The question of how much any individual is likely to receive as a settlement following a divorce is one which will have a different answer in pretty much every single case, depending upon the precise personal and financial circumstances of the couple involved.
What is worth setting out in detail, however, is the process of reaching an agreement on a financial settlement and the factors that will be taken into account if a court has to step in and rule on a fair settlement.
Financial Settlements in divorce
A divorce settlement is sometimes referred to as a ‘divorce financial settlement’, and in both cases the phrase refers to how financial assets are divided following a divorce. These assets can include the family home, as well as any stocks, savings and pensions and also debts which might be held individually or as a couple.
The ideal scenario involves the couple negotiating and agreeing the division of assets in an amicable manner, with this agreement then formalised via a document known as a Consent Order – although even the most amicable of divorcing couples should employ legal experts to ascertain that the settlement they’ve reached is fair and is unlikely to be challenged in the future.
In some cases, the process of reaching an agreement of this kind is only possible with the help of independent arbitration or mediation, while the bitterly contested nature of some divorces is such that it’s only possible to reach an agreement via court proceedings, with a judge deciding how the assets of a couple should be fairly divided and confirming the arrangement in the form of a court order.
Asset consideration
The first stage of arriving at a divorce settlement which is truly fair involves both parties disclosing all aspects of their finances, starting with capital assets such as property, shares and savings and debts, whether they are held individually or jointly.
Pensions also represent a major aspect of many divorce settlements, particularly between couples who have been married some time, and can sometimes be second in value only to the family home.
As well as assets, the income of each party will also be taken into account by the court, as will any business interests.
When the court is being asked to reach a judgement on a fair divorce settlement both parties will need to complete a Form E Financial Disclosure document, and full disclosure is vital not just in terms of a fair settlement being reached, but also because the failure to disclose some financial detail could leave the settlement open to being challenged in the future.
In fact, unless the court has put a Consent Order or Clean Break Order in place, the financial links between a couple have not been completely severed, since the process of divorce does not, in and of itself, completely end the financial relationship between a couple.
Court Orders
Until partners have remarried there is a still a chance – unless a court order is in place – that they could come back and demand money from each other in the future.
A Consent Order could merely make the arrangements a couple have reached between themselves legally binding, or it could detail the division of assets as ordered by the court.
A Clean Break Order ends the right of each partner to make a financial claim against the other, and while a Consent Order acts as a Clean Break Order, a separate Clean Break Order is needed in those cases in which there are no assets to split. A court will only issue a legally binding Clean Break or Consent Order if they are convinced that the terms of the agreement are fair and reasonable.
Other types of order the courts might issue when dealing with a divorce settlement include the following:
- A Pension Sharing Order setting out how any pension pot should be split if the partners involved in a divorce are entitled to a share of each other’s pensions. Whether they are and how the pot will be divided will depend upon factors such as the amount in the pension, the age of each of the parties, how long they were married for, their personal requirements and what their future employment prospects are expected to be.
- A Property Adjustment Order which deals with the question of the family home and details such as who will have the right to live in the home (often determined by who will be the main carer for any children), how long they will have that right and whose name the home will be owned in.
- A Maintenance Order which sets out the amount of spousal maintenance the court feels is fair for the financially stronger party to pay to the financially weaker. The order will also set out how long such payments have to be paid for, and the decision will be based on factors such as how long the parties were married, the assets held by each part, the role played by each party within the marriage (i.e. wage-earner or homemaker) and the on-going requirements of each party.
- A Lump Sum Order means one part has to pay a lump sum to the other. In most cases a lump sum of this kind is paid in return for a provision such as keeping a family business or the family home, and a payment of this kind can be made in a number of instalments.
Legislation
The legislation which covers how a Court will decide what is fair in terms of a divorce settlement and the Financial Orders it issues is set out in Section 25 of the Matrimonial Causes Act 1973. This states that the first concern will be for the welfare of any children under the age of 18. Once this has been taken into account, the criteria used by the Court to reach a judgement, or to decide whether a prior agreement is fair, will be the following:
- The income, earning capacity, property and other financial sources each spouse has or is likely to have in the foreseeable future. This includes any increase in earning capacity which the Court feels it is reasonable to expect either party to take steps to acquire.
- The financial needs, responsibilities and obligations which each party has or is likely to have in the foreseeable future. These needs would include the need to finance affordable living expenses following the breakdown of the marriage.
- The standard of living which the family was able to enjoy before the marriage broke down.
- The age of each spouse and the length of the marriage – the longer a couple have been married, the more financially reliant they are likely to have become on each other and the more intertwined all aspects of their finances will be.
- Any physical or mental disability of each spouse.
- The contributions which each spouse has made to the welfare of the family, or is likely to make in the foreseeable future. Particularly important is the fact that this will include the contribution involved in raising a family or looking after a home.
- The conduct of each spouse, if the Court feels it would be unfair not to do take this into account. The conduct in question will usually relate to financial matters, such as one spouse gambling with the family’s assets.
- Any benefit – such as pension provision – which the divorce will prevent one spouse from accessing
The fact that the framework for dealing with Financial Orders is set out in the form of legislation doesn’t alter the reality that the approach taken by the courts to deciding what represents a fair financial settlement has evolved over the years on a case by case basis.
That’s why handing the decision over to a court will always represent something of a gamble, meaning that coming to an amicable agreement, with the input of some legal expertise, will always represent the ‘safest’ bet.
Case law
For a long time, for example, courts in England and Wales tended to favour the ‘breadwinner’ in a relationship, judging that they deserved to be awarded the bulk of the assets post-divorce, and in the majority of cases this meant the husband being treated more favourably.
This position has evolved over time as social trends have shifted, meaning that a wife is now as likely to be the main wage-earner as a husband. Also, the courts now recognises the vital role of what might be termed ‘homemaking’ and raising a family in any marital dynamic, particularly over the longer term.
This shift in attitudes and the case law underpinning decisions was crystallised by the high profile case of White v White in 2000, a dispute between high net worth individuals which eventually made its way – via appeal and cross appeal – to the House of Lords.
To summarise briefly, Mrs White was seeking an equal share of the assets, while Mr White wanted to grant only a one fifths share. Ultimately, neither prevailed fully, and Mrs White was granted a two fifths share, but it was the wording of the judgement which altered the way in which the courts judge what is a fair divorce settlement:
“Traditionally, the husband earned the money, and the wife looked after the home and the children. This traditional division of labour is no longer the order of the day. Frequently both parents work. Sometimes it is the wife who is the money-earner, and the husband runs the home and cares for the children during the day. But whatever the division of labour chosen by the husband and wife, or forced upon them by circumstances, fairness requires that this should not prejudice or advantage either party when considering paragraph (f) [of section 25(2)], relating to the parties’ contributions … If, in their different spheres, each contributed equally to the family, then in principle it matters not which of them earned the money and built up the assets. There should be no bias in favour of the money-earner and against the homemaker and the child-carer.”
The judgement then went on to state that ‘equality of division’ – i.e. assets, particularly capital assets, being split on a 50/50 basis – is the starting point for any fair financial settlement and that … “As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so.”
This approach means that the main wage-earner in a relationship arguing that they deserve substantially more of the assets than the person responsible for running the home is likely to fail in their argument unless the marriage was extremely short-lived or circumstances dictate that equal division of assets would leave one part unable to secure basic needs such as rehousing.
In practice, most modern marriages see the tasks of wage-earner and homemaker shared more equally than has traditionally been the case, but even in those cases with a clear-cut division between the two, a fair divorce settlement is likely to be one which sees the division of assets based on a desire to ensure fairness going forward than to simply reflect a blunt accounting of assets amassed during the marriage itself.
