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Fair Shares? Sorting Out Money and Property on Divorce

The Nuffield Foundation financed research study “Fair Shares? Sorting out money and property on divorce” has recently been published.

Whilst this article is heavy on statistics, they provide a useful but in the main concerning snapshot of what are recurring themes.

 

Approximately 100,000 couples divorce each year but of those, only approximately one third come away with a Court Order confirming how matters relating to the division of the matrimonial finances are to be dealt with, and in that third of cases, the majority of those Court Orders are achieved by consent.

2,415 people who divorced in the last 5 years took part in the survey.

The median value for the total asset pool which included a family home and pensions was £135,000 which on the face of it, appears very low. However 17% had no assets to divide, whilst 63% had assets worth under £500,000. Of the group, 28% were in rented accommodation, which is perhaps why the median value for this survey is on the low side.

The survey reflected previous findings that wives, and especially mothers, had more precarious financial circumstances than their husbands.  This meant that they were more likely to be in part-time work, earning less than their husbands.  This imbalance then also seeped into issues around pensions, with husbands more likely to have had their pensions for longer and for their pensions to be of a greater value.

38% felt that their knowledge of their spouses’ finances was not good.  That is often a situation that we come across at the outset of being instructed by a client, although that lack of knowledge can easily be rectified by ensuring that full and frank financial disclosure is entered into.

Perhaps unsurprisingly, the lack of an understanding about the other person’s finances could have had an impact on how any financial negotiations concluded.  As an observation, the natural question that we often pose is how can you negotiate from a position of strength without a full understanding of what it is that you are negotiating over.

29% said that they had lawyers assisting them, whilst 12% said that they had not sought any legal advice at all.

32% of those surveyed had accessed legal services in relation to a financial agreement but over half (52%) came to the financial arrangements between themselves.

Women were twice as likely to have to go to Court to resolve issues around the finances because they could not reach an agreement with their ex.

Not using a lawyer made it more likely that pensions were not considered appropriately.

 

On a more upbeat note, having the assistance of a lawyer meant there was a greater likelihood of wives receiving ongoing financial support, or the family home being transferred to the wife, or if the family home was to be sold, the wife receiving a higher percentage of the net sale proceeds.

Whilst matters relating to the matrimonial finances need to be considered under the three separate heads of capital, pensions and income, that of itself does not mean that every financial settlement needs to see a substantive Order made on each of those three separate heads.

Where the family home was sold, women were more likely to receive half or more of the equity although that did not mean that there were large differences between the sexes in relation to the value of any financial settlement.

 

Only 11% with a pension not in payment had made an arrangement for pension sharing, and in cases where a pension was not in payment, only 22% of cases saw pensions split equally.

Pensions will often be a significant part of the total matrimonial asset base and therefore do need careful consideration and so should not be discounted out of hand (at the beginning of a case, we might be informed that one party is saying “you keep the house / I’ll keep my pensions” or something to that effect) and nor should the value of a pension have parity with the capital value of any other non-pension assets. Even where the parties both have pensionable assets with similar values, there may be a material difference between those pensionable assets and what their values mean in real terms for the spouses later down the line in retirement, such as the very real difference between a final salary pension and a defined contribution one.

 

Over a third of those surveyed wished to see a financial Clean Break which in short, means dealing with the matrimonial finances without the need for an ongoing financial obligation on one party to pay money to the other, although it is important to understand that if the parties have dependent children, and there is an unequal split for the children spending time with their parents, then the parent with whom the children spend less time will often have a separate statutory obligation to pay Child Maintenance in any event, and the obligation to pay Child Maintenance is not something that can be contracted out of.

At the date of the survey being conducted, up to 5 years after divorce, women, and especially mothers with dependent children, were on average worse off financially than men.

It is clear that there continues to be a worrying disparity between the sexes with regards to a financial settlement reached on the breakdown of their marriage.  It is also clear that those who sought legal advice (and that can take many different forms) achieved what might be considered as being a more appropriate financial settlement.

 

Pensions still do not appear to garner the attention that they require, and failing to give them the required level of attention could easily lead to an unfair financial settlement.  In practical terms, not only does the here and now need to be actively considered, but also what the position will be for the parties in retirement and what income from pensions they would be in receipt of.

Having said that, it is not necessarily the position that for every separating couple there needs to be a defined Pension Sharing Order.  Whilst separate specialist expert advice will often be required on pensions, pensions can be dealt with by way of pension-offsetting, whereby the person who should receive the benefit of a Pension Sharing Order elects not to, but instead achieves more by way of a capital settlement in lieu of pursuing a separate Order on pensions.

 

For those with dependant children, it is often the case that the main focus is on the here and now with regards to how their capital needs for the purposes of re-housing are to be met, especially in circumstances where there may be a disparity on income between the parties, with one party to the marriage having a far lower borrowing capacity, and so if it is affordable, then with some cases, pension-offsetting may be an achievable outcome.

Even if matters can be dealt with amicably and any financial arrangements reflect an agreement reached between the parties, without the assistance of lawyers, that financial settlement should be set down in a Court Order (Consent Order) so that both parties to the marriage can move forward in their lives with the requisite certainty that matters relating to the matrimonial finances were dealt with.

 

There is always the danger that where the parties have agreed on how the matrimonial finances should be dealt with but without the assistance of lawyers, and that agreement is not formally set down in a Court Order, that one party to the marriage at any point in the future could look to achieve more by way of a financial settlement, and trying to untangle what might and what might not relate to defined matrimonial assets any number of years post separation / divorce can be a significant and expensive undertaking.

Whilst there are legal costs associated with instructing a family law specialist solicitor to assist you on the breakdown of your marriage, the costs to you in not seeking specialist legal advice are likely to be far greater, as this survey reflects.

 

Please get in touch with our Family Department for specialist legal advice on 01255 320 555 or email mail@clarkeandson.co.uk.

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