How to Sort Out Your Finances on Divorce

Whilst it is possible to divorce without resolving the finances, there are factors to consider before doing so. There are often financial benefits to being married, including tax incentives and pension benefits. Divorcing without a financial order may exclude these benefits without a full understanding of a party’s future financial landscape.

As a general rule, parties are encouraged to defer applying for a final order in divorce proceedings until a financial order is in hand. However, there are circumstances in which a divorce is required, for example, if a party is looking to remarry. Here, the risks can be even greater. The so called “remarriage trap” occurs when a party remarries without a financial order in place and as a result is precluded from making claims for spousal maintenance, some pension orders, lump sum orders and property adjustment orders.

Our team of divorce lawyers in Milton Keynes are here to guide you through the entire divorce process, helping to add clarity to your changing circumstances and financial arrangements. In the meantime, the following article helps provide a clear overview of how finances are often dealt with in divorce, including your house and pension.

After the parties have considered disclosure, the parties will consider how to distribute the assets that are available to them both.

The approach in law is to start with an equal division of the assets but then to apply any of the factors detailed in s.25 Matrimonial Causes Act 1973 to assess if there should be any departure from that principle of equality. Common reasons to departure from equality include providing more of the assets to a party with childcaring responsibilities and departing from equality to reflect unmatched contributions made by one of the parties.

As part of a discussion with their former spouse, parties usually undertake a disclosure exercise, often utilising Form E. The Form E is a detailed and comprehensive document than can appear daunting when first considered but is of great assistance to parties and the courts in determining how assets might be divided.

As part of this disclosure exercise, parties must satisfy themselves that they accept the figures disclosed in their spouses Form E. This is usually done by way of supporting documentation, including copies of bank statements covering the last 12 months. Although not an automatic requirement, if your spouse requests the bank statements, these will need to be disclosed.

Requesting bank statements for any period exceeding a year should be considered on a case by case basis. It is important to ensure that these requests are made given due consideration to issues of cost proportionality and the material importance of the information that they might provide.

The basis of any financial settlement must be upon “full, frank and clear” disclosure. The parties, and the court in approving any settlement, must have confidence that all assets have been fully considered and that negotiations are based on agreed values for assets. There are circumstances in which this process can be challenging enough, but perhaps none more so than when a party believes their spouses is not fully disclosing all their assets.

The disclosure process affords enquiries to be made on the disclosure given, presenting an opportunity to establish the whereabouts of previously known funds, bank accounts or assets that were understood to be held or under the control of your spouse. If still unsatisfied, it may be the case that a spouse agrees to provide a Form of Authority, enabling a party to liaise directly with a third party regarding the whereabouts of assets, e.g. contacting a bank to discuss the movement of funds. It is worth noting that your spouse cannot be compelled to provide a Form of Authority and in circumstances in which they refuse, it may be that a court application is required to try and secure a Specific Disclosure Order (compelling a party to provide documents) or Third Party Order (compelling a non-party to provide documents), to secure the information.

Of course, the above options are helpful in circumstances in which assets are known to have existed. It is far more challenging to obtain information in circumstances where the original asset base is less clear. It may be that specialist forensic accountants need to be instructed, although in any assessment, the cost proportionality of these types of experts needs to be closely considered.

Pensions are treated in a similar fashion to any other asset in divorce proceedings, with the parties disclosing values and assessing whether a departure from the equal division of the combined pension schemes assets is fair or not.

The court has guidance on whether it might benefit from a specialist pension expert to comment on how pensions assets might be divided upon separation. Although this guidance is not binding on the courts, the family justice system is increasingly familiar with the use of these reports. The court recognises the pensions can be complex and the use of experts in assisting the court to ensure fair and reasonable outcomes for pension assets is increasingly common.

The role of the former matrimonial home is unique in the court’s consideration of how assets should be distributed upon separation. Although treated like all other assets in the first instance, namely an assumed equal division unless altered upon consideration of the s.25 factors, the family home may require other considerations to be factored in as well.

Firstly, it is common for the family home to be the primary asset for many families and the need to access the equity contained within it is often important and to do so may require a sale. The parties will need to consider how practical it is to sell an asset that meets the needs for a party, especially in cases involving children where the property is usually well placed for school catchment and transportation links.

The second key consideration of the family home relates to the contributions made to its acquisition. Although again assessed on a case-by-case basis, it is often the case that the court will not treat contributions to the equity held in the property (whether by way of funds used to buy the property or to reduce the mortgage secured against it by way of a bonus or inheritance) as being a suitable basis for any departure from equality. Money applied to the family home is often considered as “pooled” as soon as it is applied to the property.

Ready to take the next step? As leading divorce solicitors in Milton Keynes, our team of family law specialists can advise and guide you from the moment we start working with you. As well as our head office in Milton Keynes, we also have offices in Watford, and London where we can arrange appointments to see you in person. Talk to us in confidence and find out where you stand. Get in touch – we’re here to help.

This article is intended for the use of our clients and other interested parties. The information contained in it reflects the author’s view and is believed to be correct at the date of publication. However, it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional legal advice.