The Importance of Financial Settlement in Divorce

A common misunderstanding about divorce is the belief that after a divorce is finalised and the Court issues a Final Order* (formerly called a Decree Absolute), neither party can make any financial claims against the other concerning property, pensions, income, and related matters. This is not the legal position, as financial claims against a spouse or former spouse can only be settled and dismissed once a Financial Order*, approved by the Court, is made within divorce proceedings.

Divorce is the legal process that formally ends a marriage. However, it does not automatically resolve all financial claims between the parties. Even after the Court grants a Final Order for divorce, you can still seek financial claims unless a binding Financial Order is in place. Addressing financial matters during a divorce is essential, ensuring they are not left unresolved after issuing the Final Order.

This was made evident by the Court in the case of Wyatt v. Vince: 

The parties had divorced 18 years ago when they were both relatively poor. The wife remained poor, but the husband made a fortune on wind farms after finalising their divorce. The wife applied for financial provisions for herself and the children, making a claim on the husband’s post-separation wealth. The husband tried to get the claims dismissed without a hearing due to 18 years passing since the divorce was finalised.

The Courts made it clear that financial claims survive indefinitely and can only be dismissed through formal Financial Orders approved by the Court. The parties settled the finances, so the Court did not rule on how the delay should impact the claims. 

However, the court’s decision to allow the financial claim to proceed highlights the importance of addressing financial arrangements during a divorce. Leaving financial matters unresolved can lead to significant complications in the future.

One of the key reasons why dealing with finances during divorce is crucial is to ensure a fair division of assets. This includes property, investments, assets, pensions, and other shared financial resources. By addressing finances upfront, both parties can work towards an equitable distribution of assets, minimising disputes and the potential for future financial hardships or conflict. 

The Court will look at the financial position of the parties at the time the finances are dealt with.  If financial matters are not settled during a divorce, claims remain open. Therefore, if one partner acquires wealth after separating, for instance, through a lottery win, an inheritance, or a business expansion, the other partner may still be entitled to a share of that new wealth.

When dividing finances, it is essential to fully understand the value of all assets, property and pensions. This includes correctly assessing the worth of the couple's businesses and determining the best method to divide pension assets, as these choices can have lasting effects.

This step ensures both parties can progress financially with peace of mind and without worrying about costly or lengthy legal battles later.

Financial support, such as spousal maintenance and child maintenance, may be necessary following a divorce to maintain the financial well-being of either party and any children involved. Discussing finances during divorce allows both parties to agree on fair support payments, ensuring everyone's needs are addressed. These conversations often focus on the duration and amount of spousal maintenance, considering factors such as each party's earning potential, need and affordability. 

Divorce can significantly affect the financial stability of both parties involved. Handling finances during a divorce helps individuals understand their current financial situation, comprehend their financial responsibilities after the divorce, and make wise choices to stay financially stable. This may involve setting a budget, creating new financial goals, and adjusting financial plans as needed.

Addressing financial matters during divorce can bring closure and finality to the process. By resolving financial issues and reaching a mutual agreement, both parties can move forward without lingering financial concerns or uncertainties.

Factors to Consider

Dividing marital assets can often be one of the toughest challenges. There is no set formula for splitting finances, but various factors are considered by the Court, as outlined in section 25 of the Matrimonial Causes Act 1973.  These include: 

• Each party's income, earning capacity, property, and foreseeable financial resources, including any expected increase in earning capacity.
• The financial needs, obligations, and responsibilities expected for each party in the future.  
• The standard of living the family enjoyed before the marriage breakdown.
•  The age of each party and the duration of the marriage.
• Any physical or mental disability one party may have.
• The contributions each person has made or is expected to make to the family's welfare.  
• The behaviour of either party, though the Court is generally reluctant to consider conduct unless it has been notably poor and unfair to overlook.
• Any benefits lost because the marriage ended, such as pensions.

Balancing each party's needs, responsibilities, and ability to meet these within the marriage is crucial. The Court has broad discretion, and different judges might weigh circumstances differently.

Under section 25 of the Matrimonial Causes Act 1973, a spouse or former spouse can claim:

• Maintenance (recurring payments)
• A transfer of property
• An order for the sale of the marital home and other property if applicable
• A lump sum or lump sums
• Pension sharing or attachment orders

Ideally, both parties will agree on handling finances in a divorce and turn this agreement into a Financial Order, also called a Consent Order*. Once the Court approves it, the order is final and binding.