When a couple decide to end their marriage, in the forefront of their minds is what will happen to the matrimonial assets and debts. Before your solicitor can fully advise you, they will need to know a lot of information about your personal financial circumstances, including details of the value of the assets, the amount of debts owing, and both parties income and outgoings.
Indeed, in law there is a continuing obligation on both you and your spouse to make full and frank disclosure of your financial positions. This will include the production of documentary evidence to substantiate the position. Once this exercise has been completed, we will be in a position to give consideration as to your likely financial entitlements as a result of the Divorce.
Please appreciate that if it becomes clear that any party has not made full disclosure of their financial situation then there is a very real possibility that that party may be ordered to pay their opponent’s legal costs in relation to the Court proceedings.
Obviously it is advantageous if an amicable agreement can be reached in relation to financial issues because this avoids both the acrimony and the cost of going to Court.
If, however, an agreement cannot be reached then as part of the Divorce proceedings, it is possible to make an application to the Court. The Court will then determine such matters as maintenance and what is to happen to the property and other assets.
Maintenance for Children
So far as maintenance for the children is concerned, this is generally dealt with via the Child Support Agency ("The C.S.A."). It may however be possible to reach agreement with your spouse with regard to maintenance without involving the C.S.A.. If the party with care of the children is in receipt of Income Support, it is likely that the C.S.A. will automatically become involved. Even if an agreement for child maintenance is embodied in an Order of the Court, once that Order has been in place for a year, either the person with care of the child or the non-resident parent may apply for a child maintenance calculation from the Child Support Agency. The Order does not automatically lapse but may be overridden by a maintenance calculation.
Matters considered in financial settlement
When reaching a financial settlement, consideration is given to many factors. These include:-
· The needs of each party and any children of the marriage;
· The duration of the marriage;
· The age of the parties;
· Their income and earning capacity;
· Any physical or mental disability of the parties;
· The contributions of both parties to the marriage;
· The loss to either party of any future benefits, such as pensions
House in joint names
Reaching final agreement/court order in relation to financial matters can sometimes take a long time. In the meantime, consideration has to be given to protecting your interest in the assets of the marriage. For example, you may wish to take steps to sever the joint tenancy of the former matrimonial home. If the house is in joint names, should you die your spouse would automatically inherit your interest in the property if the property is held by you both as "joint tenants". In order to avoid this we can serve a Notice of Severance of Joint Tenancy on your co-owning spouse. The effect of this would mean that you would both own the property as "tenants in common". You would then be free to dispose of your interest in the property under the terms of a Will. Conversely, this would enable your spouse to dispose of her/his interest by Will.
House in your spouse’s name
If the house is in your spouse’s name it may be possible for us to protect your interest in the home by registering the appropriate Notice at the Land Registry. It is important to do this to ensure that your spouse does not try to sell your home without you knowing.
If you wish to take the above action you should also go on to make a Will leaving your property to whomsoever you wish. Please ask your solicitor about this.
Maintenance and Life Assurance
If maintenance for you or your children, whether by agreement or via the C.S.A., becomes an issue in your case, you should immediately consider taking out a life assurance policy to cover the life of your spouse because, should your spouse predecease you, maintenance will stop. If you wish to consider this, then it is best to seek independent financial advice. The likelihood is that you will need your spouse to agree to you taking out a life assurance policy on his/her life.
Council Tax
If you and your spouse have now separated you should also notify the Local Authority as you may be entitled to a reduction in the amount of Council Tax you have to pay. Council Tax is based on the assumption that your property is occupied by 2 adults.
You should therefore write to your Local Authority and notify them that you are now the only adult at the property and ask for the 25% reduction. You should also be aware that if you are on a low income and your savings are less than £16,000.00 you may be entitled to Council Tax benefit by way of help paying your Council Tax. We suggest that you contact the Council Tax Department of your Local Authority for further information.
It may be prudent to sever any joint financial liabilities that you and your spouse have. Please bear in mind that if for example you currently still have a joint bank account, then there is always a possibility that your spouse could withdraw money or run up an overdraft on that account for which you will be jointly and severally liable. The same applies to store cards, credit cards, etc. If you are uncertain as to what to do, please ask your Solicitor about this.
Child Tax Credit
If your children are living with you, then you should apply to the Inland Revenue for the Child Tax Credit. It is aimed at all people with children under 16 regardless of marital status. This is worth at least £545.00 per year and people with an income of less than £50,000.00 per year are likely to benefit from it. Please also note that the figure is doubled in the year of the child’s birth.
Will
You should in any event consider making a Will. Whilst you are married, if you do not have a Will your spouse will receive all the property that you jointly own. In addition, your spouse will receive all furniture and personal effects which belong to you and will receive the next £125,000.00 of all your assets (£200,000.00 if you have no children). You may also need to make a Will for Inheritance Tax reasons as the current Inheritance Tax threshold is £300,000.00 (April 2007). If your assets are worth more than £300,000.00, everything over that amount will be taxed at 40%. Our Wills and Inheritance team can arrange to prepare a Will for you.
Pensions
Along with the house, pension funds are often one of the major assets in any marriage. In recent years the Courts have been given wide powers to make Orders in relation to pensions. The Courts can deal with pensions in three separate ways:-
· Offsetting - the non-pension owning spouse can take a greater share of the tangible assets to compensate for loss of a share in his/her spouse’s pension.
· Attachment - the Court can order the Managers of a pension fund to pay a proportion of a pension fund to the pension-holder’s spouse. The pension holder however would retain control and could not be compelled to retire at a certain age. The non-pension holding spouse may have an uncertain wait as to when he/she would benefit. Furthermore, if the pension-holder dies, the pension benefit would be lost. An Order for payment of death in service benefit might operate in those circumstances. If the non-pension owning spouse remarried, income payments akin to maintenance would cease. Such Orders can also be varied – leading to further uncertainty. There are other less obvious flaws in Pension Attachment.
· Sharing - a percentage of the pension fund is transferred into a pension in the non-pension owning spouse’s name. The recipient then controls that pension, taking benefits at their own retirement age. For some Pensions the funds will be physically transferred from one Scheme to another. Other Pension Schemes may allow the spouse to become a member of their Scheme. Even the State Earnings Related Pension (SERPS) can be shared.
The
There are 3 main categories of retirement Pension. For the purpose of divorce, one is particularly relevant.
A category A Pension is payable to a person over Pensionable age provided they satisfy the National Insurance Contribution record. The effect of Divorce upon the State Retirement Pension is that a Wife’s claim to a category A Pension can be based upon her husband’s contributions during the marriage and her own contributions before and after the marriage. If the former wife then remarries, she will not benefit from her former husband’s contributions. Enquiries can be made of the Department of Work & Pensions to ascertain whether your State Pension entitlement will be affected by Divorce.
Pensions are a complicated area and it may be necessary to refer you to an Independent Financial Adviser as we deal more with the legal than the financial planning implications for you.
Please contact Sali Jackson-Thomas Head of the Family department on 01792 773 773 or email sali.jackson-thomas@johncollins.co.uk for further information
Legal Articles on Family Law
Related Topics
Divorce Mediation Assets & Finance Separation & Children
Collaborative Law Pre-Nuptial Agreements
Buying A Home Together Wills & Inheritance
Getting Married
