When couples divorce, the practical and emotional challenges this presents is often overshadowed by one crucial step: formalising a financial settlement. According to the Fair Shares report, two thirds of divorcing couples did not formalise a financial settlement.
Why Might You Not Have a Financial Order?
It is a commonly held misconception that if you are divorced, all financial ties are severed. This is not correct and unless there is an Order which confirms that the matrimonial finances have been settled, there will be a risk that your ex can make a financial claim against you in the future and vice versa.
Many couples chose not to pursue a financial order because they not understand the long-term risks of leaving the finances unresolved or they have concerns about legal fees. Often Consent Orders and more cost-effective then litigated financial proceedings.
What Does ‘Fair’ Mean in a Financial Settlement?
‘Fair’ does not necessarily mean an equal 50/50 split of the matrimonial finances. The Court will typically apply 3 key principles in assessing fairness: needs, sharing and compensation. Section 25 of the Matrimonial Causes Act 1973 sets out the factors to consider when determining a fair outcome including:
- The capital and income resources available to the parties.
- The financial needs of the parties, taking into account:
- Their standard of living;
- Their ages and the length of the marriage; and
- Any disabilities.
- The respective contributions of each party to the marriage;
- The conduct of each party (although only in exceptional cases); and
- Any benefit either party will lose as a result of the divorce (such as spouse’s pension).
What If You Do Not Have a Financial Order?
While it is encouraging if parties are able to reach an informal agreement between themselves, however unless this is followed up with a court order, the private agreement cannot be enforced by a court if a dispute later arises.
Pensions are a valuable asset often overlooked. Despite this being one of the largest martial assets, a very small percentage of divorces include a pension sharing order. Even if you reach an informal agreement regarding the pensions, it cannot be implemented unless there is a pension sharing order in place.
Practical Steps For Reaching a Fair Settlement
- It is always important that you have a clear understanding of the finances of both parties. The most comprehensive way to achieve this is to agree exchange of full financial disclosure.
- Seek legal advice early so that you are aware of your financial rights arising from the marriage.
- Consider Non-Court Dispute Resolution such as Mediation or collaborative law as these approaches are often quicker, less adversarial and more cost-effective.
If you would like advice on any of the issues raised in this article, please contact Irrum Shah, Associate Solicitor in our Family Law Department by calling 0333 240 7373, or email us at [email protected]
About the Author
Irrum Shah is an Associate Solicitor Advocate specialising in family law, including divorce, finances, Shariah law, cohabitation, children matters and domestic abuse. She is known for her clear, compassionate advice and writes to make family law accessible and empowering for individuals and families.
