How is a Divorce Settlement Decided?

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If you have decided to end your marriage, one of the next steps you will have to take is to agree how to split your assets. These assets might include savings, property, pensions or investments. Your settlement may also include arrangements for spouse or child maintenance, and you’ll have to agree how any debts are split. So, what factors are taken into consideration when coming to a divorce settlement? How are assets divided? And do you have to go to court?


What factors are considered when deciding on a settlement?

Every marriage is different. That means there are no hard and fast rules in place which determine exactly how assets are divided on divorce, and no laws which stipulate specific percentage splits.

Instead, a range of factors are considered when deciding on a settlement.  Section 25 of the Matrimonial Causes Act 1973 sets out these factors, which include:

The needs of any children

If you have children, their wellbeing is typically the first consideration when you come to agree a divorce settlement.

As well as ensuring the provision of a home, liquid assets are often allocated to the child’s resident parent in order that the child can be cared for. All available resources are considered in a way that ensures proper financial arrangements are made for children while also balancing the needs of both parents.

Your age and the length of your marriage

Using a principle called the ‘yardstick of equality’, divorce settlements normally approach a 50/50 split the longer you were married. Any contributions that you each made before you were married may also be taken into account.

If you were only married for a short term then any settlement will look at the capital contributions each of you made to the marriage.

Finally, your age is also a factor. If you are older, issues such as pensions, the ability to get a mortgage, and future earning potential will become more important.

What assets you have

Full disclosure of assets is required as part of any divorce settlement, particularly if you are seeking a financial order. Settlements may consider:

  • Assets such as pensions, savings or property
  • Income, including future earning capacity (for example, one party may have to reduce their working hours to care for children)
  • A new partner’s financial affairs if one party is in a new relationship

Your financial needs and obligations

Any settlement will take into account you and your ex-spouse’s needs, in terms of income, capital and housing.

The settlement may therefore consider the need for one or both parties to get a mortgage in order to buy accommodation, particularly if you have children.

Both party’s ongoing income needs will also be considered, and you may have to prepare a budget showing how much you will need to maintain your commitments on an ongoing basis.

Your standard of living before the divorce

In many cases, it is not possible for separating couples to enjoy the same standard of living as they did when married. This is because there simply aren’t enough assets to achieve this.

Instead a settlement will seek to balance the assets and resources available against the needs of both parties and any children.

Your contribution to the marriage

A settlement will consider the contribution you made to your marriage. While this may be partly in financial terms, it also ensures that a homemaker looking after children is treated as having made the same contribution as the main wage earner.

Issues such as inheritances are dealt with on a case-by-case basis and may depend on the length of the marriage and the size of the inheritance.

Your conduct

Conduct is rarely taken into account, unless it is so serious ‘it would be unfair for the court to disregard it’.

How are assets divided?

As we have seen, there is no fixed formula for dividing assets when you divorce. Instead, all the factors above will be considered.

This means that any settlement will very much be dependent on the specific circumstances of your marriage. There is a wide range of financial orders that a court could reasonably make, or that you could agree with your ex–spouse through negotiation or mediation.

It’s important to remember that assets are not automatically divided equally in a divorce. The welfare of children, and the individual needs of both you and the other party are the most important concerns.

If you have been married for a long time then a 50/50 split is more likely. Conversely, a court may order a less equal split if they believe one party is in greater financial need – for example, they gave up a career to care for children.

What are the methods for agreeing a divorce settlement?

If you want to arrange a divorce settlement that suits both parties, there are three main methods for doing this:

  • Agree everything between you and your ex-spouse. Note that this won’t be legally binding unless you have the agreement approved by a court.
  • Use a mediator to help you and your ex-spouse negotiate an agreement. You will normally have to attend a mediation session before any court action is taken to establish whether using a mediator may help you.
  • Use a solicitor. This may be for just a couple of initial meetings for advice, or you may employ the services of a solicitor throughout the entire process. It’s worth noting that good legal advice and guidance can typically have a direct influence on the divorce settlement.

If you can’t reach an agreement, you can apply to the court for a financial order. Here, a judge will make an order concerning financial matters and decide how your assets will be divided.

Can a divorce settlement be reopened?

Yes, although this is very rare. A financial order normally means that any financial links between the divorcing couple are ended, meaning no further claims can be made in the future.

However, a 1987 case set a precedent called a ‘Barder event’ which can allow a divorce settlement to be reopened if four factors are satisfied:

  1. A new event occurs that invalidated the basis of the original settlement (or the assumptions on which it was made)
  2. The new event happens soon after the settlement was agreed
  3. The request to reopen the case happens within a short time of the new event occurring
  4. The request does not prejudice any rights to assets acquired by a third party (e.g. if you have sold a property to an unconnected third party).

 


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