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Many divorcing and separating couples agree a financial settlement, either prior to court proceedings or during court proceedings. By reaching an agreement they save distress and avoid the heavy legal costs of a court hearing. Generally, solicitors advise on settlements which would be similar to the sort of order a court would be likely to make.

If there is a divorce, an order should be sought by the court confirming the terms of agreement asking the Court to receive the agreement and make it a rule of court.

There are no firm rules about how assets are divided and how much money has to be paid to one or other spouse. The court has a wide discretion to make whatever financial orders it thinks fit. There is no presumption that if the house or any other asset is in joint names, the husband and wife will each be entitled to half. There is no presumption that the wife is automatically entitled to one third or any other proportion of the joint assets and income. Nor should the law treat husbands differently from wives.

If there is no realistic chance of agreement, an application must be made to the court to resolve the financial issues rather than wasting time in fruitless negotiation. Such an application is normally made following on the ground of a decree nisi or divorce or due to judicial separation.

Instead of rules, Parliament has laid down a list of factors which the court must consider before making a financial order. They include the present and future needs, resources and earning capacity of both husband and wife, their age, the length of their marriage and the contributions of each to the family finances.

First consideration must be given to the welfare of the children.

If the marriage has been short, there are no children, and both husband and wife are self-supporting, the agreement may be simple with few transfers of assets. By contrast, where a couple have been married for many years, their finances will be harder to separate and a more complex settlement may be required. Every married couple is different and requires a solution to suit their own needs and resources.

Conduct is only relevant if it is so extreme that it is far outside the range of normality. A great many people behave irrationally when their marriages are breaking down, but only a tiny minority behave in such a way that their conduct will be taken into account in making the financial order.

Timing

A financial settlement can be worked out at whatever time one is needed. This may be:

• when a couple decides to separate and find a solution by voluntary agreement (see separation agreements above); or
• when a decree nisi of divorce or due to judicial separation granted or any time afterwards as long as the person applying has not remarried. Applications for financial provision i.e. maintenance can be made after a divorce or judicial separation petition has been issued.

Orders requiring husbands and wives to transfer property or pay lump sums to each other can only be made after a decree nisi of divorce. The court can order regular monthly or weekly maintenance payments to a husband or wife while the marriage still exists and after it has ended; or so long as the court directs, normally until it has ended. If a maintenance order is granted it continues normally until the recipients remarries or cohabits. The law requires the court to consider whether a 'clean break' is appropriate. In these circumstances future maintenance obligations between husband and wife be terminated. Whether a court effects a clean break depends on the circumstances as a whole and having regard to the factors set out above.

It is possible to ask the court to review the amount of maintenance payable between spouses at any time if circumstances change.

Even if everything has been agreed before the divorce, a court order should be made in the terms agreed. If no order is made, claims may be made many years after the end of the marriage and this may be contrary to what the parties intended. It is better for there to be certainty for all concerned. The court however always retains the right to consider whether the agreement is fair and should be made an order of court.

If financial negotiations are taking place after divorce, then it is essential that you advise your solicitor if you are planning to remarry. By law, if no application for a financial order has been made, then that person may lose all rights to claim any financial provision upon remarrying.

First Steps

The first step towards settlement is for both husband and wife to give their solicitors full details of their financial circumstances. This process is referred to as "disclosure". Neither the court, the solicitors, nor even the husband or the wife themselves, can know whether a settlement is fair and reasonable unless they have all the relevant information.

All assets, liabilities, income and likely changes of circumstances must be disclosed to both solicitors. If either spouse intends to remarry or live with a new partner, that too must be disclosed.

Disclosure is often voluntary, but if either husband or wife refuses to provide the information or answer reasonable questions, an application can be made to the court to compel them to do so.

Agreement or Court Hearing?

The next step is to try and negotiate a settlement. Agreement is usually reached by negotiation and correspondence between solicitors, and the court will then be asked to confirm the agreement so that it becomes irrevocable.

If agreement cannot be reached, there has to be a court hearing. Negotiations usually continue right up to the time of the hearing. The length and expense of the hearing depends on how complicated the financial position is and on how many aspects are in dispute. By this stage, the husband and the wife will usually each be represented by a solicitor and a barrister. They must both give evidence and be cross-examined. Other witnesses may be called. The judge or district judge will then make an order.

Clean Break Agreement

A clean break is a settlement where it is ordered that neither the husband nor the wife will claim maintenance or capital from the other in the future. If one party cannot earn at all, or can only earn much less than the other, a clean break will only be possible if substantial assets are transferred or if a lump sum is paid which is large enough for that party to meet his or her needs.

The courts encourage both parties to be financially independent after divorce and to earn whatever they can. Each party's age, health, family commitments and the availability of appropriate employment will all be taken into account.

Maintenance can be ordered for an indefinite period or sometimes for a specified time, after which there will be a clean break. Such an order may be appropriate if, for example, the wife needs time to retrain of if she plans to return to work when the children reach a certain age. Maintenance orders come to an end automatically if the recipient remarries. Either payer or recipient can apply to the court for a variation if circumstances change.

Children

Maintenance is usually paid for children until they reach the age of 17 or cease full-time education, whichever is the later.

There can be no clean break, (dismissal of maintenance rights), between parents and children. The parents' responsibility to provide financially for their children has now been set down in the child support (Northern Ireland) Order 1991 as amended.

The Child Support Legislation governs the level of child maintenance that should be paid by a natural parent who is absent from the child's household to the parent with care. It does not cover stepchildren or school fees, but covers natural children up to the age of 17, or 19 if they are in certain types of full-time education.

The Child Support Legislation sets out a formula to calculate the level of the child maintenance payable by the "absent parent". This is based essentially on each parent's income and a few outgoings, including housing costs. Your solicitor will be able to do a calculation for you. Under certain circumstances, a direction may be given to reduce the amount payable once calculated. Your solicitor will advise you if this applies to your case.

If the parent with care of the children is on income support, disability working allowance, he or she is obliged by the DSS to apply for an assessment by the Child Support Agency, (commonly referred to as the "C.S.A"), the organisation set up to assess, collect and enforce maintenance payments for children. If that parent refuses to make an application without adequate reason he or she will be penalised, he or she will be penalised by having their benefit payments reduced.

Other parents with care of the children may apply to the C.S.A for an assessment. They may however prefer to agree a figure for child maintenance, bearing the Child Support Act calculation in mind. If divorcing, this can currently be embodied into the court order made, which deals with all the financial aspects arising out of the divorce if agreed. This procedure may in the future be revoked, but your solicitor will advise you on any changes in the law as they happen. If a figure cannot be agreed, the only option for the parent with care is to apply for an assessment to the C.S.A.

If the absent parent can afford to make further payments for child maintenance in addition to those calculated under the child support legislation, a court can order that parent to make additional payments. A court can also make an order for school fees, maintenance for stepchildren or disabled children and for those in further education and in certain other specific situations. It should be noted that the C.S.A only has jurisdiction where both parents and the child are resident in the UK; otherwise the Court will deal with determining child maintenance in the absence of an agreement. There are currently further Government proposals to review the system determining child maintenance.

Tax Relief

At the time of separation and on divorce, careful consideration must be given to the tax implications.

Maintenance orders which were made before the provisions of the Finance Act 1988 came into force can still attract substantial tax relief. Current Orders do not attract income tax relief accept in exceptional circumstances.

Where assets are sold or property transferred between husband and wife, consideration must be given to the tax implications. It is important that advice is taken as early as possible during the tax year in which separation (not divorce) takes place.

 

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Updated Daily: Thursday July 3rd 2008