A divorce is the formal dissolution of a marriage, but a divorce alone doesn’t resolve a couple’s financial issues. To obtain a financial settlement, either party will need to apply for a financial remedy order.
While a divorce and financial matters are often dealt with simultaneously, they are separate proceedings and require different form submissions, hearings, evidence and disclosures.
Financial Settlement: What Is It & Why Does It Matter?
The breakdown of a relationship can be emotionally challenging, but it can also bring up a range of practical and financial worries. If you’ve shared a home with your partner, for example, you may want to ensure that you’ll be able to keep living in the property.
Similarly, if you’ve shared finances with your spouse, you may be concerned that they will be entitled to a significant share of the assets you acquired prior to the marriage or that they will have a claim against future income and wealth.
A clear financial remedy order is essential to resolve these issues, protect your interests and ensure you receive the material and financial assets you are entitled to.
Crucially, obtaining a formal financial settlement via an order issued by the court means neither party can make a subsequent financial claim against the other. Sometimes known as a ‘clean break settlement’, this can give you peace of mind that the matter is fully resolved and won’t impact your future.
The Process of Reaching a Settlement
Couples can reach a financial settlement in numerous ways, but it’s always advisable for both parties to seek independent legal advice before entering into the process. Only once you have received tailored legal advice will you know what your rights are and what you’re entitled to. Once you have this information, you’ll be better placed to determine what constitutes a fair financial settlement and can proceed with the first step:
1. Negotiation
In some instances, it may be possible for the parties to negotiate amicably. However, it is often best to have solicitors do this on your behalf. As well as protecting your interests, using a legal team will enable you to take a step back from the process and negate the need for the separating couple to have direct contact with one another.
Furthermore, instructing a solicitor to negotiate on your behalf ensures all relevant details are clearly documented, in case future disagreements arise.
If the parties can come to an agreement through negotiation, a financial order can be drafted before being put before the court. In most instances, the court will issue a corresponding financial consent order when the settlement has been agreed by both parties.
2. Mediation
Mediation is a form of alternative dispute resolution (ADR) that involves an independent third party assisting the parties with communication and negotiations. While a mediator won’t provide either party with legal advice, they can help separating couples come to an agreement regarding the terms of a financial settlement.
If the parties are able to agree on the terms of a settlement via mediation, the mediator will draft a ‘memorandum of understanding’ outlining the details. This can then be used to draft a financial consent order, which can be issued by the court.
Today, it’s essential that each party consider mediation as an alternative to going to court and both parties are required to attend a ‘Mediation Information and Assessment Meeting’ (MIAM) as part of the court application process (unless they are exempt from doing so).
3. Court
If the parties cannot agree and mediation is unsuccessful or unviable, the matter can be dealt with by the courts. As you might expect, there are numerous procedural requirements that must be met in order for the matter to be dealt with appropriately.
Typically, the process is dealt with within two or three court hearings:
i. First Hearing
A ‘First Appointment’ is a preliminary court hearing that is designed to deal mainly with administrative matters. For example, the judge may review the information disclosed via each party’s Form E submission, order additional information to be provided, determine necessary next steps, such as expert valuations, set relevant deadlines and schedule a ‘Financial Dispute Resolution’ (FDR) hearing.
ii. Financial Dispute Resolution Hearing
At an FDR, the parties have an opportunity to agree to the terms of a settlement with the benefit of judicial guidance. Typically, the parties’ barristers will make representations to the judge, who will comment on the facts of the case. Although the judge won’t enforce a ruling at an FDR, they will give the parties a ‘steer’ or an indication of how the case is likely to be decided if it progresses to a Full Hearing. Using this insight, the parties are free to negotiate (often through their solicitors) and agree to a settlement. If an agreement is reached, the court will issue a financial consent order.
iii. Final Hearing
If an agreement isn’t reached at or after the FDR, the case will progress to a Final Hearing. Again, the parties’ barristers will make representations before the court makes a ruling in the form of a financial order.
Remember – parties can continue to negotiate outside of these hearings, while the court proceedings are ongoing. If the parties come to an agreement in the time between an FDR and a full hearing, for example, their solicitors can prepare a financial consent order for the court to review, and the subsequent full hearing can be avoided.
What Assets Are Included?
There are numerous assets that can, and should, be included in negotiations for a final settlement. These can be split into two types: matrimonial assets (acquired during the marriage) and non-matrimonial assets (acquired before the marriage or post-separation and may also include inherited assets).
Although most people assume non-matrimonial assets aren’t included in a financial settlement, this isn’t necessarily the case. There can be many instances in which these assets are considered or divided as part of a divorce final settlement. Due to this, it’s important that all assets are incorporated into the negotiations, including:
- Joint and individual bank accounts, including savings
- Pensions
- Investments
- Properties, including the matrimonial home
- Life insurance policies
- Businesses
- Vehicles
- Furniture, appliances and collectables
- Pets
Both parties will need to submit financial documentation relating to all of their assets and interests. It can take time to collate this information, so it’s advisable to start doing so as soon as possible.
How The Court Decides What’s Fair
When it comes to matrimonial property, the court generally starts by assuming each party should receive an equal share of the assets. However, there are numerous factors that are taken into account before a final decision is made.
Section 25 of the Matrimonial Causes Act 1973 sets out a non-exhaustive list of factors which should be considered, if applicable, including:
- Welfare of the children
- Future financial needs, obligations and/or responsibilities
- Likely income, property, earning capacity and financial resources each party may have in the foreseeable future
- Age of each party
- Duration of the marriage
- Any disability either party has
- Contributions made by each party (or likely to be made in the foreseeable future)
- Standard of living enjoyed during the marriage
While Section 25 factors will always be taken into account by the court, the welfare of the children (if any) will be paramount. Where possible, the courts will aim to ensure a ‘clean break’ can be made, so that there are no ongoing financial links between the parties, except perhaps for child maintenance (if relevant).
If the parties have made a prenuptial or postnuptial agreement, this may also be taken into account when a financial settlement is being negotiated or ruled upon. Remember that prenups and postnups aren’t fully binding under the law in England and Wales, but the court can use them to inform its decision-making.
Options for Reaching an Agreement Without Going to Court
Not going to court can be a viable way to speed up the process of securing a financial settlement, and it can also reduce the associated costs. If you are able to negotiate a settlement with the help of your legal team and/or a mediator, you can avoid weeks or months of uncertainty while, hopefully, maintaining cordial relations with your ex-partner.
Remember: an out-of-court agreement can be reached at any point during the financial settlement process. Even if you are scheduled to have or have had a First Appointment or FDR hearing, your solicitors can continue to negotiate on your behalf in the hope of reaching an agreement without further court action.
Similarly, both parties may decide to try mediation at any point during the settlement process. If mediation wasn’t considered viable following the original MIAM or if an agreement couldn’t be reached via mediation initially, this doesn’t prevent you from returning to mediation before the court process concludes.
The Importance of Full Financial Disclosure
Both parties will need to make full financial disclosure in order to reach a fair financial settlement. A form (known as a ‘Form E’) detailing a range of financial information must be completed by both parties so that all of the relevant assets and finances are accounted for.
Many people try to avoid disclosing some of their financial interests during the settlement process, in the hope that it will prevent their ex-partner from getting a share. In reality, all financial interests are highly likely to be uncovered during the course of the process, and the courts will take a dim view of any person who tries to evade the law. Indeed, attempting to avoid a full financial disclosure is likely to lengthen the proceedings and increase the costs associated with securing a financial settlement.
Contact Heald Nickinson
The law relating to divorce and financial proceedings is complex, regardless of how long you’ve been married, whether you have children and how many assets you have.
With the right legal advice, however, you can ensure that you adhere to the relevant legislative requirements, understand your rights and that you’re able to obtain a fair settlement, no matter how combative or cordial your ex-partner is.
To find out more or to access legal advice, contact our family law team now on 01276 680000 or scroll down to submit a contact form.