‘I did my divorce online and we just sorted out the finances between us. It was so easy. I don’t understand why anyone needs to use a lawyer’

A recent report from the University of Bristol, entitled ’Understanding of the law around finances and property on divorce’ indicates that the public’s understanding of the law in relation to financial matters on divorce is ‘patchy and often poor’. This report also says that a ‘substantial proportion of the public have little awareness of the legal position’ on divorce and simply say that they do not know what the law is.

The findings of the report are particularly concerning given the earlier, ‘Fair Shares? Sorting out money and property on divorce’ report, also from the University of Bristol, indicated that only 32% of divorcees made use of lawyers in relation to their financial arrangements on divorce, and over half of divorcees who had reached a financial arrangement had done so by themselves. A particularly concerning statistic from the Fair Shares report is that only 11% of divorces shared a pension pot, and there was a general lack of interest in the pensions, and a strong sense that it ‘belonged’ to the spouse who had been contributing to it.

So, what is the law of financial remedy, and why should a potential divorcee obtain specialist legal advice from a family law practitioner?

The current divorce law, including in relation to financial matters is contained in the Matrimonial Causes Act 1973 (and mirrored in the Civil Partnership Act 2004 for civil partners) and is therefore over 50 years old. One of the main reasons it is difficult for a person divorcing to deal with the matter on their own without legal advice is because this law provides no standard formula for calculating a divorce settlement. Instead, the court has a duty to consider all the circumstances of the case and take account of a list of factors set out in section 25 of the act. Furthermore, before considering those factors, it must also consider the welfare of any children of the family.

The section 25 factors include such matters as:

• income, earning capacity, property and other financial resources the parties have including what is reasonably foreseeable;
• the needs, obligations and responsibilities each of the parties has, or is likely to have in the foreseeable future;
• the standard of living enjoyed during the marriage;
• the parties ages;
• the length of the marriage;
• whether there are any disabilities whether they are physical or mental;
• contributions that have been made or likely to make in the foreseeable future to the welfare of the family;
• the conduct of the parties (although only in exceptional cases)
• any benefit either party will lose as a result of the divorce.

In addition to considering the s25 factors, the court also has a duty to try to achieve a ‘clean break’ i.e end each party’s ability to claim against the other’s income and assets in the future, providing certainty and finality.

The overall aim of the court is to achieve a fair outcome, and it has a wide discretion to decide cases, and therefore one judge may reach a different conclusion to another. Over the years some main principles have developed in case law, the main ones being ‘needs’, ‘compensation’ and ‘sharing’.

Resolving financial matters on divorce involves the separation of assets. Assets are identified by the court as ‘matrimonial’ or ‘non-matrimonial’, the former normally being the matrimonial home and any other assets that have accrued during the marriage, and the starting point in dealing with those matrimonial assets is for them to be divided equally. If an equal division of matrimonial assets meets the capital and income needs of each party and the children, then that is likely to be the outcome.

If an equal division of the matrimonial assets would leave one of the parties with insufficient assets to meet needs, an unequal division may well be the appropriate outcome. Meeting needs is the priority and non-matrimonial assets such as inheritances or gifts can be used to meet needs, although where possible, the court is likely to ensure a party who received a gift or inheritance retains it, but this may mean that the other party needs to receive more of the matrimonial resources.

Needs and fairness may also dictate that there is not a clean break immediately, and that maintenance (in addition to child maintenance) is paid from one spouse to the other for a period of time. This is normally only until the receiving spouse can become financially independent, but in some circumstances, the court may consider it appropriate to leave open the possibility of the period the maintenance is payable being extended.

Cases, where the available resources exceed needs, are generally dealt with based on equal sharing of matrimonial property, but in some circumstances, where significant matrimonial assets have been generated by one person, an argument of special contribution may be successfully advanced. If the assets are entirely or largely non-matrimonial then, the distribution of assets is likely to be decided by needs, which are generously interpreted.  A party can also be compensated within the settlement for example if they have given up a successful career.

As can be seen, the current law in connection with finances is not straightforward, thus making it very difficult for divorcing couples to resolve matters without the assistance of suitably qualified legal advisers if they want certainty that fairness has been achieved within the range of outcomes the court would be likely to order.

Another major concern is that many separating couples are not aware, due to the lack of legal advice, that when they divorce and obtain a final divorce order, if they have not also had a financial settlement agreed and incorporated into a consent order approved by the court, and which provides for a clean break, their former spouse may well be able to make further claims against their assets and income many years later.

The existing law in respect of financial matters on divorce has, for many years, been criticised for providing the court with too wide a discretion to decide cases, which results in unpredictable outcomes and inconsistent results.

In December 2024, the Law Commission published a scoping paper on financial remedies on divorce and civil partnership dissolution. This set out four potential models for reform on a sliding scale from simply codifying the existing principles of fairness, needs and compensation while still maintaining judges’ wide discretion, to creating a ‘matrimonial property regime’ that would provide rules for dividing property on divorce, severely restricting judges’ discretion. Reform somewhere between the two could be the best option, which reduces the width of judicial discretion but allows a degree of flexibility to remain. There is also the question of whether any changes to the law should include provisions for pre-nuptial and post-nuptial agreements to become binding, rather than persuasive as they currently stand.

Time will tell whether the current government takes any steps to remedy the current issues for divorcing couples in relation to their finances, although that seems unlikely given the focus seems to have again turned to reform of the law for cohabiting couples and that for many is more of a priority.

In the meantime, a separating spouse should think very carefully before embarking on the divorce process without seeking at least some guidance from an expert matrimonial solicitor as to their legal position and the appropriate range of likely outcomes in their particular case. A specialist matrimonial solicitor can also provide guidance about the different ways to resolve the issues that arise on divorce, including the finances, through non-court dispute resolution, such as mediation, arbitration and early neutral evaluation. Geldards Family Law team offers a variety of Family Law services including including representation, family mediation, non-court dispute resolution, financial dispute resolution and family arbitration.