The Matrimonial Causes Act 1973 is the main statute governing this topic. It directs that the court is to have regard to various matters, including, but not exclusively; the ages of the parties, the length of the marriage, the income and capital resources of the parties, future resources of the parties, the presence of children, the needs of the parties, the previous standard of living, the pension of the parties and all other circumstances.
Since 1985, the court has been directed to effect a clean break in all cases wherever that is possible. Where there are children it is more difficult and sometimes impossible to achieve this. A clean break means that following the financial settlement, neither party will have any further claim whatsoever against the other arising from their marriage. It may mean one party gets more capital than the other to “buy off” maintenance of pension claims. It will also provide that even on death, neither party can claim against the other’s estate.
The starting point is to identify the assets of the marriage, the income of the parties and obtain a valuation on any pension fund. There is a duty on all parties to give full and frank disclosure of their financial position. This is a continual duty. The court will deal harshly with people who do not comply or who attempt to hide assets.
Identifying the assets
In the majority of cases this is relatively straightforward. Valuations may have to be obtained and agreed on properties owned by the parties, surrender values requested for endowment policies and savings accounts disclosed including all shares, ISAs, Tessa’s etc. Capital equivalent transfer values (CETVs) of pensions must be obtained.
In certain cases where one party is not complying the court has wide powers to ensure disclosure takes place. Search orders can be made. Production appointments can be ordered, where third parties, banks, relatives etc. have to produce specific evidence to the court. Expensive tracing exercises can be undertaken by solicitors and generally the party who has not complied, or has attempted to conceal assets, will be penalised by having to pay the costs incurred in obtaining the necessary information. The general rule therefore is to provide your solicitor at an early stage with all the evidence and information.
Your solicitor is an officer of the court and is under a duty to the court to tell the truth to the court. This duty overrides his/her duty to a client. If you tell your solicitor that you have £1 million in a savings bank account, he/she cannot fail to mention that fact in a court hearing.
Orders that the court can make
Property adjustment order – where a house is owned in joint names the court has power to order one party to transfer their share to the other. Sometimes, in consideration of the transfer a capital sum will be paid. The court can transfer joint savings into one party’s name or adjust the percentage that they hold. Endowment policies can also be assigned from one party to the other.
Mesher orders – these are used in cases where there is insufficient capital to create a clean break and only enough capital to provide for one of the parties to own a house. In those circumstances one party may borrow the other party’s capital (share in the house) for a period of time, usually until the children have left school. In those cases, the former family home may well be transferred to a party but a charge or mortgage will be registered on the property in favour of the other party. That charge cannot be called in though until the happening of an event, for instance, the remarriage or the resident party or a child finishing school. At that stage the other party receives their capital. The charge will normally be expressed in percentage terms so that if the value of the property increase, the party deprived of their capital still gets growth on their capital investment.
Martin order – this is similar to a Mesher Order but the charge will only become payable on the death of a party.
A lump sum order – the payment of capital from one party to the other. Consideration should be had if making a series of lump sums or a lump sum by instalments. There is a significant difference if enforcement proceedings are necessary.
An order for sale – the court has power to order that any property, endowment policy, shares and the like should be sold and that the proceeds should be distributed between the parties in whatever proportion the court considers just.
Maintenance orders – the court has power to make a maintenance order in favour of a child only where the parents have agreed the level of maintenance. In cases where no such agreement can be made, then an application has to be made to the Child Support Agency and a Child Support Act calculation is carried out on the absent parent. This sets the level of maintenance for the children. The CSA rules simplify what is an extremely complex calculation. As a rule of thumb, the absent party must pay 15% of his or her net income where there is one child, 20% where there are two children and 25% where there are three or more children. There are further provisions to decrease these levels, depending upon the number of nights the children stay with the absent parent and what exactly forms the absent parents net income.
Maintenance orders can also be given in favour of a spouse (“spousal maintenance”). To ascertain the level of maintenance the court will have regard to the parties’ needs, their own income/potential, and the previous standard of living that the parties had enjoyed. The court has power to set a time limit governing the period for which a party will have to pay maintenance. As a general principle the period will be of a sufficient length to enable the wife to adjust from being married to being financially independent. If maintenance is set for a number of years this is called a term order. Unless the court provides a specific bar (s.28) in certain limited circumstances this term may be extended.
The court also has power to “capitalise” at any stage the maintenance and create a clean break. This will only be done where the paying party comes into capital or has the capital with which to pay.
Pension sharing – the court has the power to split one party’s pension. Quite often the value of a pension is the largest asset in the marriage. There are numerous types of pension and it will often be necessary to obtain specialist advice with this. The result is that each party will have a pension (where the facts allow) for their retirement. Quite often we look at not dividing the capital value of the pensions, but equalising the income stream from them upon retirement.
Dismissal of Inheritance Rights – the court will, in a clean break case, order that even on death of one party the other party cannot bring a claim against their estate.
Costs – a regulation and general principle was introduced in April 2006 which states that the starting point is that, each party will pay their own costs. Costs will only be awarded against the other party if the other party has acted unreasonably in the conduct of the case and the court proceedings. This is generally for failing to disclose, or missing court dates or timetables, not co-operating in the case. It is no longer based upon the financial offers that the parties have made.
It is extremely difficult to estimate what the costs will be, as every case is different. For a case that lasts one day in court the total costs may well be £10,000 to £15,000 or more. Negotiations are therefore always encouraged.
I would recommend that you now complete the enclosed Form E (I have put in the court’s guidance for completing this form) and put together the supporting documentation. Once it is completed, please return it to me. You will generally find that obtaining values of your pensions takes the longest time – up to three months or more in some cases!
Please also complete the monthly expenditure schedule which I have enclosed as a starting point for you. Many items may not be necessary and you may wish to add additional information.
Finding the right answer to any case is complex, is a balance of all of the Section 25 criteria together with a mix of fairness. No two cases are ever the same. You need an experienced family solicitor to guide you through the law and the procedure.