While the legal landscape for divorce has become clearer with the introduction of no-fault divorce starting on April 6, 2022, the financial aspects of divorce remain a complex area of law to navigate. Despite the streamlined process for applying for divorce under the new law, it’s crucial for both parties to fully understand the financial options and implications of divorce.
Under the new joint application option introduced in April 2022, there is a concern that vulnerable individuals may feel pressured or coerced into financial agreements that are not in their best interests. Unlike before, when most people consulted a divorce lawyer before starting the process, some may now feel it unnecessary under the new law. This blog aims to outline the factors to consider and emphasise the importance of seeking advice if there is any uncertainty about whether a financial agreement is fair in the context of divorce.
Before finalising any financial agreement in divorce, consider the following questions:
- Are all the assets of both parties being fully considered?
- What are the implications of the agreement for you and your children?
- Are there any tax implications associated with the agreement?
- What is the ideal timeframe for finalising the agreement to ensure it aligns with your needs and objectives?
Finances to consider in a divorce settlement
Marriages vary widely in how couples manage their finances. Some couples opt for completely joint finances, where assets like the house, savings, and bank accounts are held equally. Others keep their finances entirely separate, and the home they reside in may be under one person’s name only. However, under the law, once married—especially after having children—finances are typically viewed as joint. Therefore, when determining how to divide finances during a divorce, all aspects must be carefully considered, including:
- Pensions
- Properties
- Savings
- Investments
- Income
The division of finances should take into account the needs of both parties and any children from the marriage. Each case is unique, and it’s important to approach financial separation with a clear understanding of the specific circumstances involved.
Ways to reach a financial agreement
You can reach a final financial settlement through mutual agreement, with the assistance of a mediator, with the guidance of a solicitor, or by bringing your case to court for a judge to decide. However, the time and costs involved increase with each step in this sequence of options.
Regardless of the path chosen, it’s crucial to seek advice on the timing of a divorce and finalising financial matters, as there can be tax implications and ramifications related to death benefits on various pension arrangements.
As part of the new online no-fault divorce process, you will be asked whether you wish to apply for a financial order. Some individuals may not fully understand this question or may be tempted to decline, particularly if they have already reached an agreement. However, as explained below, it’s important to ensure any agreement is formalised and submitted to the court in the form of a consent order.
Why do you need a consent order?
When you divorce or dissolve a civil partnership, it’s essential to reach an agreement on how to separate your finances. This financial agreement process is separate from the divorce process, and simply securing a divorce does not automatically resolve financial matters.
Once you’ve agreed on how to divide money and property, you’ll need to apply for something known as a consent order. A consent order is a legal document that formalises your agreement and outlines how assets like pensions, property, savings, and investments will be divided. This document can also address maintenance payments, including child maintenance. Without a legally binding agreement, like a consent order, the court cannot enforce the terms in the event of future disputes.
Seeking legal advice before proceeding with the divorce is crucial so that the timing of financial agreements can be optimised for both parties. It’s generally more straightforward to divide finances before applying for the final legal document to end your marriage or civil partnership. Although it’s possible to address financial matters after the divorce is finalised or the civil partnership is dissolved, this may affect entitlements and have tax implications.
At DLS Solicitors, we always recommend consulting one of our family lawyers when considering divorce to ensure that the financial implications of your separation and the timing of the divorce process are carefully considered together. There’s no one-size-fits-all answer to what you’re entitled to in a divorce settlement because each case is unique based on individual circumstances.
Our advice is to ensure your financial affairs are properly managed and any shared marital assets or property are addressed when going through a divorce. While there may be initial costs associated with seeking legal advice, the potential financial and emotional costs of failing to reach a clear agreement or overlooking the timing of financial arrangements during divorce—including tax and pension implications—could be far greater in the long run.
