Divorce & Ending a Civil Partnership: Your Finances
What Will Happen to Your Finances?
One of the main concerns people have on the breakdown of their marriage or civil partnership is how their finances are to be divided and their divorce settlement.
The following is intended to provide an overview of the main points concerning these financial matters which are known as financial relief (formerly referred to as ancillary relief):
- How is a divorce settlement reached?
- What financial claims can you make?
- What is the first step in settling your financial matters?
- What will happen to your pension?
- Bankruptcy in divorce
In divorce or civil partnership dissolution the court's first consideration is given to the welfare of any children under the age of 18.
In financial proceedings the court will consider the following factors when reaching its decision on the settlement:
- The income, earning capacity, property and other financial resources which each of the parties to the marriage / civil partnership has or is likely to have in the foreseeable future, including (in the case of earning capacity) any increase in that capacity which would in the opinion of the court be reasonable to expect a party to the marriage / civil partnership to take steps to acquire.
- The financial needs, obligations and responsibilities which each of the parties to the marriage / civil partnership has or is likely to have in the foreseeable future.
- The standard of living enjoyed by the family before the breakdown of the marriage / civil partnership.
- The age of each party to the marriage / civil partnership and the duration of the marriage / civil partnership.
- Any physical or mental disability of either of the parties to the marriage / civil partnership.
- The contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution made by looking after the home or caring for the family, recognising that contributions may not just be financial.
- The conduct of each of the parties, if that conduct is such that it would in the opinion of the court be unfair to disregard it.
- In the case of proceedings for divorce or nullity of marriage, any benefit (for example a pension) which by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.
The court will also consider whether a clean break is possible or whether there should be any on-going maintenance payments.
The court has a very broad discretion to redistribute spouses /f ormer spouses assets and income as is considered fair in light of the above factors. In all cases before issuing an application to the court we will try, either by referring the matter to mediation or by negotiation, to reach a fair divorce / civil partnership dissolution settlement to which both parties agree. Such a settlement would be negotiated on the basis of the above factors. Obviously it is not always possible for the parties to agree, and in this event an application to the court needs to be considered. It is always vital that both parties are honest and provide full details of their financial provision so a fair divorce / civil partnership dissolution settlement can be reached.
On divorce, civil partnership dissolution or judicial separation you and your spouse / civil partner have the right to bring certain financial claims against each other. These are as follows:
- Maintenance Orders, e.g. where one party is ordered to pay a monthly sum to the other for themselves or in some circumstances for the children.
- Lump Sum Orders, e.g. where one party is ordered to pay a specified sum to the other.
- Property Adjustment Orders e.g. where a property is transferred to one party or ordered to be sold.
- Pension Orders e.g. where one party’s pension is split in two to make provision for the other spouse (pension sharing) or what is known as earmarking - where one persons pension is directed to be paid to the other.
Settling financial matters involves a two stage process.
The first step is to gather information about your and your spouse’s / civil partner's financial position. This is known as providing full and frank disclosure. Without this, we will not be able to advise you as to what your entitlement is or on the suitability of any proposal made by your spouse / civil partner.
The information that will be required is as follows:
- Your last three months wage slips, your P60 or evidence of receipt of any state benefits.
- The last 12 months bank statements for each bank account.
- Details of any stocks and shares and their current value.
- The CETV (Cash Equivalent Transfer Value ) of your pension. This can take up to three months to be produced by your pension company.
- Details of any liabilities that you have.
- If you have a business, your last two years accounts.
- An estimate of the value of any properties you own and a statement from your mortgage company showing how much is owed.
- Details of your outgoings on a monthly basis.
This can seem very daunting. Further information may be required depending on your circumstances. The government has produced a free easy to use website, www.moneyadviceservice.org.uk. This site can help manage your money and make informed decisions. It aims at helping people at various stages in their lives when money advice is essential.
There is a budget calculator to help you construct a budget. There are also links to the benefit agency to help ascertain whether or not you are entitled to any state benefits. There is also a very useful divorce calculator that is interactive. This can help you and your lawyer consider various options together.
Once your and your spouse / civil partner have collected all this information together it will be presented in a financial statement known as a Form E. The Form Es will then be exchanged and you and your lawyer can then consider your options.
Your pension is a marital asset, and will be taken into account during proceedings.
There is no set framework for dealing with pensions in divorce / civil partnership dissolution, but a pension is considered part of your marital / partnership assets, whether it belongs to you or your husband / wife / civil partner, and it must be considered in divorce proceedings.
The court will look at provision for the family and assess what resources are available to all parties. If If the court rules that the pension is to be shared, there are two ways this can be achieved:
- The capital is divided at the time of the divorce.
- The pension is divided to make equal income for retirement.
Courts vary in the approach they take, but there are two ways in which pensions can be dealt with:
This is where one party is compensated for the loss of interest in their spouses / civil partners pension by that person receiving a greater share of the other available assets. This will depend upon the value of the pension concerned and the value of the other assets.
2. Pension Sharing
This is where one part of one party's pension is taken and paid into the other party's pension.
Bankruptcy can have serious implications for the financial settlement on divorce / civil partnership dissolution so it is advisable to seek legal advice where the bankruptcy of one of the parties is a real or possible risk.
In bankruptcy, almost all of the assets of the bankrupt person are transferred to the Trustee in Bankruptcy which is likely to have serious implications for the bankrupt’s spouse / civil partner.
If the matrimonial / partnership home was jointly owned by the bankrupt and his spouse / civil partner, the house cannot be transferred into the spouse’s / civil partner's sole name without the Trustee in Bankruptcy’s consent. The Trustee is only likely to give consent if the spouse / civil partner can buy the bankrupt’s share at a reasonable market value.
In addition the bankrupt person is unlikely to be able to pay any lump sum or maintenance to the spouse / civil partner, as their savings and much of their income will be used by the Trustee to discharge their debts.
It is wise to sort out a settlement as soon as possible before the bankruptcy starts, as it is often threatened before any action is taken. A prompt application to the family court may allow appropriate orders for financial settlement to be made before a bankruptcy takes effect. Even if the bankruptcy is already in effect, the bankrupt’s spouse / civial partner may be able to apply to the court to annul the bankruptcy if the bankrupt is not, in fact, insolvent.
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