Family finances make divorce negotiations increasingly complex

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With divorce rates rising and an increase in the value of family assets, couples are being urged to do more to settle financial affairs during the good times. 

According to the latest figures from the Office for National Statistics (ONS), the overall rate of divorce for opposite-sex couples has increased for the first time since 2009, at 5.8% in 2016, with men and women aged 45 to 49 recording the highest number of divorces. The most common ground for divorce continues to be unreasonable behaviour. 

The process of negotiating finances and family arrangements is increasingly complex and couples should consider making financial agreements from the outset.   

The increased value of family assets means more is at stake when trying to achieve a settlement following a marriage breakdown. Although family property tends to be considered the biggest asset in divorce cases, figures show that private pension wealth was the largest component of aggregate total wealth. Values have surged due to stock market increases whilst changes in legislation have provided greater flexibility in accessing pension pots, making them increasingly important in divorce negotiations.  

As a result, many more partners seek a share of pension arrangements on divorce. Ministry of Justice figures show a 43% increase in pension sharing orders issued by courts, which allot part or all of one spouse’s pension fund to the former spouse.

In recent years, spouses divorcing after a long marriage have come to expect an equal share of all assets, irrespective of any decision on needs and personal circumstances. However, a recent Court of Appeal ruling in Hart v Hart [2017] awarded £3.5m to the wife from total resources of just less than £9.4m. Some experts regarded the judgement as a shift in attitude, as it gave greater weight to the pre-marriage wealth of the husband, despite a 23-year marriage. The settlement was also based on a calculation of needs rather than an equal sharing of assets.

This case was complicated and it is unusual to see pre-marital wealth being given such consideration after a relatively long marriage, during which finances may have mingled. 

However, together with the increasingly complex finances of those embarking on second or subsequent marriages, it’s an outcome that may encourage more new couples to seek pre-nuptial, or sometimes post-nuptial, agreements. While they are not automatically legally binding in England and Wales, such agreements are likely to be upheld, if done properly. It is a way of clearly setting out what each person has brought into the relationship, in case of any later division of assets and final payout. 

Open communication and understanding of financial affairs is very important. Making arrangements whilst in a positive, settled relationship may help if the marriage breaks down in the future.