What assets are included in a divorce?
Section 25 of the Matrimonial Causes Act 1973 sets out the basic guidelines, which the English Courts apply when deciding financial claims involving property, savings, pensions and maintenance. In addition, when deciding a case the Court will also have reference to decided cases, known as case law, when making its decision.
Where there are dependent children under the age of 18, this will have a major influence on how the Court exercises its discretion in dividing matrimonial assets. This is confirmed by section 25 of the Matrimonial Causes Act 1973, which provides that it shall be the duty of the Court in deciding how to exercise its powers to have regard to all the circumstances of the case with the first consideration being given to the welfare and needs of the dependent children.
How are assets divided in divorce?
Under section 25 of the Act the matters to which the Court is to have regard in deciding how to exercise its powers are as follows:
- The income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;
- The financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
- The standard of living enjoyed by the family before the breakdown of the marriage;
- The age of each party to the marriage and the duration of the marriage;
- Any physical or mental disability of either of the parties to the marriage;
- The contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;
- In the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.
In divorce, judicial separation or dissolution of a civil partnership, the Court has the power to make a variety of orders:
Payment of a lump sum
The Court can order one party to pay the other a lump sum or a series of lump sums. For example, the Court could order the husband to transfer to the wife his interest in the former matrimonial home in consideration of the wife paying to the husband a lump sum in exchange. A husband may be ordered to pay his wife a lump sum payment instead of paying her future spousal maintenance to capitalise the wife’s maintenance claim.
Sale or transfer of property
The Court can order the sale or transfer of all forms of property, although the most common is the former matrimonial home. The Court could order for the property to be sold and how the net proceeds of sale are to be divided. The Court can also order a property to be transferred from one party to another.
The Court has power to order the division of pension policies. For example, the husband could be ordered to transfer one half his pension or part of his pension to his wife in order to provide a new pension fund for his wife. This is known as a pension sharing order.
The Court can order one party to pay to the other maintenance. The maintenance order can be paid for joint lives, until one of the parties’ remarries or for a fixed period of time. In many cases it may not be appropriate for either party to receive spousal maintenance in which case the Court will make a ‘clean break’ order.
If the level of child maintenance cannot be agreed then this is dealt with by an application to the Child Maintenance Service. In view of the position the Court only has limited powers to make orders in respect of child maintenance. However, when a maintenance figure for a child has been agreed the Court is able to ‘rubber stamp’ the maintenance within a Consent Order.
Since every marriage is different it means that every divorce settlement is different. There are no rigid rules which apply to the division of the matrimonial assets. The law has to be flexible to apply to each individual case. The Court has a wide discretion in applying the law.
It is not the case that in every divorce the assets are to be divided 50/50. An equal division of assets may be appropriate in some cases but not others.
What the Court considers
Since no rigid rules apply, the Court will take into account the following broad factors when considering division of the matrimonial assets:
Welfare of the children
Where there are dependent children this will be the first consideration when deciding division of the matrimonial assets. In practical terms, this means providing a home for the children. Where assets are limited it will usually mean that the children’s carer will receive most or all of the liquid assets of the marriage, so that the children can be rehoused.
However, this does not mean that the needs of the other parent will be overlooked or ignored. The outcome will seek to balance the financial needs that both parties have (housing, food, clothing, holidays, etc.) with the available resources, while at the same time making proper arrangements for the children’s financial needs.
Available capital, income and other resources
Before the Court can deal with division with the capital assets the full extent of those assets has to be disclosed and identified. Disclosure normally takes place in Court proceedings by a way of exchanging Financial Statements (Form E). The former matrimonial home, any business or pension assets will need to be valued. The Court will not only look at the current income position of the parties but their future earning capacity, which may change following the divorce. For example, the wife may have to reduce her hours of work to be the main carer of any dependent children. Financial support from parents may be a relevant consideration, although it can never be made obligatory upon them. Where either the husband or the wife is in a new relationship and is co-habiting, the new partner’s financial affairs may also be taken into account.
Parties’ financial needs obligations and responsibilities
It is necessary to look at each of the parties’ needs in terms of both income and capital. This will include the re-housing needs of the parties. Both parties will need to provide a roof over their heads. Once again this will be a particularly important need for the carer of any dependent children. Costs of purchasing alternative accommodation in which to live will need to be looked at together with the parties’ mortgage capacity to raise or borrow money. The parties’ current and future income needs will need to be looked at. In Court proceedings the parties will be required to prepare a breakdown, estimating how much they will need to meet all of their outgoings on a weekly/monthly basis.
Parties’ ages and the length of the marriage
As a general rule, the longer the marriage the larger the financial settlement upon the divorce. When the Court looks at the length of the marriage the Court will usually take into account pre-marriage contributions, as part of the length of the marriage. The Court will normally consider a 50/50 split of the matrimonial assets when dealing with a long marriage following the ‘yardstick of equality’.
With short marriages, capital contributions become more relevant in deciding how assets are divided in a divorce. Age is also an important consideration. A ‘clean break’ order may be appropriate for a short childless marriage. If the marriage is longer and the parties are older, different considerations will become more relevant, such as pensions and provision on retirement. Age will also affect earnings and mortgage capacity and the ability to achieve independence.
Standard of living enjoyed before the marriage breakdown
This is usually taken into account in the context of balancing the overall available assets and resources, as against the needs of the husband, wife and the children.
Sadly in many cases there is often not enough to go around when assets are being divided in divorce. In view of the position, this will often mean that the parties will not be able to sustain the same standard of living, which they enjoyed prior to the marriage breakdown.
Any physical or mental incapacity of the parties
Fortunately, in the vast majority of divorces, this is not a relevant factor. However, where it is relevant, it can have a significant impact upon the settlement and outcome of the case. Supporting medical evidence will normally be required from a GP or Consultant.
It is well established that where one party has not worked during the marriage but has been a homemaker looking after the dependent children and the other party has been the breadwinner they are treated as having made an equal contribution towards the family and matrimonial assets. Contribution arguments are relevant with short marriages, particularly where the parties had significant assets prior to the marriage or where significant assets have been built up during the period of separation.
In addition, significant assets acquired during the marriage, for example, by a way of an inheritance, can also be viewed as a relevant contribution. However, as before, much will depend upon the length of the marriage and the needs of the parties. With an inheritance, much will depend also upon when the inheritance was received and whether it has been intermingled with other matrimonial assets.
Loss of any benefit by reason of the divorce
This normally relates to pensions. The Court now has the power to make a pension sharing order which enables this asset to be shared.
Bad behaviour or conduct
This is rarely taken into account, unless it is exceptional. The Court will only have regard to conduct if the conduct is so serious that it would be unfair for the Court to disregard it.
Cases before the Court normally result in three hearings. When an application is made to the Court for a Financial Order to resolve financial matters, the Court will fix a First Appointment hearing. This is normally a directions hearing.
The next hearing is a Financial Dispute Resolution hearing. At this hearing, the trial judge will take an active part in trying to settle the case. The Judge will normally give an indication as to an appropriate settlement for the case. If the case does not settle at this hearing the case is then listed for a third and final contested hearing.
As circumstances vary significantly from case to case, and given the wide discretion of the Court in dealing with these matters, the outcome will always vary depending of the facts of each individual case.
Some damage limitation can be carried out if a Pre-Nuptial Agreement can be entered into prior to the marriage. This can ring-fence pre-acquired assets and inheritances. Such agreements are not automatically binding but are now given, subject to certain safeguards, considerable weight by the Court.