The division of assets is one of the main issues to resolve during a divorce. Here, we look at how a divorce settlement is decided and practical things to consider.
Note: this article considers the law in England and Wales only. If you are getting divorced in Scotland, the laws are different.
How to reach a fair financial settlement during a divorce
How you reach an agreement over the division of your assets will depend on how you proceed with your divorce. If your assets are simple to divide, taking into account childcare if appropriate, you may be able to come to an amicable agreement directly or through mediation. For more complex matters, you may need the services of a solicitor who specialises in family and divorce law, or you may need to take the matter to court. Whatever route you take, you will still need to go through your assets systematically to document them and apply a set of principles for the fair division of your assets.
Every couple’s finances are unique, so there are many ways to sort out an objectively fair financial settlement - but there are general principles and rules to guide you.
How will my assets be valued and divided in a divorce settlement?
Both of you will need to list your assets in detail. The court will then look at a variety of factors to decide how these assets should be divided between you.
What counts as assets in a divorce?
To prepare for your divorce settlement, you will need to find current values for your:
- Savings accounts
- Property (including any outstanding mortgage)
- Debt – this includes loans, credit cards and overdrafts and can include any tax which is due to be paid
- Monthly income – and how much of this is disposable
- Investments, cash, insurance policies and pensions – check their current market value
- Valuables – value any expensive belongings, for example vehicles, jewellery or works of art
- Business Assets – if either or both of you own a business or have a share in one
- Any other assets – for example Share options, trust interests
- Any asset that is likely to be received in the foreseeable future
You will also need to know about each of your income, either from earnings (either through employment or by being self-employed), investments, pensions, welfare benefits or any other form of income.
The first consideration for dividing these assets will depend upon whether or not you have children. Their wellbeing is the most important factor and the allocation of assets will reflect this, taking into consideration where they will be living and with whom.
During divorce, both partners should consider the following to help agree on the financial settlement:
- Your future earning capacity
- Your financial requirements – often termed ‘needs’
- The standard of living during the marriage
- Your ages and how long the marriage has lasted
- Any physical or mental disability
- Any financial contributions you have made to the marriage
- Your conduct, noting this is rarely considered relevant
- Any benefit you would lose because of the divorce
Are assets split 50/50 in divorce?
Assets are not automatically split equally in a divorce. The main consideration is the individual needs of those involved, and in particular the needs of your children.
The judge may consider a 50/50 split if you have been married a long time. Alternatively, a judge may order an unequal split if they think one of you is in greater need than the other. For example, if one partner gave up a career to provide childcare the judge may consider an unequal split.
How is debt divided in divorce?
You need to divide your assets and consider any debts taken on during your divorce. Your financial documentation should state whether any debts are held individually or in your joint name. The court can consider if debts in one party’s name should be treated as joint debts, and therefore considered within your overall settlement.
Your largest debt is likely to be the mortgage on your home. You will need to say how your home is owned, i.e. by just one of you or jointly, and if it is owned solely by your ex-partner you may be able to register your interest in it to protect your position.
You will need to decide who is responsible for other debts such as loans, credit cards and car finance. If you are unable to come to an agreement, the court can state which of you is responsible for the debt and may order the other to assist through maintenance payments. The court is likely to consider any loans you took out during your marriage, such as loans for home improvements, as a joint responsibility.
Where you have assets available, the court will generally expect you to use them to settle your outstanding debts.
Can you be held responsible for your former partner's debt after a divorce?
If your partner took out any debts during your marriage that are solely in their name, then you are not responsible to pay the debt. However, you could be held responsible if, for example, a loan has been taken out against the value of a house which is in joint names. Or, if you have joint debts and one of you stops the repayments, the other will be responsible for these repayments. Remember that if the loan repayments are discontinued, it could affect your credit rating.
What happens to the family home?
If you have children, their needs will be the first concern of the Court. It is often sensible for younger children to remain in the family home with the resident parent until they are 18 or have finished full-time education. Your divorce will specify how the mortgage payments will be paid and if you need to transfer the property into the resident parent’s name (protecting the other parent from the liability of the mortgage payments). If the mortgage payments are not or cannot be met, it is likely that you will have to sell your property and split the proceeds.
If you are going to sell your house, you will need to pay the outstanding mortgage after the sale, or if there is insufficient equity left then the mortgage company will claim payment from other assets you own. If the mortgage is in joint names, then you are jointly responsible for the payments. You may have other loans secured against the property and these should be detailed on your documentation, as you will need to know what you are taking on if the property is transferred solely to you.
Pre-nups to protect assets
Pre-nuptial agreements (pre-nups) are now regularly set up by couples to clarify how their wealth should be divided in the case of divorce. They work by guiding you on what should happen in the event the marriage ends in divorce, they can give a level of protection where one party has, at the outset, more assets than other - provided the agreement is prepared in the correct way. If you have a pre-nuptial agreement and it was set up by a solicitor, it should be taken seriously by the courts even if it is not currently legally binding.
What can I do if my partner hides their assets during divorce negotiations?
The court takes any attempt to hide assets during divorce very seriously. To protect the interests of both partners, the court has various powers – including the power to stop the sale or transfer of matrimonial assets during the divorce process and issue penalties for hiding assets.
If you are worried that your partner has hidden some of their assets and not disclosed them, or even transferred them to spend before they are discovered, you should alert your solicitor or mediator as soon as possible. The courts have the power to ensure full financial disclosure and if they find evidence of fraud, your partner may be given a less favourable settlement or ordered to pay your costs. Your case can be re-opened if this comes to light after settlement has been reached.
High-net worth divorce
If either you or your ex-partner has significant wealth, your divorce process may be more complex and require lawyers with specialist expertise. These complexities may concern the number of properties owned (both at home and abroad or whether it involves farmland), financial investments, pensions, international assets, trusts and business assets, or issues involving a partner who stays at home with a child or children and thus requires maintenance.
Sally Powell, Family and Divorce Partner at Tees, comments “We are often able to help divorcing couples divide their assets quickly and amicably, helping them make their financial agreement legally binding with a Consent Order. However, there are occasions where the couple’s situation is more complex, and our Family Law solicitors will be called upon to use their expertise to ensure that assets are split fairly, taking all relevant factors into consideration.”
Come in and see us for a FREE 20 minute face-to-face consultation about your options. Alternatively, if you want us to take a closer look at your situation, for a fixed fee of £150 + VAT, we can talk with you for up to 90 minutes.