Couples going through a divorce are increasingly resolving their financial matters by mutual agreement. We have seen that the introduction of 'no-fault divorce' has made it easier for couples to part on amicable terms, allowing them to settle financial issues without extensive solicitor involvement or lengthy legal battles. Additionally, the ongoing cost of living crisis has motivated couples to handle these matters privately, avoiding the high costs of contested proceedings. However, while resolving matters by consent is beneficial, there is a real risk that doing so without seeking any legal advice could result in certain issues not being addressed adequately, or at all. Legal advice is therefore crucial even in consensual settlements.
When a client approaches a solicitor about divorce and financial matters, they will normally be advised to engage in providing voluntary financial disclosure. This process, often unfamiliar to lay people, involves each party completing a 'Form E' that details their financial situation, including properties, cash, debts, business interests, income, and pensions. Supporting documents must be provided as part of this process to evidence the figures given. This is an essential step where an agreement is to be negotiated but is still useful when an agreement has been reached, to ensure that this is fair.
The exchanged Form E documents allow both parties to understand each other's financial situation. For example, a 50/50 split of the net proceeds of sale of the family home might initially seem fair for a couple married for 15 years, owning a home together. However, if financial disclosure reveals significant income and asset disparity between the parties, such a split might no longer seem fair. Hence, voluntary financial disclosure is necessary for transparency and fairness, ensuring that neither party is disadvantaged.
The process doesn't end with document exchange. Solicitors will go through its contents and scrutinise them for inconsistencies or missing information that might not be evident in the first instance. For example, undisclosed bank accounts or hidden funds can be uncovered through detailed examination and follow-up questions. This thorough scrutiny ensures that any settlement is based on an accurate and complete financial picture.
Negotiating a settlement requires awareness of potential entitlements, including capital, pensions, and income. Pensions, in particular, are complex and can often be misunderstood. Couples might mistakenly believe that simply dividing the cash equivalent value of their pensions equally will result in an equal pension income upon retirement, or that pensions cannot be included in a settlement since they are not immediately accessible. This is particularly important where the pension assets exceed £100,000 in value. For substantial pension assets, consulting a solicitor (often with the assistance of a pension expert) is essential to reach a fair agreement.
One of the most important steps in private settlements is obtaining a consent order that is approved by the court. Without it, any agreement will not be legally binding. Legal advice is recommended at this stage to ensure the order is clear and accurate, preventing future disputes. Solicitors often include a clean break provision in the consent order, severing financial ties post-divorce. Without this provision, one party could potentially claim assets from the other in the future, such as lottery winnings.
In some cases, a clean break might not be appropriate, especially when ongoing financial support is necessary. It's essential to consider each party's needs and available income carefully. The weaker earner might need ongoing support rather than using capital as income.
The cost-of-living crisis has made legal advice seem like an unnecessary expense when couples can reach an amicable agreement. However, obtaining legal advice can prevent future disputes and ensure a fair settlement. The more cooperative and transparent the parties are with each other, the less work a solicitor has to do, which can reduce legal fees.
In conclusion, separating couples should use their amicability to their advantage. By agreeing to transparent disclosure, considering court guidance, and instructing a solicitor for drafting, they can ensure a positive and fair resolution. This approach protects both parties and provides certainty that their legal matters are conclusively settled.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
