A divorce is a legal process to dissolve a marriage in the eyes of the law. It involves some paperwork, filing of that paperwork with the courts and, inevitably, a certain financial outlay to pay for the privilege.
It does not include sorting out the assets of a couple or making any arrangements to do with children. These must be settled separately, ideally with the help of an experienced family lawyer. Many people remain unaware of this though and that may be what contributes to the decision not to obtain a Clean Break Order (or Final Order), which draws a line under financial issues, heading off any chance of a claim by an ex in future years. In these economically difficult times, it is understandable that some people may choose to save money by going down this route, but it may actually cost them more dearly in the future as a result.
Why don't people sign off on a financial settlement?
We tend to hear one of these reasons for not sorting out the finances – effectively the division of assets and property – at the same time as they obtain a divorce:
- We have nothing worth protecting, no house, no savings, no other assets so why should we instruct a solicitor to help us?
- We will sort them out between ourselves – we do not need somebody else to tell us how to sort out our financial arrangements as we are still amicable.
- I have had a quote from a solicitor to sort out financial matters and I can’t afford it.
- We have agreed the matter between ourselves and therefore see no reason to involve anybody else.
- We have decided that we have both had enough stress going through the divorce. We are going to let matters rest for a little while and come back to settling our financial matters perhaps when the children are older.
All of these reasons could give rise to additional financial headaches in the future for all parties concerned.
Don't delay a settlement
Unfortunately, anyone thinking that matters will get easier as time goes by is sadly mistaken. If a Final Order is not agreed, at any point in the future an ex may have a claim on your assets, even if those assets have been gained since your divorce. For example, if one of you wins the lottery, received an inheritance or gets someother windfall after the divorce, and there is no Final Order dismissing claims, the other party may still have a legal claim. Even if they don’t, the cost (not to mention the stress and emotional turmoil) of defending their action may be more than if matters had been dealt with alongside the divorce.
Similarly, you may feel you don’t need one because the two of you have amicably agreed on what will happen. However, there is no guarantee relations will stay like that. They could be playing it false to start with, an incident could trigger a cooling of contact, or a new partner on their side may push them into making claim.
If the parties don't have any significant property or savings matters tend to be pretty simple to sort out by agreement. The parties can enter into an agreement and dismiss all future financial claims by virtue of their marriage to one another. There is no reason therefore to avoid ‘sorting it out’.
Likewise, if you have already reached an agreement between yourselves, then embody it in a Final Order. Any agreement you reach between yourselves does not become legally binding unless it is in a court order. Before an order is made, one party could go back on their word and although you can attempt to prove that you had an agreement to the court, the cost of doing so is likely to be significantly higher than if you had had the matter dealt with appropriate at the time of the agreement.
Most people realise that if they sell a property that is not their main residence, there will be capital gains tax issues. What people fail to appreciate is that the Inland Revenue will only give you a period (the current tax year) in which you obtain your divorce before one party may be liable for capital gains tax. Therefore, by delaying matters, you may incur a tax charge which can be avoided.
Waiting for the children to come of age will change the position of the person who lives with them. That is to say that their needs will change, and therefore financially they may be in a less well off position to argue than they would have been had they settled when the children were younger.
The question of what each asset is worth can be very difficult. It is an issue that must be resolved before an agreement can be reached. Timing can make all the difference. If an agreement cannot be reached, the court will require up-to-date values of all assets at the time that the court is considering the settlement. This could be some time after the divorce. The court will not use values at the time that you separated if this was some time ago. This can seriously disadvantage you if you have been paying for a property for some time after a divorce as the party who has not been paying may well benefit from the payments you have made and visa versa. Obviously, each party will want the valuation that is most advantageous to them. This in itself may cause arguments. You could be disadvantaged significantly by waiting.
If your spouse does not wish to finalise financial matters, ask yourself why. If everything is amicable and agreed, then why not have it embodied in a court order? Are they really hoping that you will get back together, or do they still wish to keep some degree of control over you? If you have obtained a divorce, bring your financial relationship and obligations to an end too and get a Final Order.
If you are the respondent within the divorce proceedings and you re-marry, you will be barred from making any financial application in the future. This may mean that your ex-spouse could retain matrimonial assets if they are in their sole name and you will not be able to make a claim for financial relief. You may be able to make a different application other than one under The Matrimonial Causes Act, but you are likely to recover less, if successful, than you would have been able to under The Matrimonial Causes Act. No other legislation gives the court such wide powers to deal with a person’s assets.
Our advice is, if you have decided to divorce, or are already divorced, make sure that your financial affairs are in order and that any shared marital assets are properly dealt with by means of a court order. Whilst there may be an initial cost now, the cost could be far greater both financially and in terms of distress, if you fail to come to a clear agreement.
• Watch our video, Money Issues On Divorce.
Updated November 2012
Call Woolley & Co on 0800 3213832 or book a free initial telephone appointment with one of our lawyers.