How finances are dealt with on divorce

Divorce represents one of the most challenging life transitions, with financial settlements often proving to be the most complex and emotionally charged aspect of marital separation. The process of dividing assets, determining maintenance, and securing financial futures requires a delicate balance of legal expertise, financial acumen, and emotional intelligence.

How courts assess divorce financial issues

The primary legislation governing financial settlements in the United Kingdom is the Matrimonial Causes Act 1973, specifically Section 25. This provides the court with a comprehensive framework of principles for determining financial outcomes in divorce proceedings, which are :-

• Dependent children's financial needs given priority

• Fairness and equitable distribution

• Consideration of both parties' future needs

• Recognition of contributions to family welfare

• Each party's income and earning capacity

• Standard of living during marriage

• Age and health of both parties

• Duration of marriage

In negotiating a potential financial settlement both parties should be mindful of these principles because ultimately any agreed settlement will still need court approval and will not necessarily be "rubber stamped" by a Judge, especially where there are child dependents.

Starting out of court divorce negotiations

The financial analysis phase involves completing Form E (the court form needed to disclose assets and liabilities) meticulously with all supporting documents, creating a realistic monthly budget showing current and future needs, and calculating immediate capital requirements.

Strategic preparation requires identifying clear objectives and priorities, understanding your minimum acceptable outcome, and developing several alternative settlement proposals. Consider the timing of asset division and prepare a schedule of outstanding issues requiring agreement. Expert valuations may be needed from experts such as forensic accountants, pension experts relating to sharing or offset options and property valuers

Mediation should be considered as a potential route to agreement.

Types of outcomes with divorce finances

In English divorce financial settlements, several combinations of orders are commonly made together to achieve fair outcomes. A Property Adjustment Order plus spousal maintenance (Periodical Payments Order) is frequently used where one party has lower earning capacity and needs ongoing support alongside housing provision. This might include an immediate property transfer or sale with division of proceeds, coupled with monthly maintenance payments for a fixed term or until further order.

Property transfers might also be combined with Pension Sharing Orders where there's significant pension wealth, especially in longer marriages. This combination helps balance immediate housing needs against future financial security, perhaps with one party keeping more property in exchange for a larger pension share to the other.

A Mesher Order may be combined with nominal maintenance to protect future claims, particularly useful where children are young and future circumstances uncertain. This combination keeps the housing stable for children while maintaining flexibility to adjust financial support as needs change.

For cases involving business assets, a combination might include a lump sum order (perhaps by installments) plus maintenance, allowing the business-owning spouse to retain their business while providing both capital and income to the other party. This could be coupled with a Section 28(1A) bar preventing extension of maintenance term but allowing variation of amount during that term.

In cases with substantial assets but limited liquidity, courts might order a deferred lump sum alongside immediate maintenance, perhaps secured against property or other assets. This could also include a Pension Attachment Order rather than pension sharing if immediate pension division isn't practical.

Where earning capacities are very different, an immediate capital provision (perhaps from property sale) might be combined with reducing maintenance over time to encourage financial independence while providing transitional support. This might include a 'step-down' maintenance provision where payments reduce at predetermined points.

Challenges and common areas of dispute

Financial settlements in divorce are often hindered by issues that complicate valuation, tracing, and fair distribution of assets, including :-.

Valuing a business owned by a spouse - if your spouse owns his or her own business, or is a shareholder, agreeing a value can be very difficult and contentious as there are many ways this can be approached, with experts often reaching very different valuations.

Suspected hidden assets - Investment structures like trusts and offshore companies obscure true ownership and control, requiring determination of whether they can be varied by courts. Undisclosed income, property transfers to third parties, or overseas holdings makes accurate asset tracing difficult despite court powers.

International assets - create problems with different legal systems, disclosure requirements, and enforcement of English court orders abroad. Tax implications across jurisdictions can also impact net settlement values, with timing and structure of transfers potentially reducing available resources for distribution.