Divorce Financial Settlement: What Are You Actually Entitled To?

There Is No Automatic 50/50 Split

One of the most persistent myths about divorce is that assets are split equally between the parties. This is not the law. There is no presumption of equal division in England and Wales. The starting point in long marriages with significant assets may be equality, but the court is required to reach a fair outcome having regard to all the circumstances -- and fair does not always mean equal.

The legal framework is set out in section 25 of the Matrimonial Causes Act 1973. The court must consider a list of factors -- the section 25 factors -- and reach a result that is fair to both parties. The first consideration is always the welfare of any minor children of the family.

The Section 25 Factors

The factors the court must consider include: the income, earning capacity, property and other financial resources of each party (present and future); the financial needs, obligations, and responsibilities of each party; the standard of living enjoyed during the marriage; the age of each party and the duration of the marriage; any physical or mental disability; the contributions made by each party to the welfare of the family, including caring for children and homemaking; the conduct of each party if it would be inequitable to disregard it; and the value to each party of any pension benefit.

Each factor is weighed in the context of the specific case. A short marriage with no children and both parties working produces a very different outcome from a long marriage in which one party gave up their career to raise children.

Needs, Sharing, and Compensation

The courts have identified three rationales for financial orders: needs (ensuring each party can meet their reasonable needs), sharing (the marital acquest being divided equally as a starting point), and compensation (addressing relationship-generated disadvantage, such as giving up a career). In most cases, needs is the dominant consideration -- particularly where assets are modest. Sharing becomes more relevant in bigger-asset cases. Compensation is rarely argued successfully but is relevant where one party has suffered significant career sacrifice.

The Family Home

The family home is usually the most significant asset and generates the most dispute. The options are: immediate sale and division of the proceeds; transfer of the property to one party (with or without mortgage); a Mesher order (the property is held on trust, deferred sale until a trigger event such as the youngest child reaching 18 or either party remarrying); or a Martin order (similar but without the children trigger). Each option has different financial and practical implications. Mesher orders are often presented as the easy solution but they can create significant problems for the party who remains in the property -- they may be unable to remortgage, unable to move, and trapped in a shared financial relationship with their former spouse for years.

Pensions

Pensions are often the most valuable asset in a marriage and the most commonly overlooked. A defined benefit (final salary) pension built up over a long career can be worth hundreds of thousands of pounds. It is an asset to be divided just like the family home. Pension sharing orders, pension attachment orders, and pension offsetting (trading pension value against other assets) are all available mechanisms. Before agreeing any financial settlement, obtain a cash equivalent transfer value (CETV) for every pension held by both parties. Do not agree a settlement that ignores pensions.

What You Cannot Agree Informally

An informal agreement about financial matters on divorce is not legally binding. Only a consent order approved by the court has binding effect. Without a court order, either party can return to court years later to make claims against the other. This is one of the most important -- and most ignored -- facts about divorce finances. Whatever you agree, get it made into a consent order.