The Process of Buying Assets During Divorce

As we all know, a divorce can take some time to complete. And many people are not prepared to leave their lives on hold until their divorce is finalised.

And getting on with your life may include purchasing assets, whether they be a new home, an expensive car, jewellery, an interest in a business, or some other kind of asset.

In this article we will look at the implications of purchasing assets during ongoing divorce proceedings, explaining some of the pitfalls and other matters that should be considered by anyone contemplating buying any sort of asset of significant value before their divorce is finalised.

But before we do so we need to explain briefly the law on asset division on divorce.

Matrimonial and non-matrimonial assets

Sorting out asset division on divorce is obviously all about the concept of marriage being a joint venture. Fairness therefore dictates that both parties should benefit from the fruits of the marriage.

But note that phrase: “fruits of the marriage”.

It is of course quite possible that, at the time of the divorce, one or both of the parties possess assets that are not “fruits of the marriage”. They may, for example, be assets that they owned prior to the marriage, or assets that they acquired after they separated from their spouse.

Generally speaking, it would not be considered fair for the other party to benefit from such assets in the divorce settlement.

Accordingly, the law uses the concept of “matrimonial” and “non-matrimonial” assets.

“Matrimonial” assets are assets that were acquired during the marriage, through the joint efforts of the parties to the marriage, and all other assets are “non-matrimonial”.

Thus assets acquired before the marriage or after the parties separated are non-matrimonial, as are such things as gifts to one party or inheritances received by one party, as these are not acquired through the joint efforts of the parties.

The general rule on divorce is that only matrimonial assets fall to be divided between the parties on divorce, with non-matrimonial assets remaining the property of the owning party. It may therefore be that a party will be able to buy assets during the divorce using only non-matrimonial assets belonging to them, without any adverse effect.

However, there are two major provisos to the general rule.

Firstly, it is often the case that during the marriage non-matrimonial assets will become mixed up with matrimonial assets, so that it is no longer possible to say which is which. In such a case all of the assets are likely to be considered matrimonial.

Secondly, even if assets are clearly non-matrimonial the court can still award them, or part of them, to the spouse that didn’t own them, if the court considers this necessary to meet the financial needs of that spouse.

Having explained the concept of matrimonial and non-matrimonial property, we will now have a quick look at how the law decides who should have what in a divorce settlement.

How assets are divided on divorce

Subject what we said above, asset division on divorce is simply a matter of dividing the matrimonial assets between the parties.

And all else being equal this may simply mean that the matrimonial assets will be divided equally between the parties.

But there may be reasons why an equal division is not appropriate. We have already mentioned perhaps the most important of these: the financial needs of the parties, including for their income and their housing. If one party has greater needs than the other, they may be entitled to more than half of the assets.

Other reasons for an unequal division include such things as the duration of the marriage, the age of the parties and the contributions of each of the parties to the welfare of the family, including any contribution by looking after the home or caring for the family.

Once it has been decided how the assets should be divided it will be necessary to give effect to that division. This may mean each party keeping certain assets that they own, and it may mean that assets are transferred from one party to the other, or that assets (such as the former matrimonial home) are sold, and the net proceeds of sale divided.

Another point to bear in mind is that a divorce settlement is not necessarily only about dividing assets. It may, for example, also be appropriate for one party to pay maintenance to the other, whether it be spousal maintenance or child maintenance.

OK, having looked briefly at the law on asset division on divorce, we now return to the subject of this article, i.e. purchasing assets before the divorce is finalised. We will start with one of the biggest possible pitfalls: where the purchase may defeat or diminish the other party’s financial claim.

Transactions that might defeat or diminish the other party’s claim

As we have seen, the primary purpose of a divorce settlement is to divide the matrimonial assets fairly between the parties. And the matrimonial assets are fixed as at the date the parties separated.

Of course the value of the matrimonial assets may naturally change after the parties separate, especially if there is a significant period of time between the separation and the divorce. But the law will not generally allow either party to do anything that is likely to significantly reduce the value of the matrimonial assets, as this could obviously mean that the other party would receive less.

Accordingly, if the court is satisfied that one party is about to make a property transaction with the intention of defeating or diminishing the other party’s claim on divorce then it may make an order preventing them from proceeding with the transaction. And if the transaction has already been carried out then the court may make an order setting aside the transaction.

Obviously, this could be very relevant to any asset purchases prior to the divorce settlement, as the purchase could have the effect of reducing the value of the matrimonial assets. Anyone contemplating buying property during the divorce should therefore be aware of this, and the possibility of the purchase be stopped or set aside, with all of the additional expense that that would entail.

Additional cost of selling

But even if the purchase does involve matrimonial assets but doesn’t affect the value of those assets (i.e. the purchase merely changes the type of asset, for example cash into property), there could still be problems for the purchasing party.

For example, as we have seen, the court may require that, in order to give effect to a divorce settlement, certain assets should be sold. This could obviously mean that the party buying the asset will not only have their wish thwarted, but will also be put to the additional expense of selling the asset, not to mention wasting the cost of buying it.

Of course, this would depend upon the type of asset involved. But if, for example, it is a new property (many people will want to buy a new home for themselves after the divorce) then the costs of the purchase and sale could be substantial, including stamp duty, estate agents’ fees and legal fees. No one is going to want such costs to be wasted.

Other problems with buying assets

And there are other potential problems with buying assets during a divorce.

What if, for example, the asset was purchased jointly with a new partner? This could lead to further complications, with the new partner possibly becoming involved in the divorce proceedings.

And what if the purchase was of a property, with the aid of a mortgage? As we have seen, the divorce court may order one party to pay maintenance to the other. If the court considers the mortgage to be excessive then it may not take all of the mortgage repayments into account when calculating the amount of maintenance, with the result that the paying party is not able to afford the mortgage.

And generally speaking the divorce settlement may be such as to mean that the buying party is unable to afford the upkeep of the new property.

And lastly on a related note, it can be tempting for a party to ‘jump the gun’, by buying an asset from money that they expect to receive as part of the divorce settlement. They may find themselves disappointed when the receive less than they expected.

In short, there are many possible pitfalls and issues involved in buying assets during a divorce. So, apart from waiting for the divorce to be finalised, what can you do to avoid them?

Avoiding the pitfalls

If you wish to purchase an asset before the divorce is finalised then it may of course be possible to agree the matter in advance with your spouse, either directly or through their solicitor. This may obviously prevent any possible problems down the line.

But the best thing to do is of course to seek legal advice before taking any action. A family law expert can tell you whether any such purchase is a good idea, and of the possible pitfalls it may entail, ensuring that if you decide to proceed then you are at least fully informed. You may well find that the relatively small cost of such advice will save you considerably more in the long run.

We at Walker Family Law have expert family lawyers who can provide you with the advice that you need. To contact us simply complete the form, here.