Financial Settlement

Issuing a divorce petition will only result in having the marriage dissolved. The divorce action commenced with the filing of the divorce petition does not enable the court to decide financial matters which are separate and ancillary to the divorce. A further application  to deal with the financial links and mutual obligations of the marriage is required. Agreement can be reached at any time but the court cannot make an order giving it legal effect until the pronouncement of decree nisi.

There are no set guide lines; everything depends on “all the circumstances of the case”.  What has to be done is to work out what is fair and reasonable – and there will always be two versions of that.

The division of the matrimonial assets, finance and property between divorcing spouses, will be the same court where the divorce petition was issued.  With a view to keeping costs under control the courts manages the proceedings and expect the parties to make offers and proposals and for these to be given proper consideration at every stage.

Courts Duty

The courts have a duty to:

• Ensure that the parties are on an equal footing
• Avoid unnecessary expense
• Ensure that cases are dealt with proportionately to the money involved and the financial position of each party
• That cases are dealt with expeditiously and fairly

In managing the case, the court will endeavor to encourage the parties to settle through mediation and to co-operate with each other in the conduct of the case.  The court will wish to identify disputed issues at an early stage and set a timetable to control the progress of the case. This will stop the more disputed topics from taking over too much time and leaving other topics undecided.

In ancillary relief there is a duty of “full and frank” disclosure, which means you must be open and honest about your income, assets and needs. Not being open and honest is the quickest way to enter proceedings with the risk of a costs order being made against you.

Disclosure is given on a Form E with the supporting evidence attached which will be exchanged with the other side. The purpose is to give a complete picture of what is in the “matrimonial pot”. The family assets can then be valued, and offers to settle made to the other side.

Following some negotiation, it is hoped that a settlement will be achieved and a consent order lodged with the court for approval with a short statement of means to enable the court to decide if the order is fair. Financial orders usually take effect on the pronouncement of the decree absolute. If decree absolute has already been pronounced dates will be set for the order to take effect.

Deciding on who gets what

The starting point will almost always be an equal division of all the matrimonial assets. That is however only the starting point. It is likely only to be relevant in a short marriage where there are no children and each spouse has equal earning capacity.  In the great majority of cases the court will decide that one party or the other should receive a greater share.  There must however be a good reason for this.

Therefore the fair division which the court is required to make will start with a yardstick of equal shares and then any good reasons to depart from this division will be looked at.

Courts will always look first at the housing needs of the parties.  In a usual case the court’s first concern will be to provide a home for the children and the person who is to look after them.  Often there may not be much left following this but when there is, it is likely to be used to enable the absent parent to re-house themselves.

Another important consideration and usually number two on the list will be helping the parties to work and support themselves after the divorce so that there may be a clean break.  Often one party may need capital provision for education or training in order to work.

The court must also give consideration to the welfare of the children of the family.  This is somewhat different to the provisions of the Children Act where the child’s welfare is the paramount consideration of the Court overriding all other considerations.  In ancillary financial matrimonial proceedings the court must consider all the circumstances but bear in mind the importance of ensuring the welfare of the children.

What the courts will take into account

The matters to which a court must have regard when deciding the division of property on divorce are set out in sections 25 and 25a of the Matrimonial Causes Act (MCA).

The first paragraph of Section 25 of the MCA reads as follows:

‘It shall be the duty of the court in deciding whether to exercise its powers, and if so in what manner, to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of 18.’

The section then goes on in paragraph 2 to set out particular matters with which the court should have regard when making an order.  These are:

1. 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, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;
2. The financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
3. The standard of living enjoyed by the family before the breakdown of the marriage;
4. The age of each party to the marriage and the duration of the marriage;
5. Any physical or mental disability of either of the parties to the marriage;
6. Any contributions made by each of the parties to the welfare of the family, including any contributions made by looking after the home or caring for a family;
7. The attitude of each of the parties if that attitude is such that the court should take it into consideration.

Section 25a then continues and provides:

 ‘Where on or after the grant of a decree of divorce or nullity of marriage the court decides to exercise its powers in favour of a party to the marriage, it shall be the duty of the court to consider whether it would be appropriate to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable.’

The court is therefore under a duty to consider whether a clean break is appropriate or if further contributions between the parties are required.

Paragraph 2 says:

‘Where the court decides in such a case to make a periodical payments or secured periodical payments order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those payments to be made or secured only for such period as would in the opinion of the court be sufficient to enable a party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party.’

The final paragraph 3 sets out:

‘Where on or after the grant of a decree of divorce or nullity of marriage an application is made by a party to the marriage for a periodical payments or secured periodical payments order in his or her favour then, if the court considers that no continuing obligation should be imposed on either party to make or secure periodical payments in favour of the other, the court may dismiss the application with a direction that the applicant shall not be entitled to make any further applications in relation to that marriage for an order for maintenance payments’.

In addition to the above, the court is now also required to look at the pension provisions which the parties have.

The court will always look at the reality of the situation.  This means that it may well go beyond what a party says he or she earns or possesses.  What will be taken into consideration is the income and property which could reasonably be available to any party if he or she so wished.  The court will often look at a party’s lifestyle and make a reasonable assumption from that.  Where it seems to the court that there has been deliberate concealment of assets, then the court could well take this into account as conduct such as to reduce an entitlement.

The court will look at a spouses earning capacity.  It will look not only at the present earning capacity but in accordance with the guidelines the Court will consider how this earning capacity can be promoted and bettered.  Thus often a nonworking spouse will be expected to find suitable employment either immediately or as soon as young children in her care allow this to be practical.

In one case the court expected a wife aged 39 who was a qualified secretary to make the most of her earning capacity once the youngest child, aged 13, had left school.  This would enable the wife to raise a mortgage which would then entitle the husband to a larger share when the former matrimonial home had to be sold.

Where a spouse has received an inheritance or is likely to have an entitlement to compensation or damages then this will also be considered as a part of that spouse’s income or property.

The fact that one party can claim state benefit does not entitle the other party to throw the burden of support on to the state.  However when a family has a low income and small assets then the availability of state benefit will be a consideration.

Often a spouse will have available resources from his or her family or a third party.  The court would have regard to the potential availability of money and assets which are likely to be available from these other people or kin.  There is however a limit to this and undue pressure to maintain a spouse will not be thrown onto a third party.

Following on from a divorce a party may remarry on live with a new partner.  The income of that new partner will be considered in so far as the income relieves the party of financial obligations which they would otherwise have.  The court is therefore able to call for information about a new spouse or partner’s means. An order will not be made however, which would result in the sum ordered being paid out of a new partner’s income or capital.

Financial Settlement

When property was owned by a spouse before the marriage, a claim is probably weaker than that of property acquired during the marriage.  Such property would however fall to be considered as part of ‘ all the circumstances of the case ‘.  The court will therefore consider the nature and value of the property and the time and circumstances in which it was acquired.

A major consideration will always be the demands of bringing up the children and in particular the housing needs of the children and the party who will care for them.

With regard to the housing needs of children, lawyers often talk about ‘Mesher’ orders.  These are named after the case of Mesher –v- Mesher where an order was made that the matrimonial home be held on a trust for the parties in equal shares for the husband and wife.  The sale was however suspended in order that the wife and children might occupy the house until the youngest child became 17 or finished full-time education.  It would only then be sold and the husband receives his share.  These orders can often be seen as the answer to satisfying the children’s housing need.

When considering the parties’ needs, the court will also have regard to obligations towards a second family.  It has been held that where a husband has taken on the legal responsibility of maintaining a new wife, this is a responsibility which will be given the same weight as any other responsibility.

Section 25 (c) MCA requires the court to have regard to the standard of living enjoyed by the family.  Nearly always divorce will result in a reduction in the standard of living and when this is inevitable the court will seek to distribute that reduction as evenly as possible between the parties.

Section 25 (2) (p) requires the court to take into consideration the age of the parties.  A young wife is more likely to be awarded a clean break settlement than her older sister.  The young wife is likely to remarry and have career prospects where the older wife is less likely to be able to work and may be able only to fall back on state pension.

The duration of a marriage is also a most important consideration for the court. Short childless marriages are likely to result in either no financial provision being ordered or being ordered for only a limited period.  This will be particularly the case in that of a young wife who has career prospects and is able to go out to work.

Cohabitation before marriage will usually not be relevant as the rights and duties and obligations of the parties only begin on marriage.  The courts have said that they will not cheapen marriage by comparing it with cohabitation.  However in instances where the parties have been prevented from getting married and therefore forced to cohabit, this period might be taken into consideration and taken into account as ‘ other circumstances with which the court could have regard’.

Section 25(2) (f) deals with the contributions made by each party to the welfare of the family.  It is this which gives provision to a non-working spouse’s entitlement, often to the matrimonial home, based upon contribution in kind to the family’s well-being by looking after the home.  Contributions to the running of a family business will also be recognized.

A lack of contribution can be a minus fact.  Such will often not be relevant behaviour to be considered but can lead to a smaller share under this section.

The conduct and behaviour of the parties is a factor to be considered in the final subsection (g).  The leading case on this is Wachtel where the court held that conduct would be relevant to the consideration of financial and property claimants only if it was ‘ both obvious and gross ‘ the courts will wish to avoid going over allegations and counter allegations of matrimonial misconduct unless they are relevant to the financial claims. Most certainly adultery by one party will not be considered relevant conduct.

Where agreement is not reached and the court is required to decide a financial or property dispute there will in effect be four stages.

1. Giving notice of the intention to proceed with financial claims
2. The First Appointment
3. The Financial Dispute resolution Hearing
4. The Final hearing

The making of the application

One party (it does not matter which) will give notice of intention to proceed with the application for ancillary relief contained in their divorce petition or answer. This is done on Form A with payment of the court fee and the court will then:

• Set a date for a First Directions Appointment (FDA). This will usually be for 30 minutes some three months after the application is made. That time should be used by both parties for gathering and serving information on each other.
• Give directions as to information to be exchanged as laid down in the Court rules. This will be:-
• a statement of property and income in Court Form E,
• any questionnaire considered necessary,
• a schedule of documents considered relevant to the issues;
• A statement of the apparent issues.

Form E

Both you and your spouse must complete and swear a financial statement in the prescribed form in order to establish what is jointly available in the ‘pot’ for division. This Form E requires you to set out personal details and information concerning the marriage and the children. You must provide details of your financial means, your income and expenditure, pensions and the standard of living enjoyed. This must proved by exhibiting to the Form E such documents as pay slips, bank statements and valuations for property and pensions.

Once you have sworn your Form E as being true it must be filed at court and a copy sent to the other side. Mutual exchange is usual and although not provided for in the court rules you should agree with your spouse a date when you will each send a copy of your Form E to each other.

You will often not agree with the financial information disclosed by your spouse. It may not be complete, there may be assets omitted or undervalued, or you may consider it simply a pack of lies. Should this be the case you may raise a questionnaire asking for further information and proof. This can be done simply in correspondence or more formally as in the example at the end of this Guide.

The First Directions Appointment

The object of the first directions appointment is to define the issues, decide on any issues that need to be resolved and deal with documentary evidence.  It is essential that the parties attend this first appointment in person. It will not be delayed or adjourned save in the most exceptional circumstances.

The court will use the FDA to encourage the parties to settle the case at and if this is possible, make an order by consent.

If agreement is not possible, the court will give a date for a Financial Dispute Resolution Hearing (FDR) and give further directions which are likely to include:

• What questions are to be answered by each party (from the questionnaires)
• What further documents should be produced
• Which assets should be valued, how and by whom
• What further evidence (if any) the court requires.

If either of the parties has not done what they should have done, i.e. if they have not filed their Form E, they will be ordered to do so and the court could make a costs order against that party to pay the costs of the other party as well as their own.

If agreement is not possible at the FDA, the court will give directions and fix a date for a Financial Dispute Resolution (FDR) hearing. The directions given will usually include a chronology setting out the important dates and events of the marriage, a statement of evidence in support of your financial claims, and a statement of issues. These must be filed at court and sent to the other side at least 14 days before the hearing. When a party is legally represented a schedule of costs incurred and anticipated must be produced.

In appropriate cases the FDA and FDR maybe dealt with on the same occasion. A judge may also decide that an interim hearing is necessary to consider such things as a maintenance application. Often a judge will adjourn a case without making further directions so that mediation can take place. Where one party has not provided the required information it may be necessary to adjourn and fix a further FDA.

The Financial Dispute Resolution (FDR) hearing

At least 7 days before the date fixed for the FDR you must inform the court of all offers of settlement made and received with your response. You should also inform the court of the costs you have incurred.

The whole purpose of the hearing is to reach settlement by negotiation, assisted by the judge if necessary, who will give an indication as to the band within which he or she thinks the case should settle. That judge is then barred from hearing the final hearing, as s/he has made his or her view known. One judge may have a different view of the case to another, and neither may be wrong, providing they fall into the band of discretion. It is a brave person however who ignores the judge’s opinion.

You should attend court at least an hour before the time fixed for the hearing and there will often be a direction that you do so. This time is to be used in discussion with the other side.

If you cannot reach a settlement at the FDR the judge sets the case down for a final hearing and gives any necessary directions for the filing of further evidence. If the FDR is not able to proceed properly because one party has not done as they should, the court is likely to make a costs order against them that they pay the costs of the other party as well as their own.

The Final Hearing

This is the hearing where evidence is heard, and if you and your spouse can still not reach a settlement before court, the court makes the decision and decides how the assets should be split between you. If the conduct of one party has necessitated the final hearing the court can look at making costs orders against that party.

At any point during the process either party may make offers to settle – in fact there is a positive duty to make such offers.