Upon the breakdown of a marriage or civil partnership, there is often a great deal of uncertainty with regards to how the financial and property matters arising from the separation will be resolved.
Separated couples are required to provide full and frank disclosure to each other in relation to their respective financial circumstances including income, capital, property and pensions. The exchange of financial disclosure is necessary for family law practitioners and the court to assess the extent of the matrimonial assets and how they should be fairly divided, ensuring that the needs of the separated couple and any dependent children are met.
What is a Property Adjustment Order?
Commonly, the main capital asset will be the former family home. It will need to be decided between the separated couple, or determined by the court in the event the couple cannot agree, what should happen to the property, whether the property should be sold or transferred to one person. Such agreement or direction of the court will need to be reflected and incorporated into a financial order. This particular agreement/direction is referred to as a Property Adjustment Order.
A Property Adjustment Order is a legally binding order made by the court under s24 Matrimonial Causes Act 1973 (MCA 1973) that addresses spouses’ property rights and is one of many orders a court can make in respect of spouses’ matrimonial assets. There is similar provision made in respect of the dissolution of a civil partnership under Schedule 5 Civil Partnership Act 2004.
This type of financial order can dictate a transfer of the property either from joint names into one person’s sole name or from one separated person to another; settlement of property, for example, determining who should retain and use the property for the benefit of a child during their minority; and can vary a pre or post nuptial agreement (s24(1)(c) MCA 1973) in the case of marriage.
Why would I need a Property Adjustment Order?
When there is agreement between a separated couple as to who should retain the former family home, you may believe you do not require a court order in respect of this. Quite often, in conjunction with a property adjustment order transferring the legal title and beneficial interest from one person to another, there will be a lump sum (referred to as ‘consideration’) payable by the person who is to receive the property to the person relinquishing their property rights in respect of their beneficial interest.
A lump sum order is a separate and additional order to a property adjustment order. To protect both people should either person seek to depart from their informal agreement or in the case of a failure by one person to cooperate with the agreement, in order to enforce the property transfer and/or payment of lump sum, these orders will require a timescale for completion which will be included within the financial order.
In the absence of a financial order, regardless as to any informal agreement reached between the separated couple, there is significant risk that one person may seek to pursue a financial claim against the other at any time in the future in respect of the property which could lead to you potentially facing unnecessary litigation costs in resolving the dispute.
For certainty, peace of mind and to dismiss the potential for your former spouse/partner to apply for financial provision in the future, separated couples are advised to deal with division of their matrimonial/partnership assets in a timely manner following separation and to obtain a financial order from the court which, in the case of allocation of property, will include a property adjustment order.
What types of court orders can be issued?
In addition to the former family home, there are, of course, other important considerations such as whether one person’s income needs to be shared with the other in cases where there is a disparity in the couple’s respective income positions and one spouse/partner has a genuine need for maintenance. Separated couples are also likely to have pension assets that may need to be shared in order to achieve a fair financial settlement.
In addition to a property adjustment order, therefore, the court has the power to make other financial orders, including periodical payments order, secured periodical payments order, a lump sum order and a pension sharing order or pension attachment order. Quite often financial orders will contain a number of these orders to ensure regulation of all of the matrimonial/partnership assets, with the aim of there being a full and final settlement and to avoid any future dispute.
How do I get a Property Adjustment Order?
Financial orders, including a property adjustment order, can only be applied for within the context of divorce proceedings (or dissolution proceedings in respect of civil partners).
One person (or both people if making a joint divorce application) will need to apply to the court for a divorce/dissolution. Once the divorce/dissolution proceedings are in existence, with the exception of an interim periodical payments order, known as ‘maintenance pending suit’, the divorce/dissolution proceedings will need to be progressed up to the pronouncement of the conditional order (previously known as decree nisi) before the court is able to make a financial order.
A property adjustment order is obtained by application either jointly with your spouse/partner in the event of agreement being reached or by way of a formal application made by either person within the divorce/dissolution proceedings.
Does the Court need to be involved?
Whilst a separated couple can have an informal agreement between themselves as to whether the property should be transferred or sold and agreement in respect of any other matrimonial/partnership assets, to ensure both people are protected in the event of one person reneging from such agreement or to ensure such an agreement can be enforced in the event of one person failing to cooperate with regards to implementing their agreement, spouses/partners are advised to formalise the arrangements by applying to the court for a financial order.
It is essential for a separated couple to obtain a financial order if it is agreed that there is to a pension sharing or pension attachment order, as a financial order and other documentation is required to be served upon the pension trustees.
When there is an agreed position, the agreed terms of settlement are incorporated into a financial consent order, usually drafted by the applicant’s lawyer, and submitted to the court with a supporting statement of information detailing both the financial positions of the couple, for approval by the court.
In circumstances where spouses/partners cannot agree how their matrimonial/partnership assets should be divided, the matter will need to be determined by the court. At any time after the issue of divorce/dissolution proceedings, either person can make a formal application to the court for a financial order which will instigate financial proceedings and a timetable of court directions addressing financial disclosure leading up to the listing of the first court hearing.
Who needs to apply for a Property Adjustment Order?
A property adjustment order can be applied for by either person within or following divorce/dissolution proceedings where there is a dispute as to transfer or sale of matrimonial/partnership property.
Sale of the home
It may be the case where one person is seeking a property adjustment order to preserve the property as a home for themselves and/or for the benefit of the children, but, save for the equity in the property, the matrimonial/partnership assets are limited.
In the case of marriage, applying the s25 MCA 1973 factors, the court is obliged to consider the separated couple’s respective financial resources and, importantly, the couple’s needs and those of any financially dependent children. Whilst it may be one person’s desire to retain the former family home, it is not always possible to achieve this if, when considering all the s25 factors and all the circumstances of the case, this would leave one person’s financial/housing needs unmet.
The court could determine, therefore, that there must be sale of the property, which can be immediate or deferred to a later date depending on the circumstances of the case.
Whether a sale of the former family home is agreed or imposed by the court, it is appropriate for the financial order to contain and order for sale. This will determine, to eliminate any implementation dispute, who should market the property for sale, whom should have conduct of the sale and how the proceeds of sale should be applied, to include payment of lawyers and estate agents’ costs of sale. The order will specify a timescale for the sale and how the net proceeds of sale should be divided between the separated couple.
It is important for separated couples to note that unless and until the court makes an order dismissing the potential for either person to make a claim against the other relating to the marriage/civil partnership, those potential financial claims will remain live even after the marriage/civil partnership has been dissolved by way of a final order. Obtaining specialist advice early following a separation can be invaluable in understanding both the necessary practical considerations to best safeguard your position and the court’s approach to division of matrimonial/partnership assets.
If you have any queries about property adjustment orders, or any other aspect of a divorce or civil partnership dissolution, please contact a member of our Family Law Team.
