When a marriage breaks down, one of the biggest concerns for many separating couples is what is going to happen with their finances.
Divorce itself is a process which simply ends the marriage; it does not determine how your money, property or other assets and liabilities are divided. That is where a financial settlement comes in.
Whilst we always encourage parties to settle without going to court wherever possible, whether that be through direct discussions, mediation, or negotiation through solicitors, there is no set formula in England and Wales for dividing finances on divorce.
Instead, we look at the same factors a court would consider in order to decide what is fair. So, what are you entitled to in a financial settlement upon divorce in England and Wales?
Key Takeaways
- Divorce does not resolve finances automatically, and a separate financial settlement is required to divide assets and liabilities.
- There is no fixed formula in England and Wales, and the court applies Section 25 factors to achieve fairness based on individual circumstances.
- Children’s needs are the court’s priority, and pensions, property, income, and debts are all taken into account.
- Early legal advice helps you understand your potential entitlement and avoid costly mistakes during negotiations.
What is a Financial Settlement in Divorce?
A financial settlement is an agreement reached setting out how you and your ex-spouse will divide your matrimonial finances upon divorce.
The settlement is usually set out in a Financial Remedy Order, which, once approved by the court, is a legally binding court order.
What Assets Are Included in a Divorce Financial Settlement?
The courts have authority to make various orders for financial provision under the Matrimonial Causes Act 1973, which include agreements reached in relation to:-
- The Family Home and any other property;
- Savings and Investments;
- Pensions;
- Income and Maintenance (both spousal and child maintenance);
- Debts and liabilities.
How Do Courts Decide Financial Settlements on Divorce?
There is no fixed formula. The law sets out guiding factors in Section 25 of the Matrimonial Causes Act 1973, but how a court would apply those factors will depend on the circumstances of each case.
The factors that a court would apply in deciding on a financial settlement include:
- The needs of any children, first and foremost
- The income, earning capacity, property and financial resources of each party
- The financial needs and responsibilities of each party
- The standard of living enjoyed during the marriage
- The age of the parties and the length of the marriage
- Any contributions made (financial or otherwise)
The overriding principle is fairness; courts generally aim for an equitable division of assets, but that being said, equality is not always the outcome.
The welfare of any minor children will always be the court’s first consideration. Financial Orders can include payments for the benefit of children, such as periodical payments and lump sums to cover the children’s needs.
Can a Party’s Conduct Affect the Divorce Financial Settlement?
Yes, conduct can affect a financial settlement, but only in exceptional cases where it would be unfair to disregard it.
Whilst many people believe that bad behaviour during the marriage, such as adultery, will affect what they are entitled to in a financial settlement, in reality, this is rarely the case.
In practice, conduct is limited to very serious circumstances, such as financial misconduct (e.g. dissipating or hiding assets).
How Are Pensions Divided in Divorce?
Pensions are often one of the largest assets in a divorce, sometimes even more valuable than the family home.
The court can take them into account when deciding on a fair settlement. Pensions can be dealt with as follows:
- Pension Sharing Orders – whereby part of one spouse’s pension is transferred into the name of the other;
- Pension Offsetting – the value of a pension is “offset” against other assets (e.g. one party may get a larger share of the house, whilst the other retains their pension);
- Pension Attachment Orders – these are less common, but essentially part of the pension benefits that are paid to the other spouse when they are received.
It is important to be aware that Pension assets are complex and specialist advice from a Pensions on Divorce Expert (PODE) is crucial where pensions are complex to value and divide.
Does the Length of the Marriage Affect the Settlement?
Where a couple has been together for many years, it is more likely that all assets will be seen as part of the “matrimonial pot”. The court may lean more towards an equal division of assets unless there is a good reason to depart from that.
Where the marriage is short with no children, the court may try to put each party back in the position they were in before the marriage, with less sharing of assets which have been built up before the marriage/relationship (pre-marital assets).
It is important to note, however, that where there are children, the court’s main focus will always be on meeting the needs of the child(ren), whatever the length of the marriage.
How to Reach a Financial Settlement on Divorce
You can resolve financial matters as follows:
- By Agreement: negotiated directly, through solicitors or in Non-Court Dispute Resolution, such as Family Mediation or Private FDR – where agreement is reached, the agreement is then put into a Financial Remedy Order by Consent (otherwise known as a Consent Order), which is a legally binding order to record your agreement.
- Court Proceedings: If an agreement cannot be reached outside of court, it will be necessary to issue court proceedings in order for a court to decide on a financial settlement, which is then recorded in a Financial Remedy Order.
Why You Should Seek Legal Advice Before Agreeing to a Settlement
Every case is different, and what you are entitled to in a financial settlement upon divorce will depend on your personal circumstances, the available assets, any liabilities and the needs of your family, which will differ from another family.
Taking early legal advice will help you to understand what you might be entitled to based on your individual circumstances, as there is no general rule.
This can avoid very costly mistakes later down the line, with the hope of you going into financial negotiations having been fully advised as to what would achieve a fair outcome.
If you are going through a separation and you would like clarity as to your financial position, our specialist Family Law Solicitors in Surrey can help. Please contact us on 0800 011 9813.
