Every year an average of 158,000 couples in the UK get divorced. Going through the process of legal separation can be traumatic enough without the extra complication of agreeing on a financial settlement. With sensible planning, each party can ensure they get what is rightfully theirs while minimising emotional distress, not to mention costs.
Divorce can be expensive - the average bill, comprising legal fees, maintenance payments and other associated costs, is in the region of £13,000. More than a third of divorcing couples have to sell the family home to cover the cost of their split.
Aside from the immediate cost, there are long-term financial considerations. Who will keep the family home and how will any outstanding equity and debt be divided? Will maintenance be paid? What happens to the joint bank account? How is agreement reached on pension and investment assets? Who gets the car?
Using a mediation service can be useful, as this allows both parties to thrash out the fine detail of the settlement before lawyers get involved. If you do require the services of a lawyer, you can find one through Resolution (formerly Solicitors Family Law Association) at www.sfla.org.uk. If agreement cannot be reached using mediators and solicitors, the case will be settled in court - an extremely costly process.
Home and possessions
The first step in a divorce is for both partners to take an inventory of all personal and shared assets and debts. The law requires that each party gives a full and frank disclosure to the other of their financial position before discussions take place, so that a fair financial division can be ensured. Assets are not necessarily split down the middle. Where, for example, the woman is looking after children, 60/40 and 70/30 splits in the woman's favour are usual.
Many couples choose to keep the children and wife in the family home, with the departing husband taking a smaller share of the settlement to leave the home intact. The husband will often pay maintenance until the youngest child leaves full-time education. If there is disagreement about maintenance the Child Support Agency can intervene.
Pensions
After the family home, the biggest asset in any marriage is usually the pension. How pensions are treated in divorce is governed by the Pensions Act 1995 and the Welfare Reform and Pensions Act 1999. There are three options.
Firstly, the court may order that the family home be awarded to the partner who is caring for any dependant children. If this is the case, then the spouse's pension can be offset against the equity of the house - in other words, the carer will be awarded the home but not any part of the spouse's pension.
Under the Pensions Act 1995 a portion of the pension may be earmarked for the spouse on the retirement of the pension fund holder. The main drawback to this course is that the wife loses the benefit of any earmarking order in the event of the death of the pension holder.
The third option for is where the pension provider is ordered to split a pension so that both husband and wife have separate, independent pensions. This means that the spouse can make his or her own provision without having to wait for the partner to take up their pension benefits.
Also, the spouse will not lose this pension if the partner dies before retirement. The advantage for the pension holder is that once the pension has been split, the spouse receives no further contributions made, so the pension holder can rebuild their own pension provision.
Other financial issues
Investments and additional property are all part of the pot and are shared in whatever proportion the couple agree. It is also worth noting that if the car is transferred into a partner's name, insurance premiums may go up and the no claims bonus may be invalidated.
As for tax, visiting a tax consultant or contacting Citizens Advice is advised, as many divorcing couples are unaware of what benefits and tax credits they are eligible for, and whether they are entitled to legal aid. Also, having just one adult resident in a household means a 25% reduction in council tax.
There are major differences in the legal issues surrounding a separation when
the couple is unmarried. Many cohabiting couple are unaware of their rights
regarding property, tax, children, inheritance and pensions. To this end, the
Government has launched its 'Living Together' campaign to provide advice to
unmarried couples who wish to separate.
