How are assets divided in a divorce?
Going through a divorce is a difficult time when many decisions have to be made. There are normally multiple issues around children, finances and property that are difficult to resolve and require lengthy negotiations before a mutual agreement can be reached. While there are several aspects of divorce that are common to most, if not all cases, each divorce will be slightly different and will require careful handling to ensure that the final settlements and arrangements are as fair as possible to everyone involved.
One issue that is normally a significant focus of a divorce is splitting assets, taking into account their previous ownership, the financial status of both partners and ongoing financial or upkeep obligations connected to the asset. For example, how a house or flat purchased during a marriage should be dealt with, and whether there is an outstanding mortgage on it or not. Family law and divorce legislation is often an extremely complex process, so it is highly advisable to engage a solicitor to guide you through the process.
Dividing assets in the UK
Under UK law, there is no set formula for how to divide property, however, the usual starting point for negotiations sits at around 50/50. As the negotiations take place, divorce lawyers from both sides will aim to calculate who should receive what. In some cases, the share will not be equal, as it is the duty of the court to divide property in a way that takes into account the personal financial circumstances of everyone involved. Where one partner would face financial hardship from a theoretical equal split, therefore, a law court can make a departure from the usual starting point. After all, the erstwhile matrimonial assets that jointly funded a single partnership must now support two separate households and any children or other dependents must be provided for. Each person’s earning capacity must also be carefully considered and accounted for.
Matrimonial assets comprise property and funds that have been built up during the marriage, however, this can exclude property solely owned by one party following an inheritance or gift. There are some cases where such exceptions do become subject to the overall claim in a divorce settlement, however, this depends very much upon the individual circumstances of the divorcing spouses and the nature of the assets involved. In the majority of cases, the most significant matrimonial assets that the divorcing parties must agree upon are the matrimonial home and any pensions accrued during the marriage. The distribution of pensions is especially important to sort out, as it represents the income each person will receive after they have passed the normal working age and are no longer able or eligible to generate income through employment.
Property and legal ownership
Property that is jointly owned can be legally changed so that its title is transferred into one name only. This is relevant when one party chooses to buy the other out so that they can either continue living in the family home themselves or sell it on alone at a later date. Often, this is how matters are resolved when young children continue to live in the family home with one of their parents until they reach the age of majority, leave full-time education or choose to move out. When a property is still subject to a mortgage, the court will decide whether the partner who is remaining in it can afford the repayments by themselves or not. Such a ‘buying out’ arrangement is also dependent on the mortgage lender agreeing to release one party from a joint mortgage and allowing the other person to continue meeting the repayments alone.
Other properties used as second homes, holiday accommodation or to generate rental income fall under matrimonial assets too, so long as they were acquired sometime during the marriage. Again, a mutual agreement will have to be reached regarding future ownership of and access to properties like this. If the property is sold, the money from the sale will become part of the general matrimonial asset ‘pot’, once any mortgage or secured loan payments have been paid and divided up according to the judgement of the court or agreement of the parties involved.
Income and financial needs of both partners
Another key area to be dealt with by a divorce lawyer is how to calculate and negotiate each person’s income. Whether this is salary or wages from a job, rent from property or earnings from a business that either one or both parties own, it is important that the court gets a clear picture of what each person is currently bringing in and what they can reasonably expect to receive as income in the future. Each party has an obligation to maximise their own income after the split and not simply rely on the other person to keep them going. The law court also has a duty to ensure that both sides of a divorcing couple can become independent from each other as quickly as possible.
As part of the calculations around existing and future income, the court will look at the financial needs, expectations and responsibilities of each party. This can include financial obligations towards children and other dependents, as well as any joint or single loans or mortgages requiring repayment, ongoing repairs to the matrimonial home or costs around running a vehicle used to get to and from work or to facilitate access to children.
The judge will also examine the standard of living enjoyed by the family prior to the breakdown of the marriage and decide how this standard can and/or should be continued to benefit all parties. Both of the former spouses’ ages will be taken into account, as well as their state of mental and physical health, in order to ascertain future earning capabilities. Other, non-monetary contributions, such as caring for children or looking after the household in a homemaker role will also be considered as an equal and integral part of how each party involved has added value to the amassing of marital assets and financial standing.
As a general rule, divorce settlements in England and Wales assess inheritances on an individual basis, taking into account various factors to determine if they should be part of the pool of assets being divided up, or whether the individual beneficiary is entitled to retain the entire inheritance separately from the main divorce settlement. Decisions around this complicated matter depend on when you received the inheritance, how it was dealt with during the marriage, for example, was it used to purchased joint property or invested in a joint account, and finally, what the financial circumstances of each party are expected to be following the split.
Sometimes, the inheritance will be subject to additional clauses laid out in the original testator’s Will, such as a stipulation that the partner or family of the person receiving the bequest must not have access to the funds in the event of a divorce. This doesn’t necessarily prevent the inheritance from being divided if the circumstances suggest that this is the wisest outcome, however, the wishes contained in a Will must be carefully considered in the final judgement.
Inheritances received just before the breakdown of a marriage are less likely to be included in the matrimonial assets and any caring obligations towards children or other dependants will be factored into a final decision. Inheritances that are received after a divorce has been finalised are not normally taken into account either unless the amounts in question are significant and the anticipated death and bequest have influenced large financial decisions or unbreakable commitments agreed jointly before the split took place.
The way a pension is dealt with or divided after a marriage breakdown can vary. Younger couples may find that this issue is less relevant, given that they have more years of working life ahead of them than their older counterparts. So, pensions for younger people may not need to be divided formally at all. However, the value of any pension investments already started may become part of the overall matrimonial asset ‘pot’.
Couples in their 50s or older, on the other hand, will find that the question of pensions becomes more important. Certain questions must be answered, including how long it will be before you can start drawing your private or final salary scheme pension, what capital sum and/or income is involved and the expenditure you are anticipating after you retire from paid employment. You will need to get hold of your annual statement from your pension provider to work out the sums involved. In addition, any savings will also be taken into account, as well as any other benefits you are hoping to receive after you retire, such as private health insurance or retention of a company car.
Options include dividing the lump sum (known as a capital transfer) from a pension or splitting the anticipated income between the divorcing parties (via a pension sharing order). Any percentage of the pension allocated to the pension holder’s ex-partner will not necessarily be subject to the same terms as the original pension, for example, it can carry on paying out a monthly sum to the ex-partner even after the original pension holder passes away.
Alternatively, arrangements can be made for one party to retain their entire pension pot in return for relinquishing another asset of equal value or significance, such as property or other financial investments or savings. Exchanging some or all of your entitlement to a former spouse’s pension in this way is often known as ‘’offsetting’.
In certain circumstances, one party from the marriage may be entitled to receive spousal maintenance from the other, even if there are no children or dependents involved. The amount will vary according to the resources each party has available and can be temporary for just a few months or years, or a longer-standing arrangement that can last until the recipient remarries or when either party passes away. Unlike child maintenance, which is subject to a defined formula, there are currently no specific methods under the relevant divorce laws in England for determining the level of spousal maintenance that one party can be awarded. It is decided on a case-by-case basis.
To determine the amount that will be awarded, each party’s income will be assessed, along with their age, state of physical health, mental capacity and caring or other obligations. This will determine their ability to support themselves long-term and inform both the amount of money involved and the length of time that spousal maintenance will be paid. Ideally, a claim for spousal maintenance should be made as soon as possible after the date of separation. Any unnecessary delays may result in the maintenance only being paid from the date of the claim, and could even result in no payments being awarded at all if the judge decides that the claimant appears to have been able to support themselves perfectly well without the extra help for an extended period of time.
Making arrangements for children
Divorce is difficult and emotional for everyone involved, but it can seriously impact the wellbeing of both dependent and independent children if it is not handled with sensitivity and compassion. To that end, it is possible to avoid having to go to court to establish arrangements for paying for and caring for children if both parties can agree on the arrangements between them. These can include where any dependent children will live, how often they will see the non-residential parent and their extended family, and for how long each time and how they will be financially supported by both parents. Other areas that need to be agreed upon include schooling, access to hobbies, holiday arrangements and what will happen in the case of medical and other emergencies.
Related reading: Helping Children Through Divorce
Using a family law firm to firm up the details will make the agreements legally binding, which can provide added security and confidence in the access and maintenance arrangements going forward. A solicitor can also help with the division of family assets used or cherished by the children involved. If you are unable to reach an amicable agreement, you can engage the services of a mediator. This is an unbiased third party, trained in conflict negotiation and family dispute resolution who helps facilitate civil discussions.
In some cases, mediation is not appropriate, for example, if there has been any domestic violence or if Social Services are, or have been, involved with the family. Otherwise, a court will want to see evidence of at least attempted mediation before they will listen to a case involving arrangements for children after divorce.
Related reading: Process of Divorce Mediation: What to expect?