How Are Assets Divided In Divorce?

The splitting of assets in a divorce is a skilled and complex legal task. It can also be a hotly contested issue. One of the main reasons for this is that the Court has wide discretion in deciding who gets what.

What matrimonial assets are included in a divorce?

Section 25 of the Matrimonial Causes Act 1973 (the Act) sets out the basic guidelines that the English and Welsh Courts apply when dealing with financial claims involving property, savings, pensions and maintenance. In addition, the Court will also have reference to previously decided cases, known as case law, when making its decision.

Where there are dependent children under the age of 18, this will have a large bearing on how the Court exercises its discretion in splitting matrimonial assets in a divorce. Section 25 of the Act, provides that it shall be the duty of the Court in deciding how to exercise its powers to have regard to all the circumstances of the case with the first consideration being given to the welfare and needs of the dependent children.

How are assets divided in a divorce?

Section 25 of the Act sets out the issues that the Court is to consider in deciding how to exercise its powers. These are as follows:

What orders can the Court make?

In divorce, judicial separation or dissolution of a civil partnership, the Court has the power to make a variety of orders:

• 1. Payment of a lump sum
  The Court can order one party to pay the other a lump sum or a series of lump sums. For example, the Court could order the husband to transfer to the wife his interest in the former matrimonial home in return for the wife paying the husband a lump sum. A husband may be ordered to pay his wife a lump sum payment instead of paying her spousal maintenance in the future, capitalising on the wife’s maintenance claims.

• 2. Sale or transfer of property
  The Court can order the sale or transfer of all forms of property, although the most common is the former matrimonial home. The Court could order a property to be sold and how the net proceeds of the sale are to be divided. The Court can also order a property to be transferred from one party to another.

• 3. Pension sharing
  The Court has the power to order the division of pensions. For example, the husband could be ordered to transfer all or a percentage of his pension to his wife creating a new pension fund for her in retirement. This is known as a pension sharing order.

• 4. Spousal maintenance
  The Court can order one party to pay the other maintenance. A maintenance order can be paid for joint lives until one of the parties remarries or for a fixed period. In many cases, it may not be appropriate for either party to receive spousal maintenance in which case the Court will make a ‘clean break’ order.

• 5. Child maintenance
  If the level of child maintenance cannot be agreed then this is dealt with by an application to the Child Maintenance Service. The Court has only limited powers to make orders in respect of child maintenance. However, when a maintenance figure for a child has been agreed the Court can ‘rubber stamp’ the maintenance within a Consent Order.

Every marriage is different and every divorce settlement is different. There are no rigid rules regarding how assets are divided in a divorce and the law has to be flexible to apply to each case. The Court has wide discretion. There will not necessarily be a 50/50 split of the assets in every divorce case and an equal division of assets may be appropriate in some cases but not in others.

What does the Court consider when splitting matrimonial assets in a divorce?

Since no rigid rules apply, the Court will take into account the following broad factors when considering the division of the matrimonial assets:

• 1. Welfare of the children
  Where there are dependent children, this will be the first consideration when deciding how the matrimonial assets should be divided in a divorce. In practical terms, this means providing a home for the children. Where assets are limited it will usually mean that the children’s carer will receive most or all of the liquid assets of the marriage so that the children can be rehoused. However, this does not mean that the needs of the other parent will be overlooked or ignored. The outcome will seek to balance the financial needs that both parties have (housing, food, clothing, holidays, etc.) with the available resources, while at the same time making proper arrangements for the children’s financial needs.

• 2. Available capital, income and other resources
  Before the Court can deal with the division of the capital assets, the full extent of those assets has to be disclosed and identified. Disclosure normally takes place in Court proceedings by a way of exchanging Financial Statements (Form E). The former matrimonial home, any business or pension assets will need to be valued. The Court will not only look at the current income position of the parties but their future earning capacity, which may change following the divorce. For example, the parties may be expected to increase their working hours or have to reduce them to accommodate child care. Where either the husband or the wife is in a new relationship and is co-habiting, the new partner’s financial affairs may also be taken into account.

• 3. Parties’ financial needs obligations and responsibilities
  It is necessary to look at each of the parties’ needs in terms of both income and capital. This will include the re-housing needs of the parties. Both parties will need to provide a roof over their heads. Once again this will be a particularly important need for the carer of any dependent children. Costs of purchasing alternative accommodation in which to live will need to be looked at together with the parties’ mortgage capacity to raise or borrow money. The parties’ current and future income needs will need to be looked at. In Court proceedings, the parties will be required to prepare a breakdown, estimating how much they will need to meet all of their outgoings on a weekly/monthly basis.

• 4. Parties’ ages and the length of the marriage
  When the Court looks at the length of the marriage it will usually include pre-marriage cohabitation. The Court will normally consider a 50/50 split of the matrimonial assets when dealing with a long marriage following the ‘yardstick of equality’. With short marriages, capital contributions become more relevant in deciding how assets are divided in a divorce. Age is also an important consideration. A ‘clean break’ order may be appropriate for a short childless marriage. If the marriage is longer and the parties are older, different considerations will become more relevant, such as pensions and provision for retirement. Age will also affect earnings and mortgage capacity and the ability to achieve independence.

• 5. Standard of living enjoyed before the marriage breakdown
  This is usually taken into account in the context of balancing the overall available assets and resources, against the needs of the husband, wife and the children. Sadly in many cases, there is often not enough to go around when assets are being divided in divorce. This will often mean that the parties will not be able to sustain the same standard of living enjoyed before the marriage breakdown.

• 6. Any physical or mental incapacity of the parties
  Fortunately, in the vast majority of divorces, this is not a relevant factor. However, where it is relevant, it can have a significant impact upon the settlement and outcome of the case. Supporting medical evidence will normally be required from a GP or Consultant.

• 7. Parties’ contributions
  It is well established that where one party has not worked during the marriage but has been a homemaker looking after the dependent children and the other party has been the breadwinner, they are treated as having made an equal contribution towards the family and matrimonial assets. Contribution arguments are more relevant with short marriages, particularly where the parties had significant assets before the marriage or where significant assets have been built up during the period of separation. In addition, significant assets acquired during the marriage, for example, by a way of an inheritance, can also be viewed as a relevant contribution. However, as before, much will depend upon the length of the marriage and the needs of the parties. With an inheritance, much will depend also upon when the inheritance was received and whether it has been intermingled with other matrimonial assets.

• 8. Loss of any benefit because of the divorce
  This normally relates to pensions. The Court now has the power to make a pension sharing order which enables this asset to be shared.

• 9. Bad behaviour or conduct
  This is rarely taken into account unless it is exceptional. The Court will only have regard to conduct if the conduct is so serious that it would be unfair for the Court to disregard it.

Court hearings

An application to the Court relating to matrimonial finances (a financial remedy application) will normally involve three hearings. When an application is made, the Court will fix a First Appointment hearing. This is normally a directions hearing.

The next hearing is a financial dispute resolution hearing. At this hearing, the Judge will take an active part in trying to settle the case. They will normally indicate an appropriate settlement. If the case does not settle at this hearing the case is then listed for a third and final contested hearing.

As circumstances vary significantly from case to case and, given the wide discretion of the Court, the outcome will always vary depending on the facts of each case. However, pre-nuptial agreements, entered into before marriage can assist in allowing the parties to regulate their financial affairs in the event of a divorce.