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Divorce Settlements

This article appeared in the July 2011 edition of Chic Lifestyle magazine.

Solicitor Emily Abbey talks about financial settlements on divorce.

Divorce settlements and finances

When a couple divorce it is a time of great upset for all involved. Added to that, the complexity of untangling the finances and property will often be an added burden that can cause conflict throughout the process.

An experienced divorce solicitor can work on yourdivorce settlements behalf to achieve the best possible settlement available to you at this time. But just how are the finances split, and what determines who will get what?

Emily Abbey, Solicitor at Norrie Waite & Slater Solicitors and head of their matrimonial department explains how the process works.

The negotiation of a financial settlement will involve taking into account many factors, including:

  • The financial and other needs of any children
  • The current earnings of both parties
  • The potential future earning capacity of both parties
  • Length of the marriage
  • Standard of living enjoyed during the marriage and income needs
  • Contributions that both parties have made to the marriage, both financial and otherwise – including looking after the house or caring for children
  • Assets of each party, including accrued pension values

Reaching an agreement on finances

The ideal solution is for an amicable financial agreement to be reached by negotiation between both parties and their solicitors and possibly through mediation. This will help to minimise legal fees and avoid the necessity of going to court to reach a settlement.

If an agreement can be reached out of court then your solicitor will draw up a consent order giving full details of the agreement reached. Both parties sign this agreement and it is then sent to the court for a Judge to check it is reasonable before the court endorses it as a legally binding order.

What is a clean break?

A clean break is a type of settlement where all finances are finalised at the point an agreement is implemented. It usually involves a division of assets between the parties with no ongoing spousal maintenance.

A clean break is also achievable in cases where spousal maintenance would normally be payable. If enough assets exist to enable the party liable to pay maintenance to transfer assets of a suitable amount, then this can negate the payment of maintenance on a capitalised basis.

Once a clean break has been accepted by the court then neither party can try to claim additional assets or maintenance at a later date, no matter what their change of circumstances.

A clean break applies only to your spouse. It is not possible to get a financial clean break in respect of your children as you have an ongoing financial responsibility to support them.

Will the family home have to be sold?

This will depend on your financial circumstances. The courts will always seek a fair financial settlement, which can often mean an equal division of assets, unless there are reasons to depart from equality.

If you wish to retain the family home this may be possible if enough other assets exist to satisfy your ex-spouse’s financial entitlement, you can effectively pay them off and keep the house.

If other assets are not sufficient then you may need to sell the property and share the proceeds so that you can both start again.

In cases involving children, things become more complicated as their welfare is judged to be of the highest importance. If it is possible for the children to stay in the family home with one parent, this is preferable as it would cause less disruption to their lives. However, the courts will not allow an unfair settlement so this type of arrangement will depend on many other factors, such as the other parent’s income and ability to afford a second property for him/her to live in. Sometimes the family home is transferred to the primary carer of the children but with a charge registered against the property in favour of the other parent which can be realised at an agreed future date. We call this a ‘deferred charge’.

Can I get spousal maintenance?

The entitlement to payment of spousal maintenance depends on many factors including:

  • The length of the marriage
  • The standard of living before the divorce
  • Your respective needs and the needs of any dependent children
  • Your respective incomes from all available sources
  • Your respective future earnings capability
  • The contribution made to the marriage, either financial or by caring for children and looking after the family home

As an example, if a couple have been married for 20 years and by agreement the wife gave up a well paid job to bring up the family at home, while the husband became the sole bread winner, then the wife’s future earnings capability may be severely compromised. In these circumstances the wife should not be penalised for her lack of earning ability. The courts see the role of the homemaker as no less important than that of the bread winner. A fair settlement may include the wife receiving half of the joint assets including the husband’s pension entitlement, as well as ongoing spousal maintenance.

On the other hand, if a young couple with no children have been married for a short time and both are working, then it may be fair for them both to leave the marriage with no ongoing financial ties and taking with them what they brought into the marriage.

How are pensions treated on divorce?

Pensions are treated as an asset of the marriage. This may be of particular relevance in a long marriage where one party has worked and built up a substantial pension pot, while the other has been the homemaker and brought up the children, losing out on a private pension entitlement.

In circumstances such as these, the party without a pension may have a claim over the other’s future pension entitlement. This may be realised in a number of ways. The entitlement could be satisfied during the financial settlement negotiations by the payment of a lump sum or by transfer of other assets. For example the party with the pension may give up some of their share of the family home to counter balance the pension benefits. In cases where sufficient other assets don’t exist, then an order can be made for the pension to be shared.

Financial settlements are often complex and each case will be different, reflecting the differing circumstances of each couple.

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