How do you calculate a fair divorce settlement?

Divorce or dissolution is the legal process by which a marriage (including a same-sex marriage) or civil partnership is formally brought to an end.

Whilst a divorce needs to be approved by a court, most couples are not required to attend a hearing in person.

Recent legislation has seen the introduction of ‘no-fault divorce’ which seeks to make the process less acrimonious by removing the need for either party to blame the other for the breakdown of the marriage.

A divorce settlement (or financial settlement) is an agreement that divorcing couples reach as to how their assets are to be shared.

Assets will often consist of property, money, and pensions. Agreements should be formally recorded within a court order, which is sent to court for approval by a judge.

Once mediation has been considered, if it is not possible to agree a financial settlement, divorcing couples are eligible to make an application to court for a determination as to the appropriate division of their assets.

Whilst it is not possible to file a consent order until the conditional order (formerly the decree nisi) stage of the process, it is advisable to begin negotiations with your partner as soon as possible.

Disagreements sometimes occur over how assets should be divided and this can cause delays to the divorce which in turn, can lead to increased stress and ill feeling.

The generally accepted starting point is that matrimonial assets should be split equally following a divorce in England and Wales. It is important to stress, however, that the overriding aim of the court is to achieve fairness to both sides.

If a party can show that they need a greater than equal share of the assets, the court can depart from the starting point of equality. Indeed, there are many instances where the court will decide to give one party a greater share than the other.

Even in situations where parties have been able to reach an agreement, the court will not simply “rubber stamp” the consent order. The judge reviewing the agreement will need to be satisfied that it is fair.

Where possible, it is preferable for couples to reach agreement on any settlement themselves (we will look at how they may go about this below).

They know their personal circumstances better than anyone and should have an instinctive feel for what would constitute a fair settlement for themselves and any children involved.

Should it not be possible for the two parties to reach an agreement, a settlement will be imposed by the court. In doing so, the court will seek to be fair to both parties.

It has wide ranging, discretionary powers and will take a number of factors into account. This means that a ‘fair’ settlement will not necessarily involve assets being split equally.

Whilst the majority of divorce cases do not require the court to impose a settlement, it is useful for couples to be aware of the range of orders that can be made and the factors that the court will take into account when reaching a decision.

The orders that a court can make include:

• Payment of a lump sum
• Sale or transfer of property
• Distribution of other assets
• Pension sharing
• Spousal maintenance

The legal process will generally begin with the assumption that matrimonial assets should be divided equally following the divorce.

There are a number of reasons, however, why the court may consider it fairer to give one party a greater share.

The court’s first consideration is to ensure that the needs of any minor children are met.

At the most basic level, this means ensuring they have a roof over their heads which in turn, means the primary carer of the children has a roof over their head.

In some cases, the assets may not stretch beyond providing a home for the primary carer of any children.

As the primary carer will be responsible for looking after the children on a day to day basis, the court may award them a greater share of the assets if their needs would justify this.

They may be more limited in the hours they can work or, if they have had lengthy periods out of work in order to look after the family, they may be more limited in terms of future career options.

A partner who took responsibility for paying the mortgage and bills on a property may feel that they are entitled to a greater share of the assets as a result.

The approach of the courts, however, is to recognise that there are different ways that parties can contribute to a marriage and this can include looking after the home and children.

Therefore, certainly in the case of a long marriage, arguments over greater financial contributions will often carry little weight.

In shorter marriages, there may be a greater proportion of assets held by the parties that are non-matrimonial in nature and therefore not subject to the sharing principle.

The court can still make orders in relation to non-matrimonial assets if a party requires such provision to meet their needs.

It is not uncommon to encounter situations where one party to a divorce enters into a new relationship and starts to live with that person, or even makes plans to marry them.

In such situations, parties are required to disclose a summary of that person’s assets and income. Whilst the court does not have the power to make orders in relation to the new partner’s assets, they will still be a factor for consideration.

For example, if a party to the divorce had moved into a property owned by their new partner, there may be an argument that their housing needs are met and as such, the other party to the divorce may have a valid argument to receive a greater share of the assets in order to allow them to rehouse too.

By its very nature, the process of a divorce will generally mean trying to make two households from one, and this often results in some fall in the standard of living.

Where a party is making needs based claims, perhaps for maintenance, alternative housing, a vehicle or otherwise, the standard of living enjoyed during the marriage can still be a useful reference point.

What might be a reasonable need in one marriage, may be completely unreasonable in another.

In general terms, the longer a couple has been married, the more likely that all assets, including the home, are going to be matrimonial in nature and subject to equal sharing.

In the case of short marriages, it is more likely that a greater proportion of the assets will be non-matrimonial and any award based on needs, rather than equal sharing.

It is worth noting that a court will likely take into account seamless pre-marital cohabitation when considering fairness.

For example, if a couple cohabit for 20 years before marrying, then separate after 2 years of marriage, the court are likely to treat it the same as a 22 year marriage.

Age can become a relevant factor in certain situations when considering needs. If one party is approaching retirement and the other is much younger, the older party may have less of a borrowing capacity.

This may mean that they have a valid argument to receive a greater sum than the other in order to rehouse (ie a bigger deposit).

Alternatively, if both parties are young and of a similar age, there may be less need for pension sharing as the court may take the view that they both have sufficient time to build their pensions before they retire.

Most couples are able to find a mutually acceptable way to divide their assets without the need for going through the stress and expense of contested court proceedings.

Some divorcing couples remain sufficiently amicable to have discussions between themselves.

If agreement is reached, it is essential that solicitors are instructed to have the agreement properly drafted into a formal consent order.

As mentioned above, when filing a consent order, the court will need to be satisfied that the agreement is fair.

A traditional way for a settlement to be agreed is by the couple negotiating through their respective solicitors.

Experienced family solicitors will be able to guide each party as to the factors that will be considered by the court and give an indication as to what would be seen as fair and reasonable in any particular set of circumstances.

In order to assist negotiations and enable them to give the best advice possible, solicitors will often advise that some form of voluntary disclosure takes place before any proposals are made.

An increasingly common way for separating couples to reach a settlement is via mediation.

Unlike the adversarial nature of a court hearing, mediation provides a safe, neutral and confidential environment for both parties to air their views and seek possible solutions.

They are guided by a mediator – an expert in family law who is specially trained for the role – who will act impartially to help the couple find solutions. The process is usually quicker and cheaper than contested proceedings and the sessions can be arranged to fit in around work and child-care commitments.

Crucially, the constructive nature of mediation and its lack of confrontation help the couple work together to reach a fair divorce settlement. Following any agreement at mediation, it is recommended that you seek advice from your solicitor to formally record your agreement in a consent order.

There may be situations where mediation will not be appropriate, for example, if there has been domestic abuse, or where a party is attempting to dispose of assets.

Arbitration is a form of private dispute resolution in which the parties enter into an agreement under which they appoint a suitably qualified person (an “arbitrator”, in practice, often a practising specialist family law barrister) to adjudicate a dispute and make an award.

Such an award is binding on the parties and they sign a contract at the outset of the process to confirm their agreement to have the arbitrator’s decision incorporated into a consent order.

People choose the arbitration process as a way of avoiding the delay caused by backlogs in the courts. For some, the process can be less intimidating as any arbitrated final hearing will often take place in a barrister’s chambers, rather than a court room and on a date to be agreed by everyone beforehand.

The above options are not mutually exclusive. For example, it is entirely possible for a mediation session to be arranged after contested proceedings have been issued.

As another example, if mediation is unsuccessful for whatever reason, parties can attempt negotiations through solicitors, issue contested proceedings, or look at going down the route of arbitration.

As we have seen, there are many factors that the court will take into account when determining a fair settlement and it has the power to make a wide range of orders.

No two cases are the same and there is no scientific way of determining the outcome. For this reason, it is vital that advice is sought at an early stage. Our experienced team at Wilson Browne Solicitors can guide you through every step of the process.

At Wilson Browne Solicitors, we are aware of how stressful the divorce process can be and how hard many people find it to make decisions over finance at a time of such emotional strain.

We are committed to supporting you in achieving a fair financial settlement on divorce without the need for contested proceedings, where possible.