Families and divorce

Coronavirus: how are financial settlements within divorce proceedings affected?

If you need legal advice surrounding your divorce, talk to us todayThe division of financial assets is one of the main issues to resolve during divorce proceedings and the Coronavirus crisis is making it more difficult.  Even if you have both kept your finances separate during your marriage, a formal financial settlement needs to be reached on divorce.  

Negotiating a settlement is never without risk.  You are required to consider and, to a degree, speculate as to what your financial position is likely to be in the future.  During this unprecedented crisis period, there is a much greater degree of financial uncertainty moving forward.  As a result, the risk of negotiating and settling a financial claim within divorce proceedings is arguably a riskier prospect.  

How could the current coronavirus pandemic cause difficulties?

The current situation is unprecedented and is creating a vast amount of uncertainty throughout society in the UK, and the world as a whole. This will likely lead to questions such as:

  • How will you know how much you will need to purchase a new home, when property prices are so uncertain?
  • How will you know whether you will require spousal maintenance, if you are not sure whether your job is secure?
  • How will you know what percentage of the overall assets you will be keeping, if investment values are changing daily and businesses are proving very difficult to value? 

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Do we have to reach a financial settlement on divorce?

It is not mandatory to reach a financial settlement on divorce.  However, if you don’t, your ex-spouse could try and make a financial claim against you in the future.  It’s usually recommended that you formally record a financial settlement, even if there are no joint assets.  The settlement could be that you are each retaining the assets and liabilities in your sole names.

How is a financial settlement within divorce proceedings usually calculated?

There is no set calculation to work out how your assets and liabilities should be divided between you on divorce.  Every family’s needs and every family’s financial situation is totally unique.  If an agreement can’t be reached, the court will use the law set out in legislation and previous cases.  This guidance will be adapted to your own specific circumstances.

The court has a duty to consider all the circumstances of the case and to distribute the available assets to achieve a fair outcome.

There are key factors to take into account when assessing how assets and liabilities should be divided: 

  • the first consideration must always be the welfare of any child of the family under the age of 18
  • the income, earning capacity, property and other financial resources each of you has or is likely to have in the future
  • the financial needs, obligations and responsibilities each of you has or is likely to have in the future
  • the standard of living you enjoyed as a family before the breakdown of your marriage
  • your respective ages 
  • the length of your marriage (and any period of cohabitation immediately prior to your marriage)
  • any physical or mental disability either of you has
  • the contributions which either of you has made or is likely to make in the future (not just financial, but also looking after your home or caring for your family)
  • if either of you have committed any conduct which is relevant to financial matters (this is only in very exceptional circumstances)
  • the value to each of you, of any benefit which you will lose the chance of acquiring, as a result of the divorce.

What financial orders can the court make on divorce?

Maintenance:

  • Child maintenance: an order requiring one parent to pay sums of money to the other as a contribution towards that child’s living costs
  • Spousal maintenance: an order requiring one of you to make payments to the other to provide additional income for that person in their own right
  • Maintenance pending suit: an order requiring spousal maintenance to be paid, but only until your marriage has ended by pronouncement of decree absolute within the divorce proceedings.

Property adjustment:

  • an order providing for property to be transferred or sold.

Lump sums:

  • an order that one of you transfer a sum or sums of money to the other.

Pensions

  • Offsetting: the value of a pension fund is offset against other assets of the marriage, to avoid a pension order having to be made
  • Pension sharing order: an order that a percentage of a pension fund one of you holds is transferred into a pension fund of the other, so as to form or increase a pension fund in their sole name
  • Earmarking: an order that a proportion of a pension fund one of you holds, on retirement of the pension fund holder, be paid to the other 

What can we do if we don’t want to negotiate a financial settlement during the current coronavirus pandemic?

There are various options, but each brings its own advantages and disadvantages.

Option 1: You could defer negotiating a financial settlement

Advantages:

  • asset valuations are likely to be more reliable
  • you should have a better idea of what your future needs will be

Disadvantages:

  • new issues may arise in the interim, such as maintenance pending suit, which could increase your overall legal costs
  • you may not be able to afford to maintain a stable interim financial position in the current economic climate and, if so…
  • you may risk one or both of you becoming bankrupt as a result of financial turmoil.

Option 2: You could adjourn your lump sum claims as an alternative to deferring negotiation of the entire settlement

Advantages:

  • you could delay making a decision as to how to divide some of your assets until the lockdown has lifted and the economic climate has stabilized

Disadvantages:

  • you will need to demonstrate a genuine need for adjournment, not that one of you is being given a future opportunity to revisit an agreement
  • you would not usually be able to revisit the rest of the agreement
  • such an adjournment is usually time-limited and restricted to exceptional cases.

Option 3: You could provide for different scenarios within the negotiated financial settlement

Advantages:

  • you could divide your money depending on the sale price of a particular asset
  • you could agree that spousal maintenance will vary depending on your respective incomes

Disadvantages:

  • negotiating the terms of such an agreement is likely to be much more complex and time-consuming, which could increase your overall legal costs.

What will happen if we decide to negotiate a financial settlement despite the current coronavirus pandemic?

If you negotiate and agree a financial settlement during this unprecedented situation, you will both have done so in full knowledge that the current economic climate is uncertain and is likely to remain uncertain for quite some time.  It is unlikely you will be able to revisit the financial settlement in the future on the basis that your financial position changed as a result of the current situation.  

Do I need a court order if we negotiate and agree a financial settlement between us?

It is usually best to formally record any agreement reached in a court order.  The court must satisfy itself that the agreement you have reached is fair and that neither of you is being treated inequitably.  Once the court has approved a financial agreement it becomes legally binding on you both.  This protects you in the event your ex-spouse tries to renege on the agreement. 

Next steps

You should always take independent, detailed legal advice to ensure that you fully understand and accept the consequences of any negotiated financial settlement.  This is particularly important in relation to any financial settlement agreed during this challenging time.

Tees coronavirus update

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