The first thing to say on financial settlements in divorce is that if possible, the parties should try and come to an agreement between themselves.
This can then be put into a Consent Order by the parties solicitors and sent to the Court for approval. Coming to a settlement this way will save the party’s time, money and a lot of aggravation. However, divorces are rarely amicable and often the assistance of the Court is required from the outset.
Financial division on divorce – how it works
The Courts have wide powers when it comes to making a financial settlement in divorce and this includes the power to make various maintenance arrangements and orders, some of which are considered below. There is not set formula for how much the Court will order under a financial settlement and it will depend on the party’s individual circumstances taking into account the party’s capital and income as well as their liabilities.
The Court will always have regard for each party’s future earning potential or any plans to remarry in addition to the standard of living the party’s enjoyed, their ages, any physical or mental disabilities, the contributions each party has made to the welfare of the family and the party’s conduct.
After calculating child maintenance, the Court will usually turn its attention to spousal maintenance. Spousal maintenance is usually paid over a fixed period of time but can be paid until death, remarriage (not cohabitation) or until the Court orders for it to stop. As with child maintenance, spousal maintenance is also expressed as an annual sum which is then paid monthly or weekly.
Ultimately, the Court’s objective will always be equality (for both the husband and the wife) , that is each party should be left financially independent of the other so that they can move forward with their lives, although this is not always possible. In some cases a “clean break” can only be achieved after a specific period of payments.
In its simplest form it draws a line under any financial ties between 2 parties, and once the break occurs, neither party can make any further claim against the other. Effectively ending any financial interdependence.
What does the Court consider when deciding whether to impose a clean break?
The Court applies 4 provisions of the Matrimonial Causes Act 1973 when considering the appropriateness of a clean break:
• Firstly, whether it is reasonable to expect a party to take steps to acquire a higher and increasing earning capacity;
• Secondly, the Court considers whether it is just and reasonable in the circumstances for any financial obligations one party has towards the other to be terminated;
• Thirdly, the Court will consider if the termination of any periodical payments would cause undue hardship.
• The fourth provision in the Act allows for the Court to dismiss the applicant’s ability to make any future applications in relation to the marriage.
So when is it appropriate to have a clean break?
An immediate clean break will only be appropriate where both parties, upon financial settlement, are and will continue to be self sufficient.
A clean break is usually not appropriate where there are children and there is a continued obligation on one party to pay spousal and/or child maintenance.
However, if a periodical payments order is made for one party to pay maintenance to the other then the Court or if by consent, the parties, will need to consider how long these payments are to continue. It might be that such payments are limited to a certain time span, at which point the receiving party will be self sufficient. If there is enough evidence to support this then a deferred clean break order may be imposed.
This delay might be 6 months to enable the receiving party to get a job, or for a few years to allow for studies an/or retraining. Or if there are children the term might be a lot longer until the children are less dependent.
It is not usually appropriate to impose a clean break on someone in their late 40’s or 50’s as their earning capacity is quite often limited, there are obviously exceptions if that party has substantial capital assets to sustain them going forward.
It is more likely, however, for there to be an order for nominal maintenance to be ordered or agreed which keeps the spouse’s claim for maintenance ‘alive’ so that in the future it can be varied if necessary.
If the date for the delayed clean break doesn’t seem to be workable in the future then the receiving party would have to make an application for it to be extended, evidence will be needed to show why that person has failed to become self sufficient as initially intended.
Capital clean break
Often a capital clean break is imposed or agreed by way of a lump sum payment from one party to another in return for a complete dismissal of all future claims.
This is either possible if there are substantial capital assets or funds available, or upon the transfer of a business or shares. In the case of the former matrimonial home, it would have to be sold and funds passed from one to the other or the ownership of the property transferred.
Sorting out financial entitlements on divorce can be complex and contentious especially where one spouse has business assets or there is a family business.
The following capital divisions might be possibilities in addition to maintenance orders:
• Lump Sum or Periodical Payment – an amount of money paid by one party to the other, either as a lump sum or in instalments.
• Property Adjustment or Transfer – these normally relate to the marital home, but can also include other property including shares. The Court will usually ask one party to transfer ownership to the other or adjust the proportions they hold.
• Pension Sharing – this applies where one party does not have a pension of their own and have sought to rely on the other’s pension. Pensions are a vital part of any divorce settlement and often involve large sums of money, particularly in long marriages.
Entitlement to business assets
The difficulty often arises because the spouse that owns business assets will be well informed that the non-owning spouse will be able to make a claim on those assets, potentially up to 50%. In many cases, the business owning spouse, especially where there is a valuable business, will attempt to move the assets out of his or her name into a corporate structure or may be less than forthcoming as to what the assets are and where they are located.
Is selling or transferring assets possible or the best approach?
Even if the asset owning spouse is prepared to co-operate and has not acted in the above manner, complications can arise because, taking as an example, he or she may own 50% of a small business and may be bound by a shareholders agreement or articles of association which do not permit transfer of shares to anyone else without the other shareholders having pre-emption.
If shares are to be sold as part of a divorce financial settlement, it is likely this will be on a heavily discounted basis in many cases and this may not be in the interests of or considered fair for both parties. An additional factor, especially where there are children, is whether realising investments or shares in a business may result in the owning spouse no longer having a livelihood. In that case, how are the children going to be maintained in the future ? One potential solution to this issue would be a deferred entitlement to the party not involved in the business.
Disclosure of assets and information on divorce
It is always advisable to seek to resolve divorce issues without resorting to courts but regrettably, it is not uncommon for one of the parties to try and hide assets. The other spouse may not even know about some business assets and this makes the process of disclosure a vital aspect of financial claims on divorce. Disclosure generally is often and key and hotly contested area of legal disputes. The party resisting disclosure will often claim that the other party is simply “fishing” for documents and evidence of the requesting party cannot clearly define what they are seeking. The court will also need to take into act proportionality, since in some cases, disclosure can be very time consuming and involve thousands of documents or emails or other data.
Where children are involved there can never really be a “clean break”. Child maintenance payments are usually expressed as an annual sum for each child, which is then to be paid monthly or weekly. Child maintenance payments are usually made up until the child’s seventeenth birthday, but can continue further to cover their education.
When deciding how much child maintenance has to be paid the Court will consider each party’s financial situation and the amount of maintenance that would be applied by the Child Support Agency (CSA).
You should apply if:
• you cannot reach agreement with the paying parent
• you don’t know where the other parent lives
• there is a disagreement over parentage
• the paying parent has stopped paying under a voluntary agreement
How is child maintenance calculated?
Child maintenance is calculated using a standard formula and applying one of 4 rates.
This formula takes into account:
• the paying parents income
• the number of children maintenance is being paid for
• how often those children stay overnight with the paying parent
• if there are any other children the paying parent (or their partner) gets child benefit for
• if the paying parent pays maintenance for any other children
What if maintenance isn’t paid?
Once the CSA or CMS has calculated how much maintenance is to be paid it becomes legally binding and can be enforced by either service in one of 3 ways:
• taking money from the paying parents wages or benefits
• taking money from a bank or building society account
• applying to the court who have the power to send bailiffs to the paying parents home or can force the sale of the property. They can even send a non paying parent to prison.
Regardless of how amicable a divorce might be, you should always obtain independent legal advice as solicitors are experienced in dealing with financial settlements and they will be able to make sure that you are receiving a fair share.