Financial Settlements

The most difficult part of a divorce is often not the procedure that takes a couple from being married to being not married, but the emotional and financial consequences – especially if there are children.

The rules for deciding what happens with property and finances on divorce are laid down in the Matrimonial Causes Act 1973 (for Civil Partnerships there is parallel legislation) and the Court looks at a large number of factors when considering a case brought before it. Because going to Court is never cheap, it is obviously better if the couple concerned can sort out as much as they can before seeing a solicitor, or seeking the help of the Court to sort out the financial side of a divorce (known as seeking a “financial remedy”).

The approach the Courts tend to take is to start at the point of who needs what - mainly a home to live in. The Court does not punish the person who caused the breakdown of the marriage by allowing them less financially, unless that person's conduct is extreme. If there is enough to provide each party with a home, then the court will look at who paid what in. With a long marriage - generally over five years - the Court will tend to say that contributions are equal. Short marriages are a bit different as there is often less opportunity for the parties to become financially dependent on each other. If there are children under 18 years of age, then that can also affect a division, but the court seeks to ensure that the final arrangements are fair to each party – fair not necessarily meaning “equal”.

Once those arrangements are in place, the Court is duty bound to consider a "clean break" so that neither party can go back to the other, or the other's estate if they die, and make any further claims. Obviously, it is better if the parties can agree most or all of the arrangements, and the Court then only has to approve the final agreement to make a "Clean Break Court Order".

Where the parties agree that there should be ongoing financial commitments to each other – e.g. maintenance to the other party (as separate from children’s maintenance) – then there is cannot be a Clean Break Order as such. However, the other variables can still be resolved, limiting the opportunity for the finances to be brought up again and “re-opened” at a later date.

If the parties cannot decide between themselves, then Court proceedings are likely, which will use up some of the value of the matrimonial assets. It is, therefore, much better if the parties can agree the terms between them, although it is not always easy, and in some cases, impossible!

The practical starting point for division in most matrimonial cases is half each. This can then be adjusted either way by adding in factors such as what each party needs to rehouse, what contributions each party has made, where the children are going to live etc. Generally, now there is more emphasis on Child Maintenance, the non-residential parent's contributions tend to be by way of maintenance rather than paying it all in one lump sum ("capitalisation"). So where possible, the parent with the children may not get "extra" capital because the children are with him or her. Even if that does happen – e.g. because s/he needs all the assets to buy another home - it is not necessarily forever; s/he may have to pay the other party back at some point - usually when the children are 18 or leave full time education.

The Courts treat non-financial contributions – such as looking after children and the home – as equal to the financial contributions of a “breadwinner”. This is why pensions and other assets are still considered to be joint assets after a long marriage, rather than just the property of the person in whose name the pension or other asset is held.

Before an application for ancillary relief can be made to the Court, divorce proceedings have to be underway, and the Court cannot make any final orders until the Decree Nisi stage has been reached. Interim orders can be made, but are limited effectively to temporary maintenance until a final decision can be made. The Courts have a strict schedule for dealing with financial remedy cases, which is intended to prevent them dragging on for years, so it is not necessarily a lengthy process, although it can be a costly one.

Every case is different and there are huge variations in circumstances between cases, so it is important to seek advice at a fairly early stage to reduce the possibility of prejudicing the case, as well as to improve the possibilities for settling without the need for a Court application.

Because there are so many considerations, and the attitudes of the individuals concerned is also significant, there can be no fixed costs guidelines as such. However, if the finances are simple – say a property and some savings – and the parties are mostly in agreement in principal – then the costs of negotiating, preparing and submitting a Clean Break Order by consent should be no more than £800. Where there are many documents to look at, difficulties in obtaining details of assets, or lots of points in dispute, then the eventual costs might be nearer to £1,500.

For a fully contested case, i.e. where one or many issues are in dispute, and the Court has to fix a final hearing date, the costs can extend higher as clearly there is more time involved in dealing with the case, as well as Court fees. Costs can then reach £5,000 to £30,000 or more, although fortunately such cases are the exception rather than the rule.

At Karen O’Neill & Co we try to give an overall costs estimate once the details of each situation are – or become – known. “Review” figures are always set so that the costs remain in the control of the client and he or she can see how far the case has progressed before further funds are committed.