Whenever anyone thinks about financial planning through divorce, one of their first thoughts will be that it will be expensive.
But does that have to be true?
It’s inevitable that there will be costs associated with divorce, and that assets will usually be divided between the parties.
However, there are many steps that can be taken through financial planning to minimise the costs..
There are a number of practical steps that you can take that will help you get through the divorce.
Firstly, you should close all joint accounts, and separate your finances from those of your spouse, as far as possible. Obviously, if a joint account remains open then your spouse can drain it, including any money that you deposited into it.
Secondly, gather together details and paperwork in relation to all of your assets (including pensions) and liabilities. This will help you fully understand your financial position, and you will have to disclose these details.
Thirdly, make a budget. This will help get you through the divorce, and beyond. The budget will tell you your financial needs, which will be a vital piece of information when the financial settlement is decided.
Lastly, refrain from making any major financial commitments, until the divorce settlement is finalised. You may find that you will not be able to afford those commitments.
In most divorces the matrimonial home is the most valuable asset, and its value will usually be divided between the parties. Obviously, you will want to protect the asset, pending finalisation of the divorce settlement.
This is not a problem if the home is owned by you and your spouse jointly, as your spouse cannot deal with the property without your agreement.
But what if your spouse is the sole owner of the property?
You have a right to occupy the matrimonial home, even if your spouse is the sole owner. You can protect that right by registering a notice of home rights at the Land Registry. This will also effectively prevent your spouse from selling or re-mortgaging the property, as the buyer or lender would not proceed with the transaction until the notice is removed.
Various fees are likely to be incurred in the course of the divorce, from court fees to expert’s fees.
The amount of these fees can be quite substantial. There is currently a £593 court fee to issue the divorce application.
A simple way to save on these fees through financial planning is to share them with your spouse.
The divorce application can now be made jointly by both spouses, and they can agree to share the court fee.
Similarly expert fees can be shared, by the parties agreeing to instruct a joint expert, and to be bound by the expert’s valuation.
It is essential that you take expert legal advice. Obviously, the advice will cost money, but it may save you far more in the long run.
For example, good advice will help you to avoid unrealistic expectations, or arguing matters that will not be relevant to the outcome, such as the reasons for the marriage breakdown. If you have a good idea of what you may be entitled to, and avoid arguing over irrelevant matters, then you are likely to make smart financial planning decisions and to make a substantial saving on costs.
You may also need to take financial advice, for example in relation to pensions. Your lawyer will be able to put you in touch with a financial adviser.
Matters can be agreed with your spouse directly, through solicitors, or with the help of out of court solutions, such as family mediation and collaborative family law.
Note that before you can agree matters both parties will have to make full disclosure of their means, so that everyone knows what is at issue. It is therefore best to make this disclosure as quickly as possible.
If you can’t agree matters, consider arbitration, whereby the parties agree to have their case decided by a trained arbitrator, and to be bound by the arbitrator’s decision. This can be far cheaper than contested court proceedings.
There is of course no answer to this. The amount that the divorce costs will ultimately depend upon the issues involved, and upon the parties. As indicated above, if they are able to agree matters then the costs will be relatively little. On the other hand, if they argue about all matters then the costs will quickly skyrocket.
For further information on how we can help, please see our Divorce Finances page.
Walker Family Law is an award-winning family law practice, recognised as one of the leading family law firms in the South West of England with services covering family law & mediation, divorce law, child-law and arbitration.
Please contact us if you require any further information.
The popular media is full of stories about high profile divorce cases, often involving celebrities, and almost all involving huge sums of money.
And even the law reports of financial remedy cases largely comprise big money cases, as only couples with substantial assets can afford to get involved in expensive contested court proceedings.
Anyone reading these stories and reports can be forgiven for getting the false impression that such cases are the norm in our family courts.
But new research has shown that that is far from true.
The research project, entitled Fair Shares, which was led by the University of Bristol and funded by the Nuffield Foundation, surveyed 2,415 recent divorcees, providing the first representative picture in England and Wales of the financial and property arrangements that couples make when they divorce.
And the findings of the research were both surprising and worrying.
Perhaps the most surprising finding was just how little many couples have to share on divorce.
Far from the millions that we see in most reported cases, the research found that of those divorcees surveyed the median value of their total asset pool, including the net value of the former matrimonial home and any pensions, was only £135,000.
And nearly a fifth of those surveyed had no assets at all to share on divorce.
Perhaps it should not be surprising given how modest the assets could be, but the research found that the majority of divorcees left the marriage with under £50,000 by way of assets.
A fifth of divorcees ended up with less than £25,000, and a quarter ended up with nothing or only debts.
Only one in 11 came out of the marriage with £500,000 or more.
So much for big money divorces.
The research also found that equal division of the assets, if any, was not the norm, with only 28% of divorcees reporting that they had divided their assets roughly equally. In some cases there was an unequal division simply because the assets were divided in accordance with who owned what.
And a particularly worrying finding was that only 11% of cases involved sharing of pensions, suggesting that many people were missing out on their pension entitlement. The main reasons given for so few pension sharing cases were general lack of interest in the pension, and a strong sense that it ‘belonged’ to the spouse who had been contributing to it.
And that brings us to the last finding of the research: how few couples sought legal advice and help in sorting out their financial and property arrangements.
One of the most important things a lawyer will do before advising a client upon their entitlement in a divorce settlement is ascertain the value of the assets. Obviously, without this information it is impossible to know what a fair settlement is.
But the research found that over half of divorcees who had reached a financial arrangement had done so by themselves, only a third made use of lawyers to sort out their financial arrangements, and 12% had sought no advice at all.
It is therefore unsurprising that the research also found that over a third of divorcees did not know the value of their own pension pot, 10% of homeowners with a mortgage did not know what the equity in their home had been, and 38% of divorcees felt their knowledge of their ex-spouse’s finances during the marriage was not good.
The main reason for not seeking legal help was of course fear of the cost. However, the amounts spent on legal help were relatively low. A quarter of divorcees had had to find less than £1,000, with a further 18% having costs between £1,000 and £2,999. Only 9% had costs of £10,000 or more, with higher costs associated with greater wealth.
The message from all of this is quite clear: whilst assets may be modest, it is still worth seeking legal advice, as the cost involved can be far outweighed by the value of an entitlement that you may be missing out on.
For further information on how we can help, please see our Divorce, Separation, and Finances page.
Please contact us if you require any further information
Obviously it is often the case that one party to a marriage will have significantly more assets than the other, which they have acquired before the marriage. But will this have a bearing upon the financial settlement in the event of a subsequent divorce?
The answer is: it may have an effect, depending upon the circumstances.
If, for example, it is a long marriage and the assets that one party acquired before the marriage have become ‘mixed’ with the other assets, then it may have little or no effect.
Take, for example, the situation where in a long marriage one party owned a house before the marriage, but that house is sold and the proceeds are then used by both parties. It may then be difficult to subsequently identify the original value of the house separately from the joint assets.
In such a situation the fact that one party owned assets prior to the marriage may have little or no bearing upon the financial settlement.
But often it will be possible to identify assets owned prior to the marriage, or at least to ascertain the value of those assets, and take them into account in the divorce settlement.
So what is the approach of the courts in such a situation?
To answer this, we need to consider the concept of ‘matrimonial property’.
In brief, assets acquired during the marriage, through the joint efforts of the parties to the marriage, are known as ‘matrimonial property’, and therefore fall to be divided between the parties on divorce.
Other assets, such as assets acquired before the marriage, inheritances or gifts to one party, and assets acquired by a party after the separation are considered to be ‘non-matrimonial’, and will therefore remain the property of the party who owns them.
But there is an exception to this. Where the matrimonial property is insufficient to meet the needs of one party then the court can ‘dip into’ the non-matrimonial assets, in order to meet those needs.
The way that all of this works can be demonstrated by a 2011 High Court case.
In the case the parties were married in 1993, at which time the husband had assets of just over £2 million.
The marriage broke down in 2009. At that time the total assets were worth about £9.7 million.
Divorce proceedings ensued, and the wife argued that the assets should be divided equally. She also claimed that she required half of the assets to meet her needs.
The husband argued that he should be entitled to more than half, in the light of the assets that he brought into the marriage. He did not, in fact, seek to recover all of the money he brought into the marriage, but just asked for a division that would give the wife 43% of the assets, leaving him with £1.37 more than her.
Considering the case, the judge concluded that it would be wrong and unfair for none of the assets owned by the husband before the marriage to be excluded from the general principle that assets should be shared equally.
The question, therefore, was: how much should be excluded?
Taking into account the fact that the marriage was quite long and the assets that the husband had brought into the marriage had well and truly mingled with marital funds, the judge decided that an appropriate figure would be £1 million.
The result of this was that the wife received about 45% of the assets, and the husband about 55%.
That still left the matter of the wife’s needs.
The judge concluded that 45% of the assets would be enough to meet the wife’s needs. There would therefore be no further adjustment in the wife’s favour, although it should be said that the judge did not exclude more than £1 million, as he considered that that would not leave enough to meet the wife’s needs.
For further information, please see the Divorce Finances page.
Whether a financial settlement on divorce is agreed or ordered by the Court both parties will first have to make full and frank disclosure of their means.
The reason is obvious: the settlement is based upon the available assets, and the incomes of the parties – without this information it is impossible to determine what a reasonable settlement will be.
So if the parties wish to settle the matter by agreement and one of them fails to make full disclosure then it will not be possible to reach an agreement.
And if the matter goes to Court the Court will require both parties to make full disclosure.
So what might happen if they do not? How can the Court decide a settlement without details of one party’s means?
A newly published Family Court judgment provides the answer.
The judgment concerned the final hearing of a wife’s financial remedies application. What made the case particularly difficult was the behaviour of the husband, as the judge explained:
“The problem that this case throws up is how the Court should deal with a respondent husband who has been dishonest throughout, has failed to comply with Court orders, has failed to provide relevant financial information and documentation, has flagrantly breached undertakings given to the Court, and who has given no encouragement to others with relevant information to assist the process. Indeed, an email has surfaced indicating that he was taking steps from many years ago to put assets beyond the reach of his wife. Because of his actions, I do not have a complete picture and I will have to consider how I should draw inferences and what inferences I should draw on the basis of the information that I do have. It is right to record this is one of the most flagrant breaches of the duty of full and frank disclosure that has come before the Courts.”
And there is the answer to the question: without full details of one party’s means the Court will have to draw inferences as to their assets, on the basis of the information available. This process is commonly referred to as drawing adverse inferences.
Before we go into that we should quickly look at what each party was asking the Court to order.
The wife asked the Court to find that the sums that had passed through the husband’s hands, and that had disappeared, were of the order of £5.5 million (although they were probably substantially more), and she essentially asked the Court to award her a lump sum for half of that amount.
On the other hand, the husband claimed that he had no assets, and therefore asked the Court to make a ‘clean break’ order, with no provision for the wife.
So how does the Court go about drawing adverse inferences?
As the judge explained, a finding of non-disclosure is established by either: (1) direct evidence of an asset which the alleged non‑disclosure has not revealed; and/or: (2) failure to comply with Court orders or provide adequate responses to questions from which failure the Court feels able to draw adverse inferences; and/or: (3) evidence of lifestyle wholly inconsistent with the disclosed resources.
In this case, all three of these propositions applied. There was clear evidence that the husband had removed assets, he had failed to comply with Court orders requiring him to provide information regarding his assets, and he was currently living abroad, with no visible means of support.
Having found that the husband had failed to disclose assets the Court then had to assess their value.
This all came down to the evidence of the parties. And the judge had no hesitation in accepting the wife’s version of events, i.e. that there were assets worth at least £5.5 million.
Accordingly, the judge decided that the wife was entitled to everything she had requested.
So the wife fully succeeded in her claim. And there is another thing that may cause the husband to regret his actions, albeit not mentioned in the case report.
In financial remedy proceedings, the Court will not normally make any order requiring one party to pay the other party’s costs. However, it may do so where it considers it appropriate, because of the conduct of a party in relation to the proceedings, known as litigation misconduct.
Here, the wife would most likely have incurred a not inconsiderable amount of costs pursuing her claim, particularly given the husband’s failure to cooperate in the proceedings.
And the Court would certainly have been justified in ordering the husband to pay those costs, or at least a substantial proportion of them. Whether such an order was made we do not know, but certainly anyone tempted to conduct their case in the way the husband did here would do well to know that they risk having a costs order made against them.
Ian Walker Family Law & Mediation Solicitors are award-winning family solicitors and are recognised as one of the leading family law firms in the South West of England with services covering family law & mediation, divorce, child law, and arbitration. Please contact the team to speak to one of our specialist solicitors.
