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Divorce and finances

Thursday, 13 February 2014

Contrary to the myth, there is no rule that married couples should split their assets 50:50, and if there are children involved they will be the most important thing to consider when it comes to organizing a financial settlement. It’s important not to get immersed in constant financial dispute, or get weighed down by lengthy negotiations. Here is an overview of the process to determine financial settlements through divorce.

Where to start

Sad girl with her fighting parents behind her

The starting point for a financial settlement is establishing what is fair, if this can be agreed through  mediation or with the help of your lawyer you will not need the court to impose a decision.
If you do end up asking a court to decide, this means that judges have to look carefully at both the needs of your children and you, with considerations given to the financial resources you have at the time of the divorce such as the value of your home, your mortgage, your incomes, savings and pensions.

What’s also considered is the need to ensure income is provided to cover usual day to day expenses such as food, clothing, housing, etc. Pulling all of this information together is known as financial disclosure, and once all basic needs of both spouses are met there are, in some cases, further steps to help the courts lay down the three principles that apply to divorce: sharing principle, needs principle, compensation principle.

Sharing principle

This is a measurement of what has been built up in the marriage: value of the home, pensions, savings, etc. These are matrimonial assets and should be split equally between the two of you. However, if you bring property into the marriage, for example through an inheritance, this may be considered as non-matrimonial asset – it may not be treated as a matrimonial asset but it may still be used if needed. More information on asset protection, click here.

Needs principle

This indicates what you need to manage in the future, such as income and housing. There will be two households to consider instead of one so all income and family savings will be used to cover this, meaning a drop in the standard of living may be inevitable.
To work out the needs principle you will have to work out the expenditure needed to meet both your expenses (income needs) and two properties – rented or otherwise (housing needs).

Compensation principle

This may not necessarily apply to all cases, but the compensation principle is where the court recognizes that the spouse may have given up a career to care for the children, which has placed them at a disadvantage in relation to career progression and earning capacity. This will subsequently put them at a disadvantage of earning an income in the future, and therefore the spouse would get benefit from future earnings of the husband to compensate them for their own loss of income (joint lives maintenance). For more information on financial settlements and spousal maintenance click here.

It is always important to understand that each case is different and no case will have the same outcome as another. Read more in our Guide to Divorce.

Read more about our divorce and separation services.