If you are getting divorced or your civil partnership is ending, one of the main issues you will need to sort out is how financial assets should be shared and divided. In the UK, it’s vital to decide on finances when you split up from your husband, wife or civil partner. This can affect your long-term financial security and stability. A breakdown of your financial affairs is inevitable, but if you know the process, it might seem less daunting. This guide will explain what you need to do.
Step 1: Understanding Full Financial Disclosure
The first stage is full financial disclosure, the process of making full and frank disclosure of all your financial assets and liabilities, including savings, debts, pensions, investments, property, and income. This allows both parties and the court to know exactly what the shared financial picture is, without which a fair settlement is much more difficult to achieve and can be fraught with difficulty further down the line.
Form E is a financial statement disclosure document used in divorce proceedings in the UK. Each party completes their own Form E with an extensive list of assets and liabilities. The idea of this ‘invasive’ process might feel insulting, even demeaning, but it is necessary for both parties to see the entire finances in order to negotiate.
Step 2: Deciding on How to Divide Assets
In the UK, the starting point is that any assets belonging to the marriage (or civil partnership) are marital or partnership assets; that is, they would be available for distribution. Assets owned before the marriage, or inherited, might be treated differently depending on the circumstances. The court will try to achieve fairness – not necessarily a 50/50 split – taking into account each person’s needs, age, health, earning capacity and contributions.
To divide assets, the parties have three main options:
1. Negotiation between partners
Some couples are happy to negotiate directly with each other (if the separation is amicable, this can be quicker and cheaper than going through solicitors and courts). But it is vital to be open and honest. If you want the agreement to be legally binding, it’s advisable to take some initial advice from a solicitor, who will explain your rights and the chances of the agreement being upheld in court if necessary.
2. Mediation
For those unable to agree arrangements between themselves, mediation can be a good option. A trained mediator helps both parties explore and agree financial arrangements in a neutral environment. Mediation encourages open communication, and any agreement can be formalised by a solicitor.
3. Court proceedings
If mediation is not available or does not resolve the financial claims, you will have to apply to the court for a financial order. The court will decide how to split your assets according to the law. This process can also be long and costly, and is usually seen as a last resort after all other avenues have been exhausted.
Step 3: Considering Key Financial Aspects
There are several aspects of finance to consider when it comes to the division of money after a divorce or dissolution:
Property: the family home is often the most valuable asset and can be the source of great conflict. Options typically include selling the home and dividing the proceeds, one partner purchasing the other’s share, or one partner staying in the home (especially if there are children).
Savings and Investments: These assets are considered and divided up in the financial settlement, such as joint savings accounts, investments, ISAs, premium bonds, etc.
Pensions: the UK courts regard pensions as matrimonial assets and they must be included in financial disclosure. It is possible to split pensions in a number of different ways: pension sharing, pension offsetting, and pension earmarking. All of these, in different ways, attempt to recognise that, at the end of the day, the fair and appropriate result will vary on a case-by-case basis.
Debts: In addition to the above, any joint debts such as loans or credit cards are to be allocated fairly. Even if the debt is in the name of just one of the partners, the court could decide that both are responsible for it, especially if the debt was taken out for a joint reason.
Step 4: Finalising the Agreement
When all the terms are agreed upon, it is important to make the division legally binding by way of a consent order. Signed by both parties, this consent order is filed with the court and states the financial agreement reached between the parties, and states that neither party can bring any further financial claims against the other. If the court is satisfied that the consent order is fair, it will make it an order of the court, meaning it is legally binding.
For those who fail to agree outside of court, making an application for financial order will result in the court deciding for the parties, with that decision binding on them.
Step 5: Getting Legal and Financial Advice
As the process unfolds, it is helpful to consult a family law solicitor and perhaps also a financial adviser, who can steer you through the legal process, protect your interests, and help you navigate the long-term impact on your finances (especially if there are pensions and investments involved).
Conclusion
Working through finances on separation or divorce can be a daunting process, but you can minimise stress and uncertainty by breaking down the tasks into steps and tackling each with a clear approach: full disclosure, negotiating the division of assets, and getting an agreement that is legally binding. In this way, you can ensure that you get a fair financial settlement, and can move on with more certainty.
