How To Divide Assets in a UK Divorce – Simple (But Complete) Guide
In the UK the starting point for dividing the assets in divorce is 50/50. However the financial settlement will usually be different in every case as it depends on the parties’ circumstances and their needs when it comes to deciding what they should each receive from the matrimonial assets. It is possible that one party will have a greater share.
The financial claims arise as a result of the marriage and its subsequent breakdown.
What are Matrimonial Assets?
Matrimonial assets or property is sometimes called the “matrimonial acquest” and is property that has been built up during the marriage (other than by inheritance or gift) and has been described as being the financial product of the parties’ common endeavour.
Usually the greatest assets are the matrimonial home and pension.
Resolve Financial Issues
The financial issues can be very difficult to resolve. The matrimonial assets which funded one household suddenly have to try to fund two households.
The court has the power to order a lump sum payment or other financial payments such as periodical payments which are sometimes known as spousal maintenance.
The court has a duty to try to provide the parties to be independent of each other as soon as possible. This is set out in section 25(A) Matrimonial Causes Act 1973 which provides as follows:
“(1) ……….. it shall be the duty of the court to consider whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable
(2) Where the court decides in such a case to make a periodical payments order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those payments to be made … only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party.”
What Do UK Courts Need To Consider When Dividing Assets?
A Court must take into account the Matrimonial Causes Act 1973 (and Civil Partnership Act 2004) which deals with the issues that the Court need to take into consideration. These include:
(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;
(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
(c) the standard of living enjoyed by the family before the breakdown of the marriage;
(d) the age of each party to the marriage and the duration of the marriage;
(e) any physical or mental disability of either of the parties to the marriage;
(f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
(g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;
(h) in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring (typically a pension).
Income and Divorce
Each party is under a duty to maximise their income and so not simply rely on the other if they can be self reliant, either partly or completely.
However, there are times when one of the parties to the marriage is not able to work either due to health or because there are still young children to be cared for.
If they do not have an earning capacity this will affect other financial matters such as raising a mortgage.
The Court can order that property owned jointly by the husband and wife can be changed so that the property is transferred to the ownership of one or the other.
One Party Buys Out The Other
This might be where one is going to buy out the other, even if the money is not due to be paid for a number of years.
Young Children Need The House For Their Home
This might be where there are still young children who need the house for their home while they are still minors.
If the parent with care of the children can afford the upkeep of the property including the mortgage, the Court will preserve the property to continue to be the children’s home.
In that situation the other parent / spouse will have to wait for their share.
Payment Trigger Points
There are usually trigger points set into any financial order to provide for the payment due to the other party to be made on the first of various events that will happen in the future.
Typical events set into the financial order might be:
- The marriage of the parent with care of the children,
- or the youngest child completing full time education.
Matrimonial Home Ownership
Home Solely Owned by either Husband or Wife
The fact that the former matrimonial home is owned in the sole name of either the husband or the wife will not prevent the court from altering the ownership.
Lord Nicholls in the case of Miller v Miller, McFarlane v McFarlane 2006 said
“the matrimonial home, even if brought into the marriage by one party at the outset of the marriage, plays a central part in the marriage and so should normally be treated as matrimonial property”.
Home Jointly Owned & Mortgaged
If the jointly owned property is to be retained by one party and there is a mortgage secured on that property, it is possible that the Lender will refuse to release the outgoing party from the mortgage.
The court cannot force a Lender release anyone from a mortgage and so possibly both parties could continue to be named on the mortgage for many years where there are very young children.
In those cases the party who is to remain in the property may indemnify the other against all liabilities, but that will not necessarily prevent the outgoing party from having their credit rating affected should the mortgage payments not be kept up to date.
What are the Financial Needs of each Party?
The Court will consider each party’s needs, taking into consideration all the circumstances of the case:
- The standard of living during the marriage
- The age of each of the parties
- Any physical or mental disability
- The contributions of each of the parties, for example:
- Any contributions that are made by one party over and above the other where significant might be taken into account.
- Where one party has been the main wage earner and the other has been the homemaker, this will often be considered an equal contribution.
However even where there is a contribution found to be made, whether this is taken into account will depend upon the needs of both.
If needs cannot be met without taking that additional contribution then it will be ignored.
This is something that might need to be carefully considered.
Inheritance and Divorce
What happens to an inheritance in a divorce?
Assets obtained by one party as a result of inheritance may be considered separately to the matrimonial assets.
Any inheritance should initially be set to one side and if the matrimonial assets that have been built up in the course of the marriage are sufficient to meet both party’s needs then it may be that the one who has received the inheritance should keep it.
If needs cannot be met then some or all of the inheritance may have to be taken into account and distributed.
Pensions and Divorce
How are pensions divided in divorce?
A spouse may lose their spousal benefits in respect of any pension scheme of the other party. This may be where a couple have had the marriage dissolved.
This will immediately mean that the spousal benefit one party would have had to the benefits of the other’s pension will be lost.
It is for this reason that frequently the divorce should not be finalised until the finances have been dealt with.
UK Spousal Maintenance
One party to the marriage may be entitled to spousal maintenance which may be payable for a period of time or for joint lives. This will depend on the individual circumstances.
There is no specific method of deciding what level the spousal maintenance should be, unlike child maintenance which has a defined formula.
Departing from 50/50 Equality when Dividing Assets
Where one party will suffer financial hardship by the assets being divided equally, there may be a departure from the starting point of 50/50.
Typically as set out above, that may be where one party is still the carer for young children or where health has an impact on the potential for one party to earn sufficient income to meet their needs.
Divorce Financial Order
Do I Have To Attend Court To Achieve a Financial Order?
It is not necessary to attend court to achieve a financial order. Where the terms can be agreed, an order can be drafted and submitted to the court by post with a brief summary of both parties’ current financial position. This is known as a Consent Order.
The court will consider whether the order is fair in all the circumstances and if so will endorse the order and it will then become binding.
What Happens If There Is No Financial Order?
Without a financial order there is no binding agreement and it is possible for one or other party to look to the court for a financial order many years later. Neither party will have any financial certainty in that case with regard the potential claims the other may make against them.