A good divorce financial settlement is one of the key requirements when a couple decide to separate and end their marriage.
Together with child arrangements, it’s often the most difficult to get right and needs to be handled carefully with each partner prepared to be reasonable and ready to reach an agreement that is both fair and realistic.
The courts and the legal system will strive to achieve fairness and ensure that both spouses receive a just share of the matrimonial assets. However, you will still need to be on your guard to ensure you protect your interests and the interests of your children.
Financial settlements will probably determine how much money you have for several years, possibly for the rest of your life, so it’s important to get it right first time. It’s wise to seek advice from good divorce financial settlement solicitors right at the outset. It’s a specialised field so make sure you find the right law firm.
Principles of divorce financial settlements
While all divorces may be different, they are all bound by some basic legal principles.
The law does allow some flexibility but only when justified by the particular circumstances of the case. These are some the main guiding principles.
Children’s needs come first
The needs of children of the marriage are considered paramount and will always take priority over the individual needs of either spouse, even if that creates a situation that might otherwise be considered unfair to one of the parents.
This is pretty much non-negotiable and the courts will take a dim view of anyone who tries to deviate from this approach.
Equal division of assets
The courts usually start from the principle that divorcing couples should aim for a financial settlement comprising of a 50-50 split of the marital assets. That is usually the outcome of most divorces.
This isn’t always the case, however, and each divorce is decided on its unique circumstances. Nevertheless, it takes a lot to veer the courts away from the basic concept of a 50-50 split.
Whatever the circumstances, the starting point is an equal division of assets. It’s up to one of the spouses to then explain why an even split should not apply in their case.
Factors such as the length of the marriage, the financial contributions of each spouse, large inheritances, and any other special circumstances are taken into account.
Fairness to both spouses
The principle of fairness is the cornerstone of divorce financial settlements in the UK. It runs through every aspect of the legal process.
The courts aim to achieve a fair outcome by considering various factors, including the needs of each party, their contributions to the marriage (both financial and non-financial), and their future earning capacities.
If you have given up paid work to look after the children while your spouse became the main breadwinner, you will still be entitled to an equal share of the assets unless other, special circumstances apply.
The needs of each spouse
The financial needs of each spouse, post-divorce, are a major consideration in reaching a financial settlement.
The courts will want to ensure there is adequate housing, income, and provision for dependent children. For example, if one spouse has custody of the children, they may require a larger portion of the assets or ongoing financial support to meet the children’s needs.
Clean break settlement
The principle of a clean break is encouraged when feasible. A clean break entails severing financial ties between the spouses, enabling them to move forward independently without ongoing financial obligations to each other.
This promotes autonomy and the ability to make financial decisions without interference from the former spouse.
Divorce Financial Settlement issues
There are several areas relating to children and money that need to be considered when reaching a financial settlements. These are some of the main issues that need to be addressed.
The division of matrimonial assets is a central focus in divorce financial settlements.
Matrimonial assets include the family home, additional properties, savings, investments, business interests, pensions, and personal belongings acquired during the marriage.
The courts consider the value of these assets and their contribution to the overall settlement.
Spousal maintenance refers to financial support paid by one spouse to the other following divorce.
It aims to address any disparities in earning capacity and maintain a reasonable standard of living.
Factors such as the length of the marriage, the standard of living during the marriage, and the respective earning capacities of both parties influence the decision on spousal maintenance.
The welfare of any children involved is paramount.
Child maintenance ensures that both parents contribute to the financial support of their children.
The courts consider factors such as the children’s needs, the financial resources of each parent, and the amount of time the children spend with each parent when determining child maintenance arrangements.
Pension assets are significant considerations in divorce financial settlements.
The courts have the power to order pension sharing, where a portion of one spouse’s pension is transferred to the other spouse.
This ensures both parties have a fair share of retirement provisions accumulated during the marriage.
Examples of fair financial settlements
These three examples are not from real cases but simply illustrate the usual approach to achieving fair divorce settlement. For typical UK divorce settlements involving real cases from the last few years, scroll down a little further.
Divorce after a long marriage
In a long-term marriage where one spouse was the primary breadwinner, a fair settlement might involve an equal division of matrimonial assets, including the family home and joint savings.
Additionally, the higher-earning spouse may be required to pay spousal maintenance to the other spouse for a specific duration to help bridge the income gap until they can become financially self-sufficient.
Divorce after a short marriage
In a shorter marriage where both spouses have comparable earning capacities and no children, a fair settlement may involve an equal division of assets, ensuring a clean break and financial independence for both parties.
Divorce and dependent children
In a marriage with dependent children, a fair settlement could include a primary caregiver retaining the family home for the children’s stability, with the other spouse receiving a larger share of other assets to achieve an equitable division.
Child maintenance would be determined based on the children’s needs and the respective incomes of both parents.
Typical UK divorce settlements from real cases
The examples of divorce financial settlements below are summaries of real cases from UK courts over the last few years.
Screwfix founder’s divorce financial settlement – non-disclosure
When negotiating a divorce financial settlement, it’s essential for both spouses to be honest and give full disclosure of their assets. Otherwise, proceedings can drag on and even be reopened several years later, as in the case of James and Julia Goddard-Watts v Goddard-Watts.
James Goddard-Watts, who founded the Screwfix chain, and his wife Julia had divorced and reached a financial settlement in 2010.
It was later discovered that the James had misrepresented the value of his company and other assets.
Consequently, the 2010 order was set aside, and in 2016, he was ordered to pay Julia an additional lump sum. However, it was then revealed that he had failed to disclose significant future capital accumulations.
The 2016 order was then set aside, and a rehearing of the wife’s financial settlement claim took place in 2022.
The judge decided to base the award on the 2016 order, considering it fair since the increase in James’ company value resulted from his individual efforts rather than joint marital efforts.
Julia argued that the judge had not given enough weight to the husband’s non-disclosure when determining her financial relief application.
The Court of Appeal ruled in her favour, stating that James’ non-disclosure warranted a fresh examination of the entire financial situation. The case was remitted for a rehearing, ensuring a fair resolution for the wife based on complete disclosure of all relevant facts.
The takeaway is that couples should always be open about their financial situation. Failing to do so will invariably lead to the stress of continuing legal action and you may end up pay more in the long run, as well as additional legal fees.
Additonal settlement for the wife who sacrificed her career to raise children
Divorce courts will always seek to be fair when reaching financial settlements, which sometimes means departing from the principle of a 50-50 split as in the case of TM v KM in the family court before Judge Hess.
The couple, both high earners in investment finance, got married in 2006 and the wife decided to stay at home and start a family.
The marriage ended in 2021, and the court applied the sharing principle to achieve a 50-50 division of assets. The wife would receive a house, a share of the husband’s pension and stocks, a portion of joint accounts, and an equalizing lump sum, resulting in each party having around £6.5 million.
The court acknowledged the wife’s sacrifices in giving up her career and awarded her an additional £500,000 as compensation.
The husband was also ordered to pay future school fees for their children and child periodical payments until their full-time education ceased.
Divorce settlements and inheritance
Divorce law starts from the basis on an equal division of assets, but should future inheritances be considered as marital assets?
The case of WC v HC before the Family Court sheds some light on the issue.
The couple involved got married in 2004. The husband came from a wealthy family, and they entered into a prenup agreement as required by the husband’s father.
The father financially supported their lifestyle with annual payments of several hundred thousand pounds.
The wife stopped working after the birth of their first child. In 2017, they reached a post-marital agreement, but the wife didn’t sign it.
The agreement stated that the wife would receive around 56% of the couple’s net assets, totalling £12.6 million.
However, the husband’s father ceased making payments to the husband during the divorce proceedings and transferred assets from a trust back to himself.
The wife argued that her father-in-law’s assets should be included in the settlement.
The court found that the wife had not been unduly pressured into signing the agreements, which both indicated that future inheritances should be excluded from claims.
Although the wife didn’t sign the post-marital agreement, the court considered it alongside other circumstances of the case.
Judge Peel determined that such inheritance would be non-matrimonial and received long after the separation. It should not be considered as a marital asset.
We can’t be certain that the court would have reached the same conclusion had there been no marital agreements, but most legal experts agree that it probably would.