Finances on Divorce

  3 The married couple

3.3 Finances on Divorce

3.3.1 The menu of Orders a Court can make.

A Court will only become embroiled in sorting out the financial and property issues arising on a divorce (or judicial separation) if one of the parties actively seeks its help and involvement.

When an application dealing with finances and property is made to the Court in divorce or judicial separation proceedings, the Court has a very wide range of powers which it can exercise. This includes power to:-

(i) order one spouse to pay maintenance to the other

(ii) order one spouse to set aside a lump sum to secure regular maintenance payments to the other

(iii) order one spouse to pay a specified lump sum to the other

(iv) order one spouse to transfer all or part of the ownership of a specified property or assets to the other

(v) order earmarking or sharing of pension provision with the other spouse

3.3.2 What financial Order will the Court make in practice?

Unlike CSA calculations of child maintenance, financial settlements on divorce are not set by some fixed formula.

The statute dealing with these settlements contains a list of points which are to be taken into account. They do not enable a simple straightforward calculation to be made.

The fact is that every case is different from all others. This is not an area of the law where previous Court decisions set strict, binding precedents to govern later cases. In family law, past cases provide guidance only. A leading Judge once said that advising a client on the likely outcome of his or her particular case will be “a matter of trial and error and imagination”.

One factor of great importance is the welfare of any children. The Court will usually have the children’s needs at the forefront of its mind.

The other points listed in the statute which must be borne in mind are set out in this CHECKLIST, which we have slightly simplified:-

(i) what income and resources are and will be available to the Husband and Wife?

(ii) what are their likely needs?

(iii) what standard of living did the family enjoy before the marriage broke down?

(iv) how old are the Husband and the Wife?

(v) how long was the marriage?

(vi) do either of the parties have any physical or mental disability?

(vii) what contributions have the Husband and Wife each made (or will they be likely to be making) to the welfare of the family, including any contribution such as looking after the home or caring for the family?

(viii) what has the conduct of the parties been?

(ix) what benefits will either lose specifically as a result of the marriage ending?

No single factor carries any greater legal weight than the others.

In every case, the Court is supposed at least to consider whether a “clean break” Order can fairly be achieved. This means a once and for all settlement which does not involve continuing maintenance of one spouse by the other. (Child maintenance is a separate matter). A “clean break” will certainly not be appropriate or even possible in every case e.g. if the Wife has no prospect of work or has part-time work and young children to look after. It will be difficult to get a “clean break” if there is not enough capital available to enable e.g. the Wife to manage.

Despite the press reports of a recent landmark case “White -v- White”, there is still no legal presumption that there will automatically be an equal split of everything. There will be a good number of cases where that is the right outcome – but by no means all.

“Equality” will generally be a more likely outcome in cases where the marriage has been a long one and where both the Husband and Wife have made real and substantial contributions in their various ways to the marriage. “Contributions” include not only direct financial contributions to the marriage, but also the more general contributions that a party makes in caring for the home and the children.

In cases where there is little or no capital to divide up – e.g. if there is a modest house (with a Mortgage on it) occupied by the Wife and small children – it is less likely that the capital (i.e. in this case just the house) will be split 50/50

Having said that, it is necessary to start somewhere with a calculation. As a starting point, therefore, one way to approach the financial issues is this:-

(1) Make a list of all the assets of both parties:

(i) write down the “net equity” in the house (i.e. deduct the present Mortgage debt from the current market value of the house)

(ii) find out the “surrender values” of any endowment Policies (contact the Insurer)

(iii) note down the current values of any savings, shares, unit trusts, investments, other property, cars, valuable antiques, jewellery and any other assets

(iv) obtain at least a rough idea of the value of any business interest of either party

(v) find out the value of all pensions of both parties (current and “frozen” pensions) – the value to ask for is the “C.E.T.V.” (“Cash Equivalent Transfer Value”)

(vi) estimate the second-hand (not replacement) value of furnishings and contents of the house

(2) Make a list of all the debts of both parties:

(i) overdrafts

(ii) Bank and other loans (find out how much is still owing)

(iii) outstanding tax liabilities

(iv) credit card debts

(v) H.P. debts

(vi) catalogue debts

(3) Add up the assets; add up the debts; deduct the debts from the assets.

(4) Calculate a 50/50 split as a “yardstick”.

(5) See how much each party already has and how much, therefore, would need to be transferred from one to the other to achieve this 50/50 split. (This is only a starting point).

(6) Look to see whether the result would be practical and manageable, and whether it seems fair and reasonable in all the circumstances of the case.

(7) In doing this, work through the “CHECKLIST” above and consider the possible settlement in the light of those factors. Does it still look a fair, reasonable and workable solution? If not, some adjustments will be necessary. Those adjustments will be different in each case, as every case is judged on its individual facts.

This is an area of family law where experience and specialist knowledge are particularly important, and proper legal guidance can be beneficial.

3.3.3 Some practical points to remember

(a) The Court can take into account all assets of the parties, no matter where they came from. Account is taken not only of capital acquired and jointly saved during the marriage, but also from e.g. inheritances of one or both of the parties, damages received by one spouse e.g. for personal injuries, as well as capital acquired before the marriage. That is not to say that the Court will necessarily treat such assets in exactly the same way as joint savings built up over the marriage, but the Court is entitled to bear those assets in mind and to divide them up as it sees fit.

(b) The age of the parties is often a significant factor, as is the length of the marriage.

(c) It is not all “conduct” which the Court will take into account. General “blame” for the breakdown of the marriage is not likely to affect the outcome of financial negotiations. Arguing about conduct always increases the cost of the case and only infrequently actually results in a larger or smaller settlement being ordered.

(d) The Court will not have to make the decision for the parties at all if the Husband and Wife can negotiate their own reasonable terms of settlement. The Court will not become involved unless one of the parties asks it to. It is nearly always better to try to come to a sensible agreement rather than seeking a ruling by the Court.

It is usually wise though, to invite the Court to give its formal “blessing” to your negotiated agreement by incorporating it into a Consent Order of the Court so as to introduce clarity and (often) finality to the resolution of the financial issues. If this is not done then it is possible for matters to be brought up again in the future.

The help of a Solicitor is needed in the preparation of the Consent Order.

It is useful to check carefully whether any intended maintenance figures will be sufficient to meet the reasonable and actual needs of the family following separation.In the case where, for example, the Wife and the children will form one unit, with the Husband living elsewhere, the Wife will need to check her income from all sources – whether earned income (net), child benefit, other state benefits, proposed child maintenance, proposed spouse maintenance, net investment income (if any) and so on.These figures need to be added up to show what income resources will be available overall.(Bear in mind that some state benefits will be reduced by the amount of any maintenance received).

Then, a careful assessment of the likely bills and other outgoings must be made, in order to ensure that any proposed settlement will be sufficient to enable the Wife and children to manage within a reasonable budget.Total income can be compared with total likely outgoings.(By the same token, in this example the Husband will need to carry out similar calculations in relation to his own projected income and outgoings in the new circumstances to be sure that he, too, will be able to manage financially).

To assist in this calculation, we have set out a Household Expenditure Schedule designed to act as an aide-memoire so that you can carry out for yourself the exercise suggested above. Click HERE for the Schedule.  Remember that although this Schedule contains most of the regular items of expenditure a typical family might have, you may have others and you need to remember to add them in. 

3.3.4 Pensions

The subject of pensions relates almost exclusively to married rather than unmarried couples.

When a marriage breaks down, and a division of the finances has to be considered, the pensions built up by both parties must be taken into account.

This is a complex area of the law, and is subject to detailed legislation and regulation.

The basic position is that the Court has four main courses open to it when considering pensions:

(i) it may choose to make no pension Order at all – e.g. because both parties have satisfactory, existing pension provision, or

(ii) it may use “offsetting” i.e. in a broad brush approach, awarding more of the other available capital to the spouse who has no (or insufficient) pension provision, to offset the loss of pension benefits in which, but for the breakdown of the marriage, they would have participated or

(iii) it may make a pension “earmarking” Order (now called a pension “attachment” Order) under which the Court, on divorce, spells out the percentage of the pension lump sum or income which the pension trustees must pay to the person named in the Order when the pension holder claims payment of that pension, or

(iv) it may make a pension “sharing” Order.

NB (a) Pension sharing Orders can only be made in divorce or nullity cases, and not in judicial separation cases, and

(b) Pension sharing Orders can only be made in cases where the divorce or nullity petition was issued on or after 1st December, 2000.

A pension sharing Order results in the recipient becoming a member of a pension scheme in his/her own right. It can be made once the Decree Nisi of divorce has been granted, but only becomes effective when the final Decree (Decree Absolute) has also been granted.

The recipient can in effect, have a pension carved out within the other spouse’s scheme, or the value of the newly created pension can be transferred out to another scheme.

Some important points to note

1. The Pension Fund will be entitled to make administrative charges for setting up the new pension under a pension sharing Order. The charge is likely to be in the region of £750 to £1,000 for each pension scheme affected.

2. A pension sharing Order cannot itself deal with death in service benefits, nor can it be varied.

3. The result of a pension sharing Order is to give the recipient a pension in their own right. A pension earmarking (“attachment”) Order does not do this.

4. A pension earmarking (“attachment”) Order will cease if the pension holder dies. The pension income element of an earmarking Order will cease if the recipient remarries.

5. A pension earmarking (“attachment”) Order is the only method of dealing with death in service benefits under a pension scheme.

6. The recipients’ share under a pension earmarking (“attachment”) Order will continue to grow even after the Order is made if the pension holder continues to pay into the scheme. The same is not the case in relation to a pension sharing Order.

7. A pension earmarking (“attachment”) Order can be made in judicial separation proceedings.

8. The question whether an offsetting Order, an earmarking (“attachment”) Order or a pension sharing Order should be made will depend on the individual facts of each case.

For example (and these are merely broad illustrations):-

(a) in the case of a relatively young, childless couple, both earning and with separate encashable assets of a reasonable amount, where the Wife has no pension but the Husband has already built up some decent pension provision, an offsetting Order may well be looked at.

(b) in the case of a “young middle aged” couple, the Husband earning a good income (the Wife not earning) where there are some reasonable encashable assets, where no pension provision has been made in the early years but where the Husband now has steady, good pensionable employment – perhaps an earmarking Order may be more appropriate.

(c) in the case of a middle aged couple where the Husband has a good income and the Wife a more modest income, with encashable family assets of, say, £120,000, and where the transfer value of the Husband’s pension is, say, £350,000, then it may be realistic to look at a pension sharing Order, rather than offsetting or earmarking.

9. A (more or less) uniform method of valuing any pension has been laid down, and it is known as the “Cash Equivalent Transfer Value”. It is this figure which the Court will principally be concerned with – and the figure can be obtained by writing to the Pension Fund in question.

10. The size of any pension Order made by the Court will, as always in these cases, depend upon the individual facts of the particular case, and will generally form part of a balanced overall settlement package dealing with all of the assets (and liabilities) of the family.

3.3.5 Child Support Agency and the Role of the Courts

The court no longer has the automatic right to make an order for child maintenance except in certain circumstances which will be referred to below. In most cases, if the parent with care of a child cannot persuade the other parent to make a proper financial contribution to the day to day needs of the child, the parent with care will have to turn to the Child Support Agency for help.

3.3.5.1 Child Support Agency

The Child Support Agency (CSA) is a government agency established to unify the way in which child maintenance is assessed. All applications are assessed and calculated by reference to a complicated formula laid down by Parliament, and accordingly all assessments are based on the same rules. Beyond that formula, therefore, little leeway exists for variation according to personal circumstances and individual responsibilities.

Please note that an assessment can only be made against a natural parent of the child. If you are seeking child maintenance against a step parent then you will need to apply to the Court for an Order. An assessment can be made against a parent who has adopted a child or against a parent of a child conceived with the assistance of artificial insemination, but not the gamete donor.

Further, the assessment will only last in the first instance until the child in question has attained 16 years of age. If the child continues in full time secondary education then the assessment can continue until the child’s 19th birthday. Thereafter if the child continues in full time education you will need to apply to the Court for an Order. In certain cases where there is an existing assessment it may be possible to apply for a “topping-up” Order from the Court (see below).

The CSA is obliged to make a calculation where the principal carer (referred to by the CSA as the “person with care”) of the child is in receipt of Income Support or Job Seekers Allowance, except where there is a pre-existing Court Order for maintenance. If there is an existing order the CSA will need to apply to Court for the order to be dismissed before an assessment can be made.

The CSA is not obliged to make an assessment where the principal carer receives Tax Credits, as this is not a welfare benefit.

Sometimes the parent who will be paying the assessment (referred to by the CSA as the “absent parent”) may apply to the CSA.

3.3.5.2 How is Child Support calculated?

In essence the formula requires the payer to hand over a percentage of his or her net income (15% for one child, 20% for two children and 25% for three or more). The system will not take into account the payer’s housing costs. It will, however, take some account , e.g., of the number of nights spent by the children with the paying parent, reducing the amount of maintenance by 1/7th for each night of the week the children stay there.

3.3.5.3 What do I do if an assessment has been made and I think it is wrong?

Whether you are the person applying to the CSA or the parent who will be paying maintenance you may feel the assessment to be wrong, for instance, because:

a) you are not the father of the child, or

b) there is an error in the way the assessment has been calculated, or

c) there is an error of law

a)If you are not certain that you are the child’s father the CSA is usually obliged to suspend the assessment process and apply to the Magistrates Court for DNA testing to be carried out. If the tests prove that you are the father, you will be ordered to pay for the cost of the test in addition to backdated maintenance.

b)Where an assessment is wrong because of an official error, or a misrepresentation or failure by one of the parents to disclose a material fact, you can request a “revision” of the decision. This must usually be done within one month of the decision being made. The officer who made the decision will look again at the case and the change to the assessment if any will be backdated to the time of the original assessment.

c)If the decision was wrong in law you can request a “supercession”. This may also be requested where you have no reason to challenge the original decision but your circumstances have changed.

If the decision is not changed, or you do not agree with the fresh assessment, you can appeal.

This must be done within one month of the date the decision letter was sent to you. Your appeal will be dealt with by a CSA tribunal.

3.3.5.4 What do I do if the CSA ignore or fail to respond to my letters or I do not get a satisfactory response to my telephone queries?

One often voiced criticism of the CSA is the lack of face to face contact with them. Unfortunately its offices are often located far away from where the children’s parents live, and when people ring the CSA their lines are often busy.

The CSA has a leaflet, CSA 2022 “How to complain about the Child Support Agency” which you can obtain by calling the National Enquiry Line on 08457 133 133.

In summary, you may complain to the following in turn, until your complaint is resolved: 

the Customer service staff
the manager of the CSA centre
the Chief Executive
the Independent Case Examiner

If the CSA is still proving unhelpful, then you may wish to contact your local MP.

3.3.5.5 The Role of the Court

It is often open to the parents, or step parents, of the child to agree maintenance between themselves. This can be endorsed in an agreement, a contract drawn up between the parties or in an agreed order of the Court.

3.3.5.6 Child Maintenance Agreement

A maintenance Agreement is a private arrangement between the Payer (of the maintenance) and the Payee (the person receiving the maintenance). Neither party can apply to Court for a variation of the Agreement. If the payee suspects that the Payer may not abide by an Agreement, then this may not be a suitable solution.

Please note no Agreement can seek to exclude or oust the jurisdiction of the CSA or the Court; as a matter of public policy neither the CSA nor the Court would uphold or be bound by any such agreement.

3.3.5.7 Applications to the Court for Maintenance for Children

The Court does not ordinarily have the jurisdiction to make an order for Child maintenance between the child’s parents unless there is a pre-existing order in force or the application is by consent (agreement) of the parties. The CSA may have made an assessment, and the parent is applying for a “topping-up” order. The Court will not easily be persuaded that a “topping -up” order is appropriate, and you should seek legal advice upon this point before proceeding further.

There are other circumstances in which the Court will make an order for child maintenance including:

a) if the child is 19 years or over and in full time education or training, or

b) the Payer is ordered to meet some or all of the expenses incurred in connection with the provision of instruction or training; or

c) if the child is suffering from disability, the Court may make an order requiring the person to meet some or all the expenses attributable to that child’s disability

3.3.5.8 Existing Court Orders

It is possible for either party to apply to the Court for the variation of an Court existing order. It is good practice to consider from time to time whether the amount of the order is still appropriate. The variation of an order can include a downward variation to reduce the amount of maintenance paid or an upward variation to increase it. It is also possible for the CSA, through the Secretary of State, acting on behalf of the recipient of the maintenance to apply for the original order to be cancelled so that a CSA assessment can be made.

The application to vary the order should be made to the Court where the original order was made. Variations of Orders are dealt with in Section 3.5 .

3.3.5.9 Enforcement

If the paying party falls behind with payments, then either the receiving party, or if the order is registered with the Magistrates, the Clerk to the Justices can apply to the Court for the enforcement of payment. This can include in certain circumstances an Attachment of Earnings Order, Committal to prison, or Distress (when the bailiff is invited to seize goods and chattels to be auctioned to settle the debt).

3.3.5.10 Other Financial Orders for the benefit of Children

In some circumstances it is possible to apply to the Court for other financial orders for the benefit of a child, including:

a) a lump sum order of an unlimited amount

b) a settlement of property for the benefit of a child

c) the transfer of property for the benefit of a child

As a general rule these orders will cease on the child’s 18th birthday. These applications are unusual and we would suggest you should seek the advice of a Solicitor before proceeding further.

3.2 What if we don’t want to divorce?

3.4 The Children

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