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 :-

• The welfare and needs of any child of the family given first consideration

• Fairness and equitable distribution

• Consideration of both parties' future needs

• Recognition of both financial and non-financial contributions to the family

• 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 dependent children.

Starting out of court divorce negotiations

The financial analysis phase should commence with an exchange of financial information between the parties, usually done by completing a Form E (the court form used to disclose income, assets and liabilities) together with disclosure of relevant documents, such as bank statements and pension CEVs. The purpose of the form and disclosure is to establish the extent of the marital assets and any liabilities, and the income needs of the parties.

Once financial disclosure has taken place, strategic planning and discussions can then be undertaken to better understand the outcome being sought and explore the potential settlement outcomes achievable, based on the parties’ finances. In cases, there is sometimes a need to obtain expert reports such as valuations from chartered surveyors, accountant’s reports on issues on tax liabilities and pension reports from actuaries relating to sharing or off-setting, before negotiations can progress.

We actively pursue all forms of alternative dispute resolution, as well as mediation, as an alternative to court, which is to be used as a last resort.

Types of outcomes with divorce finances

In English divorce financial settlements, no two cases are the same and the outcome will be dependent on the circumstances and assets concerning the particular marriage in question.

We would advise you on the likely broad range of possible outcomes that might apply in your marriage, if the matter were to be determined by the court.

It is likely that there would be a variety of different combinations of orders possible to achieve a fair outcome or that meets the needs of the parties.

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, where a family home is retained by one party and a future sale triggered by a specific event at which point the net equity in the home is then divided between the parties, 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.