The question, “what divorce settlement am I entitled to?” is probably the question most asked to divorce financial planners, family lawyers and mediators when they first meet a prospective client. The short answer is that it depends. Financial settlements are not an exact science and so yours may be based on a number of different issues.
Sharing or Needs Based
In sharing cases, there are surplus assets over and above those required to fulfil both parties’ needs in terms of their continuing lifestyle. In these cases, a 50:50 split of marital assets is generally considered fair.
However, the majority of cases are “needs-based”, where, as Baroness Hale noted in Miller, McFarlane “Giving half the present assets to the breadwinner achieves a very different outcome from giving half the assets to the homemaker with children.” In these cases, we need to look at the needs of the two parties.
Section 25 Factors
When assessing a fair division of assets, a number of factors are set out in the above legislation to be taken into account. The earnings and earning capacity of both parties now and what can be reasonably assumed will be the case in the future, including those which perhaps a non-working spouse might be expected to acquire, are assessed. Also, the financial needs, obligations and responsibilities are taken into account. The standard of living enjoyed by the parties during the marriage is looked at as a need in terms of what would be expected to continue post-divorce, where possible. The age of the parties and length of the marriage are also considered, as are any physical or mental disabilities.
The contributions made by a spouse, or what they in the future are likely to make to the welfare of the family, including looking after the home or caring for the family, is an important factor. Research quoted on the BBC News website in 2008 stated that “a housewife would earn almost £30,000 a year if she was employed to do all the same errands.” In 2020, I suspect that would have increased substantially.
Fair or Unfair
During the course of negotiating a financial settlement in divorce, it is easy to forget the agreements that were made as a couple when you were married. You may have agreed that one of you will stay at home to look after the children, or only work part time to ensure that one of you can pick up of drop off at school, or one of you will step back a little to enable the other to take a promotion or drive a business. If this is the case, the financial settlement should look to recognise this and continue to support the lifestyle of both parties. However, marriage often creates a relationship of interdependence, even more so if there are children. Lord Nicholls observed in Miller v Miller, McFarlane v McFarlane,“When the marriage ends fairness requires that the assets of the parties should be divided primarily so as to make provision for the parties’ housing and financial needs, taking into account a wide range of matters such as the parties’ ages, their future earning capacity, the family’s standard of living, and any disability of either party. Most of these needs will have been generated by the marriage, but not all of them.
”What are “Needs”?
There is no single definition but there is guidance available to help us to guide those we work with to help them to understand how they might meet the needs of both parties financially. For most, needs are housing, present income and future income. Future income could be making sure that you both have a pension for later life.
Housing, income and future income needs may be met by capital, periodical payments or a combination of the two, depending on the assets available. In addition to the income and capital available from marital assets, there may be new availability of benefits and tax credits on the separation of a couple.
The welfare of any children under the age of 18 is considered first, especially where there are limited financial resources. It could mean that all of your joint money goes to providing a home for the children, which often means that the person primarily responsible for the children stays in the family home.When we look at the section 25 factors, one of them is the standard of living enjoyed prior to the break-up. Whilst this is a consideration, for most people, they will need to make some changes to their lifestyles as there simply isn’t the money available to pay for two households rather than one and maintain the same lifestyle.
How can working with a financial planner help?
The help which we can provide depends on where you are within the process and also your knowledge and experience when it comes to finances. We often work with the less financially knowledgeable of the couple. They may need help with working out the cost of their current lifestyle and completing the Form E, which lawyers often ask their clients to complete. Even if you have looked after the money in your marriage, you may still need help in understanding pensions, which can be a complex area. You may also need to understand how any proposed settlement may affect your future financial security and what steps you can take to improve that.
We also work with couples who want to work out what a fair division looks like, assessing the needs of both parties and seeing how their money can be used to maintain both lifestyles, as far as possible, in the future.
If you would like to talk to us about how we can best help you, please get in touch by emailing email@example.com.