Financial settlement in a divorce is a crucial point that involves the distribution of financial assets between the separating couples, which may include property, savings, investments or pensions. The parties must also decide how to repay any debts and organise any child maintenance or spousal maintenance payments.
There are a number of ways for reaching this settlement. However, broadly these can be categorised as out-of-court and in-court settlements. The out-of-court settlement can be reached between the separating parties when they agree amongst themselves on how they will split their joint assets. In this case, the only formal requirement is to get the settlement approved by the court in the form of a consent order to make it legally binding. This doesn’t require a court hearing or personal attendance at court. Parties can hire the services of a solicitor to draft a consent order which will be signed by both parties and then submit before the court. There are other documents that are required to be submitted along with the ‘consent order. These include Form A (‘Notice of an application for a financial order’), Form D81 (‘Statement of information for a consent order in relation to a financial remedy) and a £50 fee. If parties are not able to agree, a mediator can be appointed to advise and facilitate the settlement process. The parties can also choose to involve a solicitor to advise on the legal position and represent the interest of the client. Approval of the consent order from the court will still be required to make it legally binding.
When it is not possible for a couple to agree, even with the help of mediation or solicitors on the division of the finances or ongoing maintenance payments, any one of them can apply to the court to ask a judge to look at the details and make a decision which is known as a ‘financial order’. There is no hard and fast rule and law specifying percentages as to the division of financial assets between the parties as section 25 of the Matrimonial Causes Act 1973 only provides factors that are to be considered by the court while dividing the assets. The factors provided in the said section are tools to assess the financial value of the spouses and their needs/requirements. Special focus is given to the needs of the children if there are any. Apart from the financial status, the court will also consider the conduct of each spouse; value to each spouse of any benefit that one spouse would lose because of the divorce; standard of living and duration of the marriage. However, the first consideration before looking at any of these factors is the welfare of any children in the family. Although this factor is not provided in section 25 of the Matrimonial Causes Act, 1973 but judicial precedents have categorised it as the foremost factor for consideration by the Court.
Two other important factors, which are also not provided in section 25 but considered by the courts, are sharing and compensation. Since marriage is a partnership and the fruits of that partnership should be shared. Furthermore, one spouse may have lost out the chance of accruing assets, income or pension provision and should therefore be compensated for it. The court is not bound by any pre-nuptial agreement which the parties may have entered into before getting married or forming a civil partnership but can take it into account. In this regard, reliance can be placed upon the Supreme Court’s decision in Radmacher v Granatino (2010). At this stage, the parties must make financial disclosure if they have not already done so.
There may be three court hearings to obtain a financial order for which the dates are set by the court. The first hearing is termed a First Directions Appointment (FDA). At this stage, the already provided information is assessed, and the future course of action for the settlement is
determined. The second hearing is the Financial Dispute Resolution hearing (FDR), in which the court will not make an order but will hear from each party, including proposals for settlement and reasoning, and will then give an indication of what the judge might order if this was a final hearing. This hearing is designed to encourage open discussions, and many cases settle at or shortly after this hearing. The final hearing leads to a decision with regard to the financial order. This hearing is conducted by a different judge who will hear the oral evidence and, after considering the written evidence and legal arguments, announce the financial order.