Who Gets What in a Divorce Settlement?
Financial provision on divorce is a discretionary area of law, there is no one size fits all solution. After the breakdown of a marriage there are many ways to reach a financial settlement, whether that be directly between you, by solicitor correspondence, through mediation, arbitration, or court proceedings.
However you reach an agreement, what you decide must be converted into a sealed Court Order. In most cases where agreement has been reached through one of the above processes, this is done by the preparation of a Consent Order and lodged at Court for approval by a Judge. Once approved, the agreement is legally binding and enforceable. The Court will only approve a Consent Order if they consider it to be within the bracket of possible legal outcomes if the matter were being decided by a Judge. It is therefore important when discussing and negotiating financial outcomes that you have an awareness of the legal framework within which you must operate.
This blog outlines that framework by considering the statute, case law and guiding principles which the court consider when making/approving a financial Consent Order.
Section 25 of the Matrimonial Causes Act 1973 provides that the Court must have regard to all of the circumstances of the case when considering its powers in financial remedy proceedings. The primary consideration is the welfare of any children of the family under the age of 18.
The Court shall also have regard to:
Whilst the judiciary retain discretion in considering the above mentioned factors, case law has provided guidance regarding the fair application of this law. The below outlines the overarching principles established by case law but it is also important to note that other cases over the years have informed how the court consider and interpret the above factors. I will not deal with each factor here but if you would like to talk through any of those particular points please do contact one of our family law experts. We also have a series of articles which explore the section 25 factors in more detail which can be found here.
White v White is a landmark case in financial remedy law and its judgment laid down principles which the Court must have regard to. These include:-
The equality principle: There should be no discrimination between the breadwinner and the homemaker in a marriage. This development sought to bridge the gap between the law and society, ensuring that both financial and non-financial contributions to a family are considered as equal. This continues in cases to this day and in the vast majority of cases contributions will be considered different but equal.
The yardstick of equality: The starting point in all financial remedy cases should be a 50/50 division of assets acquired and built up during the marriage. An equal division should only be departed from if there is good reason to do so taking into account the factors considered above and in Section 25.
Needs: The overriding objective is to ensure that both of the parties’ needs are met by the financial settlement. It is particularly important to see that the needs of any children of the family are met.
Five years later in the conjoined appeals of Miller and McFarlane, the Courts further considered the application of the law concerning financial provision on divorce. This judgment clarified that the overriding objective of the Court in financial remedy cases is to achieve a financial settlement that is fair for both parties. The Court went on to consider the three guiding principles: needs, compensation and sharing.
Needs: The Court affirmed that the meeting of needs is the guiding principle in the majority of cases. In many cases, a 50/50 split of the matrimonial assets available upon separation may be insufficient to provide adequately for the needs of two homes. The Court’s role, therefore, is to stretch the parties’ assets as far as possible to meet their needs and the needs of any children of the family. This can result in departures from equality, for example where one party has a higher income than the other or assets outside of the marriage.
Compensation: In the case of McFarlane, the wife gave up work in the legal profession to care for the three children of the family. The parties had been married for 16 years and the Court considered that it was fair to compensate her loss of potentially very significant earnings, by way of spousal maintenance payments. In its judgment the court noted that it is often women that suffer a disproportionate financial loss on the breakdown of a marriage because of their traditional role as home-maker and child-carer. The principle of compensation is therefore considered to redress any significant prospective economic disparity between the parties arising from the way they conducted their marriage. This principle has developed over time and the Courts are now far more focused on needs rather than compensation. Each party is expected to work towards financial independence and any ongoing maintenance payments are likely to be limited to bridging the gap whilst a party increases their earning capacity.
Sharing: Equal sharing of the matrimonial assets derives from the concept of marriage as a partnership. The Court emphasised in its judgment that the yardstick of equality is to be applied as an aid, not a rule, as it will not always be possible due to the available assets of the parties. The Court went on to affirm that the principle of equality is equally applicable to short marriages as it is long marriages, recognising that the quantum of matrimonial assets is likely to be less if the duration of the marriage is less. The equal sharing principle is also equally applicable to ‘business and investment’ assets as it is to ‘family’ assets. The nature and source of the assets is to be considered in determining what is fair.
Matrimonial and non-matrimonial property
The Court, in its judgment, recognised the importance and difficulties in distinguishing between matrimonial and non-matrimonial property.
The Court provided that ‘matrimonial property’ meant the matrimonial home plus property acquired throughout the duration of the marriage otherwise than by inheritance or gift. The Court emphasised that even if the matrimonial home was brought into the marriage at the outset by one of the parties, it remains likely that it will be considered to be matrimonial property.
With regard to non-matrimonial property that parties bring to a marriage or acquire by gift or inheritance during a marriage, the length of the marriage is very significant. In a short marriage, parties should not be required to share their non-matrimonial assets. Whereas, in the instance of a long marriage, non-matrimonial property can often be considered to be a contribution towards the marriage and overtime matrimonial and non-matrimonial assets may be seen to intermingle and be more difficult to distinguish between.
The Court should also consider the nature and value of the property and the time and circumstances in which the property was acquired. However, if a party’s needs cannot be met without recourse to non-matrimonial property, those considerations are not going to carry significant weight.
When reaching a financial settlement upon divorce it is important to consider all of the circumstances of the case, prioritising the welfare of any children of the family and going on to consider those circumstances provided by section 25 of the Matrimonial Causes Act 1925. The starting point established in White is a 50/50 division of the matrimonial assets. Miller and McFarlane went on to establish the guiding principles of needs, compensation and sharing. The key and overriding objective of the Court is always to achieve a settlement that is fair.
The law regarding financial settlements on divorce is highly discretionary which means that couples have flexibility to reach a settlement that suits them. If you are going through a separation, speaking to a family lawyer can assist in understanding how the Court might approach a financial settlement in your circumstances and the process methods available to you start settlement discussions.
Eden Palmer is a Trainee Solicitor in our Horsham office.