How are savings, shares, and other financial assets shared on divorce?

The starting point for any division of assets is 50:50, as set out in section 25 of the Matrimonial Causes Act 1973. Broadly speaking, matrimonial assets are those built up during the course of the marriage up to the date of separation, and are treated differently to non-matrimonial  or pre-martial assets. These are considered to be assets either previously owned before the relationship began or acquired by one party, such as an inheritance or gift.

If you are considering divorce and require legal advice to understand your options, contact specialist family law solicitor Joanne Major. Joanne is the founder of her specialist family law firm and has spent her 25-year legal career specialising in family and matrimonial cases.

How are shares valued on divorce?

Valuing shares before splitting them for divorce involves determining the fair market value of the shares as of a certain date. The process can be complex, here are a few common approaches that might be used:

1. Market Value: This approach involves determining the current market price of the shares on a stock exchange. This method is relatively straightforward if the shares are publicly traded, as their market prices are readily available. However, it might not be suitable for shares in private companies.
2. Income Approach: This method values shares based on the income generated by the company. It involves estimating the present value of future cash flows the shares are expected to generate. This approach is commonly used for valuing private companies or when the value of the shares is linked to the company’s earnings potential.
3. Asset-Based Approach: This involves calculating the value of a company’s assets minus its liabilities. It is particularly relevant for companies with significant tangible assets, such as property or equipment.
4. Comparable Sales Method: This approach looks at the sale prices of similar shares in similar companies. This can be useful when there are publicly traded companies in the same industry that can provide a basis for comparison.
5. Discounted Cash Flow (DCF) Analysis: This is a more detailed income approach that involves estimating the future cash flows the shares are expected to generate and then discounting them back to their present value. This method takes into account the time value of money and the risk associated with the investment.
6. Expert Appraisal: In some cases, experts such as financial analysts, or forensic accountants might be engaged to provide a professional valuation of the shares.

The exact approach used for valuing shares before a divorce can depend on various factors, including the nature of the shares (public vs. private), the industry, the financial health of the company, and the availability of relevant financial information. The valuation process can become contentious during a divorce, especially if there are disagreements about the value of the shares, ownership, or the appropriate valuation method to use. In such cases, both parties may decide to obtain their own independent valuations.

How are shares divided on divorce?

The goal is to achieve a fair and equitable distribution of assets between the divorcing couples. It is important to note that there is no fixed formula for dividing assets, including shares. Each case is unique, and the outcome depends on the specific circumstances and the discretion of the court.

How is property divided in divorce?

Division of property held by the parties depends on a variety of factors, including whether the property is matrimonial in nature, the contributions of each party to the property in question, and whether each party’s share is sufficient to meet their needs. The court has the power to order a sale, or a transfer into one party’s name.

Of course, during the course of a marriage, the property may become ‘matrimonialised’ and therefore open to division within financial proceedings. This may happen during long marriages or where the property was occupied as the family home for a period of time.

The exception to this is the family home, which is considered separately with the starting point 50:50, regardless of legal ownership. Non legal owners can register their ‘matrimonial home rights’ that protect their right to occupy the property pending the outcome of the financial proceedings.

What will happen to the family home on divorce?

Divorcing couples often assume that the family home will automatically be sold, and the proceeds shared equally. Even if the home is owned jointly, the court may decide not to share it equally if it is believed the purchase has been funded by non-matrimonial assets, for example, although there are many other reasons for a court to depart from the position of equality. The court examines each case and its circumstances individually, taking into consideration what is best for both parties and their children.

How is a pension divided on divorce?

A pension can be a significant asset in a divorce, and there are several ways it can be divided. The most commonly used methods involve pension sharing or offsetting, but occasionally a party may obtain a pension attachment order, which reallocates the pension benefits to the spouse making the claim.

A pension sharing order entitles a spouse to a percentage of the value of their ex’s pension, from which the ‘pension credit’ can be transferred into an existing pension, or they can open a new arrangement. Offsetting involves a non-member party receiving more of the non-pension assets, such as a greater share in any property, to offset the value of the pension scheme.

How is a business divided in divorce?

We have discussed this at length in a previous article, which you can read in full here. In most instances, a forensic accountant will probably need to be instructed to prepare a valuation report, the costs of which are generally shared equally. Once the valuation is completed, how the business is ultimately divided depends on several factors.

If it is achievable, the business tends to left with its founder, providing they wish to carry on with it, with the value of the other party’s share offset against other matrimonial assets. A court will endeavour to avoid the parties remaining co-directors or shareholders following the divorce, where possible.

If the business was founded before the marriage, the court will look at the extent to which it has grown during it to determine what proportion of the value of the business could be determined ‘matrimonial’, and therefore subject to division.

How is inheritance divided on divorce?

How inheritance is treated on divorce is subject to many variables which are unique to the marriage in question. Inheritance is generally considered a non-matrimonial asset and therefore does not automatically fall into the matrimonial pot.

Many spouses are adamant that their inheritance is not merged with other matrimonial assets. But how the court views inheritance can depend on factors such as whether the inheritance was used during the marriage, if the assets alone without adding in the inheritance is sufficient to meet both spouse’s needs, and whether the inheritance has been received. Whatever the circumstances, there is no guarantee that the court will ‘ring-fence’ an inheritance.

Will a pre-nuptial agreement protect matrimonial assets?

We have discussed pre-nuptial agreements at length in a previous article. However, it is worth noting here that prenuptial agreements can play an important role in divorce proceedings. For pre-nuptial agreements to be properly considered by the court, it is essential it is drafted by an experienced lawyer who is familiar with the law in this area and the steps that need to be taken.

Despite the existence of a prenuptial agreement, the court’s first duty is to make sure the financial needs of the family are met.

If you did not enter into a prenuptial agreement, then it is always an option to draw up a post-nuptial agreement. This is a document created after marrying to give you peace of mind that your assets will be protected in the event you divorce. Although they are not strictly binding on the court, its terms may be decisive in the event of a dispute unless it is deemed unfair.