Family Finances

There are many different alternative dispute resolution (ADR) options, including direct discussions between the parties, mediation, collaborative law, roundtable meetings, solicitor negotiations and private financial dispute resolution.

We look at cases as they progress, and assess the possibilities or difficulties of reaching a settlement. Our aim is always to try to achieve the best possible outcome in the most cost effective way.

Any final financial settlement does have to be formalised in a court order. However, this can be dealt with by agreement, and by the supply of documents to the Court to be considered by a judge without the need for the parties to attend in person.

Without any financial disclosure, it is impossible for a solicitor to advise a client about what might be a fair settlement.

Financial disclosure involves each party providing full and frank information about their financial position with documentary evidence to support this.

This does means there can be areas of uncertainty as to how a particular Judge might approach a case if matters need to be resolved by the Court. There are no mathematical formulae or calculations used by Judges although, by law, they are obliged to take into account a range of factors set out in the Matrimonial Causes Act 1973. A judge must apply the facts of the particular case to a number of factors.

Firstly, consideration must be given to the welfare of a child who is under the age of 18 years.

The other factors are:

• The current and likely future financial position of each party
• The financial needs, obligations and responsibilities each party has now, or is likely to have in the foreseeable future
• The standard of living enjoyed by the family before the breakdown of the marriage
• The age of each party and the length of the marriage
• Any physical or mental illness from which either party is suffering
• The contributions which each party has made or is likely to make in the foreseeable future to the welfare of the family
• The conduct of each of the parties (in very limited circumstances)
• The value of any benefit which a party will lose the chance of acquiring by reason of the divorce e.g. pensions.

It is clear that, in the vast majority of cases, the needs of the parties are regarded as the primary factor. The exceptions are usually cases where there is a very great deal of money involved, when the needs of both parties can easily be met, with money left over to be divided as the judge considers appropriate. Or in cases where the marriage has been exceptionally short.

Other factors from those listed above can be important, depending on the overall circumstances. However, the abiding approach is that the solution must be fair. The starting point is invariably that fairness will be achieved by an equal sharing, unless there is good reason to divide what is available in some other way.

• Those relating to income
• Those relating to capital

Pensions usually relate to both capital and income and are a vital part in the shaping of a fair overall settlement or court order (see below for more about pensions).

Income orders are those relating to maintenance, which can be for a specified period or last until one of the parties dies, the receiving party remarries or the court makes a further order to vary the first order.

Income orders can also deal with child maintenance (including school fees). The Courts have limited powers concerning child maintenance, and the basic maintenance arrangements have to be made through the Child Maintenance Service unless the parties agree. The Courts can, however, ‘top up’ such maintenance arrangements in certain circumstances.

The Court also has the power to order interim maintenance so that one spouse has to support the other financially until a long-term settlement is reached.

On the other hand, capital orders are ‘one off’ orders. They can consist of:

• Orders for a lump sum
• Orders altering a person’s interest in a property (including the transfer of property between the parties
• Orders for the sale of a property
• Pension sharing orders

The Court has the power to make these financial orders once it has pronounced the divorce (the decree nisi), although the order cannot come into effect until the final decree of divorce (decree absolute).

Since the reforms of recent years, the issue of pensions as part of the overall financial arrangements made on divorce has never been more important. The fact that, after the age of 55, what is available in a pension fund can be withdrawn as cash (subject to tax deductions on most of the fund) gives greater flexibility to the use of funds held in pensions.

However, it is unlikely that the Courts will allow funds to be used except for the purposes for which they were intended: namely, financial support in retirement.

Pensions are a very complex and specialist topic, meaning it is essential to have good advice from a pension expert as to the appropriate way in which they should be treated.

The following orders can be made by the Court relating to pensions:-

• Pension sharing – each party receives a stated portion of the total pension fund
• Pension offsetting – the value of the whole, or part, of the pension pot is offset against other assets
• Deferred pension sharing – where the party is too young to take a part of a pension, it is provided that sharing will take place once that partner reaches the required age. This preserves the pension even if the older party dies in the meantime.
• Deferred lump sum – a lump sum is paid to the non-pension owning party when the pension owner begins to withdraw the pension
• Pension attachment order – subject to age requirements, the non-pension owner receives benefits from the pension fund when the pension owner begins to receive payments

In financial proceedings there are usually three court hearings. In some cases, additional hearings may be required.

Before the first hearing, both parties are ordered to provide their financial disclosure on a form which will be provided to them, known as Form E. This is a detailed document and it is important that it is completed accurately.

A number of other documents must also be prepared by each party including a questionnaire if a party needs to ask questions about the other party’s financial disclosure.

The first hearing is called a First Directions Appointment (FDA). At this hearing the Judge will:-

• Decide which questions should be answered and by when
• Make court orders concerning any expert evidence that is needed, for example property, business or pension valuations
• Order the production of any outstanding documentation
• Decide when the case should come to court again for the next hearing

The second hearing is called a Financial Dispute Resolution Hearing (FDR). It is expected that by this stage, the parties will have exchanged offers of settlement.

The purpose of the FDR is for the parties to negotiate to try and reach a settlement. The Judge can give the parties guidance and an indication as to how they should approach the case and recommend routes to a settlement. This indication is not binding on the parties, and if there is no settlement, the Judge giving the guidance is not permitted to decide matters at the final hearing.

If matters do not settle, the case will proceed to the third and final hearing, at which the parties will give their evidence and can be cross-examined. The Judge will then make a decision which will result in the making of a court order which is binding on each party.

It is important to understand that an agreement can be reached concerning financial disputes at any stage, even after court proceedings have begun.

Once a court order has been made, both parties are immediately legally bound by the settlement – there is no ‘cooling off’ period. If either party then fails to comply with the court order, the terms can be enforced through the Court.

Much will depend on how easily an agreement can be reached and at what stage. If there is prevarication or delay, this can hold up (but not stop) the process.

In addition, recent financial cuts to the budgets for servicing the Courts have led to greater waiting times for court dates and for processes to be completed.

However, in some circumstances it is possible to ask the court to order one party to pay an amount to cover the other party’s legal costs as their case progresses.

We are very conscious of the fact that costs are an important factor at this difficult time. Sometimes it is very difficult to give an overall budget at the outset of a matter, but we always give an indication of the likely costs of dealing with any particular piece of work, and we update that estimate as the case proceeds.