What am I entitled to in a divorce settlement?
Divorce can be a complex and emotionally challenging process. When you combine the process of divorce with the financial aspect of it, it can become even more daunting.
In this blog, we have used ‘entitlement’ as a shorthand for understanding what you may expect to receive from financial settlement on divorce. However, it is important to understand that ‘entitlement’ does not, in fact, exist. Instead, decisions are either made in contested court proceedings by a Judge, rather than considering what parties are ‘entitled to’, has discretion to consider a wide range of factors.
Alternatively, decisions are made collaboratively with another party - in which ‘entitlement’ is not the defining aspect; instead, decision-making is likely to involve an understanding of shared goals and a process of concession and compromise to reach a mutually acceptable way forward.
However, understanding what you may receive in a financial settlement is vital for empowering yourself during this trying time. In this guide, we'll explore various aspects of a financial settlement, including how assets are divided, what factors contribute to a successful division, and the role of mediation.
Whether you're considering divorce or already navigating through it, this information can help you work with your spouse to achieve a more informed and equitable separation.
What is a Financial Settlement on Divorce?
A financial settlement is an agreement between spouses outlining the division of assets, liabilities, maintenance, and other financial responsibilities. It is typically reached either through negotiation (inside or outside of mediation), or legal proceedings.
While every situation is unique and legal requirements may vary, the primary aim of a financial settlement is to distribute property and financial responsibilities in a manner which is clear and equitable.
The process involves a detailed understanding and examination of all finances (including both matrimonial and non-matrimonial assets), as well as other factors like the length of the marriage and each spouse's financial needs and contributions. Legal advice and mediation services, such as those provided by Mediation First, can be invaluable in ensuring that the settlement aligns with both legal requirements and the unique needs of the parties involved.
So What am I entitled to in a Divorce?
In a financial settlement in England and Wales, you could expect to receive a portion of your partner's pension(s), business assets, maintenance payments, and a share of property. Factors influencing the division include each spouse's income, earning potential, and individual assets.
Am I Entitled to 50% in a Divorce?
When navigating the complex terrain of divorce, many individuals enter the process with the belief that assets will automatically be split evenly — that each party is invariably entitled to 50% of the marital assets. However, the reality is more nuanced.
The 50/50 principle, though a common starting point in divorce cases, isn't a rigid rule. Instead, there are numerous considerations that may recalibrate this division.
There's the practical aspect — i.e., the current and future needs of each individual (including any children of the marriage). These needs encompass more than just the immediate financial picture and may also consider future needs - e.g., the situation when children reach maturity and/or spouses retire. The goal is to strike a balance, to ensure that post-divorce, neither party confronts unnecessary hardships or drastic lifestyle changes. Alongside this, the earning capacity of each spouse may also be a relevant consideration.
Another factor that may be relevant is the duration of the marriage; it may be more reasonable in shorter marriages, where there are no children, to assume that parties should not be financially reliant on each other going forwards.
There are also other factors that can be relevant to how property and finance is distributed on divorce. For instance, courts may consider contributions made by either party during the divorce (albeit it is important to note that contributions are not just financial. Contributions also involve whether one spouse focused on childcare or household duties while the other advanced their career).
Given the myriad of factors and the inherent emotions tied to divorce, it's best to avoid generalisations. Understand that every marriage holds its story, its triumphs, and its tribulations. Consequently, the division of assets should be seen through this personalised lens.
As you embark on this challenging journey, try to work closely with your spouse. Engage in open dialogues, possibly with the assistance of a legal professional or mediator.
How is a Divorce Settlement Calculated?
Calculating a divorce settlement is a complex process that takes into account various factors to achieve a fair outcome. While you may find online tools like a Divorce and Money Calculator, it's crucial to use them with caution as they cannot consider all the unique aspects of your situation. Working with a professional mediator or legal expert ensures that the calculations are tailored to your specific circumstances.
Factors to consider when calculating a divorce settlement include:
Central to any divorce settlement are the matrimonial assets – the shared treasures and financial resources accrued over the marriage's tapestry. This includes the tangible, like homes and vehicles, to the less concrete, like savings, investments, and even pensions. These are the assets woven into the daily fabric of marital life, representing shared efforts and goals.
Each partner brings individual assets to a marriage, which may include properties or valuables owned before the marriage or even gifts and inheritances received during it.
These are termed as non-matrimonial assets. Their division might differ from matrimonial assets and could consider elements like prior agreements or even the sentiment attached to them. When discussing these assets, it's helpful to work with your spouse and consider the unique origins and meaning of each.
When children are involved, their well-being becomes the top priority in a divorce. It's not just about assets but ensuring they have what they need to grow and develop.
This covers their education, daily expenses, and future goals. It's crucial to collaborate with your spouse, focusing on your joint responsibility to your children's welfare, even if the marital dynamics change.
Just as assets are accumulated during the marriage, so too can liabilities and debts, and their fair distribution becomes a cornerstone of the settlement process. Divorces often prompt the question: Who bears the responsibility for what debt?
The answer isn't always straightforward. Some debts, like joint mortgages or credit card balances, might have been accrued for the shared benefit of the family, whereas others might be personal debts that benefited only one party. When deliberating over these financial obligations, it can be helpful to consider the nature of the debt, its purpose, and how it was serviced.
Who Gets the House? What Happens to Property in a Divorce?
Navigating the path of divorce is rarely without its challenges, and when it comes to the family home, those challenges often take on deeper emotional and practical layers.
The house isn’t merely a structure; for many, it’s a repository of memories, milestones, and moments that define a shared journey. Understandably, deciding its fate becomes a pivotal, often emotionally charged decision in the divorce process.
The ripples of divorce extend far beyond the couple, touching the lives of children involved. For them, the home is more than an asset; it's stability and comfort. Their needs and well-being often take centre stage.
Courts, and hopefully both parents, lean towards ensuring the least disruption in their lives. This might mean that the parent offering a more consistent environment temporarily has the home. When deliberating, it's beneficial to work with your spouse to prioritise your children’s needs and well-being above all else.
Beyond emotions and memories, a house carries with it very tangible financial responsibilities, from mortgages to maintenance. While holding onto the house might seem like the desired route, sometimes, the financial realities challenge its feasibility. Sometimes, selling and dividing the proceeds in a manner which allows both parties to rehouse emerges as the best path forward.
While finances and logistics play a significant role, we can't underestimate the emotional ties that bind us to our homes. Sometimes, these ties can sway decisions, even if they challenge practicalities. It’s okay to feel deeply about this decision. But it’s also essential to try to work together, understanding and respecting each other’s emotional narratives and connections to the space.
You can learn more about what happens to property in a divorce.
How are Pensions Divided in Divorce?
Pensions, often symbolic of a person's life's work and preparation for a comfortable retirement, emerge as one of the most intricate assets to navigate during a divorce. Unlike the immediacy of liquid assets, pensions carry a promise of future benefit, making their division a sensitive and often complex endeavour.
Dividing them, during a divorce, can be a complex process that goes beyond simple calculations. The manner in which pensions are apportioned varies, influenced by the intricacies of the pension type, the marriage's duration, and the mutual agreement or disagreements between the divorcing parties.
Pension sharing is one method of dividing pensions. It entails a formal agreement that effectively partitions the pension assets at the point of divorce. By doing so, it provides clarity, giving each party a distinct and separate portion of the pension. This method is akin to carving out two distinct paths from a joint journey, allowing each individual to manage their pension pot independently post-divorce.
Pension offsetting can create more flexibility. Instead of dividing the pension asset, it looks at the bigger picture. Here, the value of the pension is weighed against other matrimonial assets. For instance, one party might retain the entirety of the pension, while the other receives a more significant portion of a different asset, such as property. This method might appeal to those who prefer a clean break or want to preserve certain assets intact, especially when they have distinct emotional or practical value.
Deferred Pension Sharing or Attachment Orders
Instead of an immediate split, this method plants the seeds for a future division. Such agreements might specify that the pension will be divided upon the pension holder's retirement. While this can ensure future security, it can also carry the weight of continued financial entanglement.
How are Business Assets Divided in a Divorce?
Dividing business assets in a divorce is a complex process. Several considerations come into play, including the type of business, its valuation, and future involvement of both parties. Below are some key points to consider:
Valuation of the Business: A neutral business valuator or financial expert is often needed to accurately determine the business's value. Additionally, the business structure (sole proprietorships, partnerships, corporations) significantly impacts how assets are divided.
Nature/ structure of the business: A sole trader runs a business under their identity - i.e., they are the business and the business is them. It therefore follows that any assets of the business belong to the individual and are therefore part of the financial landscape upon divorce. A limited company has a separate legal identity from the person or persons with significant control. It therefore follows that assets of the limited company belong to the company itself and the relevant consideration upon divorce is the value of any shareholding that a party has.
Future Involvement: Decisions on future roles in the business, buyouts, or structural changes can affect both the immediate division and the long-term health of the business.
What Makes a Fair Divorce Settlement?
A fair divorce settlement extends beyond the idea of an equal 50-50 split of assets. It considers several factors including the needs of all parties and their respective priorities.
In courts in England and Wales, Judges have reference to a checklist of factors when considering how to distribute property and finances on divorce, which are contained in Section 25 of the Matrimonial Causes Act 1973. This checklist includes:
- The income, earning capacity, and financial resources of each party, both current and foreseeable.
- Financial obligations and needs of both parties in the foreseeable future.
- The standard of living enjoyed prior to the marriage breakdown.
- The age and duration of the marriage.
- Contributions made to the welfare of the family, including non-financial contributions like childcare and homemaking.
- Conduct of each party, if it's inequitable to disregard it.
- Loss of benefits due to the dissolution of marriage.
- The welfare of minor children under 18 is given primary consideration, including their financial needs and any disabilities.
Role of Mediation
Mediation serves as a neutral ground for divorcing parties to discuss and negotiate terms for a settlement. A qualified mediator guides the discussions, facilitating a space where both parties can express their needs and concerns. This can include assets division, spousal maintenance, and arrangements for children.
Benefits of Mediation
Some of the key benefits of meditation include:
- Cost-Effective: Typically cheaper than court.
- Time-Saving: Resolves disputes faster than traditional legal processes.
- Less Adversarial: A more amicable way to resolve disputes, which is particularly important if children are involved.
For a detailed breakdown of how mediation could benefit you, we recommend reading our blog on the benefits of mediation.
Take the Next Step with Mediation First
Choose Mediation First for professional, impartial guidance aimed at facilitating constructive discussions. We specialise in family mediation, aiding in constructive discussions about asset division, child arrangements, and more. Contact us to get started and take the first step towards a more amicable resolution