of association between parties.

Any children that are not deemed as adults in the eyes of the law (under 18), will be given the utmost consideration.

It’s for this reason that agreements such as child maintenance and ensuring the child will be financially secure after the divorce are so vital to financial settlements.

What assets am I entitled to in a divorce settlement?

In this case, assets can be split into two categories:

Matrimonial assets

Matrimonial assets, in the context of divorce and family law, refer to the assets and properties acquired by a married couple during the course of their marriage.

These assets are subject to division or consideration in a divorce settlement. Matrimonial assets typically include:

Marital Home.
Financial Accounts.
Retirement Funds.
Business Interests.
Vehicles.
Personal Property.
Investments.
Art, Jewellery, and Collectibles.
Savings and Debts.

Non-matrimonial assets

These are assets that were acquired before or after the period of marriage. If any of the matrimonial assets listed were acquired before or after the marriage they would also be seen as non-matrimonial assets.

Just because an asset is classed as non-matrimonial does not mean it is automatically excluded from the settlement process.

If a non-matrimonial asset such as an inheritance was used during a marriage to acquire an asset such as a house or car then it will be classed as a matrimonial asset.

A bigger factor on whether non-matrimonial assets will be included in the settlement or not is the future needs of both parties.

How long does a financial settlement take?

The duration of a financial settlement in the UK during a divorce can vary significantly depending on various factors.

These include:

The complexity of the case.
How willing both parties are to cooperate.
Whether or not the courts are experiencing high case numbers over that period.

There may be some cases where both parties can come to an agreement amicably. If this is the case, this could take as little as a few months. An ideal scenario for both parties.

However, more complex cases that require court intervention, extensive negotiations, or the valuation of complex assets can take considerably longer, sometimes stretching into a year or more.

Delays may also occur due to administrative factors, court availability, or the need for additional information.

It’s for reasons such as these that we stress the importance of seeking legal advice from trusted legal professionals such as ourselves.

We help you reach a settlement you’re happy with

The division of assets can be a very stressful period for both parties involved and the process can drag on for longer than anticipated.

No matter how settlements go, it is prudent of you to have the right legal advice every step of the way so you can get the best deal possible.

If you’re in the middle of a settlement or about to embark on a settlement then please reach out to us today.

We have a team of highly trained and experienced legal professionals who deal in divorce and family law.

Our job is to assist you in the best way possible within the constraints of the law so you can get a deal that is satisfactory for you.

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