Financial Implications of Divorce
Further Information
Sorting out money is in many cases the most daunting aspect of separation and divorce. Through CompareTheSolicitor.com and its panel of specialist Divorce Solicitors you will find a guide to what the legal principles are, which we hope will help give you some preliminary ideas about what might be fair for you.
There are no hard and fast rules regarding your financial rights in the breakdown of a relationship.
When negotiating a divorce settlement at the end of a marriage the following factors need to be taken into account:
- the welfare of any minor children from the marriage
- the value of jointly and individually owned property and other assets and the financial needs obligation and responsibilities each party has
- any debts or liabilities of the parties
- pension arrangements in place for each of the parties, including future pension values and any value to each of the parties of any benefit they may lose as a result of the divorce
- the earnings and earning potential of each of the parties
- standard of living enjoyed during the marriage
- the age of the parties and the duration of the marriage
- any physical or mental disability of either of the parties
- contributions that each party may have made to the marriage, either financially or whether by looking after the house and or caring for the family
If a court is asked to look at the finances, there are only certain orders it is allowed to make. Effectively, this forms a menu of financial rights that each of you has against the other. Each of you can apply for any of these orders. Most couples sort out their finances without a final court hearing. The settlement is usually made into a court order. It is then binding and enforceable. Before the court makes an order, it has to consider a list of considerations. These are straightforward. The same considerations have to be thought about in negotiations. For example, it is different if there are children’s needs to consider – or if it is a short marriage as opposed to a very long marriage. The family’s financial resources are looked at in detail. That is why financial disclosure is always the first step in any discussions.
The main benefits of going to court are that:
- a court timetable is running, so things are moving forward; and
- if you cannot agree everything, then the court will make a decision for you.
However, going to court is expensive. Court procedures are designed to suit everybody and the documents to be prepared are time-consuming to complete.
Going to court can be expensive if you have solicitors and barristers charging for their time, that is why it is imperative that if this is the right route for you, CompareTheSolicitor.com will find the reasonable and professional firm of Divorce Solicitors to you.
Court proceedings are begun by one party filing a form A.
The court then fixes the first appointment 12 – 16 weeks ahead.
The court also notifies both parties of the timetable for exchanging documents before the first appointment.
Preparing for the first appointment:
A form E has to be prepared and exchanged simultaneously, with the documents referred to in the form. Exchange has to take place at least 35 days before the first appointment.
At least 14 days before the first appointment, both parties have to file and serve on the other:
- a concise statement of issues;
- a chronology, setting out the key facts relating to the family;
- a questionnaire, referable to the statement of issues, seeking further information and documents; and
- a notice (form G) stating whether that party will be able to proceed to the financial dispute resolution (FDR) hearing at the first appointment.
In addition, the applicant – the person who has filed the form A – has served the other party.
At least 24 hours before the first appointment, both parties have to produce their costs estimate (form H).
What happens at the first appointment?
This is the first court appointment. Both parties and their legal representatives are required to attend.
A district judge will examine the issues and consider the financial evidence.
The court will also give directions on:
- whether the questions contained in each questionnaire are justified and whether they have to be answered;
- whether property valuations need to be carried out and, if so, on what basis; and
- what other experts need to be appointed, for example in analysing pensions or business valuations.
It is possible to combine the first appointment with the FDR appointment. Doing so helps to keep costs to a minimum as there is only one court attendance instead of two.
If there is no FDR appointment at the first appointment, then the district judge will list the matter for the second hearing – the FDR appointment.
If there has been an FDR appointment combined with the first appointment, then the judge will list it for a final hearing, unless the matter is agreed.
Preparing for a financial dispute resolution (FDR) hearing
Both parties will have been ordered to supply answers to questionnaires. These have to be done within the timescale ordered by the court.
Expert evidence should also be obtained. Usually, it is the divorce solicitors who carry out those directions relating to valuation, agreeing the joint letter of instruction and so on.
At least seven days before the FDR appointment, the applicant should supply to the court all open and without prejudice offers, proposals and any responses to them.
Immediately prior to the FDR appointment, both parties again produce a costs estimate (form H).
What happens at the FDR appointment?
Unless this has merged with the first appointment, it is the second court hearing. Both parties and their legal representatives must attend.
The purpose is to try and narrow the issues, if not actually settle the case. Both parties are directed to meet an hour before the court appointment in order to discuss matters.
Both parties address the court on the proposals that have been put forward and the district judge will then comment upon the respective positions. Judicial encouragement will be given to move the discussions forward.
If agreement is reached, and only if agreement is reached, the court can make the terms of the settlement into a court order. If there is no settlement or agreement, the court will set the case down for a final hearing and make additional directions as necessary.
In substantial cases, the court may order sworn statements to be filed on particular aspects of the case.
Preparing for the final hearing
After the FDR appointment, both parties have to carry out the directions ordered by the court.
Fourteen days before the final hearing, the applicant must file with the court and serve on the respondent an open statement setting out the orders that he or she intends to ask the court to make.
Seven days after receiving the applicant’s statement of proposals, the respondent in turn has to set out details of the orders that he or she proposes to ask the court to make. Both parties must again supply a written statement of costs (form H).
The solicitors will agree the bundles of correspondence and financial documents to be delivered to the court.
What happens at the final hearing?
The judge will consider the evidence of each party in turn, together with any expert witnesses.
Only open offers to settle can be looked at by the court during the hearing.
The court will not make an order for costs against one party unless it considers it appropriate because of the conduct of that party in relation to the proceedings.
The court will make an order in detailed terms, having set out its reasons.
There is a comprehensive list of forms to download from the HM Courts Service website. Listed below are the ones that you are most likely to need:
Form A – this is the form that starts off the process.
Form E – this is the financial disclosure form.
Form G – notice of approach to first appointment.
Form H – costs estimate.
Businesses
Businesses form a central part of financial proceedings on divorce.
The Courts routinely ask that businesses and business interests be valued, as part of the Financial Disclosure exercise.
There is a danger that an unrealistic amount of emphasis will be put on the value of the business, when dividing up the family assets. This can lead to real problems in practice.
When there is a divorce, the Family Courts take precedence over the Commercial Courts when deciding what to do with business ownership.
Finding out how much the family assets are worth is a crucial part of financial disclosure. Knowing how much is “in the pot” is the first step, before then dividing what there is.
Valuing businesses is far harder than, for example, valuing properties. There are far fewer businesses being bought and sold, so it is far harder to know what somebody would pay for a business.
If a business is involved on divorce, the question of valuation will arise early on. At the first appointment, the court may well give directions.
Usually, the court prefers to appoint a single joint expert – a specialist accountant who will be appointed by both parties jointly to value the business. Other issues, like the ability to raise money through the business, or future profitability, can also be considered.
Having a joint expert undoubtedly keeps the cost down. But in a difficult area like business valuations, it can be a subjective process.
Sometimes it can feel as though the valuation is too low and bears little resemblance to the lifestyle the business provides.
At other times, the valuation can appear very high, set at an optimistic level, given the absence of prospective purchasers.
Given how variable valuations can be, it is easy for too much reliance to be placed upon them – especially if the other spouse is being given hard cash or property of a similar value. The courts are more alive to this now – see the court’s approach.
Getting separate accountants to value the business will need the permission of the court.
It may be justified if:
- there is a substantial gap between what the accounts show, and the lifestyle involved;
- there are substantial fluctuations in the company figures, without adequate explanation;
- the business owner is not straightforward in supplying information and figures; or
- there are good grounds for believing that the business is being manipulated because of the divorce.
- What are you trying to achieve – what do you want the court to do with the business?
A lot depends upon whether you are involved in the business, or whether you are outside the business but want to share the financial benefits.
Early on in the case, you will need to think about what you want to happen:
- do you want to keep control of the business;
- do you want the business interests to be shared, with shares being reallocated;
- is it a question of sharing income, and if so, would that be from dividend income, or from maintenance;
- do you want the business sold;
- do you want the business to be passed on to the next generation;
- do you want to sell the business on retirement?
Each one of these approaches needs to be justified to the court. Much depends upon what type of business it is, and how it has built up. Much also depends upon your respective attitudes to trust and working together after divorce.
Historically, the courts have tended to leave the business owner with the business, and compensate the other spouse with a larger share of the assets and/or maintenance.
Very often, this coincided with what the couple themselves wanted – particularly the business owner.
The difficulty of this approach is knowing whether or not it is fair – it is difficult to value businesses, and they may or may not do well in the future.
More recently, since the case of Wells v Wells in 2002, the courts have been more alive to sharing risk:
- why should one person have all the business risk, and the other keep more of the property and liquid capital – which is not so risky;
- why should one person have assets which are easy to sell and liquid, and the other person have a business which is difficult to sell?
With this new approach, the courts are more willing to share the ownership of businesses after divorce – provided this is not a recipe for conflict. Much depends on all the other factors within the marriage and within the business itself.
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