A quick guide to how divorce settlements are calculated

We give you a quick guide to how divorce settlements are calculated in our latest blog from the Family Law department.

How are divorce settlements calculated?

There is often a misconception that matrimonial assets will always be split equally between parties upon divorce. While this is the starting point for most couples, the reality is that what you are entitled to upon divorce will be dependent on a range of different factors. This means it is possible for one party to have a greater share of the matrimonial assets.

When calculating divorce settlements, the Court will follow the guidelines set out in section 25 Matrimonial Causes Act 1973. All the factors set out in this section are discretionary and the Court must consider all the circumstances relating to the case when making an order. These factors can be used by the Courts to justify and explain their reasons for departing from the ‘yardstick of equality’.

Where there are children under 18, the Courts first consideration is the needs and welfare of the children. The child’s access to a home, clothes, food, and other necessities is often the priority. After having regard to the children’s needs, the guidelines in the Matrimonial Causes Act 1973 are considered to accurately calculate the divorce settlement.

The following factors are considered by the Courts:

1. The parties’ resources:
The Court will consider the parties income from all sources including fringe benefits such as company cars.
As well as looking at actual earnings, the Court will also assess the parties’ future potential earnings. The Court will take a realistic approach when calculating the settlement and will take account of the individual’s skills, time out of work, age and the possibility and cost of retraining and the job market.

2. The parties’ need:
The Matrimonial Causes Act also directs the Court to consider the parties’ needs and responsibilities. The most important needs the Courts will generally have regard to is the provision of accommodation for both parties and any children, costs of food and clothing.
In addition to considering future needs, the Court will also need to consider the parties existing obligations e.g., school fees, bank loans etc.
Both parties will be required to prepare a breakdown, estimating how much they will need to meet their outgoings.

3. Standard of living
While the parties’ standard of living is important, the Courts acknowledge that it would be an impossible task to sustain both parties’ standard of living at the level prior to the breakdown of marriage.
Inevitably there will be increased costs of running two households therefore although the Court will not aim to replicate the exact standard of living, the divorce settlement will be calculated to ensure the inevitable reduction in the parties’ standard of living is borne by them equally.

4. Age of the parties and duration of marriage
The length of the marriage may affect the parties’ earning capabilities after marriage. A young couple who have been married for a short period, and who have contributed less to the marriage may find it easier to achieve financial independence than an elderly couple leaving a lengthy marriage.
The Court will have regard to any loss of prospect resulting from marriage e.g., jobs or promotions sacrificed etc.

5. Disability
A party suffering from a disability, may require greater resources because of their reduced earning capacity. The Courts will consider the sufferers needs, e.g., treatment and also any future deteriorations in the party’s condition.

6. Contributions to the family
The Court is required to consider all past and future contributions to the welfare of the family. This will include looking beyond financial contributions to recognise spouses who have cared for the home and the family.

7. Conduct
The conduct of both parties is considered where it would be inequitable to disregard it.

8. Potential financial loss
When dealing with Orders and calculating divorce settlements the Courts must also consider potential benefits a party might lose as a result of the termination of marriage e.g., loss of pension rights. In this case the Court may decide to allocate a greater share to the matrimonial assets to the mitigate such issues.

How are assets valued?

Once marital assets have been identified, the parties are free to stipulate that the assets have certain value. If the parties cannot agree on the value of assets, the Court will use experts with special skills and experience to determine their value. This is often the case for high value assets such as jewellery, antiques, and property.

For marital purposes, the value of a marital asset is the fair market value. This is ‘the price which a willing buyer would pay to purchase the asset on the open market from a willing seller with neither party being under compulsion to complete the process’.

If you require advice or assistance in relation to the calculation of your divorce settlement or other family law matters at Jordans Solicitors we have a dedicated family law team who can help. Please dial 01924 387 110 and ask to speak with a member of the family law team or visit our website and request a call back.

9. What is marital wealth?

Marital wealth refers to wealth acquired during the course of one’s marriage. This includes assets and debts which are newly acquired during the marriage by one or both parties.
Assets gifted or inherited during the marriage are not classed as matrimonial property.

10. Are debts classed as matrimonial assets?
Debts acquired during marriage are classed as matrimonial debts. Even if a debt is in one person’s sole name it will still be regarded a matrimonial debt.

11. How can you protect any assets acquired before the marriage?
While protecting assets acquired prior to marriage may not be the first thing that comes to mind before you get married, doing so may save you from unnecessary expense and conflict in the future.
There are various options available to safeguard your pre-marital assets. These practical solutions do not only offer protection but also offer benefits of certainty and transparency, as each party offers full and frank disclosure of their personal assets and agrees a financial settlement from the outset.

The options you have available to you to protect your assets include:

1. Pre-Nuptial Agreement/Pre-Marital Agreement:
This is a contract between two parties, usually entered before the marriage. The Pre-Nuptial Agreement specifies a mutual agreed settlement between the parties as to each parties’ assets in the event the marriage may break down in the future.
Over recent years the Courts have placed an increasing amount of weight on such agreements. The most recent landmarked case in relation to Pre-Nuptial Agreements was the case of Radmacher v Granatino (2010) where the Court decided to uphold the Pre-Nuptial Agreement. Whilst Pre-Nuptial Agreements are not automatically legally binding, following this landmarked case, the Court will uphold the Pre-Nuptial Agreement if it meets the following criteria (which have been set by the Supreme Court and further reviewed by the Law Commission), those requirements would be derived from the law of contract and not from family law. They envisage that:
• There must be an agreement
• Each party must intend for the Agreement to be legally binding
• Each party must get something from the agreement (though if the agreement were one-sided, this requirement might be met by entering into a deed)
• The agreement might be invalidated by mistake, duress, undue influence or misrepresentation.

The Law Commission Consultation Paper also sets out a number of additional safeguards that might be appropriate if qualifying Pre-Nuptial Agreements were to be permitted:
• The agreement must be in writing and signed by the parties
• In order for the agreement to be enforceable against a party, there should be full and frank disclosure of the others party’s financial situation
• The parties should be legally advised by separate legal representatives.

Pre-Nuptial Agreements/Pre-Marital Agreements are especially worthwhile and a practical solution for couples where there is an inherent gap between their wealth.

2. Create a Will:

Marriage revokes and invalidates any existing Will. It may be a good idea to make a Will after your marriage setting out which pre- marital assets you would like to protect.

3. Keep property separate

Practically you could do nothing and keep your property separate/not record your spouses names on property deeds. However, entering into a marriage provides spouses with additional rights when it comes to property that is in one party’s sole name i.e. entering a Marital Home Rights Notice on your spouse’s property etc. For a spouse to register a Marital Home Rights Notice or anything of this nature, there are considerations that must be met.