What is a financial settlement?

Financial settlement in a divorce or separation involves the distribution of the marital property, such as businesses, houses, savings, investments, as well as decisions regarding spousal maintenance.

To secure a financial settlement it is important to gather and disclose any financial information, such as wage slips, business accounts, bank statements, and pension values to allow financial settlement solicitors to assess marital assets and liabilities.

The aim is to agree upon a fair and equitable financial settlement that addresses both parties’ needs and obligations after the marriage ends. You can negotiate a settlement either directly with your spouse or through mediation, ideally with legal assistance.

Once an agreement is made, the financial settlement can be formalised in a legal document and submitted to the court for judicial approval as part of the divorce proceedings, after the conditional order stage in the divorce.

What assets can be divided in a divorce?

A financial agreement will agree on how to separate the following matrimonial finances and assets:

• Property: this would be the marital home, any second/investment properties/any property owned by a business and any property in which a party has a beneficial or legal interest.
• Pensions: For many people, their pension can be the largest asset after the matrimonial home. If one party has significantly more in pension funds than the other at the point of separation, then there will be consideration given to whether a pension sharing order would be appropriate.
• Savings: to include capital in bank and savings accounts plus any cash.
• Investments: usually ISAs, but may also be bonds, land held speculatively, or similar.
• Business interests: shares, directorships, offices held, beneficiaries with trust interests in dividends, etc.

How is a financial settlement calculated?

When dealing with financial matters on separation or divorce broadly speaking, the starting point is an equal split. There are then adjustments to reflect the Section 25 factors.

A divorce financial settlement is calculated by looking at several factors such as:

• Your spouse’s and your income.
• Your individual earning capacities. This would be what a person can earn, not necessarily what they’re earning when the matter comes to court.
• Any investments or pensions.
• Any property you or your former spouse own.
• Financial obligations and responsibilities each person has towards any dependant children or other people.
• Living expenses.
• Your standard of living (although this is rarely relevant except in high net worth cases).
• Any business interests.

What will the courts consider in a divorce financial settlement?

When considering a divorce financial settlement the court looks at a checklist (section 25 of the Matrimonial Causes Act 1973) which is not exhaustive. The court’s first consideration is the needs of any children, then the court will consider other factors including:

• The age of the parties.
• Whether there are any health issues of either party, particularly if these restrict the ability to self-support.
• The length of the marriage. Very short marriages can result in parties taking out what they brought in.
• The earning capacity of each of the parties and to what extent steps could reasonably be taken to improve a party’s earning capacity. Qualifications and previous earnings will be considered.
• The standard of living enjoyed by the parties during the marriage.
• Contributions made by each party to the welfare of the family that have been made or are likely to be made in the foreseeable future, including looking after the home or caring for the family.
• The needs of each party such as capital needs for example housing needs, borrowing capacity and income needs.

Benefits of a divorce financial settlement

The benefits of a financial settlement are:

• Reduces uncertainty: it provides clear terms regarding the division of assets, so having one in place reduces uncertainty and potential future disputes or claims.
• Security: If you have children, having a financial agreement in place can provide financial stability for them in the future.

How our solicitors can support you with your financial settlement needs

Our family law team has vast experience in financial settlements and can guide you through the process step by step. As soon as the relevant financial information has been obtained, they will be able to give you a good indication of what will happen in your case and can help you put together a proposal, advise on any counter-offer, and draw up the court papers to submit any agreement for the judges approval.

They will assist to enable you to negotiate a fair and equitable financial settlement.

In cases where an agreement cannot be negotiated, your solicitor dealing with your financial settlement will help you apply to the court to force a conclusion to financial wrangling via court proceedings.