How Do The Courts Calculate A Financial Settlement In A Divorce?
When a client comes to us for advice and representation on divorce matters, usually their top concerns are (a) what happens to the children and (b) how will our property and finances be split? In most cases, any disputes surrounding divorce are settled privately, either through letters between Solicitors, round-table negotiations, or mediation.
However, regardless of the method used to calculate your financial settlement, the guidelines set out under section 25 of the Matrimonial Causes Act 1973 will be taken into consideration by your Solicitor when establishing the scope of a potential financial settlement following divorce. All the factors set out in section 25 are discretionary and the Court must consider all circumstances relating to the case when making an order.
The factors the Court will consider are as follows:
The financial resources of the parties.
The court shall have regard to the "income, earning capacity, property and other financial resources that each party to the marriage has or is likely to have in the foreseeable future".
Not only will present earning capacity be considered, the Court will also take into account each spouses’ earning capacity (that is, what they may be able to earn if exploiting all available opportunities). However, there is an element of ‘reasonableness’ when it comes to exploiting opportunities; an ordinary person is not expected to suddenly become a champion league footballer simply because they participate in the odd ‘friendly’ on weekends. However, retraining or accepting promotions at work may be considered appropriate.
Other financial resources can include resources owned and administered by third parties, such as assets held in trust. However, the Court will look at the reality of the situation before making a decision. For example, assets held by a third party beneficially for one spouse (whether as a result of an express trust or on an implied, resulting or constructive trust) are susceptible to an order varying the trust. However, it is unusual for expected inheritances to be considered a financial resource as it is usually impossible to accurately gauge life-expectancy and testators cannot be ordered to disclose the potential benefit one spouse may receive (and even if they were, they are free to change their minds at a later date).
If one spouse is cohabitating with another partner at the time the financial settlement is worked out the Court can view the extra income they are receiving as a financial resource so this risk should be taken into consideration before moving in with a new partner.
The needs, obligations, and responsibilities of the parties.
‘Need’ is subjective. For example, in high-net-worth divorce, ‘need’ will be given a generous interpretation. Obligations can include any legal or moral obligation to meet expenses, including obligations to third parties (for example relatives, cohabitees or children who are being supported). In cases where a former spouse is being supported, this can prove extremely contentious. Often the Court will have to rule pragmatically on the matter; therefore, it is imperative you follow your Solicitor’s advice to secure your best interests.
The standard of living enjoyed by the parties.
This is often only a relevant factor in high-net-worth divorce cases as when a household is being split in two, it is likely that, at least for a short time, both parties will suffer a drop-in living standard. The Courts will concentrate on ensuring one party does not fall well behind the other. In big-money cases, the standard of living is a pointer towards the generosity of assessment of needs.
The standard of living enjoyed by the children of the relationship will also be considered.
Age of the parties and marriage duration.
The age of the parties will be of particular importance when it comes to the distribution of matrimonial property. For example, what is a fair settlement for a husband in his 50s who worked part-time to bring up the children and support his wife’s career is likely to be different from that of a man in his late 20s with his whole working life in front of him. Consideration must also be given to the splitting of pensions in the case of ‘silver splitters’ (divorcing couples over 60 years old), as they have less time to accumulate wealth for their later years.
Age may also be relevant to the term over which a capitalisation of an income requirement would be calculated, giving rise to the so-called ‘Duxbury’ paradox that a young wife after a short marriage would require greater financial provision by way of an income fund than an older (although often longer-married) wife, for the simple reason that the former is likely to live for longer than the latter.
Contributions of each party
Contributions can be financial and non-financial, and the Courts made it expressly clear in White v White [2001] 1 AC 596 that there should be no discrimination between the two. In practice, what this usually means is that the starting point for distribution of matrimonial assets is a 50:50 division, although departure from this position is possible.
Conduct
One of the most frustrating for those going through a contested divorce is the fact that no matter how morally reprehensibly a person has behaved, it is not likely to make one jot of difference to how the matrimonial property and assets are divided. The Courts shy well away from making any judgments regarding the cause of marital breakdown. Therefore, a spouse’s conduct will only be considered in cases where it would be inequitable not to. As an example of how high the hurdle is, in the case of H v H (Financial Relief: Attempted Murder as Conduct) [2005] EWHC 2911 (Fam), the Court awarded the husband a smaller proportion of the assets – but then, he had attempted to kill his wife. Other circumstances where conduct has been taken into account is where there has been financial non-disclosure and/or financial misconduct.
So who gets what in a divorce settlement?
Financial orders in divorce can be a complex area of law, especially in cases involving high-net-worth individuals. Instructing an experienced family law solicitor is the best way of ensuring your best interests are protects and you receive a fair sum so you can move on to a positive future. If you would like to dispute your settlement, our dispute solicitors can assist you with a wide range of related issues.
Worried about your financial arrangements? Our divorce legal services offer clients expertise relating to their finances during a divorce. Get in touch with us in confidence, and we'll be happy to advise you.
