We often find our clients think that sorting out the finances is the scariest part of separation and divorce. Certainly it seems complicated and worrying, and it is difficult finding money for two households where previously there was one. It is sensible to get advice about this part of the separation but you can do a lot of the preparation yourself, which will help keep your legal fees under control.
Your first concern is how to keep paying the bills without getting into debt. If you can continue doing this without making any changes, speak to your partner about keeping all the arrangements the same for now. You will need to keep an eye on your income and outgoings - talk about reducing your expenditure and agree to avoid unusual or large payments where possible.
If you are worried that your former partner will build up debts, perhaps an overdraft or on a credit card, you may need to take urgent steps with the bank or the credit card company to prevent it. However, changing the bank account arrangements without first agreeing with your former will be considered an aggressive move. As well as causing arguments, it may result in a solicitor being instructed which means increasing legal expenses. Try to agree everything first. Neither of you wants to feel threatened by the other.
If you are or were married, both of you have a right to live in the matrimonial home. If your name is not on the deeds and you are worried that your former partner will sell or re-mortgage the property, seek legal advice about protecting your interest in it by registering a notice or restriction with the Land Registry. This will need to be done as soon as possible.
It is a good idea to investigate out what amount the matrimonial home may sell for. An estate agent should give you a price guide without charging any fees. You should then find out how much you still owe on your mortgage. Consider how much you will need to pay for conveyancing and marketing the property and work out how much you will be left with if the property is sold.
1a Jointly owned property
You should consider whether the way you own your property should be changed. Many married couples own property as joint tenants. If you own property in this way and you die, the other owner will automatically own the whole property. Even if you had made a Will leaving your share of the property to your parents, the other owner will still own the whole property and that part of your Will is ignored.
Another way of owning property jointly is called tenants in common. This means that you each own half the property. Your Will can be used to ensure your half is inherited by whomever you choose. Have a look at our video.
It is a simple matter to change from joint tenants to tenants in common by a process called severance but you should think carefully whether it would be appropriate for you. If you sever the tenancy so that the property is owned as tenants in common and your partner dies, you will not inherit their half of the property. If you had remained as joint tenants, you would own the whole property when they die.
You should not sever a tenancy without first discussing the consequences with a solicitor. Sometimes it really isn't appropriate.
It is also essential that you make a Will if you sever a tenancy. If you are married to the other owner and do not make a Will, your spouse will inherit your share in any event, making the severance a waste of time.
A pre-nuptial agreement (often referred to as a pre-nup) is a contract entered into by a couple before they get married. It confirms what they want to happen if their marriage ends in divorce. Usually one or both of the parties have money or a family asset (perhaps a business) they are contributing to the marriage but which they want to protect.
A post-nuptial agreement (often referred to as a post-nup) does the same thing but is entered into after the couple are married. You might want to consider one if you have separated from your spouse but have now reconciled and you want to know what to expect if things go wrong again.
Pre-nups and post-nups are not really binding in England and Wales but if both parties voluntarily enter into the agreement, and both parties fully understand the implications, the court will probably implement the terms of the agreement, unless it would be unfair to do so. The court will consider:
- Did you both have independent legal advice before you signed the agreement?
- Did you both fully disclose your financial circumstances when you signed the agreement?
- Did either of you sign the agreement under undue pressure?
- Do the terms of the agreement meet everybody’s needs, including your children's needs?
Whatever your financial circumstances, it is important to have a court order that confirms what the new arrangements will be. Even if you have no assets, having a court order ensures that neither of you can make claims against the other in the future. Without an order, it is possible for your ex-spouse to make a claim against you, even years after the divorce. You would not be the first spouse to receive a claim from their ex as soon as you inherit money or win the lottery.
To start with, consider what each of you thinks is fairest way to divide the assets and debts. If you agree, there will be no need to issue court proceedings - although you should still have your agreement drawn into a binding court order. Mediators, collaborative practitioners and solicitors can all help with the discussion and negotiation that leads to identifying a fair outcome.
If you cannot agree what is fair and court proceedings are issued, the judge's aim is also to find a solution that is as fair as possible, with the interests of your children being a priority. The judge will consider all the circumstances of the case - your resources and your needs. Financial resources will include the value of your home, your mortgage, your incomes, your savings and your pensions. The most obvious needs are for a home and an income.
There are three principles that the court will apply: the needs principle, the sharing principle and the compensation principle. Perhaps you have enough assets for the needs of the family to be met by simply dividing the assets equally between you and your ex. Maybe you will need a bigger slice of the cake in order to provide a home for your children. The focus will be on what you need, not what you want.
The sharing principle means that since you both committed to the marriage you should be treated as equal partners in the marriage and, if your marriage ends, the assets of your marriage should be shared.
The compensation principle recognises that one of you may have given up a career to care for children or to support your spouse in their career. This may have resulted in you having a lower earning capacity. Even if you have your needs met according to the needs principle, you will still be at a disadvantage in earning an income in the future so perhaps you should benefit from any future surplus income your ex-spouse receives.
Each principle is considered in every case but sometimes there is only enough money to consider the needs of the parties.
If you have no children and your marriage was short-lived, it will probably be appropriate to simply sell the property and divide the proceeds. You may split the money equally or, if you brought money or a property to the relationship before you married, perhaps you will have more of the sale proceeds to ensure fairness.
If you have children, disruption to their lives should be kept to a minimum. However, both you and your ex need homes and will need to accommodate the children when they come to stay.
If you own the property in your sole name, it will still be considered part of the matrimonial assets. It does not necessarily follow that you will retain the house. However, if you owned it before marriage, it may be fair for you to retain a larger share of it. Of course, the longer your marriage has lasted, the less that argument will apply since the property will have been the family home for a significant amount of time.
It isn't just the assets and liabilities that will impact on whether the property will be sold - there are practical considerations too. If you have a teenage child about to sit their exams, you may decide it is better to wait a while. Perhaps you agree that the property needs building work completed before it is sold to maximise the sale proceeds. It may be that neither of you can borrow enough money to buy out the other share of the property.
You may decide that the assets are needed to provide a home for the children with the other parent. Your interest in the property could be paid out at a later date, when the youngest child reaches 18 or finishes college. In the meantime, you can have the benefit of a charge placed on the property after divorce so you know how much you will receive when payment is triggered.
If the property is in the sole name of your spouse then you must protect your interest in the matrimonial by applying for a Homes Right Notice to be placed on the property. Please contact a solicitor to discuss this further.
Maintenance for your (ex-)Spouse
Maintenance, (called periodical payments by the court), is another of the tools used to divide up finances and property on separation. It means one party making regular payments to the other, usually every month. The aim is for the party with higher income to help the other pay living expenses. There is no formula to work out the amount that should be paid - it depends on the payer’s net income, the recipients own income and earning capacity, and the expenditure needs for each of you. If your marriage was short, you are not likely to have to pay maintenance for very long, if at all. If you had a long marriage, and your ex doesn't have a job, you may need to pay maintenance long enough for them to find employment or perhaps on an open-ended basis if the likelihood of finding work is minimal. As circumstances change, so might the amount of maintenance.
Maintenance for your Children
Child maintenance is regular financial support that contributes to the everyday costs of looking after your child. The parent who doesn't have day-to-day care of the child pays child maintenance to the parent who does.
Since 25 November 2013, the Child Support Agency (CSA) hasn't been accepting new applications and from 2014 began to end child maintenance arrangements on its 1993 and 2003 schemes. If you are affected, you will get a letter from the CSA beforehand, giving you a chance to make new arrangements. You will be encouraged to make your own family-based arrangement and you can contact a service called Child Maintenance Options for free and impartial information and support. Call them on 0800 988 0988 or visit the website at http://www.cmoptions.org. Child Maintenance Options has a range of tools to help you make a family-based child maintenance arrangement including an arrangement form to keep a record of what you have agreed and an online calculator based on the rules used to work out child maintenance that can give you an idea of the amount that you could expect to pay or receive.
If you can't agree, you can apply for a statutory child maintenance case managed by the Child Maintenance Service (CMS) which is the new government service that replaced the Child Support Agency on 25 November 2013. However, the government plans to introduce fees in 2014 for new applications, using the Collect & Pay service, and enforcement action taken against parents who don’t voluntarily pay in full or on time. The aim of these fees is really to encourage you to work together to arrange child maintenance instead of using the Child Maintenance Service.
Your pension can be one of the biggest assets in divorce, so it must not be overlooked. There are different ways to deal with it and deciding which is most appropriate depends on your family's circumstances. If your marriage was short and you are both in your twenties or thirties, it is unlikely that your pensions will be divided at all, although they wont be disregarded. If you have had a long marriage and you are both in your fifties, your pensions will be much more important in your settlement.
If you have never worked, perhaps because your role has been to look after children, but your spouse has built up a large pension fund over the years, the court can award you a greater share of the family home while your spouse keeps their pension. You would receive a greater share of the assets up-front but at the expense of retirement security.
On divorce most pensions can be divided by a court order. If your spouse has a pension, a percentage of it can be transferred from their pension and invested in a new separate pension for you. In some public sector schemes like the police and the NHS, it is possible for you to have an "ex-spouse" fund within the existing scheme, but it won't be affected by your spouse drawing on their own pension fund.
A third option allows for part of the pension fund to remain where it is but be allocated to you. This is extremely rare as it has too many disadvantages compared to offsetting and pension sharing. Earmarking doesn't take effect until the date your spouse retires, which may be later than you expect. In the meantime, you have no control over it and you don't have a clean break from your spouse.
You will need to have an idea how much your pension is worth. Most pension providers send out an annual statement which tells you the transfer value. Otherwise, they will provide pension information on request, but will sometimes charge. Sometimes it is prudent to get professional advice from an independent financial adviser, especially if you have a final salary scheme or the pension is underfunded. Remember, a pension cannot be accessed in the same way as a bank account. If you do take extra cash or property instead of part of a pension, you should not expect to consider pension cash equivalent to be equal in value with property or cash on a £1:£1 basis. So, £100,000 of pension does not equal £100,000 of cash or property.
Businesses form part of the assets to be shared on divorce. Whenever possible, the courts tend to leave the business with the business owner and the other spouse will be compensated with a larger share of the other assets. This solution has its problems - it is difficult to value a business and it isn't always possible to know whether the business will do well in future.
It's rare for a court to order the sale of a business, although they could do so where necessary. Much more often the court will compensate the other spouse from other matrimonial property or cash. The Court may order maintenance to be paid from the income generated by the business.
You will need to provide a valuation of the business as a starting point. You should also think about what you want to achieve from the business - do you want an income stream, or do you intend to build the business before selling it? Get some advice on this from a family solicitor and your accountant.