- Introduction – what happens to the marital assets?
- The Legal Framework: How Courts Decide Financial Settlements?
- The Court Process: How Financial Settlements Work
- Financial Settlements: The Three Key Court Hearings
- Section 25: What Courts Consider in Financial Settlements
- What is – and isn’t – included in financial settlements?
- The Role of Prenuptial Agreements
- The Importance of a Financial Order
- What Happens If You Don’t Get a Financial Order?
- Do I need a Clean Break?
- Providing for children
- Conclusion
Introduction – what happens to the marital assets?
Your divorce or separation will almost certainly be an overwhelming experience. It’s quite possibly one of the most stressful times of your life – it’s up there with a loved one passing away, losing your job or major illness. A financial settlement – which includes pension division can be something that can occupy your mind far more than you’d like.
Along with worrying about your children if you have any, you are probably being kept awake a night with the worry about how you are going to divide finances fairly. A financial settlement decides how assets, debts, and income will be split. It also provides financial security for both spouses after separation. Without a clear agreement, disputes can arise, making life more difficult for both parties. It can also lead to problems years down the line when you have both moved on and thought the separation between you is done and dusted.
In England and Wales, financial settlements follow legal principles.
The courts aim to ensure fairness while protecting the needs of any children involved. Many couples can agree on financial arrangements without court intervention. Others need legal processes to reach a fair outcome. This guide explains how financial settlements work, the court process, and key legal factors.
This guide is going to give you the basics of what you need to know if you’re heading towards divorce and separation. I’m going to tell you how it works, how the court decides who gets what and what happens if you don’t get a financial settlement. I’ll also tell you what the process if you agree something with your spouse, what it is if you don’t and more.
I’ve got to tell you from the start: There are different rules for married couples compared to unmarried ones.
Here we go!
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The Legal Framework: How Courts Decide Financial Settlements?
The `rules’ for divorcing, married couples in England and Wales are decided by the court using a set of rules.
The Matrimonial Causes Act 1973 sets out those rules. This law provides guidance on dividing finances after a marriage ends. The specific criteria used by a court is detailed in Section 25 of the Act. It lists the factors judges consider when deciding who gets what.
The goal is fairness – which doesn’t always mean an equal split. The court looks at many aspects, such as how long the marriage lasted, each spouse’s financial contributions, and future needs. Judges have wide discretion, meaning outcomes vary depending on individual circumstances.
Even if you reach an agreement outside of court, it is important to get a financial order. Without one, people can still make financial claims years after the divorce.
If you’re not married to your partner, the Matrimonial Causes Act won’t apply to you.
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The Court Process: How Financial Settlements Work
Many couples try to settle finances through mediation or negotiation. The best case scenario is you do this (whether you’re married or not).
If you do this, it is probably going to cause you a lot less stress. It is definitely going to cost you far, far less.
You can apply for a finance order as soon as you start your divorce (or more accurately when you get the case number for the divorce). If you have children, you and your spouse should agree on arrangements before reaching a financial settlement, as they will factor into the decision (see below!). The court will prefer if you do this however.
This approach is often cheaper and quicker than going to court. However, if they cannot reach an agreement, one spouse may apply for a financial order.
Starting a Financial Remedy Application
To formally start financial proceedings, one spouse must submit Form A to the court. This form notifies the court that they seek a financial order. Once submitted, the court sets a schedule for the process.
Each spouse must then provide full financial disclosure by completing a Form E. This document details all assets, income, and debts. It ensures transparency and prevents either party from hiding money or assets. It lists everything (or it should do if you and your spouse are doing it properly). This includes pensions, the value of properties, credit card debts, bank account balances and other assets (and liabilities).
I’m guessing you’re reading this post to research things. You are going to see `Failure to disclose finances fully can result in serious legal consequences’. It’s something any number of legal professionals will tell you. Solicitors, barristers, and judges will tell you this. They’re right. The crucial world is `can‘.
Our experience in a huge number of cases is that failing to disclose finances seldom results in legal consequences. People omit all sorts of thing for all sorts of reasons. Maybe they don’t realise they should have included them. It could be they just don’t want whatever they omit to disclose details of considered when it comes to a financial settlement. This is typically something like a house, an inheritance or a bank account.
You can deal with this sort of thing if you know what you’re doing or have the right person by your side.
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Financial Settlements: The Three Key Court Hearings
The financial remedy process involves three main hearings:
- First Directions Appointment (FDA): The judge reviews financial disclosures and decides if more information is needed. This could include property valuations or pension assessments. The court should establish a timetable for actions, require both parties to disclose information, and ensure they ask and answer questions to clarify matters. The net result of this is that the court should have all the information to make a decision by the time the next hearing takes place.
- Financial Dispute Resolution (FDR) Hearing: At this stage, the judge gives an indication of what a fair settlement might look like. This helps encourage negotiation between both parties. Many cases settle at this stage. If the parties don’t reach an agreement, one may have to pay the other’s legal costs. The court wants to avoid this because when it happens, legal costs can consume the assets under discussion. The judge giving an indication at this hearing will be a different one to the one who makes a decision at a final hearing (see below!)
- Final Hearing: If no agreement is reached, the case goes to trial. Both parties present arguments, and the judge makes a legally binding decision. This decision can be something that one of the parties is seeking or it can be one that neither wants. At this stage, the court can also order costs.
This is an `ideal scenario’. It’s far for uncommon for finance cases to drag on however. It could be that information isn’t available. Maybe it’s because there has been a lack of intentional financial disclosure – either for innocent or less-than-honest reasons. Often, when a financial settlement case drags on it’s for this reason. Instead of following the timetable set out by the court (or even worse…there isn’t one) it can descend into emails `ping ponging’ between the parties involved during (or even before) a case starts at great expense and even greater legal cost.
Court proceedings can take months and cost thousands of pounds in legal fees. While an amicable agreement can cost a relatively small amount, a hostile one can run on for years with legal costs that run into 6-figures (or more) and takes years to resolve.
This is why many couples try to reach a settlement before a final hearing.
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Section 25: What Courts Consider in Financial Settlements
The court follows Section 25 of the Matrimonial Causes Act 1973 when deciding financial settlements. This law lists key factors that judges must assess.
Speak to enough people who aren’t `in the know’ and it’s clear they’re seemingly basing their view on US TV dramas and movies. We’re no expert on US law – but we know enough from our American colleagues that some states (because each one is different) can do things like imposing penalties for adultery, bad behaviour, relying entirely on pre nups to make decisions and routinely order `alimony’.
Here – in England and Wales (because Scotland, and Northern Ireland are separate jurisdictions), the criteria set out in Section 25 are clear. These are the criteria the court uses:
- The court will look at your and your spouse’s income, earning capacity, property, and financial resources, including any expected future increases in earning potential.
- It assesses both of your financial needs, obligations, and responsibilities.
- The court takes your standard of living before the marriage breakdown into account.
- The court considers your ages and the length of the marriage.
- Whether you or your spouse have any physical or mental disability.
- Contributions to the family’s welfare, including homemaking or caregiving.
- Your and your spouse’s conduct if it would be unfair to ignore it.
- In divorce or annulment cases, it considers the loss of any financial benefits due to the marriage ending.
Where children are concerned it will consider:
- Their financial needs.
- Income, earning capacity (if any), property and other financial resources of the child;
- Any physical or mental disability of the child;
- The manner in which they was being and in which the parties to the marriage expected him to be educated or trained
The court will consider your children’s needs before your or your spouse’s.
Your idea of what is fair will likely be something entirely different from your spouse’s too. People will often consider that an inherited property is entirely theirs and it isn’t fair that their spouse get a share of it. They’ll think pension division won’t happen. They will likely think they’re going to be able to keep that car because it’s just in their name.
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What is – and isn’t – included in financial settlements?
What is included?
In short, you need to work on the assumption that everything you own before and during your marriage is a marital asset if you’re asking a court in England or Wales to work out your financial settlement.
It works both ways however – it isn’t all about assets. It’s liabilities too. A huge debt incurred by a spouse before marriage is a joint liability after they’ve tied the knot. This is regardless of who spent it, whose name it is in or anything else at all. It doesn’t matter.
This includes:
- Bank accounts.
- Credit card accounts.
- Houses and land.
- Cars.
- Other assets.
- Anything you (or your spouse) has inherited.
If you’re someone who says `Marriage is just a piece of paper’ this is the bit where the family law system disagrees with you, no matter how deeply held that conviction may be. When two people marry, their `household’ becomes one. Thinking that pension division isn’t going to happen because you started paying in 20 years before you met your spouse is almost certainly going to result in you feeling disappointed (and possibly cheated).
What isn’t included?
People often think that some assets aren’t included when it comes to financial settlements.
While there are cases that have – occasionally – allowed assets to be `ring fenced’ you cannot count on this happening. Even in cases where this has happened, the court has applied the law.
People commonly assume the following aren’t assets a court will consider:
- Inheritances – both property and assets.
- Bank accounts or properties with title deeds in their name only.
- Companies they’re the sole director of.
- Assets held as part of trust funds.
- Loans/gifts from family members.
I’m not saying it never happens. But courts rarely disregard these assets when equitably distributing them. The cases where it has happened are groundbreaking by their very nature. They tend to be ones involving extremely large assets. In these sort of cases think big money solicitors, well-written prenups and complicated finances.
As a general rule however? The longer a marriage lasts, the more likely a settlement will include non-matrimonial assets—but don’t count on it.
It’s also common for separating spouses to disagree on whether a house, large loan, etc. donated by a family member – often a parent – constituted a gift or merely a loan. In this situation, the court will often ask for proof one way or the other before making a decision.
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The Role of Prenuptial Agreements
Prenuptial agreements (prenups) outline how assets should be divided in case of divorce. They are not legally binding in England and Wales. However, courts do consider them if they meet certain conditions:
A well-drafted prenup can help avoid lengthy financial disputes. But you won’t be surprised to learn that when a marriage breaks down and a prenup is invoked at least one of the parties suddenly decides that they were coerced into agreeing into one, they were misled about the assets and it wasn’t fair.
They’re no guarantees in short. The court will consider them, but they’re not set in stone.
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The Importance of a Financial Order
Even if a couple agrees on finances, they must obtain a financial order from the court.
OK…that’s not strictly true. The law doesn’t say you have to have a financial order. You don’t. No one in the court system is going to run after you telling you this needs to happen.
But without one?
Your ex-spouse can make financial claims years later. This remains true even after your divorce is finalised. A consent order is used when both parties agree on financial matters. It makes the agreement legally binding and prevents future disputes.
If you agree everything with your ex the process is simple (relatively speaking): You send a Form A, a D81 form and a draft consent order signed by both parties. That’s it.
If you do everything right – and the court feels you’ve covered everything, that your draft order makes sense and it’s consistent with the law – you (and your ex) will be sent a copy of the order made by the court that reflects what you’ve agreed on. And that’s it. However, the court may decide what you’ve asked for doesn’t cover all eventualities. It may decide it’s extremely inequitable or is just plain confusing. In that case, the court will schedule a hearing to clarify matters.
Beware however. It is far from uncommon for divorcing spouses to start amicably…followed by a breakdown in agreement and things ending up in court. While people can agree `big picture’ arrangements, things often get contentious when it comes to the detail or things no one thought about it. The longer things drag on—or if others get involved and give unhelpful advice—the more likely the case will end up in court.
A great piece of advice is strike while the iron is hot if you’re in agreement with you ex for this reason.
If you can’t agree things with your spouse, the court issues a financial remedy order after a final hearing. This order specifies how to divide assets, debts, and income.
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What Happens If You Don’t Get a Financial Order?
If a financial order isn’t in place, both parties remain financially tied. Years later, one spouse may make a claim against the other, even if they have remarried. The law is clear – if someone remarries they can’t make a claim on their ex spouse. But it has been known.
If you want certainty however you need that final order.
Courts have issued financial claims against many people long after their divorce because they did not obtain a financial settlement order.
Without a financial order, there is also no legal enforcement if one spouse refuses to follow an informal agreement either.
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Do I need a clean break?
A financial order can provide a `clean break’ but it doesn’t have to.
When you get a clean break, that’s it. You are completely and finally separated from your ex spouse where finances are concerned. What they do is their business and what you do is theirs.
However, it is possible to get a financial settlement without a clean break.
The court wants solutions. In an ideal world you won’t be going to court at all – you’ll sit down with your spouse, work things out and go your separate ways. It will want as little disruption as possible so that everyone needs to stay in their home (or have another roof over their head), for things to be as neat, simple, logical and fair-seeming. But people are people, and during emotions are likely to be high meaning it’s a disaster waiting to happen.
A great example of this is when the court orders spousal maintenance. In the US, it’s called “alimony,” and it is much more common than in the UK. An order for spousal maintenance means one of the divorcing couples receives money from the other periodically. If you’re the one who’s likely to be paying it, it’s tempting to agree to one because it’ll often save you a lot of cash (in the short term at least). In situations like this, the court commonly issues a nominal spousal maintenance order (think something like £1 a month or year), which no one is going to worry about.
There is a real problem with a spousal maintenance order however (if you’re the one paying, that is).
That problem is that it can be varied upward. Imagine the scenario: Following your divorce you’re lucky (or clever enough) to come into a huge sum of money – maybe you’ve won the lottery, that business idea has made you a millionaire or you’ve met a new partner who is extremely wealthy. The other ex spouse makes an application to the court to vary the spousal maintenance order from £1 a month to £1,000 a month…
A clean break order prevents this scenario. While it could cost you more to get one, in the long term it may be the best option.
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Providing for children
As I’ve previously said, money follows the children. Provision for them is the first consideration the court will have. However, when it comes to things like child maintenance, the court do not like making orders about this, the Child Maintenance Service will deal with this issue if parents can’t agree matters. That is the appropriate arena for this.
It is possible to provide for financial for the financial of provision for the children using another avenue however. Namely, the Children Act (remember – I’ve only been talking about the Matrimonial Causes Act up to know).
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Conclusion
Financial settlements in divorce are complex. They involve legal principles, court procedures, and personal financial considerations. Whether settled through mediation, negotiation, or court intervention, it is essential to ensure a fair outcome. You need to work on the principle that everything you own will be `fair game’ when it comes to working out who gets what after a divorce. This will almost certainly include things like houses, the contents of bank accounts, credit card debts, what happens to houses and pension division too.
Understanding the legal framework helps divorcing couples navigate financial settlements with confidence. The key is to achieve a fair and sustainable agreement that allows both parties to move forward with financial security.
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