One of the core parts of the divorce process is agreeing on a financial settlement. Especially now, with the introduction of no-fault divorce, it has become more straightforward to get divorced than ever.
However, you don’t want to be caught off guard by the future repercussions of a DIY divorce. Securing your financial future should be one of the main goals of any divorce. That’s why we’ve prepared a guide on the financial settlement.
In this blog we’re going to cover:
- What is financial settlement?
- What is included in the financial settlement?
- How is child maintenance solved?
- How can you prepare for the financial settlement?
- Can you reach a financial settlement by yourself?
- How does the court decide whether the settlement is fair?
What is financial settlement?
In simple terms, a financial settlement in divorce is an agreement between you and your ex-spouse on how to divide financial assets after the dissolution of your marriage or civil partnership.
The settlement can be decided on during any point of the divorce proceedings/civil partnership dissolution. Nevertheless, we would recommend signing a consent order before applying for the Final Order (formerly known as Decree Absolute).
The court usually isn’t involved until the legally binding consent order is signed – stating that both parties agree with the terms. Once the order is drafted & agreed upon, the court needs to approve it. Although, there may be exceptions when divorcees can’t agree between themselves, and the court will be required to intervene.
What is included in the financial settlement?
Matrimonial assets (financial assets acquired during the marriage) are divided as fairly as possible – the starting point of the negotiations is usually 50/50. Whilst non-matrimonial assets (financial assets acquired before the marriage) can be protected by a pre-nuptial agreement and may not get shared.
The financial settlement can include:
- Money (investments, insurance policies, savings)
- Property (houses, apartments, rental properties, and holiday homes)
- Child maintenance
- Household contents
- Cars
- Pension funds
- Business interests
- Personal items (over £500)
- Debts, loans, and credit cards
Moreover, stay vary of the division of mortgages and debt that were accumulated throughout the marriage (otherwise known as matrimonial debt). Since matrimonial debt can be split between both parties as long as the loan was taken out for the benefit of both spouses.
How is child maintenance solved?
In its essence, both parents are legally required to support their children financially. Usually, the parent who doesn’t have regular care of the children – must pay child maintenance.
The maintenance must be paid if a child is:
- under 16 years old
- under 20 years old but in full-time non-advanced education (e.g., A-levels)
- 16-17 years old, no longer in full-time education but has registered for work/training with a careers service.
An agreement can be reached between the spouses regarding children. Alternatively, the Child Maintenance Services can work out child maintenance instead. They will determine how much money needs to be paid to the parent whom the children live with. The decision is mainly based on income & financial commitments.
Additionally, if the spouse that needs to pay maintenance doesn’t live in the UK – an application can be made to the court for a child maintenance order.
How can you prepare for the financial settlement?
The best thing you can do to prepare for a financial settlement is to sort out your personal finances. As well as, roughly agreeing with your ex-spouse who continues to pay the bills and who gets what assets.
If you have any joint bank accounts, matrimonial debt, or credit cards – contact your provider as soon as you can to let them know you’re going through a divorce. Also, make sure your salary or benefits go to a separate account that’s only in your name.
In cases where you can’t trust your ex to not spend money from a joint account, you can freeze your bank cards.
Furthermore, it’s important to evaluate your current finances as an individual and a couple. Make sure to take note of: what you own; how much you owe to each other; what a potential split in assets would look like. Lastly, you should figure out how will the pensions be split.
Can you reach a financial settlement by yourself?
If you’re living in England or Wales – reaching a financial settlement in divorce by yourself is an option. This would come in a form of the consent order, which is a legally binding document that outlines the division of assets & child maintenance.
Once the order is drafted & signed, you’ll need to send copies to the court asking for final approval. This costs £53. Although, to guarantee that your consent order is legally binding you should hire a solicitor.
It’s not recommended to draft your own consent order under normal circumstances. But it’s especially important to hire a solicitor if your financial situation is complex (e.g., you’ve multiple business or property assets), you’ve been married for a long period, or communication has broken down between you and your ex.
Reaching a consent order outside the court can not only speed up your divorce process but also reduce costs. As long as the court thinks the order is fair – it will get approved without any additional court hearings.
How does the court decide whether the settlement is fair?
The court follows the guidelines set out in section 25 of the Matrimonial Causes Act to rule on the division of assets. These include:
- Existing and future financial assets – the considerations begin with complete financial asset disclosure by both parties. Then the existing assets are evaluated, including how earning potential may change in the future.
- Current and future financial needs – similarly to future potential earnings, the court evaluates the financial needs of both spouses. Fundamentally, the court looks at moving/re-housing costs and which party will be the primary caretaker of the children. Both parties will also be asked to provide estimated expenses to help with the ruling.
- Standard of living before the divorce – the court tries to sustain the same standards of living, as before the divorce, for both parties. Although, this is rarely achievable, and a more likely scenario is that both spouses’ standard of living falls.
- The age of the spouses & marriage duration – in situations where the marriage is short, financial contributions made before the marriage become more important. Whilst if the marriage is long and both spouses are older earning potential, childcare, and pensions suddenly become more important.
- Spouses’ physical and mental health – this isn’t a common factor during considerations. But when it’s applicable the court will ask for a medical professional to provide evidence.
- Contributions made for the benefit of the family – this tends to be a highly contested point during the financial settlement. As the Matrimonial Causes Act outlines any contributions made to looking after the home or caring for the family count. So, for example, if one spouse works, while the other takes care of the children – they would be considered equal contributors. On the other hand, things can get more complicated if one spouse brought in high-value assets into the marriage, received an inheritance, or accumulated substantial wealth after separation. In cases like these, the court will consider additional factors.
Final thoughts
Overall, having a signed and approved consent order is the first step you need to take to secure your financial future after divorce. To ensure that you won’t face any negative repercussions after the divorce – hiring a solicitor, to help you with your financial settlement, could be your best choice.
Finally, if you’re in need of legal advice, feel free to contact our team of accounting and legal experts.
