It is normal for anyone facing divorce proceedings to ask themselves or their legal advisors to what extent they can protect assets such as their pension, inheritance or business.
The Starting Point
If a Court is asked to consider the financial aspects of a divorce, their starting point will be a 50/50 split of the overall assets.
Although that yardstick of equality is the starting point, there may be many reasons to depart from it, depending, for example, on the parties’ needs.
Under certain circumstances the Court may also exclude certain assets from the matrimonial pot to avoid them being shared, such as assets acquired before the marriage.
In short, the Court can consider all the financial resources that the parties have or are likely to have in the foreseeable future. The Court can, therefore, look widely into the financial resources available.
Pensions can become a bone of contention during a divorce. They are often complex and may require specialist advice, typically from an Accountant, Actuary or Independent Financial Advisor.
It is not automatically the case that one person’s pension will be shared with the other in divorce proceedings. It may be possible to off-set the share one person may have in their pension against other assets in the matrimonial pot.
Calculating the true value of a pension can be extremely complex, however, particularly when off-setting is an option.
Under those circumstances, it is normal for specialist Family Lawyers to advise instructing an Actuary to produce a report exploring the available options.
Money inherited by one spouse is not automatically excluded from the matrimonial pot and the Court may first consider several factors, including when and how much money was received and how it has been kept or used.
If, for example, an inherited asset has been transferred into joint names and used by the family, it may be more likely to form part of the matrimonial pot.
In any case, assets received by way of inheritance can form a financial resource upon which the Court can draw in making an Order to meet the parties’ needs.
As with pensions and inheritance above, the assets and liabilities of any business owned by either party or both parties can be taken into account by the Court.
The Court will generally try to avoid the sale of a business where one party resists this, potentially off-setting its value against another equivalent asset.
In any case, it is important to obtain an accurate valuation of the business in question. The nature of the valuation will, of course, depend on the type of business involved and various issues may come into play, such as how the business is run and to what extent the family and family finances are involved. Where a farming business is concerned, for example the connection can be very close.
Finally, the Court has a broad remit to consider the parties’ finances on divorce and any attempt to place assets beyond the reach of the Court may be frowned on at best, or backfire considerably at worst.
There are, however, steps to be taken, such as entering into a Nuptial Agreement, whether by way of a Pre-Nuptial or Post-Nuptial Agreement, setting out the agreed division of assets in the event that the marriage breaks down.
Although Nuptial Agreements are not binding, they can prove persuasive and provide important evidence in financial proceedings on divorce, if properly prepared.
In some businesses, such as farming businesses, a Partnership Agreement can be a useful business structure, setting out those assets that belong to the partnership and which to the individuals. Although this may help to ring-fence some assets, the Court will not be prevented from taking the partnership’s assets into account as a financial resource.
In the case of assets held in trust, the Court can not order trustees to distribute assets held in trust to a particular individual. They can, however, provide judicial encouragement to trustees by making Orders that encourage them to act in a particular manner.
Hide and Seek
Hiding, spending or transferring assets in contemplation of divorce proceedings can not be recommended. The Court may assume that such activity has been carried out with the intention of putting the asset beyond its reach.
It is also important to remember that there is an ongoing duty of full and frank financial disclosure during financial proceedings on divorce. Being open and honest is the best way forward as any unusual or suspicious activity may be investigated and result in a penalty.
For example, it is possible for the Court to adjourn capital claims in a divorce where the beneficiary spouse to a trust has colluded with the trustees to put assets in the trust beyond the Court’s reach.
There is no certainty that the Court will get involved in dealing with financial matters when parties divorce. Even if the Court does become involved, there is still considerable scope for a couple to reach their own agreement without the need for a Judge to decide at a Final Hearing.
As an alternative to Court proceedings, the parties can engage in direct discussions, Mediation, Collaborative Law or Arbitration.
Additionally, solicitor-led negotiation, whether by correspondence or in round-table meetings, can help to keep costs and acrimony to a minimum.
In any case, however, full and frank financial disclosure will still need to be provided. Obtaining full and clear legal advice from a specialist Family Lawyer at the outset can help inform decision-making and reduce uncertainty.
Spratt Endicott offers a fixed-fee appointment with a member of our experienced Family Law Team to help by advising on the Law surrounding divorce and the division of assets arising from it.
Call 01295 204000 to book a fixed-fee appointment for £95 (including VAT) or to discuss the position for unmarried couples who separate, for whom there are other remedies available.