Division of Assets on Divorce and Pre-Nuptial Agreements

IN PRESENCE OF AGREEMENT HOW TO DIVIDE ASSETS

If you partner and you have agreed how to divide your assets, your still need to follow a special procedure. You and your partner need to write down what you have agreed, and then you each need to instruct a lawyer to advise you whether the agreement reached is reasonable and convert your agreement into a formal ‘Consent Order’. This order will be binding, which means you will both have to obey it going forward.

You will need to consider how to divide your property, and what maintenance payments (if any) will be made, and for how long.

You will also need to make sure that you each have a good understanding of each other’s financial position. You will need to set out your financial circumstances in Form D81:

https://formfinder.hmctsformfinder.justice.gov.uk/d81-eng.pdf

Your agreement is recorded by a solicitor in document called Minute of Consent Order. A judge will consider this order alongside your completed Form D81, they will then consider whether the agreement is appropriate, and then (if it is) will approve the terms. Once this is done the agreement is made into an order, and your marriage is dissolved via Decree Absolute.

If the agreed terms are later not complied with, they can be enforced.

CONSENT ORDER

What happens if your partner and you have agreed how to divide our assets but have not recorded your agreement in writing and have not made a formal Consent Order?

Both you and your spouse have potential claims against one another arising from your marriage. If a claim was made the Consent Order will "dismiss" those claims. If this does not occur, then those claims would still remain open, and this means if your spouse has not remarried there is a possibility that they could make an application to court many years into the future to claim further money or assets from you.

IN ABSENCE OF AGREEMENT: FORMS OF DISPUTE RESOLUTION

If your partner and you cannot agree how to divide your assets, You have three different options: Meditation, arbitration and court proceedings.

a) Mediation

Mediation is an increasingly popular and efficient way to resolve disputes.

An independent, impartial and professionally qualified mediator will assist you and your spouse or partner in resolving issues. This may take a number of sessions. Mediation can take place alongside court proceedings, or before.

The courts are keen for people to settle their issues by mediation. In fact, according to the rules of court, before you can start court proceedings you must first attend a meeting with a mediator who will explain mediation and its potential benefits if you have not already had mediation or another form of out-of-court dispute resolution. The mediator is chosen by agreement and his or her fees are paid by the parties, often in equal shares.

Follow this link to explore a list of mediators and read more about the process:

http://thefma.co.uk/

b) Arbitration

Arbitration is an alternative to formal court proceedings. It’s relatively new in divorce cases, but has many advantages: it’s fast; it’s private (not guaranteed in court proceedings); you choose/agree who the arbitrator will be, rather than “take pot luck” like in court.

The down-side is that you have to pay the arbitrator’s fees, although many find that overall, since the process is much faster, the costs are overall about the same or perhaps even less than having a final hearing in court. Arbitration can be agreed at almost any stage. It is binding, with little if any scope for an appeal to a court.

To learn more about Arbitration and to explore a list of arbitrators follow this link:

http://ifla.org.uk/

c) Court proceedings

If you can’t reach agreement by any other means, court proceedings might be the best course of action.

The biggest disadvantages of court proceedings are that it can be stressful and contentious; it can push parties to more extreme positions; it can be slow; and of course, it can be expensive, because it tends to give rise to more legal costs.

The main advantages of court proceedings are that they provide a formal structure and time-table to resolve the dispute, which can avoid long negotiations and correspondence, "drift", and delay. Court proceedings provide a forum, with an independent and experienced judge, to find the fairest outcome.

If your partner and you cannot agree how to divide your assets, the court can make a number of Orders:

a) SALE OR TRANSFERS OF PROPERTY

The court can order that properties be transferred between spouses, or sold and the proceeds divided in proportions the court decides.

b) LUMP SUMS

The court can order one party to pay a sum of money to the other.

c) PENSION SHARING

The court can split a pension in whatever proportions it considers appropriate so that it can be shared. The recipient must invest their share in a pension fund – it cannot be taken as cash.

d) VARIATION OF SETTLEMENT (TRUST)

The court can vary trusts considered to be "nuptial".

e) MAINTENANCE/PERIODICAL PAYMENTS FOR SPOUSE

The court can order a party to pay ongoing financial support for their ex-spouse. These orders are always variable, so that if either party's circumstances change, they can be altered. Maintenance for an ex-spouse ends automatically if they remarry.

f) CHILD MAINTENANCE

Where:

  • The child is living in the UK

  • The paying parent is resident in the UK or overseas but on government service or employed by a UK based company

  • The child is below 20, not in work, and still in secondary education (not at university)

  • The paying parent is the legal parent of that child

  • Any order for child maintenance is over 12 months old.

Either parent may apply to the Child Maintenance Service for an assessment of the maintenance that the paying parent should pay to the receiving parent.

You do not have to apply to the Child Maintenance Service – it is perfectly acceptable to agree arrangements, but the amount you agree on will not then be binding.


HOW COURTS WILL RULE OVER A DISPUTE?

When looking at marriage finances on divorce, the overall aim of the Court is to find a solution that is fair to both of the parties, taking into account the needs of any children of the family.

The Courts will consider a variety of factors, including:

  • Income and earning capacity, including any reasonable increase in earning capacity that could be expected of a party;

  • Financial needs, obligations and responsibilities;

  • The standard of living enjoyed by the family before the relationship breakdown;

  • The ages of the parties and the duration of the marriage;

  • Any physical or mental disability of the parties or the children;

  • The contributions that each party has made to the relationship (including non-financial contributions, such as raising children);

  • Any very serious misconduct by one party (usually limited to severe violence or sexual abuse, significant financial misconduct, or litigation misconduct); and

  • Any benefits (usually pension benefits) that one party might lose when a divorce is granted.

In practical terms, the starting point is often for the matrimonial assets to be divided equally, so all assets that have built up during the marriage are divided equally. It does not matter who has generated the wealth – using the analogy of the "traditional" family, the contribution of a wife and mother is equal to the contribution of the breadwinner. This is known as the sharing principle.

Assets generated before the marriage, inherited during the marriage or received by way of gift from outside the marriage may be considered to be non-matrimonial and so may not fall to be divided in this way if they have not been subsumed in the general family finances.

This will not apply in every case, for example where the marriage is short, there are no children, and both parties are earning an income, assets may be divided in different proportions.

However, if there are insufficient assets for both parties’ needs to be met (needs for both capital/housing and income), the Court will try to first meet the needs of the party caring for the children, and then try to be as fair as possible to the other party.


PRE-NUPTIAL AGREEMENTS

In order to understand the significance of pre-nuptial agreements, it is first necessary to appreciate that pre-nuptial agreements are not binding in England and Wales. If you get divorced in this jurisdiction and a financial application is made, the court will still have the ability to decide how to divide your assets.

However, a case in 2010 called Radmacher introduced an entirely fresh approach. The Supreme Court said this:

"The court should give effect to a nuptial agreement which is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement."

This changed the law in relation to pre-nuptial agreements in England giving them far greater strength and impact than ever before. Now, if the court has to determine whether parties should be held to their agreement, it will consider:

  1. Were the circumstances at the time of entering the agreement such that each party was able to enter the agreement freely, with a full appreciation of its implications?

    In order to decide if the circumstances at the time of entering the agreement were such that each party was able to enter the agreement freely, with a full appreciation of its implications the court will consider the following:

    Was the agreement freely entered into? There must be no question of either party being under pressure to enter the agreement. If it is signed the last minute, the financially weaker party could say that they had no choice but to sign. You should discuss the matter well in advance, take advice and negotiate the terms before your invitations are sent.

    Did both parties have a full appreciation of its implications? In order to fully understand the agreement, both parties must be independently advised by a solicitor. Advice should also be taken in other relevant jurisdictions. Full financial disclosure is also required so that you both fully understand the implications of the agreement.

  2. At the time of the divorce, is it fair to hold the parties to the agreement?

    The court will look at whether they feel the agreement can still be considered fair at the time of the divorce.

    As a minimum, the agreement must make provision for the parties' needs. The court will not leave a party to a marriage in a predicament of real need where the other party has more than they need.

    This means writing an effective pre-nuptial agreement requires a fair amount of crystal ball gazing – what is likely to be fair in 5, 10 or 20 years?

    If the agreement is not properly entered into – for example there is a misrepresentation or duress, the contract is vitiated. It will have no effect.

    Similarly, if one party does not understand the impact that signing the agreement will have, i.e. that it will regulate financial provision on divorce, then they will not be held to it. This is why it is crucial for there to be independent legal advice and full financial disclosure.

But what if the agreement was properly entered into, and the parties understood its implications, but the court does not consider it fair to hold the parties to the agreement in the current circumstances?

The court will not simply tear up the agreement – it will make provision for the weaker party's financial needs. This is demonstrated by a recent case of Luckwell v Limata.

The parties had been married for nine years and had three young children. The wife's father was extremely wealthy and as a result, a pre-nuptial agreement was signed before the marriage. This provided that each of them would keep their own wealth, including any gifts they received during the marriage. Following the parties' marriage, significant gifts were made to the wife by her father. At the time that each gift was made, further agreements were entered into, re-affirming the terms of the pre-nuptial.

When looking at dividing up the assets on their later divorce, the judge was clear that very great weight should be given to the pre-nuptial agreement, and those later agreements that supported it. However, their weakness was that they did not provide the husband with any financial support at all.

He had no home, no current income, no capital and considerable debts. In contrast, the wife had capital over more than £6.5m.

For this reason, the wife was ordered to provide the husband with a housing fund of £900,000, around half of which would revert to her when their children had grown up, and the remainder of which would revert upon the husband's death. She was also ordered to pay him a little under £300,000 in order to meet his debts.

Although this may seem a significant award in the husband's favour, he would have received substantially more had there not been a pre-nuptial agreement, and the money would have been given to him outright, rather than reverting to the wife.

CATEGORIES OF PRE-NUPTIAL AGREEMENTS: USUAL CONTENT

Pre-nuptial agreements usually fall into one of the following categories:

  • Separation of property: the pre-nup states that each party keeps what they own before the marriage or inherit or earn during the marriage - and neither partner can claim against the other on a divorce. This is a good option if both you and your partner already have significant assets.

  • Stepped provision: The pre-nup states that the wealthier spouse agrees to make certain payments to the other on a divorce. They will pay enough to deal with needs, which would normally increase as the marriage goes on for longer, or for instance on the birth of children. This is a good option if one party in your relationship has significant wealth.

  • Sharing of fruits of matrimonial partnership: This agreement will mean that what assets each partner had before the marriage will return to them on divorce, but assets acquired or earned during the marriage will be shared. Where one parties' assets are limited, the agreement will also set out that if the poorer spouse is unable to meet their reasonable housing and income needs from their own property or their share of the marital property, then these will be provided for by the wealthier spouse on divorce.

The pre-nuptial arrangements are not limited to just these three. There is huge scope for variations, including for example putting restrictions of what might amount to reasonable needs, putting a cap on the overall sums the poorer spouse might receive or limiting such sums to a % of the other party’s overall wealth.

It is crucial for both parties to get a proper legal advice on both the terms and the drafting of a pre-nuptial agreement.

In addition to the financial terms, there are a number of other factors which must be considered.

COURT PROCEEDINGS

Before you can begin proceedings for the court to rule over your dispute regarding the division of assets, you must attend what is known as a Mediation Information and Assessment Meeting (“MIAM”). This is a meeting with a specially qualified family mediator, who will explain the alternatives to the court process. This is to give you an opportunity to make sure going to court would really be the best way of dealing with the issues that you face following your relationship or marriage breakdown (e.g. children, property and financial issues), and whether mediation could be an effective alternative.

Under certain circumstances you will not have to attend this meeting – for example if there is evidence of domestic violence or a risk of serious harm to children.

Once you have been to a MIAM, if you wish to continue with your court application, you must complete a “Form A” application and file it at court. You can find the form here:

https://formfinder.hmctsformfinder.justice.gov.uk/form-a-eng.pdf

A “First Appointment” date will be fixed by the court when it processes the Form A application. The First Appointment will be between 12 and 16 weeks from their receiving Form A.

Both parties must fill out a “Form E” which is an official financial disclosure. You can find it here:

https://hmctsformfinder.justice.gov.uk/HMCTS/GetForm.do?court_forms_id=1125

This form requires specified and quite detailed financial information. There are detailed notes to help you complete the Form on the court service website here:

http://formfinder.hmctsformfinder.justice.gov.uk/form-e-eng.pdf

Forms E must be submitted 5 weeks before the date of the First Appointment.

After the exchange of Forms E, the parties must provide certain documents. These will normally include a Questionnaire to seek additional information and relevant documents in relation to the other party's financial disclosure. It may also include a Chronology setting out past events in the order that they happened, and a Statement of Issues, summarising your main areas of disagreement.

When you are in the process of a divorce, and you wish to resolve financial matters you have a duty to provide full, honest and clear financial disclosure. This applies whether you and your spouse are discussing the division of your assets between you or you are involved in court proceedings.

If a party is in breach of this duty, whether by failing to share all the facts and circumstances or actively presenting a false case, then the court may set aside the financial order under discussion and make a costs order against that party.

The First Appointment hearing is a case management appointment. The judge will decide such practical and procedural issues as:

(i) whether any valuations or experts' reports (for example property valuations) are needed, and

(ii) which parts of the respective Questionnaires should be answered.

The court has no power at this hearing to decide how you will settle your finances, unless there is an agreement between you.

The next step is to implement the judge’s requests, for example by filling in the appropriate questions in the Questionnaires, and perhaps obtaining valuations.

Then a Financial Dispute Resolution Hearing (“FDR”) will take place. It is usually held about 4 to 6 months after the First Appointment.

This is a judge-led hearing at which each party’s lawyers put forward reasoned arguments about what would be a fair outcome, almost like a mediation appointment.

An offer of settlement would usually have been made by each spouse before the hearing; these offers would usually be made on a "without prejudice" basis, which means that they cannot be mentioned in court outside the FDR hearing. This allows parties to make attractive settlement offers without fear that the offer will be used against them later. The FDR judge is told about all offers, including without prejudice ones.

The FDR judge will also explain what, in their view, a likely outcome at a Final Hearing will be.

There is often some further negotiation and some to-ing and fro-ing in and out of court to have the judge’s further help in trying to resolve the issues. If an agreement is reached, the judge will be told and a binding order can be made. If no agreement is reached, the case is then set down for trial and any necessary instructions from the judge for further preparations for the trial are made. That is the end of the FDR judge’s role in the proceedings.

Most FDRs involve a judge and a court, but there is also the option of “Private FDRs”, where parties agree to appoint (and pay) an experienced lawyer, sometimes a retired judge, sometimes an experienced barrister, to conduct the same sort of process. This is becoming an increasingly popular option. There are a few differences, but the procedure and aim are basically the same.

The advantages of Private FDRs are that you can choose your “judge”, rather than have whoever the court gives you on the day; you can choose your date and have longer than the court may give you (e.g., a day, instead of an hour or so); you choose your venue

(typically, one of the lawyers' offices or chambers; not a court). The disadvantage is that you have to pay the “judge”, usually on a 50/50 basis.

The last step is the Final Hearing.

A Final Hearing will take place approximately six to twelve months after an FDR hearing. At a final hearing a judge will read the written evidence, hear some oral evidence from the parties, and listen to detailed submissions from each parties’ lawyers. The judge would then decide upon the appropriate financial outcome.

DISCLOSURE OF FINANCIAL INFORMATION

What information do you have to disclose during the divorce process? When you are in the process of a divorce, and you wish to resolve financial matters you must provide full, honest and clear financial disclosure of all of your assets and income (worldwide). This applies whether you and your spouse are discussing the division of your assets between you or you are involved in court proceedings.

If a party is in breach of this duty, whether by failing to share certain relevant facts and circumstances or actively presenting a false case, then the court can set aside the substantive financial order and make a costs order against that party.

PETS ON SEPARATION

As sad as it may seem, in England and Wales, in the eyes of the law a pet is a chattel, to be divided up in the same manner as the household furniture or jewellery. The court can transfer ownership to one party or the other, but cannot make an order dividing the pet’s time between the parties. Prize-winning pedigree dogs or thoroughbred race-horses, can be extremely valuable and are likely to be ascribed a monetary value.

Whether this remains the case in the future remains to be seen. The law in other countries, most notably the USA, Israel and Switzerland is starting to consider what is in the best interests of the pet in question in order to determine with whom they should live. In early 2017, Alaska introduced a new law providing for joint ownership of family pets.

However, in the meantime, if one party feels very strongly that a pet should remain with them following the breakdown of the relationship a pre- or post nuptial agreement (if married) or a cohabitation agreement (if living together) may help to provide clarity. If the parties wish to share a pet following the breakdown of their relationship, there is nothing to stop them from reaching an agreement to this effect, and mediation may help them to do so.

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