The process of divorce or dissolution of a civil partnership is best considered two-fold.
Primarily, a marriage or civil partnership itself must be brought to an end. Secondly, it is also advisable for a financial settlement to be reached to ensure that a couple’s financial matters are appropriately divided following separation.
The starting point is typically one party, or both parties, making an application for divorce/ dissolution of a civil partnership on the basis that their marriage/ civil partnership has broken down irretrievably. Following this a court will consider the application and may grant the couple with a conditional order of divorce. This is significant stage in the divorce/ dissolution process as only after this may the court approve a financial agreement or make a financial order.
Financial Orders in Divorce
The court has the power to make a variety of financial orders upon divorce or dissolution of a civil partnership. The court has wide ranging powers to consider finances which extend to property, pensions, investments and other assets owned by either spouse. In addition, the court can also consider both parties liabilities such as loans or credit cards as well as income. In some cases, there may also be trust assets or businesses too.
Before applying for any type of financial remedy, it is advisable for a couple to exchange full and frank disclosure of all material facts, documents and other relevant issues to each other. If either person has real concerns that the other will not provide full and frank disclosure voluntarily, they may wish to consider issuing court proceedings to compel the other person to provide disclosure as to their circumstances. Disclosure is important because it helps family lawyers to advise their clients on what an appropriate financial settlement might be, and it also minimises the risk of any agreement being set aside in the future due to a lack of understanding of the other person’s financial position.
When considering what an appropriate outcome should be, the court will have regard to Section 25 of the Matrimonial Causes Act 1989 or Schedule 5 to the Civil Partnership Act 2004. These provisions provide that the court must consider all circumstances of the case and sets out factors that the court must have particular regard to. These include the earning capacity, financial needs and obligations and the standard of living enjoyed during the marriage.
We have detailed a number of commonly sought financial orders below:
Property Adjustment Order
For divorcing couples, property is often their primary concern. The court is able to make a property adjustment order to deal with any property owned by the couple. It is common for such an order to be made in respect of the family home and any holiday or investment properties. The court will be able to order for property (or an interest in it) to be transferred from one spouse to the other, for the property to be sold and the net sale proceeds provided to one person or shared, or that the property be retained by a spouse who holds a property in their sole name. When considering whether to make a property adjustment order, the court will consider the housing needs of the couple, the starting point being that the matrimonial acquest should be shared and may in exceptional circumstances consider contributions made by either person.
Lump Sum Order
A lump sum order is an order requiring one spouse to transfer a sum of money to the other for their benefit, or for the benefit of children. Such orders may be made to account for the spouses’ needs or to provide for equality of capital. A spouse may look to seek such an order, rather than an order for periodical payments, where a clean break is desired.
Maintenance Order
A spousal maintenance order is an order requiring one party to make payments to a spouse, typically monthly, by way of maintenance. A spousal maintenance order is also known as a periodical payment order. Maintenance orders typically provide for the needs of the spouse that benefits.
When considering financial matters following divorce or dissolution, the court has a duty to consider whether it is possible to achieve a clean break. The benefit of a clean break is that there are no ongoing financial ties between the couple following their relationship.
Where it is appropriate to do so, a maintenance order will be made, which might delay a clean break either on a short or long-term basis. The court will consider whether an order is necessary for a limited time only (a term order), for example while one party adjusts to financial independence, rather than being continuous for the remainder of the couple’s “joint lives”.
There is no exact formula for determining whether maintenance payments are necessary, or the amount of those, but the court will look to consider balancing the income/ earning capacity of a person against their needs, along with the other factors set out in Section 25 of the MCA 1989 or Schedule 5 of the CPA 2004.
Notably, an ongoing spousal maintenance order will be subject to the possibility of applications to vary, where the circumstances of the paying or receiving party alters. In addition, spousal maintenance orders will cease if the receiving party re-marries or enters into a new civil partnership.
Pension Sharing Order
Pensions are typically the second largest asset in a divorce following the family home. A pension sharing order will provide for the division of rights under a pension scheme so that each spouse has their own respective rights and entitlement under a scheme, or two separate and independent schemes. This effectively achieves a ‘clean break’ between the parties. The member’s pension rights will be valued as a ‘cash equivalent’, and part of this value is used for the benefit of the ex-spouse. The member’s rights will be reduced, whilst the member’s ex-spouse will benefit from a pension credit. However, parties who wish to preserve their pension, may consider pension ‘off-setting’, whereby the pension is left intact and the party seeking a portion will receive a lump sum or higher portion of capital.
Consent Order
In proceedings for a financial remedy on divorce, it is common for both spouses/ partners, or their legal advisors, to enter into negotiations in order to reach an agreement as to the division of the finances. Once an agreement has been reached, an order can be drafted which will set out the agreed terms. This should be signed by the couple and their legal representatives to show consent. The draft consent order can then be submitted to the court for approval. While the court is not obliged to approve a consent order because the couple agree the terms, the court will be "heavily influenced by what the parties themselves have agreed" and so is likely to approve a well-drafted, just and fair consent order. Once a judge has approved the order it will be legally binding upon the couple and can therefore be enforced.
Clean Break Order
To bring an end to all potential financial claims against each other, the couple may agree by way of a consent order, or have imposed upon them by the court, a clean break order. This will bar each from bringing any further financial claims against the other in years to come following the initial settling of the finances.
The division of finances on divorce or dissolution of civil partnership is highly specific and will depend upon the circumstances of the case. If you require advice regarding the division of finances or assets following divorce or dissolution of a civil partnership, please contact a member of our specialist Family Team.
