Dealing with capital

Dealing with capital

Contents

The court has power to make financial orders in divorce and judicial separation proceedings. There is no restriction on what the court may order. However, there are only specific types of orders that can be made.

The court does not have power to order the parties to make payments other than to each other.

Overview

The courts deal with the financial issues separately from the granting of a decree of divorce or judicial separation. A final financial order cannot take effect until after the decree nisi or judicial separation. However, the court may order that one spouse pay the other spouse money to assist any immediate financial need. These orders are know as maintenance pending suit.

The court has the power to make one or more of the following financial orders:

  • Maintenance pending suit
  • Periodical payments
  • Secured periodical payments
  • Lump sum orders
  • Property adjustment orders
  • An order for sale

Consent orders

Divorcing spouses who are able to agree the division of their assets should seek a court order setting out the terms of their agreement. The court order will be by consent and known as a consent order. The order can deal with all aspects of the financial arrangements except the financial arrangements for the children.

In 1993, the Child Support Agency was introduced. The purpose of the agency is to assess the level of maintenance payable by all absent parents for their natural children. The level of maintenance is calculated by using precise formulae. It is possible to exclude either spouse applying to the agency for an assessment of the maintenance. However, if the spouse with whom the children are living receives welfare benefits, the Benefits Agency will apply for an assessment of the level maintenance to be paid by the absent spouse for the children.

The consent order may deal with maintenance for children who are children of the family and not the natural children of both spouses. The Child Support Agency will not be involved with the assessment of any maintenance payable.

Once the court has made a consent order, it will be binding on both spouses. Before the court makes the order, it will consider the financial arrangements for both of the spouses. The court will also ensure that the arrangements provide adequately for the children so far as is possible. The court will not make a consent order unless it is satisfied that it is in the best interests of both parties and the children's interests have been safeguarded.

The court will require a full disclosure of the financial position of both spouses before any consent order is made. In addition, the court will insist that each spouse is aware of the other spouse's financial position and of the information disclosed to the court.

Lump sum orders

The court may order one spouse to make a cash payment to the other spouse or child of the family. It may be used to balance the assets of the spouses and form part of a more complex order.

If one spouse has failed to provide the other spouse with maintenance when they should have done while the financial issues were being resolved, the court can order the payment of a lump sum to redress the balance.

Lump sum payments will only be made for children that are disabled or have special educational needs.

Division of assets

The court has flexibility in dividing the assets of spouses upon divorce. The most important consideration is the welfare of any child of the family.

In making a decision the court will consider the circumstances of both spouses and any children of the family. The following factors of each spouse will be considered:

  • Their income
  • Their earning capacity
  • Any property that either may have or is likely to have in the near future

The court will also consider the reasonable steps, including training, that each spouse can take in order to increase their earning capacity. Means-tested benefits are not treated as a resource because the supporting spouse cannot place the burden of supporting his or her family on the taxpayer.

The court will consider the income of either spouse's new partner, if this reduces the outgoings of that spouse. However, if there is not sufficient income to support two households, state benefits will have to be considered. The non-means tested child benefit will always be treated as a resource for the spouse caring for the child. The court will not make an order reducing the income of the spouse making payments to below subsistence level.

The court will also consider the financial needs, obligations, and responsibilities that each spouse has or is likely to have in the near future. The most basic need is the provision of accommodation food and clothing for both spouses and any children. Existing financial obligations such as loans should also be considered. Any financial obligations the spouse has to a new partner and children will be considered.

The standard of living enjoyed by the family before the breakdown of the marriage will not be sustainable after the breakdown. The court will try to ensure that the effect of this reduction will be borne evenly by both parties.

The age of the spouse and the duration of the marriage will be considered. A young spouse without children will have considerable earning and borrowing capacity. However, the older spouse leaving a long marriage may have sacrificed a lot. If there are children, this factor might outweigh the fact that the marriage was short.

Any physical and mental disability of either of the spouses to the marriage will invariably affect the earning capacity of the sufferer. In addition, there will be expenses associated with care. The court will also have to consider the effect of future deterioration in the spouse's condition.

The contribution made by each of the spouses to the welfare of the family is considered. A spouse caring for the home and family contributes as much to the family as a spouse that goes out to work. The court will take into account the effect that caring for children has had upon their career. Any negative contribution will also be considered. This can occur when a spouse goes out to spend money on luxuries instead of spending it on the family.

If it would be inequitable to disregard the conduct of either or both spouses, it will be considered. This will include gross and obvious conduct, particularly if they have a bearing on the family finances. Conduct that has been considered relevant has included the following:

  • Incitement to murder
  • Serious drinking which forced a sale
  • Causing serious disabling injury to a spouse
  • Investing in hopeless business ventures

Any potential financial loss that a spouse will incur from the divorce will be considered.

The financial needs of the children will be considered. The manner in which the child is being educated during the marriage, any mental or physical disability of the child, any income or other financial resources as well earning capacity of the child are all relevant.

Where there are stepchildren, the court will consider whether the stepparent has assumed responsibility for the child. The court will also consider any other person with responsibility for maintaining the child. The prime duty for maintaining a child rests with their natural parent.

Pension orders

If a petition has been lodged with the court after 1 December 2000, the court may make an order in respect of the pension entitlements of either spouse. A pension is a person contract that a spouse has with an insurance company. The Inland Revenue must approve it.

The basic concept of a pension is that a person pays some of their income upon which tax has not been paid into a fund and is able to draw on that income when they retire. However, when the money is drawn out it is taxed as income. The first 25% of a pension fund may be paid out on retirement and is free of tax. The balance must be used to purchase an annuity. An annuity is an agreement with an insurance company that they will pay a specific regular sum until death. The monies received from the annuity are taxed as income at the appropriate rate.

The court may order that some or all of the moneys due under a pension be paid to the other spouse.

Property adjustment orders

The court has wide powers to redistribute any property belong to either or both spouses. Any redistribution will be called a property adjustment order.

It is possible for the court to order that others hold certain property on behalf of a spouse.

The clean break

The object of a clean break is to end the spouses' financial dependence on each other following the marriage breakdown and removal of the obligation on them to live together.

Provided there has been a decree of divorce or judicial separation, the court may order a clean break. If the court orders a clean break neither spouse will be dependent on the other in the future. Neither of them can ask the court to make a further order that the other pay them more money.

Before a court orders a clean break, it will consider all the circumstances and decide whether a clean break is appropriate. The court cannot order a clean break in respect of maintenance for a child.

A clean break order may provide that either no maintenance will be paid or that it will only be paid for the duration of a fixed period. Further, the court will either make no orders in respect of the spouses' assets or else make an order to transfer assets from one to the other. Once this final order has been made, no other orders can be made.

A clean break is often achieved by the payment of a lump sum and dismissal of all other claims.

There are only two ways of dealing with the matrimonial home to achieve a clean break:

  • By immediate sale
  • By a transfer of the property into the sole name of one of the spouses

Finally, the court can order that neither spouse may have a claim on the estate of the other upon the death of the first spouse.