Divorce proceedings can cause a great deal of emotional hardship and can be difficult and complex for separating parties to navigate. One of the main concerns separating couples have is the financial implications of divorce .

The financial implications of divorce can be significant and multifaceted, impacting both parties in various ways. In England and Wales, divorce processes are governed by specific laws and principles. They aim to ensure a fair and equitable distribution of financial assets and financial support between the parties.

Financial implications of divorce: Division of assets

The main piece of legislation used for the division of matrimonial assets is Section 25 of the Matrimonial Causes Act 1973. The principle guiding the division of assets is “fairness,” which often focuses on the needs of the parties and any children involved. Assets include everything owned individually or jointly, such as property, the family home, savings, pensions, and investments.

Pensions are considered a significant financial resource, and their division can be complex, often requiring a specialist to value and split them appropriately.

The court has wide discretion in deciding how assets should be divided, considering factors such as the duration of the marriage, the age of each party, their future earning capacity, and contributions made by each party (both financial and non-financial, such as homemaking or childcare).

The Court is also likely to consider the standard of living of each party, any dependent children and the health of each party, including any physical or mental disability.

Financial implications of divorce:

Spousal maintenance payments

One party may be required to make ongoing spousal maintenance payments to the other. This is usually the case where there is a significant disparity in income. These payments can be for a set period or for life, although lifetime orders are becoming less common.

The amount and duration of maintenance payments are based on factors such as the needs and earning capacities of the parties, their standard of living during the marriage, and the welfare of any children.

 

Financial implications of divorce:

Child Support

Child maintenance is separate from spousal maintenance and is governed by the Child Maintenance Service (CMS) rather than the divorce courts, although the courts can be involved in certain circumstances.

The CMS calculates the amount of child support based on the paying parent’s income, the number of children, and the amount of time the children spend with each parent.

Legal costs and professional fees

Divorce proceedings, especially those that go to court, can be costly. This includes solicitor’s fees, court fees, and potentially the costs of financial advisors or accountants. It’s possible for one party to be ordered to pay the other’s legal costs. This is usually the case when one party acts unreasonably. In most circumstances, each party will bear their own costs in divorce proceedings.

Legal Aid may be available in specific circumstances.

Tax implications

Transfers of assets between spouses as part of the divorce settlement are typically exempt from capital gains tax if done in the tax year of separation. There may be stamp duty implications if property is transferred or sold as part of the divorce settlement.

The financial impact of divorce on insurance and estate planning

Life insurance, health insurance, and other policies may need to be reevaluated and changed post-divorce.

Divorce affects wills and estate planning; it’s important to update your will, as marriage revokes existing wills, but divorce does not automatically remove an ex-spouse as a beneficiary.

Credit and debt

Joint debts need to be addressed during the divorce proceedings. How these debts are divided can impact each party’s credit score and financial stability.

Pre-nuptial and post-nuptial agreements

While not as common in England and Wales as in some other jurisdictions, pre-nuptial and post-nuptial agreements can influence the financial outcome of a divorce, provided they meet certain legal criteria and are considered fair by the court.

Financial orders issued in divorce

In the context of a divorce, courts can issue various types of financial orders to address the economic needs and responsibilities of the parties involved.

These orders aim to ensure a fair distribution of assets, provide for the ongoing needs of both spouses and any children, and establish a framework for the financial independence of each party. The types of financial orders that can be issued vary by jurisdiction, but commonly include:

 

Property Adjustment Orders

These orders change the ownership or distribution of marital property. This can involve transferring the title of property (such as the marital home, other real estate, or vehicles) from one spouse to another or ordering the sale of property and division of the proceeds.

 

Maintenance Orders

Maintenance orders require one spouse to make ongoing payments to the other to support their living expenses. The duration and amount of these payments can vary widely, depending on factors such as the length of the marriage, the age and health of the parties, their respective incomes and potential earnings, and the standard of living during the marriage. Some are issued for the “foreseeable future,” while others will have a specified time period.

 

Lump Sum Orders

A lump sum order requires one spouse to pay a specific amount of money to the other. This can be in addition to or instead of ongoing maintenance payments and can be payable in one sum or in instalments.

 

Pension Sharing or Attachment Orders

These orders deal with the division of one spouse’s pension benefits. A pension sharing order gives one party a percentage of the other’s pension pot, which is then transferred into their own pension scheme. A pension attachment order (or pension earmarking order) provides that one spouse receives a portion of the other’s pension payments directly once it starts being paid out.

 

Child Maintenance Orders

While often handled by a separate agency (such as the Child Maintenance Service in the UK), courts can also issue orders requiring one parent to pay child support to the other. The amount is typically based on guidelines that consider the income of the paying parent, the number of children, and the custody arrangement.

 

Debt Payment Orders

These orders require one or both spouses to be responsible for marital debts. This could involve allocating who pays off specific debts or dividing total debt obligations between the parties.

 

Orders for Sale

An order for sale requires the sale of assets (such as property or investments) and the division of the proceeds between the spouses. This is often used when assets need to be liquidated to achieve a fair distribution of marital property.

 

Costs Orders

In some cases, the court may order one party to pay the other’s legal costs associated with the divorce proceedings.

 

Clean Break Orders

A “clean break” order is a specific type of financial order in a divorce, which effectively severs the financial ties between the ex-spouses once their divorce settlement is finalised.

This means that neither party can make any financial claims against the other in the future, relating to things like maintenance, pensions, and other assets, beyond what is agreed upon in the settlement.

Obtaining a clean break order is a legal process that requires the preparation of proper documentation and sometimes negotiation to reach an agreement that can be turned into an order. Even if the divorce is amicable, it is advisable to have the agreement reviewed by a solicitor to ensure that it meets the legal requirements and protects each party’s interests.

How can ARC Costs assist?

If you require the assistance of a divorce solicitor, ARC Costs can introduce you to a solicitor from our network.

Our team of highly skilled Law Costs Draftsmen and Costs Lawyers can however, assist legal representatives in recovering their legal aid fees, or in securing inter-partes costs after any such order has been made. 

Our team regularly assists in all types of costs claims, including divorce legal costs disputes. Our client base ranging from law firms to Litigants in Person, both privately funded and funded by the Legal Aid Agency. In inter-partes disputes, we can assist both paying parties and receiving parties.

If a divorce Costs Order had been made in your favour, we can assist you in recovering the costs owed to you. Equally, if a Costs Order has been made against you, we can assist in disputing legal costs and minimising your costs liability.

We can further assist in recovering costs from the Legal Aid Agency in privately funded cases. Using our expert costing service, we help clients maximise their recovered legal costs whilst providing expert legal advice and minimising the risk of rejected claims from the Legal Aid Agency, to ensure you maintain your KPIs.

We regularly use the CCMS system to submit legal aid costs claims and deal with all the administration on behalf of our clients and to free up the time of fee earners, thereby ensuring you can recover your maximum legal aid fees in an expeditious and efficient manner.

To find out more about how we can provide you with assistance, please contact us at 01204 397302 or email our team of experts at info@arccosts.co.uk. Alternatively, please use our free chat facility to speak to an expert directly.

We may receive payments from third party solicitors on our panel to whom we may refer your claim. We will never charge you for any referrals made to our panel of third parties.