One of the most common worries people have when getting divorced is what happens financially – there may be a need to manage an additional property or a change in terms of who pays for what. High emotions and feelings of fear means that any decisions regarding finances can become overwhelming and confusing.
Understanding both your financial position and that of your ex will provide clarity and help you understand each other’s commitments. It is this transparency that can make discussions quicker and easier.
Who decides how assets are divided in a divorce?
There is nothing to prevent a couple reaching a financial agreement between themselves. Ideally this agreement should be incorporated into a consent order so that the court can approve it, thereby making it binding on both parties. Without the approval of the court, there is a risk that either party could change their minds without suffering any repercussions. This can be devastating if one party is relying on income or capital from the other, so it is important that you are protected from any potential reneging on an agreement as much as possible.
If an agreement can’t be reached, then an application to the court can be made for them to guide the parties towards a fair and reasonable agreement, or in certain circumstances, the court itself can decide what the settlement should be.
Either way, it is always best to seek legal advice on any potential agreement in order to ensure that it is fair and likely to be approved by the court.
Understanding matrimonial assets
When a couple gets divorced, often there is a misconception that all assets will simply be split evenly between them. However, this is not always the case. It is possible that one party may be entitled to more than the other, therefore leaving the marriage with a greater share. That said, there are a number of variables that can affect what a divorce settlement looks like, as well as which assets are deemed to be matrimonial in the first place.
Understanding the complicated laws around divorce can not only be difficult, but also distressing at this difficult time. Therefore it is important to have specialist support and guidance, and ultimately good representation, when going through a divorce and considering any divorce settlement.
What are matrimonial assets?
A matrimonial asset is an asset with any financial value that either you or your spouse (or both of you together) have accrued or obtained during the course of your marriage. However, that is not to say that an asset obtained before the marriage can’t be classed as a matrimonial asset. All assets need to be looked at as a whole.
The most common matrimonial asset is the family home. Other assets can include (but are not limited to) additional properties, pension provision, vehicles, savings, investments or interest in businesses.
What is the law surrounding matrimonial assets in a divorce?
Contrary to popular belief, there is no formula for working out how assets should be divided. The current law in England and Wales is discretionary and is based on what each party needs to live on and the principle of sharing assets. Every case is different. In order to achieve a fair outcome, all factors and circumstances need to be taken into account.
Does it matter who paid for a particular item or asset?
In some ways yes, in others no. If one party purchased a certain model of car and the other party is not interested in that vehicle, then it is likely that an agreement will be reached whereby the person who purchased it keeps it. However, in a scenario where one party purchased a property in their sole name that then went on to become the family home, then irrespective of who purchased it, it will be considered as a matrimonial asset.
Does it matter who accumulated the wealth throughout a marriage?
Not necessarily. In marriages where the parties have been together for a long time, it is quite common for one party (usually the husband) to have worked whilst the other party (usually the wife) stayed at home to look after any children or the family in general. Even though it has little monetary value, being a homemaker is just as much of a valid contribution to the marriage as going out to work is. As mentioned above, it is important to look at the circumstances as a whole.
Why is your spouse entitled to financial assets that they have not contributed to?
Regardless of who has been the breadwinner and who has been the homemaker in a marriage, it is still the case that there is often a large discrepancy between the value of assets that one party brought into the marriage versus the other. Not so long ago there was a time where the law favoured the husband (or breadwinner). However, that time has now passed and it is now more conventional to view a marriage as a joint venture or a partnership of equals. The role of homemaker is equal to the role of breadwinner – the contributions of the homemaker allowing the breadwinner to go out and get the ‘bread’.
Although one party may not have contributed financially to any assets that have been obtained, it is probable that they have contributed in other ways that allowed those assets to be accrued, and are therefore just as entitled to a share of them.
Are you required to provide for your spouse financially after a divorce?
Spousal maintenance is not uncommon, especially where one party may not have worked for a long period of time or is on a significantly lower income. However, the likelihood of the court agreeing to maintenance being provided for life is becoming increasingly uncommon. There is a continued shift towards divorce settlements that encourage the party receiving the spousal maintenance to re-enter the workplace and become financially independent where possible.
The court views divorce settlements as being key to providing both parties with an “equal start on the road to independent living”.
What are non-matrimonial assets?
Non-matrimonial assets refer to anything that was accrued or obtained outside of the marriage – i.e. the period prior to the marriage and/or the time that has passed since separation.
Non-matrimonial assets can include (but are not limited to) pension provision, properties or investments and can also apply to inherited assets in some circumstances.
What is the law surrounding non-matrimonial assets in a divorce?
Whilst the existence of any non-matrimonial assets has generally been regarded as likely to lead to a departure from equality (i.e. one party retaining a greater share of the assets than the other), there are circumstances that would prevent this from being the case.
Is it possible to exclude non-matrimonial assets from a divorce settlement?
Just because an asset was obtained outside of the marriage, it is not necessarily exempt from being included in the overall settlement. All the assets need to be looked at as a whole in order to determine what is fair and reasonable, and what meets the needs of the parties and any children.
That is not to say that non-matrimonial assets can’t be ring-fenced (i.e. excluded from any discussions), but this needs to be considered on a case by case basis. Within the context of an agreement, it can be agreed that one party will keep the majority of the matrimonial assets in order for the other party to keep any non-matrimonial assets that they have in their name.
Why would a spouse be entitled to a non-matrimonial asset?
There are various scenarios that may allow a spouse to be entitled to all or a share of a non-matrimonial asset. However, the two most common scenarios are:
- The value of the matrimonial assets is not sufficient to meet the parties’ needs – for example, there is only a small amount of equity in the family home, the sum of which is not enough to re-house both parties, but one party has access to savings or investments that would top-up the amount of capital available, thereby allowing both parties to purchase a property individually.
- The actions and intentions of the parties in relation to non-matrimonial assets and the intermingling of funds – for example, over a period of time the family have become accustomed to benefitting from a non-matrimonial asset (such as inheritance) and/or it has become generally accepted that the parties’ intentions in relation to how they treat non-matrimonial assets has the same effect, i.e. where one party has an intention (expressed or implied) that their inheritance will be used to benefit the family as a whole.
Can I stop my assets from being included in the divorce settlement?
It is very difficult to stop your assets from being taken into account in a divorce settlement if there are insufficient matrimonial assets to meet both parties’ needs. It is important that all assets are looked at and divided fairly. Any attempt to deliberately hide, transfer or dispose of non-matrimonial assets in order to prevent them being taken into consideration will be penalised by the court.
You are, of course, entitled to transfer any assets that you own in your sole name before or during a divorce, but the timing of such transactions will be questioned. Ultimately, hiding, selling or transferring assets in order to deprive the other party of a fair share in a divorce settlement, and consequently any attempt to deceive the court, is fraud, which is a criminal offence and can lead to imprisonment.
The best course of action to take is to be open and honest and provide full financial disclosure. Genuine trusts or transactions are often easy to explain, ones that aren’t so genuine usually have vague or evasive explanations. However, if you really do need to transfer assets, it is always best to seek legal advice before doing so in order to ensure that those actions are not misconstrued.
What considerations are there when a court decides how assets should be split?
The Court must apply the statutory criteria set out in Section 25 of the Matrimonial Causes Act 1973 in order to arrive at a fair outcome.
In summary, these are:
- The ages of you and your partner / spouse;
- The length of time you have been married and if there was any pre-marriage cohabitation;
- The income, earning capacity, property and other financial resources (such as savings, investments and pensions) available to each of you now and also in the foreseeable future;
- The financial needs (e.g. living expenses), obligations and responsibilities that each of you has or are likely to have in the foreseeable future;
- The standard of living you had during your marriage;
- Any physical or mental disabilities either of you may have or any health concerns that may have an impact on your life in the foreseeable future;
- The role you played in the marriage – e.g. were you the primary wage earner, or did you stay at home to look after the children.
When applying this criteria, the Court looks at what the needs of the parties are in terms of housing, income and pension, and also the needs of any dependent children. A departure from equality can be ordered if the needs of one party dictate a different outcome, or if the Court accepts that certain assets should be treated as non-marital and the needs of the parties are met.
Is a Pre-Nuptial agreement enough to protect all of your matrimonial assets?
Although not legally binding, provided a Pre-Nuptial Agreement is entered into properly, they can be highly persuasive on the court in the event that the marriage breaks down. Therefore, it is important that you get it right.
What is a Pre-Nuptial Agreement?
A Pre-Nuptial Agreement is a document which seeks to formalise your financial arrangements prior to you getting married or entering into a civil partnership. The Pre-Nup will detail what happens financially if, unfortunately, your relationship breaks down.
Even though it may not be something that is high on your list of priorities, or indeed even considered romantic, more couples are realising that it makes sense to protect yourself should the unthinkable happen, especially if you have been married before.
How do Pre-Nuptial Agreements protect your assets?
A Pre-Nup sets out how you wish your assets to be divided in the event that your relationship breaks down. Within it you can both state what property belongs to you alone (this is usually property that was acquired prior to your upcoming marriage) and by association make it clear that it will not be shared or form any part of a future divorce settlement.
In addition you can also protect, or ‘ringfence’ other assets from each other. These may be assets that you have inherited, an interest in a family business, gifts from a third party or – if you have children from a previous marriage – there may be assets that you wish to be reserved for their future benefit.
Will a Pre-Nuptial Agreement protect all of your assets during a divorce?
A Pre-Nup can help safeguard your personal assets upon divorce providing the court determines that it is fair and reasonable. It is possible to protect assets that were accrued prior to the marriage, but assets that have been accrued during the course of the marriage will likely be considered as matrimonial assets and therefore may be taken into account in any future divorce settlement. To try and exclude these would potentially be deemed unfair by the court.
The exception to this would be in the event that the relationship breaks down shortly after the marriage commenced. In this scenario it is possible for both parties to walk away with the assets they had prior to marriage, depending on the circumstances, such as if they have children, as there has been very little time for matrimonial assets to be accrued. It is not unusual for Pre-Nuptial Agreements to contain different scenarios depending on the length of time that passes before divorce proceedings are instigated. For example, what should happen if the marriage breaks down after 1 year, 2 years, 5 years, 10 years etc.
In order for the court to consider upholding a Pre-Nuptial Agreement it must be satisfied that both parties fully understand the agreement and its implications, that both parties had enough time to review the agreement fully before signing it, and that it has been entered into freely, without duress.
There are steps that you can take to show the court that the above has happened. These are:
- The Pre-Nuptial Agreement is signed by both parties at least 21 days before the date of the marriage;
- The Pre-Nuptial Agreement has been drawn up by a solicitor;
- Both parties have taken separate and independent legal advice on the contents of the Pre-Nuptial Agreement;
- Full and frank financial disclosure has taken place, i.e. both parties have disclosed to each other all assets, liabilities and income, along with any other financial information;
- Both parties sign a statement within the agreement confirming that they fully understand the contents, they voluntarily agree to it, and that they have entered into it freely.
What circumstances could stop a Pre-Nuptial Agreement being upheld?
If the court believes that a Pre-Nup is unfair then it may not consider it as part of any divorce settlement. Pre-Nups can be deemed unfair if one party fails to disclose all of their assets, if duress (or undue pressure) was put on one party to enter into the agreement, or if the agreement is unfairly biased towards one party to the detriment of the other, i.e. should the marriage break down one party will have insufficient resources to meet even their basic needs. Furthermore, if children are involved, the court will prioritise their needs.
What happens to your property when you get a divorce?
When it comes to dealing with the family home during divorce proceedings, there are several options available, depending on your circumstances. These are:
- Putting the property on the market for sale. The sale proceeds would then be divided between you both – these can either be split 50/50 or one party can receive a larger share if there is justification for this to happen;
- One party can buy out the other party;
- Keep the property without changing the ownership, with one party continuing to live in it for a defined period of time. This option is most common when there are children involved and can be referred to as a ‘Mesher’ order – where a specific event triggers the sale of the property, such as the children finishing their education or reach a certain age, or if the party who has remained in the property remarries or cohabits with a third party;
- One party transfers part of their interest to the other as part of the divorce settlement, but as they have retained an interest in it, when it is sold the will receive a relevant percentage of the proceeds.
- The court can also make a ‘Martin’ order – this entitles one party to occupy the property for life or until they remarry. ‘Martin’ orders are most commonly used where there are no children involved and one party doesn’t immediately need the money from the property to meet their own needs.
If I owned property before the marriage, would it be considered non-matrimonial or matrimonial property?
This very much depends on individual circumstances.
The family home:
If you purchased a property prior to the marriage and it is then used as the family home, it is likely that it will be considered as a matrimonial asset, although this doesn’t mean that any sale proceeds would automatically be divided equally.
Independently owned property:
If you purchased property prior to the marriage that has not been used as the family home, such as buy-to-let properties, then these may be considered as non-matrimonial assets and therefore not form part of any divorce settlement. However, if the income from such properties has provided for the family during the marriage, then it is possible for them to be considered as matrimonial assets. In addition, if the matrimonial assets are insufficient to meet both parties’ basic needs, then the court will look at the non-matrimonial assets that are available in order to make up the shortfall.
Land and/or a farm
Farming divorces are complex situations and therefore unique. It is not unusual for a farm to have been in one party’s family for many generations – and that party wants to keep it that way. In addition, the majority of wealth may be tied up in machinery and livestock, for example, and other family members may work on the farm. Because of this, there are many factors that the court will consider before coming to a conclusion.
Similarly, working out what should happen to any land that you own is also complex – for example, it can depend on whether the land has planning permission or is rented out to a third party.
These can be treated in much the same way as any additional property in the UK – if the property was purchased during the marriage, for example, as a holiday home, then it may be a matrimonial asset and can either be sold or one party can retain it by buying the other out. If the property was purchased prior to the marriage, it will depend on how it has been used – rented out or used as a holiday home.
Is the matrimonial home always shared equally?
The short answer is no. The starting point is always an equal share, but there are many factors that can influence this and cause a departure from equality – even only a small one – such as earning capacity, mortgage capacity, even what other assets are available. The existence of a Pre-Nuptial Agreement may also influence how the property is shared.
What happens to your financial assets when you get a divorce?
Please see the above section regarding matrimonial and non-matrimonial assets for a guide on what happens to financial assets upon divorce.
High-value assets in a divorce
High value assets can be more complex and result in a more challenging divorce settlement. Being able to reach a fair settlement will rely on both parties being open, honest and transparent. Some people may attempt to hide their assets in the hope of keeping them excluded from the divorce settlement. This is known as ‘concealing assets’ and could result in being deemed as fraud. It is important that when going through a divorce, you are fully aware of each asset that needs to be taken into consideration as well those that can be excluded.
Examples of high-value assets are:
- Fine art;
- Classic cars;
- Businesses or business shares;
- Share based incentive schemes;
- Property investments – e.g. rental properties, land, holiday homes etc.
How are the values of matrimonial assets decided?
How the value of matrimonial assets is decided can vary depending on the nature of the asset.
Financial assets, such as savings, investments and pensions have a clearly defined value, which can be found out by obtaining an up-to-date statement.
The most common way of deciding the value of matrimonial assets is to instruct an expert to carry out a valuation. The expert instructed will depend on the asset that needs to be valued. For example, the value of the family home is usually decided by obtaining 3 or more valuations for estate agents and then deciding whether to use the highest valuation, the lowest valuation or an average. Similarly, if any additional property is owned, the value of this property is worked out in the same way.
Cars, antiques, jewellery and art can all be valued by taking them to an appropriate expert, such as a car dealership.
When it comes to valuing complex assets, such as businesses, it is usual for a forensic accountant to be instructed. They will carry out a detailed assessment of the business in order to ascertain if there is any value in it or if it is simply a vehicle for generating an income.
No matter what the asset is, both parties must agree to an expert being instructed as well as who that expert will be (for example, which estate agents to use to value the family home). Both parties must also agree on the value of an asset in order for negotiations to be effective. If the parties can’t agree, then an application can be made for the court to decide.
High net worth divorce specialists
If you have complex or high-value assets that need to be dealt with during your divorce, it’s important that you have the right legal advice and representation from the start. By using a specialist divorce lawyer you’ll be able to trust that the support and guidance you’re provided with will get you the best possible result in your divorce settlement.
Hawkins Family Law are family law specialists, which means we have years of experience in divorce and divorce settlements, including those that involve high-value assets and high net worth individuals. If you are looking for reliable and accredited legal advice regarding your divorce or getting a divorce, speak to one of our team today.
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