UK Divorce settlement

Needs of divorcing couple

The courts consider how much each party earns, the standard of living the family enjoyed before the marriage broke down, and, equally importantly, the earning capacity of each party.

The principle behind earning capacity – how much a person should be able to earn bearing in mind their skills and experience – is that each should be expected to make the most of their income earning potential and be financially independent.

For example, Adam and Brenda had similar jobs, careers and salaries before they had children. Brenda then reduced her hours so she could look after the children. Adam’s salary is now £45,000 a year, but Brenda gets £18,000 a year on her part-time hours. The children are still going to live with Brenda, and she will gradually increase her hours as the children get older, with the aim of going back to full-time work – and an estimated salary of £37,000 – when the children are both 16. The court is likely to decide that Adam’s salary is enough to live on as a single person and order him to pay maintenance to Brenda – as well as child maintenance – to top up her income until she is able to get back to working full-time.

Although any asset that either party owned before the marriage, or bought with money that was outside the marriage, are not matrimonial assets and not to be split, other assets built up by the couple during the marriage also have to be divided between them. This can include money in bank and savings accounts, life insurance policies and investments, cars, furnishings in the house and, if one or both parties are self-employed, the value of their businesses that have built up during the marriage.

So, it is sometimes difficult for the court to accurately value what the couple have built up during the marriage and what a fair and reasonable way is to divide it. Again, the starting point will usually be 50/50, and the court will then consider the couple’s particular circumstances and reasons put to them why one party thinks they should get more. This has often been the cause of lengthy (and expensive) legal arguments, both in negotiations before the court hearing and in the hearings themselves.

Divorce Pension Settlement

Private or work-related pensions are often one of the biggest assets a couple has, after the value of a house. These pensions can be incredibly difficult to calculate – and are often more than people expect – and it is likely that specialist financial advice will be needed.

When the value of the pension schemes has been worked out, it is a very delicate balancing act to decide what a fair split should be. Even though a pension is valued based on what is known as a Cash Equivalent Transfer Value, it cannot be turned immediately into cash. It must be kept invested to provide an income in retirement.

The first question is what is a fair way to split the pensions? The simplest scenario is where both partners have similar Cash Equivalent Values in their own schemes; there would probably not be any split to be made here. However, it gets more complicated where there is a big difference between how much each has in their Cash Equivalent Values, and even more complicated if one party has not been able to fully contribute to their own pension during the marriage because of looking after the children. In this case, the courts would often consider it fair to allocate a higher percentage to the party who has missed out on building up their pension because of taking on child care responsibilities in the marriage.

The second question is how should the split be carried out? This is usually with a Pension Sharing Order where the pension company transfers the value ordered into a new scheme in that person’s own name – or into their existing pension fund. Rarer options are to either “off-set” against the value of other assets, with the party with less pension provision taking more of the cash assets, or a Pension Attachment Order, where the pension company pays a specified percentage of the monthly income payments to each party when the pension becomes due to be paid in the future. However, in many situations neither of these last two options is a fair way to deal with the assets.

It is important to note that pensions to be split do not include the state retirement pension.

Who decides all of this?

We have looked at what the courts would typically consider when deciding on a divorce financial settlement in the UK. However, the courts expect you to have made every effort to decide and agree this on your own. Going to court should be the absolute last resort.

Ideally, the divorcing couple would be able to agree the financial settlement between themselves. However, this is a very difficult conversation to have with all the upset and emotions that go along with a divorce.

The quickest, most straightforward way to come to an agreement between yourselves without having the court decide, and possibly making an order that neither of you feel is fair, is through mediation. The mediator is first and foremost impartial and neutral. They are not on one person’s side or the other, but are there to help you discuss the arrangements you need to make much more calmly and objectively than you might be able to manage otherwise. Typically, you would often be able to agree between yourselves in two or three sessions, although this might vary if your financial situation is more or less complex.

People on low incomes or certain benefits might qualify for Legal Aid which would pay all the costs of that person’s MIAM and mediation sessions, plus the cost of their spouse’s MIAM and first hour of mediation.

Once agreement has been reached through mediation, it is usually advisable for the agreed settlement to be confirmed by the court by way of a Consent Order. One question people often have around divorce is can a divorce settlement be reopened – or overturned at some time in the future? A Consent Order costs only £53 and prevents this from happening (except in extreme cases, for example if one party was dishonest in not disclosing all assets at the time).

A second alternative might be solicitor negotiations. Each party appoints their own solicitor, who attempts to maximise the settlement in favour of their client. Solicitor costs to carry out these negotiations can run into several thousand pounds for each party and the process can often be a long and contentious one.

Conclusion

Deciding a fair way to divide a couple’s assets and pension entitlements when they divorce is often one of the most difficult aspects of divorce, and one that causes the most disagreement and argument. The best and cheapest way to come to a fair settlement that both of you can accept and live with and takes all your circumstances into account is often through mediation. The mediator will help you structure your discussions, make sure that both of you have an equal opportunity to explain what is important to you and what you feel you need, and make sure all assets – and liabilities, for example, loans that have been taken out during the marriage – are dealt with fairly for both of you, and for your children.

Talk to one of our friendly and experienced team on 0113 468 9593 to find out how we can help you.

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