When a couple separates, one of the major issues that needs resolving is how their finances are to be divided between them. This does not necessarily have to be an acrimonious situation and if handled correctly will produce the best outcome for the parties to enable both of their needs to be covered. A financial settlement is the arrangement that is used to decide how the couple’s assets and wealth will be divided. There are various methods for deciding a financial settlement- it can be done by the parties themselves or via methods such as mediation or negotiation. Finally, the courts can be involved if the parties cannot agree to an agreement using these other methods. Here we examine the uses of a financial settlement and what they include.
Why is a Financial Settlement necessary?
A financial settlement that is recorded as an order of the court is a legal document that has to be followed. It protects the parties from claims being brought against them and ensures that the assets and wealth of the couple is divided fairly. It is not necessary for the details of the financial order to be determined through a contested trial in court in every occasion. It is possible for the parties to agree the order by consent between themselves. This can then be drawn up as a consent order by a solicitor. In this case, it would be processed alongside the divorce and be finalised within 3-6 months.
Where the parties cannot agree between themselves there are various other options that can be considered. The financial order can be negotiated between the parties’ solicitors or using mediation, arbitration or collaboration. The court can then record the financial settlement as an order of the court. Each case will be determined based on the individual circumstances and the court has a wide discretion to determine what orders are appropriate in that particular case. The underlying principle if of fairness to both parties, taking into account the interests of any relevant children, which is one of the main factors.
How is a financial order determined?
The financial order is determined on the basis of fairness. Therefore, both parties need to make full and frank disclosure about their wealth, assets and income.
There is a range of items that are included in a financial settlement including:
- Any property including the family home
- Other assets such as cars
- Stocks and shares
- Assets abroad
- Debts such as mortgage and school fees
What criteria are used to determine Financial Settlements?
The law in this country is discretionary on how assets and wealth should be divided in these cases. Various factors will be taken into account when determining such an order including:
- Assets belonging to both parties.
- The party’s earnings (this includes potential earning capacities).
- Both parties’ ages.
- The health of the parties and whether this affects their earning capacity either nor or in the future.
- If there are children that need to be supported. Issues such as the ages of the children, their individual needs and other childcare arrangements will be taken into account. Also, who the children will be living with is an important issue.
- How long the parties have been married. The court would also take into account any time spent living together before the marriage.
- Present and future needs of both parties. This will take into account the standard of living each party is used to and ongoing living expenses.
Generally, it is necessary to consider the needs principle in determining the allocation of resources. In most cases, the resources of the couple suddenly need to be split into maintaining two households rather than just one. This usually means that the funds will not stretch to cover both spouses’ needs. In this case, the spouse that has more of a financial strain (generally the one that keeps the children living with them) will be favoured when the assets and wealth are divided. However, in cases where there are enough resources to cover both parties then the court are moving towards the sharing or equitable approach, which states that there should be an equal division of wealth.
What are the possible orders?
Generally, there are three types of orders that are used in a financial settlement.
The first type are ongoing payments and these are known as periodic payments. These cover maintenance for children and alimony for spouses. They can be done weekly or monthly and the court can secure them to make sure that the spouse that needs to pay them does not default.
There is then the one-off payments, which are capital orders. These could be done as a lump sum payment or a transfer of property rights where the legal ownership of an asset is transferred from one of the parties to the other.
Finally, there are the orders connected to future issues such as pensions and life insurance policies. These benefits can be divided between the parties in the same way as other assets. Pensions are a major asset of most people and so this is an important issue to cover in any financial settlement order.
If the couple does not have any children or has a high net worth meaning that both their needs can be covered then it is possible to have a clean break settlement, where all finances are separated immediately and there is no ongoing payments or transfer needed. This may also be relevant where there are little or no assets from the relationship. These are quite rare and you should get advice if you feel this may be appropriate to your needs.
Contact our Specialist Divorce Lawyers in Wakefield
Ensuring that you have the right advice when you are separating from a partner will make sure that you get the best financial settlement in your situation. We have a wealth of experience and our dedicated team can advise and represent you throughout the whole process. We can discuss your needs and advise you on the best route in your particular circumstances.