Financial Settlements

What you need to do; The Law; Some Specific Points; Procedure; Costs

People who are getting divorced owe one another a duty to provide full disclosure of their financial circumstances; they must not conceal or dispose of any asset with a view to avoiding the claims of the other. This duty is on-going until the case ends.

The law sets out the following steps:

  • get both parties to give full disclosure of their financial circumstances
  • weigh up the figures and circumstances by reference to the ‘Section 25 Factors’ (see below)
  • achieve an outcome that passes the tests of being ‘fair’ and ‘practical’.

Lawyers spend their time ‘second-guessing’ what a Court would do if it had to decide a particular case; the problem is that the Court of Appeal has often said that judges at a local level have a wide discretion in deciding what is fair on the facts of a particular case. This means that different judges would decide the same case in different ways. There is no one ‘right answer’ to a case but, rather, a range of possible and reasonable solutions. Different couples in the same financial circumstances, but with different temperaments and different priorities, will agree different solutions that will be ‘right’ for them.

The great majority of cases result in an agreement being reached; what the law provides is a mechanism for recording an agreement in a binding way. This is by recording it as a consent order made within the divorce proceedings. Solicitors draft the order to record the agreement; usually no one needs to attend Court.

At the Decree Nisi stage of the divorce the Court can make a consent financial order to record the parties’ agreement if it receives

  • a signed application;
  • a draft order; and
  •  a financial summary form.

If there are problems over obtaining full disclosure or reaching an agreement, you will need to consider making an application for a financial remedy order; this gives the Court the job of resolving the financial issues. Most cases where an application for a financial remedy order has been made still result in an agreement and a consent financial order being made. If there is no agreement, however, the Court will hold a final hearing. A Judge will decide the case and make a final financial order.

It is important to have a final financial order (either a consent order or one made at a hearing) as this is the only way to ensure that all loose ends are tied up and that all potential claims are dismissed: would you want to share your lottery winnings or future inheritance ?

If no final financial order has been made in your divorce proceedings and if you are about to remarry, it is important that you take legal advice urgently; it may be that you need to file an application for a financial order before you remarry or run the risk of not being allowed to pursue your financial claims.

Financial issues - what you need to do

At any time but, probably, the sooner the better, arrange a Free Initial Interview with us.

Prepare your financial disclosure. We suggest you do this by completing our Financial Disclosure Questionnaire (FDQ). This will help you gather the various documents you need to disclose and will show you what further enquiries you may need to make.

Our FDQ mirrors the information required by the Court’s own Form E. Form E is a 27 page booklet which you will find at the Court Service website http://hmctsformfinder.justice.gov.uk/HMCTS/FormFinder.do It requires various copy documents to be attached to it to support the information that is provided. Our FDQ is, we hope, a clearer and more user-friendly version of Form E.

If you would like us to send you a copy of our FDQ please Email Us and simply ask us to send you our FDQ. We will then send you a PDF file unless you ask us to send you a hard copy to your postal address. If it becomes necessary for you to prepare a Form E, we have software that will enable us to convert your replies to our FDQ into a Form E.

Make a start on establishing the value of your major assets; usually this means asking, say, three estate agents to let you have a 'market appraisal' of the value of your home or any other properties you own. A 'market appraisal' is an estate agent's opinion about the asking price at which he would like to market your property. You should not assume it is worth this figure. Obtaining market appraisals may enable you to agree a value with your spouse but they do need to be treated with some caution. If you cannot agree a value, the usual way forward (which Courts encourage) is for the solicitors to jointly instruct a chartered surveyor to prepare a formal valuation. The cost of a few hundred pounds is usually shared. It is important to be confident you are using reliable figures for your most valuable assets when negotiating a settlement.

Try to form a realistic picture of where you and your spouse might be living in say six months’ time; familiarise yourself with estate agents’ particulars of the sort of housing that might be relevant and ask mortgage lenders what you might be able to borrow.

Keep all pay advices, bank statements etc until the case is over and tell HMRC if you have separated.

Visit the HMRC website www.hmrc.gov.uk/taxcredits and check whether you (or your spouse) might qualify for Tax Credits or Working Tax Credits; if so, apply now.

If you have separated and are a single occupier, approach your local Council and see if you qualify for a 25% reduction in your Council Tax bill; if so, apply now.

If you have a pension, write now and ask your pension provider to supply you with a Cash Equivalent Transfer Value of your pension; it often takes several weeks for this information to be supplied and this sometimes delays settlements.

When you are ready, ask us to represent you! You now need us to bring a sense of judgment to bear on the facts and figures of your case.

Consider whether you should make a new Will now, or whether it is something you will tackle later. We suggest you refer to our Wills & Probate section.

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Financial issues - the law

You may find it reassuring to know that the court has an 'overriding objective of enabling the court to deal with cases justly, having regard to any welfare issues involved'.

The Court has to apply the Section 25 Factors’. The detailed application of this is complicated but the principles are simple: the Court has to have as its first consideration the welfare of any minor children of the family and then weigh up the following factors (in no order of priority):

  1. Income, earning capacity, property, other financial resources.
  2. Financial needs, obligations and responsibilities.
  3. Standard of living enjoyed during the marriage.
  4. Age of parties and duration of marriage.
  5. Physical or mental disability of parties.
  6. Contributions (including future contributions).
  7. Conduct (although this is very rarely relevant).
  8. Pensions / other benefits.
  9. ‘All the circumstances of the case’.

In simple terms, the Court's powers are to make Orders for :

  • Maintenance for a spouse - usually paid monthly; the Court must consider awarding maintenance for only a limited period or achieving a ‘clean break’ ie the dismissal of future maintenance claims in return for more of the available capital.
  • Maintenance for children - the Court has limited powers.
  • Lump sum - only one lump sum order in each case - but there can be payment by instalments.
  • Sale of property - to enable a lump sum to be paid.
  • Transfer of property - eg of the house / life policy / shares.
  • Attachment of pension benefits - the allocation of a share of future pension benefits when they are received - rarely made except for death-in-service benefits.
  • Pension Sharing - the transferring by one party to the other of part of their pension transfer value which is then invested in a pension plan or scheme that the receiving party has in their own right.

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Financial issues – some specific points

Does ‘equal’ always mean ‘fair’? The House of Lords has said that Courts should assess cases by reference to ‘the yardstick of equality’. This does not mean that the right answer is always an equal division of the assets but a Court needs to have clear reasons for departing far from equality. For example, in cases where a mother is going to provide young children with their main home for many years, she may often receive 60 – 66% of the assets to reflect her future contribution to their welfare and to meet her immediate housing needs.

What is an ‘equal outcome’? The Courts do not regard it as equal simply to add up all the numbers and divide them by two. Courts look for ‘equality of outcome’ which means each party being left in a position after divorce where they can ‘look to the future with an equal measure of confidence’.

Is a £1,000 always worth £1,000? The short answer is ‘no’. Courts recognise that different types of asset may be more or less valuable than other assets which carry the same face value.

  • some assets may be less liquid than others and are therefore seen as being less valuable; nothing is better than cash in the bank which can be spent today however you wish; equity in your home can be spent as soon as you can sell the property; business assets may not be realisable as cash for a much longer period, if at all; certainly no one is going to receive a cheque for the amount shown as the transfer value of their pension.
  • other assets are seen as carrying risk and their value is likely be reduced to reflect this; for example, a speculative investment, or debt that may not be recovered or some types of business assets.

Business assets Courts are reluctant to make decisions that undermine businesses; they recognise that the true value of a business is often that it represents a future stream of income from which the whole family will continue to benefit, rather than a figure to be lifted from a balance sheet. Shares in a private trading company may not be readily convertible into cash and it may not be realistic to withdraw capital from the business in the short term; minority interests may be heavily discounted.

Charge back Sometimes one party needs the immediate use of most of the assets in order to meet their housing needs and those of the children; the children are the Court’s priority and so, for the other party, it then has to be a case of ‘jam tomorrow’. The way this is sometimes achieved might be: a transfer of the house to the wife who then creates a legal charge against the house in favour of the husband who will receive a percentage interest on the happening of a future event or date, for example, when the house is sold or when the wife dies, remarries, cohabits or when the children reach a certain age.

Two mistakes you need to avoid making are:

  • do not start to negotiate too soon: wait until all financial information is available; and
  • do not reach an agreement in respect of only part of the financial resources - the agreement must include all resources.

Usually, keep talking to your spouse about money if you are comfortable doing so; after all, ‘talk is free’. In most cases, however, detailed negotiations are better left to lawyers.

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Financial issues - procedure for a financial remedy application

There is now a general rule that before anyone can make an application for a financial remedy order they must first have attended a Mediation Information and Assessment Meeting (MIAM) to consider if mediation would be a good process for them and their spouse to try to resolve their dispute. This does not mean they have to undertake mediation, but they usually have to have at least considered it. There are exceptions to this rule, for example where there is domestic violence or bankruptcy.

Unless one party is eligible for public funding (legal aid) local mediators charge a fee of between £100 and £150 to conduct a MIAM. For our views on mediation please follow the link to Mediation.

As soon as an application for a financial remedy order is filed the Court lays down a timetable which fixes dates for:

  • the filing and exchange of Forms E
  • the exchange of Questionnaires
  • the First Appointment (about 10 weeks later).

Both parties complete a Form E; these are then exchanged about 5 weeks before the First Appointment.

Based on a consideration of the other party’s Form E, the solicitors prepare three documents :

  • a Questionnaire listing questions they wish to see answered and a list of documents they wish to see provided
  • a Statement of Issues, identifying the main issues that the Court has to consider
  • a Chronology

At the First Appointment the Judge’s agenda is to:

  • order any valuation reports that may be necessary
  • order the answering of questionnaires and providing of further documents to the extent he/she thinks it necessary within the next 2 or 3 weeks
  • set a timetable for the rest of the case: usually, about 4 –6 weeks later there will be a Financial Dispute Resolution Appointment and about 3 months later, if there is no agreement, there will be a Final Hearing.

Before the Financial Dispute Resolution Appointment the parties will have to make 'Without Prejudice' (off the record) offers for settlement.

The Financial Dispute Resolution Appointment is also conducted on a 'Without Prejudice' basis. The lawyers outline their client’s proposals and explain the thinking behind them to the Judge. The Judge will comment on the merits of each party’s arguments and offer his/her own view as to the range in which a settlement should be achieved. He/she will then expect negotiations to continue.

In some cases it can be agreed that the First Appointment and the Financial Dispute Resolution Appointment can be rolled into one and take place on the same day.

If this process has not achieved a settlement, it may at least have narrowed the issues. The case will then have to be decided at a Final Hearing (this will be before a different Judge to the one who heard the Financial Dispute Resolution Appointment). The parties give evidence and are cross-examined and their lawyers make submissions on their behalf.

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Financial issues - costs

It is sometimes difficult to predict at the start of a case what costs you will incur in dealing with financial issues. We will give you the best estimate we can give at the start of your case and will update this estimate in relation to your own case as it progresses.

The general rule is that each party pays their own costs in relation to financial issues. The Court will have regard to the amount of the parties’  liability for legal fees when deciding the case. The Court retains the power to punish a party who behaves poorly during the case, or who delays, by making a costs order against them.

There is a balance to be struck in relation to legal fees; on the one hand, it is not the best use of your family’s money to indulge in expensive litigation; on the other hand, you need to achieve a fair outcome. We like to think we can work with you to achieve a fair outcome at a fair cost.

The steps you can take to keep your legal costs within reasonable limits include

  • Decide whether you want to pay for a whole team of lawyers; large firms can offer you this if you need it.
  • Decide whether you are prepared to pay for an inexperienced lawyer to ‘cut their teeth’ on your case.
  • Do as much of the ‘leg-work’ as possible yourself for example by getting your paperwork organised and making your own enquiries about your borrowing capacity and investigating the prices of properties each of you might be able to afford.
  • Be as efficient as possible: it is not sensible to pay for your own lawyer to chase you.
  • Prepare well for meetings.

The way you get value for money from lawyers is buying ‘chunks of time’ rather than bits of time; 30 minutes spent on a productive meeting achieves more than a series of short letters, emails or phone calls. 

We hope you will decide that by employing an experienced lawyer, offering you a personal service, you give yourself the best chance of obtaining a good outcome and, at the same time,of keeping your fees down. This is what we aim to deliver.

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