By John Loram | Finance & Property | May 2023

---

A Guide to financial settlements & arrangements in a divorce

Getting divorced is a significant life event that can come with several challenges. It’s an emotional process where both ex-partners have a lot to consider, including financial arrangements.

Simply obtaining a final divorce order is not the end of the story. The real challenge lies in sorting out financial arrangements and settlements that will impact both parties for years to come.

Financial arrangements refer to the division of assets and liabilities between the two parties, including property division, debt distribution, child and spousal support, and pension rights. During a divorce, it's vital to come to an agreement on these issues, as this helps both parties work towards a legally binding financial settlement.

A financial settlement provides clarity and certainty for both parties, ensuring that everyone knows where they stand financially and can move forward with their lives; without worrying about future financial disputes with their ex-spouse.

Many couples use financial mediation servicesto come to an agreement. The goal is to create a financial arrangement that is sustainable and meets the needs of both parties, as well as any children involved.

Common financial challenges in a divorce

Sorting out the practical financial aspects of a divorce is undoubtedly challenging. After all, the two parties are essentially creating two new households out of what was once one. Unless there are significant family matrimonial assets and both spouses are earning well, this is likely to put enormous pressure on the available resources.

It's not uncommon for each party to feel anxious, defensive, and maybe even suspicious of their ex during the divorce process. The anxiety that each spouse will inevitably feel about their future financial security can spill over into arguments and confrontation, making an already difficult situation even harder to navigate.

There are several common financial challenges that individuals may face during a divorce:

• Paying child support: If you have children, you will likely need to continue paying towards the costs of raising them after the divorce is finalised. You may need to pay child support to your ex-spouse to help cover costs associated with the child's care and wellbeing. This is often a legal requirement, and can be potentially daunting for both parents involved.
• Dealing with debt: any debts acquired under joint names during your marriage are considered marital debts. As a result, divorce can often result in the division of debt, which can leave you with a significant financial obligation to pay off. This can include things like credit card debt, loans, and mortgages.
• Adjusting to a lower income: Depending on the financial settlement reached during the divorce, you may need to adjust to a lower income than you were used to. This can be particularly challenging if you were financially dependent on your ex-spouse during the marriage. After a divorce, individuals may even need to find employment and adjust to a new lifestyle, which can be a challenging and stressful process.
• Property and asset division: dividing property and assets is a complex process, especially if there are significant assets involved. This can include things like the family home and investments. This can feel like one of the biggest decisions in a divorce, and it's common for parties to question what will happen to the marital home.
• Pension division: In the UK, pensions are considered a marital asset and can be divided between spouses during a divorce. This can be a significant financial consideration, particularly if one spouse has a significantly larger pension than the other.
• Legal fees: divorce can be a costly process, particularly if you need to get a solicitor involved. Legal fees can quickly add up throughout the process, particularly if there are disputes over financial and child arrangements.

It's essential to consider all of these challenges when working towards a financial settlement during a divorce. Choosing the right route to achieve a financial settlement can have significant implications in terms of cost, time to get an outcome, stress, and your future ongoing relationship with your ex-spouse.

Dividing debts and assets

Dividing marital assets and debts can be a challenging aspect of a divorce. It involves determining how to split marital property, such as the family home, cars, bank accounts, investments, and pensions. Additionally, the process of dividing debts, such as mortgages, loans, and credit card balances, can be complex and stressful.

There are several methods of reaching a financial agreement, each with its own benefits and drawbacks.

• One option is to have a private discussion on the matter with your ex partner. This can be a free and quick option, but it may not be suitable for more complex financial arrangements. Additionally, some issues may require expert help, especially financial ones. Trying to reach a financial arrangement without expert input means that you won’t have access to the framework and structure necessary to explore all viable options or to determine if the proposed settlement can be made legally binding. It can also be difficult to distinguish facts from emotions without the help of an expert to help guide the conversation, which could complicate the ability to reach an agreement.
• Another option is solicitor negotiation. This involves hiring a solicitor to represent your interests and give you legal advice. However, solicitor negotiation can be expensive, with hourly rates often starting at £250 per hour. It can also damage the post-separation relationship, as the process is adversarial rather than collaborative.
• A third option is to have the court decide. While this can be appealing because it ensures a decision is made, it can be an expensive and stressful process. Additionally, the court process can damage the post-separation relationship and may take in excess of a year with multiple hearings.
• Finally, financial mediation is an option that can help the two parties work together to reach a financial settlement.Mediators facilitate discussions, provide legal information, and help explore all viable options. Mediation is less expensive than solicitor negotiation or court, and the parties can draw on other support if needed. Additionally, mediation can be child inclusive if agreed and age-appropriate. Finally, legal aid is available for mediation, unlike other options, with exceptions, of course.

Whichever avenue you go down, it is essential to approach dividing assets and debts with an open mind and a willingness to compromise. It is also crucial to be transparent about all financial assets and debts, as failure to do so can result in an unfair or unenforceable agreement.

What are matrimonial assets?

Matrimonial assets, or marital assets, are financial assets accumulated during the period of marriage between you and your spouse. In contrast, non-matrimonial assets are financial assets that were acquired either before or after the period of marriage. Examples of non-matrimonial assets include those mentioned earlier, if acquired outside of the marriage period.

The treatment of non-matrimonial assets in a divorce settlement and division of assets is dependent on various specific circumstances and pre-arranged agreements that may be in place. Although some non-matrimonial assets may be excluded from financial settlements, this is not always the case.

The role of mediation in financial arrangements

For many, divorce is a highly emotional and stressful time, particularly when it comes to dealing with financial arrangements. When going through a divorce , financial mediation can play a crucial role in helping couples reach an agreement regarding their finances, property, and assets.

Mediation can also be used to help reach agreements on non-financial matters, such as agreeing on a parenting plan.

In financial mediation, an impartial mediator works with clients to help them identify and resolve their financial issues in a collaborative manner. The mediator's primary role is to help both parties communicate effectively and work together to create a mutually agreeable solution to their financial disputes.

The mediation process can address a wide range of financial issues that arise during and after a divorce or separation, including dividing property and savings, arranging child support and spousal maintenance agreements, sorting out pensions, and determining how to deal with any debts and liabilities. In financial mediation, both parties are encouraged to participate in the process and share their views and concerns openly.

One of the significant benefits of financial mediation is that it can be a cost-effective and efficient way to reach a financial and property agreement during a divorce or separation. Compared to the costs associated with solicitor negotiation or court proceedings, mediation can be much more affordable.

Additionally, mediation can help encourage ongoing open communication and cooperation between both parties, which can help maintain a positive working relationship in the future. The mediator can put the agreed financial settlement into a formal document, which both parties can take to court in order for it to become legally binding.

Making a financial arrangement: how does it work?

The steps involved in making financial arrangements in divorce mediation typically include:

1. Attending a Mediation Initial Assessment Meeting (MIAM)
2. Preparation of financial information
3. Attending mediation sessions
4. Reach a financial settlement
5. Moving forward

1. Attending a Mediation Initial Assessment Meeting (MIAM)

The first step is to attend a Mediation Information and Assessment Meeting (MIAM), where you will meet with the mediator to discuss the suitability of financial mediation for your situation. During the MIAM, the mediator will also discuss the financial mediation process, the benefits, and the costs involved.

2. Preparation of financial information

Before the initial mediation session, each party should prepare by reviewing their financial information, including their income, expenses, assets, and debts. This information should be shared with the mediator in advance, so they can help facilitate the conversation effectively. It is also recommended that each party seek independent legal advice alongside the mediation process.

3. Attending mediation sessions

The mediation sessions will typically take place in a neutral setting with the mediator present. During the session, both parties will have the opportunity to discuss their financial situation and any concerns they may have. The mediator will help guide the conversation, ensure that both parties have a chance to speak, and work towards a mutually acceptable resolution. The mediator may also provide legal information to help both parties understand their options.

4. Reach a financial settlement

Once both parties have agreed on a financial settlement, the mediator will help put the proposals in writing. This document will be a summary of the decisions made during the mediation, and can be reviewed by each party's solicitor. It is important to note that the agreement reached in mediation is not legally binding until it has been approved by the court.

5. Moving forward

After mediation, both parties should work towards implementing the financial settlement. This may involve transferring assets, dividing debts, and making any necessary changes to child support or spousal maintenance payments. If any issues arise during this process, both parties can return to mediation to resolve them.

Advantages of using mediation for financial arrangements

Compared to traditional court proceedings, mediation offers several advantages.

Firstly, mediation can significantly reduce the level of conflict and stress between parties during divorce proceedings. Divorce is a difficult and emotional time, and traditional legal proceedings can often exacerbate existing tensions. Mediation, on the other hand, encourages open and honest communication between both parties, allowing them to work together to reach a mutually acceptable agreement. This can lead to a less adversarial and more constructive process, which is particularly beneficial when children are involved.

Secondly, mediation has the potential to be a faster process than traditional court proceedings. Its collaborative nature helps individuals explore their options in an efficient and constructive manner. Court cases can take months or even years to resolve, while mediation can be completed in several sessions. This means that couples can move on with their lives much more quickly, reducing the financial and emotional burden associated with prolonged legal proceedings.

Finally, mediation gives parties greater control over the outcome. In a court proceeding, a judge will make the final decision based on the facts presented. In mediation, both parties have an equal say in the outcome, and agreements are only reached when both parties are satisfied. This can lead to more creative and flexible solutions, which take into account the unique circumstances of the individuals involved.

Making the agreement legally binding

A financial agreement made in mediation is not automatically legally binding. However, it can become legally binding by applying to court for a Consent Order; a legally binding document that confirms the financial settlement you have reached. Once the court approves the Consent Order, the financial settlement becomes legally binding.

How the court decides on the terms of your financial settlement can depend on a number of factors. They will consider all circumstances relevant to the case and apply these facts when determining the outcome.

The factors considered by the court are outlined in Section 25 of the Matrimonial Causes Act 1973

Section 25 considerations

Section 25 states that the court must consider "all the circumstances of the case" as its general duty. This means that the court can take into account any relevant factors, even if they are not explicitly mentioned in Section 25.

In practice, Section 25 requires the court to prioritise the following factors (where they are relevant to the case):

• the income, earning capacity, property and other financial resources associated with each party.
• the financial needs, obligations and responsibilities of each party
• the standard of living enjoyed by the family prior to the marriage breakdown
• the age of each party
• the duration of the marriage
• any physical or mental disability
• the contributions made by each party to the welfare of the family, such as caring for the home or children
• the conduct of each of the parties
• the financial needs of the child;
• the child’s (if any) income, earning capacity and property
• any physical or mental disability of the child
• the child’s welfare

Financial arrangement and settlement FAQs

Who pays court fees in a financial settlement?

Both parties usually bear their own legal costs. However, court fees for a financial settlement application are typically paid by the applicant, unless the court orders otherwise.

Is a financial settlement necessary?

A financial settlement is highly recommended to establish fair distribution of assets, liabilities, spousal maintenance, and child-related financial matters. It provides legal protection and ensures financial stability post-divorce.

How is a financial settlement calculated?

Financial settlements are determined based on various factors, including the parties' financial circumstances, needs, contributions, and welfare of any children involved. Courts consider factors like assets, pensions, earning capacity, and future needs to reach a fair agreement.

What comes first, divorce or financial settlement?

It is common to begin financial settlement discussions alongside divorce proceedings. It is advisable to address financial matters early to ensure a smooth transition, but making the financial settlement legally binding can only happen once a Conditional Divorce Order has been obtained. Seek legal advice for specific circumstances.

Conclusion

In conclusion, making financial arrangements during and after a divorce can be a complex and challenging process, but mediation can help couples reach a fair and amicable resolution. The mediation process involves a trained mediator who can assist the couple in identifying and resolving financial issues collaboratively.

Overall, mediation is a valuable option for couples looking to minimise conflict and reach a fair and mutually agreeable financial resolution during and after a divorce.

Speak to a mediator

By taking part in family mediation, couples can benefit from reduced conflict and stress, faster processing times, and increased control over the outcome. Find out more about how our mediators can help you. Learn about our financial mediation services, or contact us directly.