What is a financial settlement in family law?
This article is written by Sally Ward from Mullis & Peake LLP – our exclusive family law solicitors in Brentwood. In this article, Sally discusses everything you need to know about financial settlements in family law.
An important part of most divorces is reaching a financial settlement alongside the divorce itself. There is usually a family home to be sold or transferred to one of you. There are often second properties or other savings and investments. It is essential not to overlook pensions.
Full Disclosure
The starting point for any financial settlement is what we call full disclosure which means that each of you must produce valuations and details about your assets together with documents in support. Once those details are available, you can look at how everything can be shared in the settlement.
The starting point for sharing capital is an equal division but the final outcome may provide one of you with more than the other. In most cases, this is because one of you has a greater financial need than the other. Section 25 of the Matrimonial Causes Act 1973 sets out the criteria that must be considered:
- the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future
- the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
- the standard of living enjoyed by the family before the breakdown of the marriage;
- the age of each party to the marriage and the duration of the marriage;
- any physical or mental disability of either of the parties to the marriage;
- the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
- the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;
- the value of any pension benefits that may be lost by one party as a result of the divorce.
The main breadwinner may have a larger mortgage capacity and need a smaller deposit from the family home. The children are the first consideration whilst under 18, and the main child carer may need to keep the family home for the children.
There is no starting point for sharing income equally. It is a question of looking at each of your reasonable outgoings, whether you can meet them from your own income and, if not, whether your ex has enough surplus after paying their outgoings to pay maintenance.
Child maintenance is dealt with separately and based on the Child Maintenance Service’s formula.
There is no one answer fits all, so it is important to get legal advice from the outset.
Business Assets
Business assets must be disclosed along with all the other assets in the marriage and the starting point is that your husband or wife must give a valuation for their business interest and disclose the last two years’ accounts. Whether you actually have a claim on the business will depend on the value and the nature of the business itself. Some businesses are purely a means of generating income so you’re unlikely to get any extra capital from the settlement for your spouse’s business. An example of that is subcontractors who run their income through a limited company.
Businesses will not always be sold in the financial settlement and courts are reluctant to take away or devalue the business owner’s livelihood. Some businesses, however, do have capital assets that can potentially be used towards reaching a settlement. Again, it depends on the nature and value of the business and its assets. For example, a business might own a number of properties that can be sold or mortgaged to raise capital. In most cases where there is a business you will need an accountant’s advice on the value on how best to release capital or whether it can be released at all.
Family Trusts
Trusts can exist between you in the way you jointly own a property but the terms of those trusts can be overridden by the criteria under the Matrimonial Causes Act 1973 mentioned above.
It is becoming increasingly common for parents to lend or give funds to their children to help them get on the housing ladder. Unless these arrangements are properly documented in writing, the arrangement may be ignored when a decision is made about the financial settlement.
Sometimes, parents will transfer the property to their children for inheritance or nursing care reasons. The property will legally belong to the children and form part of the matrimonial assets for settlement. Although a court is unlikely to force the parent out of the property if they continue to live there, they can treat the children’s interest in the property as a future asset. Care needs to be taken in setting up these arrangements and valuing the trust interest in a divorce.
You may be a potential beneficiary under a discretionary trust. Careful consideration needs to be given to the terms of the discretionary trust as it may be that, with no guarantee of getting any benefit at all, your interest will not be included in a divorce settlement at all.
Contact Sally Ward – Mullis & Peake LLP
If you enjoyed this article, and would like to contact Sally Ward regarding any family law matters, you can contact her via the methods below:
Sally Ward, Head of Family Law at Mullis & Peake LLP Solicitors:
Email: [email protected]
Phone: 01708 784000.
Website: https://www.mplaw.co.uk/
Sally qualified as a solicitor in 1994 and has always specialised in family law. She deals with all aspects of family law and has dealt with a wide range of financial and children matters throughout her career including:
Financial settlements involving pensions, family trusts, family business, property portfolios, foreign assets
Prenuptial and separation agreements
Cohabitee claims for property and financial claims for children
Disputes over arrangements for children where there has been domestic, drug or alcohol abuse, parental alienation, removal or relocation either in this country or abroad
She likes to work with clients listening to what they wish to achieve and advising them without using legal jargon so that they have a realistic understanding of the law and can make the right decisions for themselves and their family. She is empathetic and persistent in supporting clients to achieve the best outcome they can, avoiding unwelcome and costly court proceedings whenever possible. Sally’s interest in looking at all the alternatives for resolving matters includes using professional from outside the legal professions and she is in regular contact with professionals such as mediators, financial advisers and counsellors.
Sally is a member of Resolution and she is collaboratively trained.