How are the finances divided on divorce?
There is no standard formula for calculating appropriate financial provision on divorce. Instead, the court has a duty to consider all the circumstances of the case and to take into account a range of specific statutory factors set out in section 25 of the Matrimonial Causes Act 1973 (section 25 factors).
Welfare of any child(ren) of the family
Before considering the individual section 25 factors, the court first considers the welfare of any child(ren) of the family under the age of 18.
The court’s approach is to calculate and then distribute the parties’ available resources having regard to the Section 25 factors.
The Section 25 factors which are considered can be summarised as follows:
- The capital and income resources available to the parties, either existing or reasonably foreseeable;
- Details of the financial needs of the parties, including:– their standard of living;– their ages and the length of the marriage; and– any disabilities
- The court also considers the following additional factors:– the respective contributions of each party;– 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 a spouse’s pension)
Division of parties’ resources
When considering the section 25 factors, different Judges may reach a range of different solutions on identical facts, all of which would be within their judicial discretion. However, a line of cases has established a standard approach to the way the court considers a given set of facts.
The starting point is that assets accrued during a marriage are divided equally, and the guiding principles applied are ”equal sharing”, ”needs” and ”compensation”. The matrimonial home is normally considered a matrimonial asset, so is divided equally between the parties even if it was owned by one of them before the marriage.
Where equal division of resources adequately meets the parties’ needs
Where an equal division of all assets accrued during the marriage adequately provides for the capital and income needs of each party and any children, then this is the appropriate financial outcome.
Where equal division of resources cannot meet the parties’ needs
Where the needs of the parties and any children cannot be met by an equal division, an unequal division of resources may be appropriate instead. In these cases, needs are likely to dictate how capital and income are divided. Inherited assets, or assets introduced by one party during the marriage, may count for little. However, where possible, the court tries to ensure that a party who inherited or introduced a particular asset retains it as part of the resources to meet their own needs (even if this means allocating a larger share of the matrimonial assets to the other party).
In some cases, the sharing principle may be applied at a later date, with a reallocation of resources in the future. Typically this may involve one party having a deferred interest in the matrimonial home that will be realised once any children finish their education (usually to first degree level).
Where possible, the court seeks to achieve a ‘clean break’ between parties on divorce, so that they are no longer financially dependent on one another.
If there are insufficient assets to achieve a ‘clean break’, one party (the payer) may pay ongoing maintenance to the other (the payee). This maintenance generally ceases when one of the following occurs:
- The payee remarries;
- The payee dies
- Further order of the court
Sometimes, the court awards maintenance for a fixed period of time.
When deciding the level of maintenance to award, the court will consider all of the following:
- The needs specified by the payee in a budget.
- The standard of living during the marriage.
- The payer’s ability to pay
Where the parties’ resources exceed their needs
Where the parties’ resources exceed their needs, applying the sharing principle generally leads to an equal division of the assets that the parties have accrued during the marriage. These assets are referred to as matrimonial assets.
Where significant matrimonial assets have been generated by the special contribution of one party (that is, by exceptional efforts that are greater than the contribution of the other), the court may provide the other party with a less than equal share to reflect this. However, special contribution arguments rarely succeed.
The sharing principle does not apply to property that is inherited or introduced by one party during the marriage. The exception is where such property has become part of the matrimonial assets, for example, by being put into joint names or converted into a different type of property enjoyed by the family (such as an inherited picture sold and used to buy a holiday home).
Where assets are entirely, or largely, non-matrimonial, the division of resources may be determined entirely by the applicant’s needs. These needs are generously interpreted. The financial provision may also include compensation for economic disadvantage (for example, because the party has given up a successful or lucrative career to look after children).