In fact, neither of those scenarios is set out in the law. When it comes to the division of assets, the law is rooted in the idea of fairness. Who determines if the outcome is fair depends on whether you can reach an agreement with your former partner, or whether a Judge or a Family Arbitrator has to decide the outcome for you.

So what should you be trying to achieve with a financial settlement?

Every separation is unique so there is no way to know for certain in advance how the assets will be divided if you have to ask somebody else to decide that for you. There are a whole array of different considerations that a judge or arbitrator will take into account. These are set out in section 25 of a piece of legislation called the Matrimonial Causes Act 1973. For this reason when you are considering what a fair and negotiated settlement should be, it is important that you take these same factors into account.

To give you some idea on how different circumstances can affect the financial settlement have a look at the following examples. In each scenario, for consistency the couples have the same assets.  However, as you will see the financial settlements are very different.

In each case, the term “divorce” can quite easily be replaced with “dissolution of civil partnership”. The same rules apply to both.

Mr & Mrs Smith

Mr and Mrs Smith have been married for 10 years. They are a similar age and they have one child, Billy, who is five years old. They have a house worth £450,000 with a mortgage of £100,000 and both earn around £50,000 per year gross. They have no savings and we will ignore pensions because they each have one with a similar value.

Firstly, we need to consider the legal principles which will be applied when considering how their finances should be separated upon divorce. As mentioned above, the Matrimonial Causes Act 1973. Section 25 (1) of this states:

“It shall be the duty of the court in deciding whether to exercise its powers …. to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.”

This tells us that the very first thing we need to consider is Billy, the child of the family. However note that whilst Billy is the first consideration, he is not the overriding consideration though clearly of some importance. What does the rest of section 25 say? 

Section 25 (2) states:

As regards the exercise of the powers of the court …in relation to a party to the marriage, the court shall, in particular, have regard to the following matters—

(a)the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;

(b)the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c)the standard of living enjoyed by the family before the breakdown of the marriage;

(d)the age of each party to the marriage and the duration of the marriage;

(e)any physical or mental disability of either of the parties to the marriage;

(f)the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;

(g)the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;

It is at this point that the exercise of working out who should get what suddenly seems a bit more complicated: but with good reason. These considerations give the courts the power to treat each case differently and decide what is fair and reasonable, considering all of the circumstances in each and every case. This is really important.

The court has been using these principles for over 40 years and over that time the attitude of the courts towards how these factors should be applied has changed. There was a significant change of approach at the start of this century when the House of Lords, as it was then called, made a decision in a case involving a farming family. That case was White v White [2000] UKHL 54. That decision gave rise to what is known as the ‘Sharing Principle’. Essentially, the starting position with a marriage of anything other than very short length, is the equal division of all matrimonial property, regardless of which party has “made the money”. The famous phrase from Lord Nichols in that case was:

There shall be no distinction between the home maker and the bread winner.” With those words ended many years of gender discrimination. There are some very important details however that need to be considered, which include the definition of “matrimonial assets” and how that is to be distinguished from “non-matrimonial assets”.

  • What is likely to happen in the case of Mr and Mrs Smith?

    Let us assume that Mr and Mrs Smith live in an area where properties with at least two bedrooms can be purchased for £250,000 to £350,000 and that they both work similar hours each week and that it is agreed that Billy will be cared for equally by both parents. Quite a lot of assumptions.

    Taking a very broad brush approach, it is likely that the Sharing Principle would prevail and the asset (house) would be divided equally. This is because, in the event that the house is sold, both parties would get £175,000 (being House value £450,000 – mortgage £100,000 = £350,000 halved = £175,000 before the costs of sale were deducted). Both have an income which should provide them with a further mortgage capacity sufficient to enable them to both buy houses of similar value. This would properly house each parent and Billy. Therefore, Billy’s welfare is taken care of and the needs of each parent are met (they are both housed).

     

    The result is therefore likely to be a completely equal division of the matrimonial assets, with each party keeping their own pension and there will be a ‘clean break’” which means there will be no maintenance (financial support) paid by either party to the other. The reason for this outcome should be fairly easy to comprehend, both parties have similar levels of income, they both equally share care of Billy so their needs are the same and there is no reason to prioritise one party’s needs over the other.

Mr and Mrs Smithe

Consider we have exactly the same scenario, except Mr Smithe has lost his job due to a long-term medical condition whereas Mrs Smithe has been promoted and now earns £100,000 per year. This means that Mr Smithe has no mortgage capacity and Mrs Smithe potentially has a much greater mortgage capacity.

The first consideration is Billy. He should have a proper home with both parents and he still spends an equal amount of time with each parent. This means that Mr and Mrs Smithe have equal housing needs. So far, there is no real difference from the situation facing Mr and Mrs Smith in our first example apart from their respective incomes or future earning capacities.

  • But what happens next for Mr and Mrs Smithe?

    They both need somewhere to live and cannot remain living together. There is still £350,000 of matrimonial equity. Would it not simply be divided equally as for Mr and Mrs Smith? If it was, this would produce an unfair outcome for Mr Smithe.

    If the house proceeds (equity of £350,000) were to be divided equally, the housing resource (deposit + mortgage capacity) would be radically different for each party. Mr Smithe would have significantly less resources than Mrs Smithe and whilst he might be able to buy some sort of property with an equal share of the proceeds it would be of an inferior standard to Mrs Smithe.

    Would this be fair? No it would not. Accordingly, Mr Smithe needs more of the money from the matrimonial home. If we accept that both parties need a house at a cost of £250,000, Mr Smithe needs a minimum of £250,000 according to our example, which leaves Mrs Smith with £100,000 from the matrimonial home. However, with her mortgage capacity she can still not only rehouse but possibly even buy a more expensive property than she really needs if she wishes to.

Mr and Mrs Smithers

Let’s look at one last example. A similar set of circumstances but unfortunately due to there being a higher mortgage there is only £250,000 of equity in the house, however a year before the unfortunate Mr and Mrs Smithers decide to separate, Mr Smithers receives an inheritance of £100,000. They both work and both earn a similar level of income comparable to the first scenario. It’s accepted that both need £250,000 for their house.

Should Mr Smithers’ inheritance be included in the “pot” to be divided? It is a commonly held belief that inherited assets or those gifted by third parties should be automatically “ring-fenced” and so protected from being divided along with other assets on divorce. There is no such automatic presumption. Sure, if there was a significant amount of other money, more than either party required to meet their needs (and we are usually talking in the millions of pounds) then inherited funds might be regarded as being “non-matrimonial” and then left with the party who received the funds.

In the majority of cases however where there isn’t enough other money to meet needs then inherited funds must also be included in the pot as well. It may be that the inherited funds won’t be divided equally but it would be hard to ignore the money as a fund that could be used towards the purchase of a house.

Summary

As you can see there are all sorts of different scenarios and variations that could be imagined and these are the types of issues that we deal with every day. It is only through experience that we acquire the understanding to advise on a suitable and fair outcome in any particular set of circumstances.

The court broadly follows a set of rules and criteria built up from previous cases and legal precedents. These help the courts to come to conclusions around who gets what and how assets are divided. We can help you understand your legal position and give you a clear idea of possible outcomes following divorce, enabling you to determine how much effort and budget is likely to be needed for planning and working on your settlement. Get in touch if you would like to talk to a solicitor who specialises in divorce settlements, about your position and how to get the result you want.

Contact Stowe Family Law