A guide to financial settlements in divorce

Mandeep Clair

Article written by Mandeep Clair, Family Solicitor

When a couple are going through divorce, the division of assets can be the most acrimonious and stressful part of the process. In this update, we explore how assets are divided and what happens to joint properties upon divorce.

How are assets divided?

The Matrimonial Causes Act 1973 (Section 25) sets out the relevant law. If children are involved, the needs and welfare of the children are the first consideration. The Act will take the following into account:

1. Current and future finances: the Act focuses on the income, earning capacity, other financial resources, and property. Existing assets will be valued, and the Court may consider how earning potential may change in the future.

2. Current and future financial requirements: the Court will take into account future financial obligations for each party including the cost of re-housing and any childcare arrangements. This will include a breakdown of forecasted outgoings for each party.

3. Standard of living: the Act will explore the standard of living enjoyed by each party prior to the breakdown of their marriage.

4. Age and length of marriage.

5. Any physical or mental disabilities for either party.

6. Contributions towards family welfare: for example, costs of looking after the home and/or children.

7. Benefits that may be lost following divorce: for example, pensions. See section below.

How is property divided following divorce?

If you are going through a divorce, there are options relating to property as follows:

1. Sell the property straightaway

This is usually the most straightforward option as it allows the couple to pay off the mortgage and release equity which in turn frees them up, possibly, to buy a separate property.

2. Transfer the property

One party could retain the property in exchange for a lump sum payment/receiving other assets to compensate for the transfer.

3. One party remains in residence, but both own a share in the property

A common option where children are involved may be a Mesher Order – for example, under which the property cannot be sold until the children reach a specific age. The parties would upon the first of the specified trigger events for sale happening then sell the property and be paid their respective shares as set out in the Order from the sale proceeds.

How are pensions split in divorce proceedings?

Pension arrangements can be dealt with by the Court as follows:

1. Pension sharing – this is where a lump sum is transferred to the other party’s separate pension scheme as a share of their former spouse’s pension pot.

2. Pension attachment – where a portion is paid regularly to the other party.

3. Pension offsetting – where a party retains their pension but gives up their claim on other assets such as a property.

Every marriage is different meaning every financial settlement upon divorce is bespoke. To discuss the contents of this article further or for more information on a family law matter, please feel free to email me or contact the team on 020 8858 6971.