Often, the most challenging factor in a divorce is establishing fair financial arrangements to enable the parties to adjust to the new situation.
Our team of family lawyers is highly experienced in negotiating the whole range of financial situations. We deal with a range of cases, from those where the resources are relatively modest, to others where there is a great deal of money involved. This can include businesses, family estates or farms, assets abroad and foreign companies.
Each type of case can bring its own problems. Family lawyers sometimes say that it is the cases where there is insufficient funds to share between two households, where previously there was only one, which are the most difficult to resolve. Whichever situation applies, we give it the same attention to detail and commitment to ensure an appropriate outcome.
How are financial disputes resolved?
During the process of divorce, there are various methods of addressing financial issues. At Michelmores we can offer referrals to Mediation or in house Collaborative Law to resolve financial disputes if these methods are appropriate.
Even if the parties do not want to attempt resolution using mediation or collaborative law, by its nature, when solicitors deal with cases of this sort in the conventional way, there is a constant search for a fair solution. Our lawyers look at cases as they progress and assess the possibilities (or difficulties) for a settlement. Our aim is to achieve an appropriate settlement in the most cost effective way.
Mediation Information and Assessment Meetings
If an application is made to the court to resolve financial disputes on divorce, in the majority of cases it is necessary to attend a preliminary mediation session called a Mediation Information and Assessment Meeting (MIAM). This takes place with a trained mediator.
Important issues to remember
Whether or not an agreement can be achieved, the finalisation of financial issues on divorce involves some fundamental principles:
The need for full and honest disclosure by each party so that their respective financial resources (both income and capital) are known to both parties. Without that, it is impossible for a solicitor to advise a client what might be a fair settlement.
Such disclosure involves each party providing full and frank information about their financial position with documentary evidence to support their statements. This may take some time if the assets include, for example: properties, mortgages, pensions, shares, businesses, trusts, farms etc.
Financial arrangements, if agreed, have to be formalised in a court order. A court order can be made by agreement on documents supplied to the court which will be considered by a judge, without the need to attend court.
The law stipulates that the judge must be satisfied that the proposed settlement to be incorporated into the court order is fair to both parties and within the range of court orders that would have been made if the judge had decided the case.
The court always retains the power to refuse to approve agreed settlement terms. It does not simply rubber stamp agreements.
Once a court order has been made, the parties are immediately legally bound by the settlement (there is no 'cooling off' period).
If either party then fails to comply with the agreement and the court order arising from it, the terms of the court order can be enforced through the court.
Factors that the court considers in a Financial Settlement
The way in which financial disputes on divorce are approached deliberately gives the judges a wide discretion. In this way, the judges can ensure that the settlement can be shaped to meet the particular circumstances of the case.
As judges have that wide discretion, there can be uncertainty as to how a particular judge might approach a case. There are no mathematical formulae or calculations used by judges although, by law, they are obliged to take into account a range of factors set out in the Matrimonial Causes Act 1973. The judge must apply the facts of the particular case to a number of factors.
Firstly, consideration must be given to the welfare of a child who is under the age of 18.
The other factors are:
- The current and likely future financial position of each party
- The financial needs, obligations and responsibilities each party has now, or is likely to have in the foreseeable future
- The standard of living enjoyed by the family before the breakdown of the marriage
- The age of each party and the length of the marriage
- Any physical or mental illness from which either party is suffering
- The contributions which each party has made or is likely to make in the foreseeable future to the welfare of the family
- The conduct of each of the parties (in very limited circumstances)
- The value of any benefit which a party will lose the chance of acquiring by reason of the divorce e.g. pensions.
It is clear that, in the vast majority of cases, the needs of the parties are regarded as the primary factor. The exceptions are usually cases where there is a very great deal of money involved, when the needs of both parties can easily be met, with money left over to be divided as the judge considers appropriate or the marriage has been exceptionally short.
Other factors from those listed above can be important, depending on the overall circumstances. However, the abiding approach is that the solution must be fair. The starting point is invariably that fairness will be achieved by an equal sharing, unless there is good reason to divide what is available in some other way.
Our Family solicitors will advise what approaches the court is likely to take once all the resources of the parties are known and a full background is available.
The Orders that a court can make
The range of orders the court can make is set out in the Matrimonial Causes Act 1973. There are two aspects that the court will want to deal with in making a final court order:
- Those relating to income
- Those relating to capital
Pensions usually relate to both capital and income and are a vital part in the shaping of a fair overall settlement or court order (see below for more about pensions).
The income orders are those relating to maintenance (which can be for a specified period or last until one of the parties dies, or the receiving party remarries or the court makes a further order varying the first order).
Income orders can also deal with child maintenance (including school fees). The courts have limited powers concerning child maintenance and the basic maintenance arrangements have to be made through the Child Maintenance Service unless the parties agree. The courts can, however, 'top up' such maintenance arrangements in certain circumstances.
On the other hand, capital orders are 'one off' orders. They can consist of:
- Orders for a lump sum
- Orders altering a person's interest in a property (including the transfer of property between the parties
- Orders for the sale of a property
- Pension sharing orders
The court has the power to make these financial orders once the court has pronounced the divorce (the decree nisi), although the order cannot come into effect until the final decree of divorce (decree absolute).
Only in very rare cases can the court make an interim award of capital.
The court does have the power to order interim maintenance so that one spouse has to support the other financially until a long term settlement is reached.
Sometimes it is possible to ask the court to order one party to pay an amount to cover their legal costs as their case progresses.
Pensions on divorce
Never has the issue of pensions been more important as part of the overall financial arrangements made on divorce than since the pension reforms of recent years. The fact that, after the age of 55, what is available in a pension fund can be withdrawn as cash (subject to tax deductions on most of the fund) gives greater flexibility to the use of funds held in pensions.
However, it is unlikely that the courts will allow funds to be used except for the purposes for which they were intended, namely, financial support in retirement.
Pensions are a very complex and specialist topic, it is essential to have good advice from a pension's expert as to the appropriate way in which they should be treated. A family solicitor with experience and special training in this area will be able to guide clients through the pensions 'maze'.
As an indication of the various solutions available to the courts, the following are the orders that can be made relating to pensions:-
- Pension sharing
Each party receives a stated proportion of the total pension fund
- Pension offsetting
The value of the whole or part of pensions is offset against other assets
- Deferred pension sharing
Where the party is too young to take a part of a pension, it is provided that sharing will take place once that partner reaches the required age. This preserves the pension even if the older party dies in the meantime.
- Deferred lump sum
A lump sum is paid to the non-pension owning party when the pension owner begins to take the pension
- Pension attachment order
Subject to age requirements, the non-pension owner receives benefits from the pension fund when the pension owner begins to receive payments
The court procedure for dealing with financial issues
An agreement can be reached concerning financial disputes at any stage even after court proceedings have begun. Indeed, if both parties are represented by solicitors, they will begin the search for potential solutions at an early stage, certainly once both parties have disclosed their financial resources.
Three court hearings
In a financial application to the court, there are usually three court hearings.
Before the first hearing, both parties are ordered to provide their financial disclosure on a form which will be provided to them, known as Form E. This is a detailed document and it is important that it is completed accurately. A party Financial Settlement failing to do so will invariably find that he/she is asked later to explain inaccurate information put in the Form E.
Prior to the first hearing, a number of other documents must also be prepared by each party including a questionnaire if a party needs to make requests for further financial information from the other party.
The first hearing is called a First Directions Appointment (FDA). At this hearing the judge will:-
- Decide which questions should be answered and by when
- Make court orders concerning any expert evidence that is needed, for example property, business or pension valuations
- Order the production of any outstanding documentation
- Decide when the case should come to court again for the Second Hearing (see below)
The second hearing is called a Financial Dispute Resolution Hearing (FDR).
Before this hearing, each party should have enough information about the financial position of the other party to arrive at a decision as what could be a fair settlement. It is expected that by this stage, the parties will have exchanged offers of settlement.
The purpose of the FDR is for the parties to negotiate to try and reach a settlement. The judge can give the parties guidance and an indication as to how they should approach the case and recommend routes to a settlement. This indication is not binding on the parties and if there is no settlement, the judge giving the guidance is not permitted to decide matters at the final hearing.
It must be emphasised that anything said either by the parties, their legal advisors or the judge at the FDR cannot be mentioned at a final hearing.
Third and final hearing
If matters do not settle, the case will proceed to the third hearing (the final hearing), at which the parties will give their evidence and can be cross examined. The judge will then make a decision which will result in the making of a court order which is binding on each party.
In some cases, additional hearings may be required. For example, this might occur if one party refuses to:
- Make proper disclosure of his/her assets
- Provide documentary evidence (e.g. bank statements, share dealings, company accounts etc)
- Coorperate in obtaining valuations
In such situations, the party in the wrong would usually have to bear the costs wasted by the need for the extra hearing.
How long will it take?
The time it takes to achieve a settlement by agreement or by the making of a final order by the court will depend on a number of factors. Much will reside on how easily an agreement can be reached and at what stage. If there is prevarication or delay, this can hold up (but not stop) the process. If one party is, for example, abroad, even if only temporarily (e.g. in the armed forces or a diplomat), this can have an impact on the availability of that party to attend court hearings.
Recent financial cuts to the budgets for servicing the courts have led to greater waiting times for court dates and for processes to be completed.
Court based settlements can take 12-18 months from start to finish. If an agreement is reached at an early stage, the process can take as little as six months and will be considerably cheaper.
When parties divorce, even if it appears that there are no financial disputes to resolve, an application should be made to the court to dismiss all potential financial claims by each party. Once that order has been made (assuming that there has been no dishonesty by either party), then each is free of any claim from the other in the future.
Our advice is always that parties going through a divorce should take legal advice, even if it is only to obtain the final court order dismissing all financial claims referred to above.
The usual conclusion at the end of a financial case that goes to court is that each party bears their own legal costs.
We are very conscious of the fact that costs are an important factor at this difficult time. We always give our clients an indication of the likely costs of dealing with a particular piece of work and we update that estimate as the case proceeds. Sometimes it is very difficult to give an overall budget , but we will talk through such situations with our clients.
We are also happy to discuss methods of payment of costs.
We are available to help
If you are considering a divorce or dissolution of your Civil Partnership our Family solicitors can provide you with quality legal advice to protect your financial interests.
For preliminary advice or to arrange a meeting with one of our Family law solicitors, please contact us on 0800 923 0400.