Richard Wagner once said, “Divorce is one of the most financially traumatic things you can go through. Money spent on getting mad or getting even is money wasted.”
The sentiment is clear and those going through a divorce would be wise to heed his advice and focus upon the financial practicalities, and resolving them, with the minimum amount of acrimony.
If a couple reach the conclusion that their marriage is at an end, then they need to turn their minds to a variety of practical matters. Chief amongst those matters will be the division of their financial resources to enable them each to forge an independent life ahead.
Whilst this article assumes that a court will determine how assets are shared between the parties, it is entirely open to the parties to reach an agreement outside of the court system, by direct agreement or by utilising one of many methods of alternative dispute resolution.
Identification
The starting point for both parties will be to provide full and frank disclosure of their respective financial positions, to include all of their income and assets. Whether or not there are formal court proceedings, the disclosure process will usually take place by way of completion of a detailed document known as a Form E. This form requires each party to set out their financial position, which should include:-
- Property, taking into account mortgages;
- Bank accounts;
- ISAs;
- Stocks and Shares;
- Life insurance policies;
- Pensions (although the division of pensions is outside of the scope of this article);
- Commodities;
- Chattels;
- Business interests;
- Trust interests;
- Any other assets.
This information must be provided irrespective of whether the assets are held in the UK or overseas so long as the party has an interest in it. Any liabilities must also be disclosed.
Valuation
Once all of the assets have been identified, the next stage is to calculate how much each asset is worth. In many cases this is straightforward, such as obtaining the latest bank balance from the relevant banking app. In other cases, this is more complex, for example in valuing a property or a business where an expert third party valuation may be required.
Distribution
Once the assets and their values have been identified and agreed, the next step is to consider the distribution. The court is guided by three core principles when addressing the division of assets: (a) needs, (b) compensation (for relationship generated disadvantage) and (c) sharing. Compensation will only be relevant in rare cases. The court will examine the income and capital needs of the parties. If there are funds in excess of the parties’ needs, then the court will consider how the available assets should be shared between them.
The court will endeavour to achieve a fair distribution of the assets between the parties, but to achieve fairness does not automatically equate to each party receiving half of the assets.
The court will also look at the provenance of the assets and whether they have been built up during the marriage or were brought to the marriage by one party only, with assets that have been built up within the marriage being more likely to be shared equally between the parties. The situation becomes more contentious where one party contends that an asset is “non-matrimonial“. This is usually where an asset:-
- Was owned by one party prior to the marriage;
- Was acquired by one party after the separation;
- Was inherited by one party only; or
- Was clearly gifted to one party only.
When it comes to whether savings and investments are matrimonial or non-matrimonial there can be complicated arguments that need to be considered. For example, one party may have a savings account that has money in when the parties marry, but they continue to contribute to it during the marriage and retain it in their sole name. Alternatively, where there is passive growth on money brought into the marriage, should the growth be considered matrimonial or non-matrimonial?
The courts have a wide discretion to examine the assets and how they have been accumulated and will consider how they should be shared between the parties. They have the ability to produce a bespoke solution which takes into account how an asset has been acquired and how it how been dealt with during the marriage.
The practicalities
Once the court has decided how the available resources should be shared between the parties the next stage is to record the division in an Order which will be sealed by the court. Again, this can be an order that the parties agree to “by consent” or it can be an order imposed upon them by the court. It is imperative that there is an order filed at court whether an agreement is negotiated or an order is imposed as otherwise the parties’ financial claims against one another remain outstanding, and can be activated at any time, even many years down the line.
The final part of the process will be the implementation stage to achieve the division. This can be time consuming and some thought is required to ensure that the implementation is not prejudicial, for example if the contents of an account are to be shared there may be early release penalties if the account is accessed before a certain point in time. Equally, it may be important to take tax advice if removing money from an ISA as the tax benefits may be lost.
With shares, these will usually either be divided between the parties, transferred between them or sold and the proceeds shared. If one party is particularly invested in a particular share (e.g. they are shares in the company that the individual has started and works in) then it may be possible to offset shares in exchange for the other party receiving a greater share of the other assets.
We believe that if you are contemplating separation or divorce it is highly beneficial to seek early legal advice. Our team can assist you in collating a complete financial picture and can assist in finding a fair financial solution whether by negotiation, non-court dispute resolution or by engaging in the court process.
For further information, please contact Kelly Gerrard, Legal Director and Knowledge Development Lawyer in the Family Department or, alternatively, telephone on 020 7465 4300.
To access our dedicated webpage with free Essential Resources for Supporting and Protecting Vulnerable Clients click here.
To learn more about divorce, separation and family law visit our dedicated webpage and download a free copy of our Essential Guide to Divorce and Family Law here.
