Divorce Finances

Issues relating to shared assets (e.g. the matrimonial home) and ongoing financial arrangements e.g. maintenance for spouse/children are possibly the most complex aspect of any divorce settlement.

When you marry the law provides you and your spouse with the right to make certain financial claims against one another in the event of a divorce. These include claiming a share of property, capital assets, pension funds and income.

These claims continue during marriage and after divorce unless you obtain an order, either by agreement (known as a “consent order”) or imposed by the court, setting out the terms of the financial settlement. This is why it is essential that you finalise your financial arrangements by way of a Court approved order upon divorce - to safeguard you from potential future financial upheaval.

To read our latest blog on Finances Upon Divorce click here.

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In the event that you are unable to reach agreement on the division of assets and financial provision with your spouse, the Court has wide powers under Section 25 of the Matrimonial Causes Act 1973 to address these financial matters.

What the Court Will Take into Account When Making an Order

The starting point for dividing assets is generally fifty-fifty, with the court only departing from equality if there is good reason to do so, most commonly due to the “needs of the parties” and any relevant children. The latter is the Court’s primary concern.

The Court will take the following factors, set out at Section 25 of the Matrimonial Causes Act 1973, into consideration when making any financial order:

  • The financial needs, obligations and responsibilities of the parties
  • The income, earning capacity, property and other financial resources of both parties now and in the foreseeable future, to include earning capacity
  • The standard of living enjoyed by the family during the marriage
  • The age of both parties and the length of the marriage
  • Any physical or mental disability of either party
  • The contribution each party has made or is likely to make in the foreseeable future, including any contribution made by looking after the home or caring for the child of the family
  • The loss of the value of any benefit, which by virtue of the dissolution or annulment of the marriage, a party will not have the opportunity to acquire
  • The first priority is always the welfare of any child of the family and consideration will be given to: the financial needs of the child; the income earning capacity (if any) of the child, the property and other financial resources of the child; any physical or mental disability; the manner in which the child was being educated or trained and the expectations of the parties in this regard; and whether a party has assumed any responsibility for a child’s maintenance

  • The court will ultimately consider all the circumstances of the case

There are also a number of factors that the Court will NOT take into consideration:

  • The reason the marriage failed
  • The behaviour of the parties, unless it would be inequitable to disregard it
  • Which party made the application for the divorce or financial order

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Financial Order Procedure

To obtain a financial order certain information and documentation needs to be made available to the Court and the other party before the court can make a final order.

Mediation

Before an application is issued, the Court must be satisfied that both parties have had the chance to attend mediation. At the very least, the Applicant (party making the application for a financial order) is required to have attended a Mediation Information and Assessment Meeting (known as a “MIAM”), save in certain specific circumstances.

How to Apply

An application for a financial order is made after the commencement of divorce or civil partnership dissolution proceedings.

The petitioner will ordinarily have marked on the petition their intention to apply for a financial order, however either the petitioner or the respondent within the divorce can apply to the court for a financial order.

There is a Court fee payable (£275) and once the application has been made (on a Form A), the Court serves notice of the proceedings on the Respondent.

The court will set a timetable, which both parties are ordered to comply with, to include the date by which Form E financial statements (documents containing financial disclosure) are required to be prepared and setting a date for the first hearing (the First Appointment).

It is common practice to finalise the financial proceedings before applying for final order (previously Decree Absolute).

Orders for Financial Provision by Parfitt Cresswell

The Financial Statement

The first step will be to exchange full, frank and clear financial disclosure with your spouse.

This may seem like a huge invasion of privacy, but it is necessary to place “all your cards on the table” before a financial settlement can be negotiated as it is paramount that both parties know what is in the “matrimonial pot”.

If a Form A application has been issued, each party will be required to complete Form E financial statements. It is also open to parties to exchange these documents on a voluntary basis, should proceedings have not been issued, ahead of seeking to conclude a settlement by consent.

Various financial documents are required to be attached to the Form E, such as bank statements, house valuations and pension statements.

Once completed, the Form E can be simultaneously exchanged with the other party and filed at court.

The First Appointment

The first appointment will usually take place in front of a District Judge and both parties to the divorce must be present.

Ahead of the appointment, in addition to filing and serving Forms E, the parties / their legal representatives will have also prepared: a Chronology and Statement of Issues, which they are encouraged to agree as far as possible. If either party seeks to raise any questions in respect of their spouse’s Form E, they may further prepare a Questionnaire. If the parties do not wish to do so and are confident that there has been a comprehensive exchange of financial disclosure, it is open to them to use the First Appointment as an opportunity to negotiate and they must advise the court on a Form G that they wish to do so. If the parties are not ready, the appointment will proceed as a directions appointment only.

Any further evidence, such as valuation evidence, can be considered by the court at this juncture and so the parties are best advised to apply (under Part 25) should they seek to adduce expert evidence ahead of the First Appointment, to enable this to be considered at this juncture.

It essential to the expeditious conclusion of the case that both parties provide up to date and comprehensive disclosure. A party's refusal to co-operate might lead the Court to infer that they have something to hide and might therefore have more assets than they are declaring.

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Financial Dispute Resolution Hearing ('FDR')

The FDR hearing is essentially judge-led mediation and is an effort to settle the matter through negotiation and discussion.

The parties / their legal representatives will attend court at least one hour before the hearing is due to start.

The legal representatives will enter into negotiations in an attempt to narrow the issues in the case.

During the hearing itself, the judge, having read the papers filed in the case, will hear submissions from the legal representatives and then give “without prejudice” indications in respect of settlement.

The parties / their legal representatives will usually then leave court and resume their negotiations.

The parties / their legal representatives can return to court as many times as the judge can accommodate for further guidance.

If an agreement is reached at FDR, a consent order will be drafted, setting out the terms of settlement in a prescribed format. The District Judge will be invited to approve the order and conclude the financial proceedings.

If an agreement cannot be reached, the District Judge will list the matter for Final Hearing.

It is important to remember that even if an agreement cannot be reached at FDR, it is still possible for negotiations to continue between the parties / their legal representatives afterwards, with a view to settling matters by way of a Consent Order, which can be sent to the court for approval.

Final Hearing

The final hearing in financial proceedings is not dissimilar to the final hearing in other family matters; the parties are usually directed by the court to file and serve statements in advance, with oral evidence given by the parties and, where relevant, experts and other witnesses at the hearing.

Having heard the evidence, the judge will make a final order.

It is important to note that the judge at the final hearing will never be the same judge who attended the FDR hearing.

Types of Relief Court Orders by Parfitt Cresswell

Types of Relief - Court Orders

The main orders that a Court can make under Section 25 of the Matrimonial Causes Act 1973 are as follows:

Periodical Payment / Maintenance Orders:

Periodical payments to a party to the marriage or to/for a child of the family. Every spouse has the right to make a claim for maintenance, but this will be dependent upon as assessment of “needs” cross checked with “income”.

The purpose of periodical payments is to ensure each party can meet their reasonable daily outgoings and those of any child of the family. A periodical payments order, requires one party to make regular payments to a party to the marriage or to/for a child of the family.

'Child of the family' is a child of both parties or any other child who has been treated by both parties as a child of their family, including any step-children or adopted children, but not foster children placed in the parties care by a local authority.

The regularity of the payments will be determined by the court, but usually the payments are made weekly or monthly.

This kind of order is often referred to as an order for 'maintenance'.

Once made, it is possible to vary the order by applying to the court. A common reason for seeking to vary a periodical payments order is a change in the financial circumstances of the person ordered to pay, usually following a loss or change of employment.

The order may well be specified to last for a certain amount of time: it may be deemed to run 'until further order' or until either party marries again or dies.

When considering an order for periodical payments, the court must also consider whether a clean break (no ongoing financial obligation) is appropriate.

Secured periodical payments to a party to the marriage or to/for a child of the family:

This is not a particularly common order.

It is similar to a simple periodical payments order, but there is an order that a secure capital fund is provided from which payments can be made.

A common example of such an order is where payments are secured against a property owned by the party making the payment.

The main benefit of such an order to the party receiving the payment is that they are protected if the party ordered to pay disappears, dies or becomes insolvent.

An application to vary may similarly be made to the court.

Secured periodical payments can also run for a specified term or until death or remarriage of the receiving party – with the court being required to consider the appropriateness of a clean break order.

It is important to mention that the Child Maintenance Service is the authority for child maintenance payments, save in certain specific circumstances. It does however remain open to parties to agree a sum of child maintenance, which can then be recorded into a Consent Order.

On the anniversary of the Order, it is open to either party to apply to the CMS to undertake a review.

Capital Orders:

Lump sum to be paid to a party to the marriage or to/for a child of the family.

A lump sum is an amount paid, and, with limited exception, is intended to be a final order to conclude matters.

Common examples of when a lump sum is used include for the purchase of property; as a way of capitalising maintenance (paying a single upfront sum in respect of maintenance rather than regular periodical payments); or compensating a party for handing over control of a jointly run business.

Transfer of Property Order (Property Adjustment Order)

Transfer of Property orders transfer property, such as the family home, from one party to the marriage to the other party or to/for the benefit of a child of the family.

The transfer can take place immediately or may be made subject to a charge in favour of the person transferring the property.

The charge will usually be realisable on a specified date or the occurrence of a specific event, for example upon the youngest child of the family reaching 18.

At this time, the non-resident party will be entitled to receive payment of either a specified amount or a percentage value of the property.

In such cases the sale or re-mortgage of the property may be the only way to release the payment on the “trigger” event.

Whilst the family home is perhaps the most common type of property transferred, it can be any type of property which either or both parties hold an interest in.

The court also has power to make the less commonplace settlement of property orders (which create trusts) and orders varying the effect of any pre or post nuptial settlement.

Order for Sale

An order for sale can only be made where there is:

(a) A secured periodical payments order; or

(b) A lump sum order; or

(c) A property adjustment order.

The sale is ordered to allow the capital generated to be used to facilitate one of these orders.

Does the Court Always Have to Decide or Can the Parties Agree Between Themselves?

Parties can agree to enter into a voluntary exchange of financial disclosure with a view to reaching an agreement by consent and avoiding issuing a formal application to determine the finances. Some parties choose to jointly engage a mediator to assist with this process and other parties prefer to respectively instruct solicitors to advise them and negotiate on their behalf.

If an agreement is reached, a Consent Order will be drawn up setting out the terms of settlement.

The Consent Order will be filed at Court together with a Form D81 Statement of Information for a Consent Order, which summarises the assets, income and liabilities of each party and a Form A financial application (marked “for dismissal only”).

A court fee of £53 is payable.

If approved the court will seal the Consent Order and return it to the parties.

How Long Will It All Take?

The total time spent will depend on the willingness of both parties to co-operate and negotiate, and the complexities of the financial issues in question.

If formal proceedings are issued, and it is not possible to agree a settlement at any point after issue, the likely timeframe to final hearing is 12 months.

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