What if you get divorced and you do not sort out the finances at the time?
It is quite common to come across couples who have separated and divorced, often on the basis of two years separation with consent, without using a solicitor, but who have not for one reason or another sorted out their finances. This often involved property such as the family home, or pensions. With the introduction of easy access on-line divorce service by the court, this scenario could become quite common. The difficulties this raises have been highlighted in the recent cases of Wyatt v Vince in 2015, and more recently in the case of A v B (No 2) [2018] EWFC 45.
There are many reasons why couples do not sort out their finances. Often one party remains in the family home looking after the children and the other is content for them to remain there. Sometimes, they do not have the means to release the other party from the mortgage. They may be on a limited income, but receiving child tax credit, child benefit and child maintenance which allows them to meet the mortgage payments. The children may be young when the parties separate and it may be many years before they leave the nest. At that time the other party will want to access their share of the property.
The financial claims which arise on divorce are currently governed by the Matrimonial Causes Act 1973. The sort of claims that can be made are :
- Periodical Payments (maintenance)
- Lump Sum Orders
- Property Adjustment Orders
- Pension sharing or pension attachment orders
The powers of the court are very wide. The judge, when making an order, known as a ‘Financial Remedy Order’, has to have regard to the factors contained in section 25 of the Act. These are:
- All the circumstances of the case, first consideration being given to the interests of any Children under the age of eighteen.
- The following specific matters:
a) the income, earning capacity, property and other financial resources of both parties, including the possibility of an increased earning capacity and taking account of accumulated Pension benefit;
b) Financial needs, obligations and responsibilities;
c) The standard of living enjoyed before the marriage broke down;
d) Each parties age and the length of the marriage;
e) Any health problems;
f) The respective contributions made by the parties or likely in future to be made to the welfare of the family. This includes contribution by looking after the home or caring for the Children;
g) Conduct if it would be unfair to leave this out of account;
h) Loss of benefit arising from the divorce such as loss of Pension.
Claims may be brought at any time after the divorce petition has been issued but the court cannot make an order until after the decree nisi. The order can be made ‘by consent’ where the parties agree, or following a final contested hearing. An application for a financial remedy order remedy order is applied for separately from the divorce and a party may be debarred from making the application if they remarry before the application is issued. This is commonly known as the ‘re-marriage trap’. This means that while one party may still be able to make all the claims available to them under the Act, the other party, who has re-married, may find the claims they can bring are extremely limited and have to be brought under different provisions, where the courts powers and discretions are not so wide.
Often, if the parties wait before sorting out their finances, their circumstances will be very different. The court has to consider the parties’ financial and other circumstances at the time the application is made and is not limited to just what the position was at the time they separated. If one party’s finances have improved, as in the case of Mr Vince, the outcome could be considerably less favourable than if the case was settled at the time of the divorce.
Waiting until the children have left home before sorting out the family home could cause significant problems. Often, the main carer of the children will not have been able to further their career and their finances may be considerably worse due to loss of benefits and child maintenance. The mortgage may have been reduced, though the other party may have made no additional contribution to this. The fact that the children are no longer dependent will impact on the resident party’s needs and the house may be considered too big for their needs. The result is that the non-resident party may be entitled to a bigger share of the property than if the finances were sorted out at the time of the divorce. In addition, the former spouses may have formed new relationship, which will also impact on their needs.
Divorcing couples often sort out their property and savings at the time they separate, but might not consider the impact of pensions. The pension might be the biggest asset they have, and might only be in the name of one party. If the pension claims are not dealt with at the time of the divorce, their value might have increased considerably by the time they are considered. In addition, the pension may, by then, already be in payment. The person receiving the pension may have received, and spent, a lump sum. Although pensions in payment can be shared, it will impact on the pension payments, and an order may no longer be appropriate. In any event, the length of time that has past , and the fact the pension in in payment will make it more difficult to value and work out what share is appropriate and the process will become more expensive.
It is, therefore, important that both spouses take early advice on what their and the other spouse’s entitlement on divorce is worth, and the impact of waiting before bringing claims. It might be more advantageous to one of them to wait, but there are risks involved, and it might mean putting your life on hold. If you are planning to divorce, or your spouse is planning to divorce you, it is best that you seek advice from a specialist solicitor at an early stage. You may also want to get independent financial advice about your options. There are often many different solutions.
If you have an issue that you want to discuss with a specialist family lawyer, please contact us on 01539 723757 and ask to speak to our Mr Hill. We offer 30 minute free preliminary appointments or telephone consultations.
Andrew Hill is an accredited specialist family solicitor and collaborative lawyer with over 25 years’ experience.
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