Financial Settlement

Various ways to reach a settlement 

As you will have seen in the previous articles, there are many ways and means to reach a settlement. The courts have wide powers and these should be recognised when you are attempting to come to an agreement. The law applies equally to both men and women, so please read wife as husband and vice versa, whichever applies to you. When considering the family home, for example, it should not be done in isolation. Everything should be disclosed and put in 'the pot' so that a fair and equitable split can be made. If this is done, any agreement made in this way would probably have more chance of being adhered to. This arrangement would also probably lead to better family relationships where children are concerned. This is, after all, your aim; to agree on finances so that you are both able to leave the life you planned and move on to the new life waiting for you.

'Money is better than poverty, if only for financial reasons.'
Woody Allen

Compromise 

Whether this settlement is made voluntarily with legal guidance and made into a consent order by the court, through mediation, Collaborative law or through the court, it is best to grasp the bull by the horns, compromise, let go of old attachments and move on.

'He who overcomes others has force; he who overcomes himself is strong.'
Lao-Tzu - Chinese philosopher.

Bogged down in the divorce process? 

It is not beneficial for anyone concerned, either you or your partner, children, parents, relatives or friends, to get bogged down in the divorce process. Yes, you should think about others who are on this journey with you. Sadly, it often becomes a way of life and you can get immersed in victim language and combat for years to come. There are no winners here despite what you may think and the only way to achieve success is to concentrate on the future. If you can both do this, so much the better.

Our Legal section 

You may have read the Legal section but if not please refer to the previous articles there. All sections are interwoven on this site and aim to assist you to move on. If you glance at our final section, Moving on, you will be able to focus on the future: new relationships, independence, new finances, new skills, opportunities and friends.

'When written in Chinese, the word "crisis" is composed of two characters. One represents danger and the other represents opportunity.'
John F. Kennedy

Here we discuss the various arrangements which are possible in the final settlement:

Periodical payments (Maintenance) - For the children 

There can be no 'clean break' where children are concerned whether payments are voluntary, through the court or the CSA. Where the court has jurisdiction to make an order (see the previous article on children), the amount to be paid is usually expressed as an annual sum to be paid monthly or weekly. If timing is not mentioned, it is usually paid in arrears. The sum for each child should be stated. This maintenance is usually paid until a child's seventeenth birthday but can also continue to cover extended education, including, in some cases, a first degree. There are also special rules if a child is disabled or dependent.

All circumstances are considered 

The court would look at all the circumstances of both parties and also consider what payment would be made under the new formula used by the CSA (see the previous article about Children). If earnings and assets are quite considerable, the court can order a much higher level of maintenance for any child than that calculated by the CSA.

Court orders may be varied 

As in all court orders, payments may be varied upwards or downwards depending on a change in either party's financial circumstances. But an application would have to be made to the court and only when there is quite a change in finances. Your solicitor can advise you. The costs of bringing children up, however, do not decrease with age as any parent can tell you.

The Child Support Agency (CSA) 

The CSA has extensive powers to enforce maintenance against either parent. Again, there can be no 'clean break' regarding children. Whether you have contact with your child or your former spouse remarries, you still have parental responsibility and must pay. We have discussed the new formula in the previous article on Children.

Child Maintenance Options (CMO) and
Child Maintenance and Enforcement Commission (CMEC)

Child Maintenance Options is a service run by the Child Maintenance and Enforcement Commission (CMEC), a new child maintenance organisation set up in July 2008. Child Maintenance Options aims to provide impartial information and support to help parents make informed choices about child maintenance.

Periodical payments (Maintenance) - for the spouse 

When the Court has worked out the maintenance for any child, it will look at spousal maintenance. It is now more common for this to be paid for a fixed period but it can be paid for life and only terminate on the death of either party, remarriage of the recipient or by court order. It will not end when the recipient cohabits. A later court order can also vary the amount to be paid. This maintenance would be expressed as an annual sum and paid either weekly or monthly in advance or in arrears.

A typical case 

A typical scenario would be a wife who has not worked for several years as she was caring for young children who intends to retrain and seek employment. Maintenance could be fixed for a certain period of time and then the order could be dismissed so that the wife could not claim maintenance again. Or the order could be left open so that if unforeseen circumstances occurred, maintenance could then again be paid. Sometimes it is wrongly assumed that one party is not being well treated when the court makes an order for a token amount of maintenance, say 5 pence per year. In fact, the court is leaving open the question of maintenance so that a spouse can come back to court for an increase should circumstances change in the future. This acts as a safety net.

No set formula 

There are no set guidelines or formula for the court to consider. It usually follows the needs and resources approach. Take a look at the article In this section about Budgets as the court would normally refer to the criteria set out there. Capital and income are looked at together as well as any debts or obligations. One party may receive more capital and less maintenance even if there is no clean break. See below. Pensions and other assets are also considered. The court's overall task is to arrive at an order which is fair and reasonable having evaluated all the various factors and balanced them against each other. A bit of a juggling act? Yes. This is why each case is rather different in the eyes of the law.

The clean break
Always considered

The courts must consider a clean break between the parties but this is often not possible. A clean break means that the court makes an order which would lead to each spouse becoming financially independent of the other. This would be as soon after the grant of the decree as the court considers just and reasonable. This only concerns spousal maintenance and never child maintenance. Child maintenance remains the number one priority of the court.

A clean break after a period of maintenance 

A clean break could be ordered after a specific period of maintenance (periodical payment).This period of time would be considered by the court to be sufficient for the recipient, usually the wife, to adjust without undue hardship to the end of financial dependence on the husband. Time-limited orders are less used when there are dependent children. They are more used when the marriage has been short and childless and the wife just needs a period of time to enable her to support herself.

When capital is available 

A clean break can be fair and reasonable when there is capital available in the place of maintenance. The availability of funds, of course, is crucial and the court will look at all the circumstances including each spouse's ability to earn and any plans to remarry.

Wealthier couples and the clean break 

There is a formula the court considers for wealthier couples and this is known as the Duxbury calculation. A lump sum sufficient to meet, usually, the wife's needs for the rest of her life on the basis that she draws capital as well as income is calculated. Needless to say, this is quite complicated and usually only works well when the wife is close to retirement age and there is a very large amount of capital available.

Advantages and disadvantages of a clean break 

The main advantage of a clean break order is the certainty that this entails. Each spouse knows what has to be paid and when it ceases. This would therefore encourage independence as nothing could instigate court proceedings again. A disadvantage would be that the lump sum cannot be increased at a later date and if the recipient were to fall ill and not be able to work, support could not be sought from the ex spouse. On the other hand, the recipient could remarry after having received a lump sum whereas maintenance would cease at the time of the remarriage if a clean break had not been made. Swings and roundabouts. This option must be carefully considered.

Using the net equity in the home 

In cases where there is no capital except for the net equity in the home, a couple may decide to use this equity as the basis for a clean break but the courts would not be happy to do this if say the wife did not have an income of her own. The courts may think that she would have to resort to receiving state benefits and may avoid this situation. Also, if the wife were only a few years from retirement age and had little prospect of getting a job to support herself, the courts would also be reluctant to consider this scenario.

Pensions and inheritance with a clean break 

The courts can still award a wife (or the husband) a share of the other's pension, payable on retirement if no other provision for pensionable age can be made at the time of the clean break. A clean break order should normally include a provision to prevent one spouse from having a claim on the estate of the other after death under the Inheritance Act.

Capital orders 

Capital orders include lump sums, transfer of property and pension adjustment. These are described below.

Lump sum 

As the term suggests, this means an amount of money which one spouse gives to the other either all at once or by specified instalments. The court can now also make an order for a lump sum at a later stage than the divorce itself. If a periodical payments order is ended by court order, the court could then order a lump sum to be made so that a clean break could be achieved. This is when a clean break was not possible at the time of divorce. Typically, a wife would receive a large sum which she could invest and live off.

Transfer of property order 

As we have tried to convey, the courts have an extensive range of powers. This normally involves the matrimonial home but can also include a tenancy or shares. The court can order a spouse to transfer a property to the other or adjust the proportion which each one holds. It can also order the sale of a property and order the proportion that each would retain, if any. This order can only take place after a decree nisi has been granted.
When sharing assets, a court can also adjust pension rights, lump sums, child maintenance and spousal maintenance.
It should be noted, however, that when a property is mortgaged, the person or company providing the mortgage must be served notice before it can take place and an objection may be made. Consent is therefore usually sought before an order is made.
The court cannot order a third party to make a transfer.

Pension rights 

Please refer back to our previous article about Pensions for more details. When dealing with divorces filed on or after 1 December 2000, the courts now have wider powers to deal with pension rights. This is good news particularly for women who do not have a proper pension of their own and have therefore relied upon the pension provision of the husband. (This could, of course, equally apply to men).

Pensions are vital - they could be the largest asset 

Pensions may seem complex at first glance and some people disregard their worth as they find the subject too complex. But beware. Pensions are vital. A pension fund can form the largest capital part of a settlement, particularly when there has been a long marriage. As in all matters concerning divorce, you should seek professional legal advice. Your solicitor will be able to demystify the subject but you should read up as much as you can on this as well as obtaining all the financial details of any policies belonging to you or your spouse. These details will be essential in the legal process and can provide a valuable bargaining tool. Any work that you can carry out regarding pensions will only serve to keep legal costs down.

Pensions for wives nearing retirement 

Pensions are more important when a wife has spent most of her time caring for the children and home and has little or no pension fund in her own name. Another wife nearing retirement age could have expected to have shared her husband's fund, particularly when she devoted herself to the family. Even if she got a job, she would not have time to build up a sufficient fund to support herself in retirement. But even the younger wife should consider this subject carefully as every year lost in pension contributions means that a much higher figure would have to be paid in to her account at a later date.

'It's a funny thing about life; if you refuse to accept anything but the best, you very often get it.'
Somerset Maughan

Summary 

To summarise, the courts can, under the new law, consider the following options. (For divorce cases which were filed before 1 December 2000, only the first five options are available to the courts): (here we refer to the wife as meaning the wife in the divorce proceedings)

• Giving the wife a bigger share of other assets to offset the loss of her interest in the husband's pension.
• Giving the wife a lump sum to compensate for the loss of specific benefits such as the right to receive a widow's pension.
• Earmarking part or all of a future lump sum payable on death of the husband for payment to the wife.
• Requiring the husband to swap part of his pension at retirement (this is known as commutation) and earmarking part or all of that lump sum to the wife.
• Earmarking part of the husband's pension (either one he takes out a later date or one he is already receiving) to be paid to the wife.
  OR
• Pension sharing. This would mean that part of the husband's pension rights are transferred to the wife. Advice should be sought about tax implications on earmarking a pension as lump sums are not liable for tax but earmarking could attract tax of up to 40 per cent.

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All in all, the financial pot should contain everything for consideration and shares adjusted according to the distribution of each particular asset.

Legal section 

If you haven't already read the articles in our Legal section about Obstacles to settlement, check back there. You may feel as though it will never end but this is normal. Ask anyone who has been through the process. If you are unable to agree voluntarily, you can at least take some comfort from knowing that nowadays courts have greater powers to control the process and aim to shorten and simplify it.

Take it easy 

Be aware that decisions have to be made. Prepare yourself well and do your best as doing your best is all that you can do. There are set time limits for each stage and at least you will know that a decision will ultimately be reached.

'No pessimist ever discovered the secrets of the stars, or sailed to an uncharted land, or opened a new heaven to the human spirit.'
Helen Keller

An anticlimax 

Once a settlement has been agreed, it may all feel like an anticlimax. These negotiations may have taken up much of your time and energy. You may start to reflect on all that has happened. Perhaps there has been much expense in getting to this stage. Whatever has happened, it is in the past and now is the time to move on. Have a look at our Moving on section for information about finances, education and dating again.

Source:- http://www.divorceaid.co.uk/financial/settlement.htm

What Divorce Means For Your Mortgage

Going through a divorce when you have an outstanding mortgage with your partner can be a big worry - knowing what might happen to your home can make it less stressful. Here's a rundown of your possible options.

More and more people are splitting from their spouses or partners - in fact nearly 50% of marriages now end in divorce - and when they do the fate of the family home can be a highly emotive subject.

Not only does the property represent a significant financial investment but it may also be the home where children have been raised and the family based over the years.

Exactly what happens to your mortgage will largely depend on your plans for the property and your individual circumstances.

Paying the mortgage

If you are going through a divorce and have moved out of the family home you may wonder if you need to keep paying the mortgage.

It's worth remembering that when two people take out a joint mortgage both are agreeing to be equally liable for the debt for the duration of the mortgage, not just while you live there.

In other words both you and your partner are responsible for ensuring the mortgage continues to be paid, and as a result any failure to pay on time will damage you and your partner's credit history.

This situation can sometimes lead to one person refusing to pay; threatening to do this can ultimately backfire if a court has to make a ruling on the divorce at a later date.

Contact you bank

As soon as you know you will be separating you should contact your bank - especially if you think you may struggle to meet your mortgage payments until the divorce is finalised.

Due to the frequency of divorce and separations most banks are more sympathetic than in years gone by and may even be willing to offer payment holidays to couples going through a separation.

While this can give you some breathing time while dealing with the initial separation, the original mortgage agreement will still be in place and a long term solution will need to be reached.

Your options

Going forward there are usually 3 broad options for couples with a mortgage;

1. Sell up and Move out

If both you and your partner will be moving out of the property then often the easiest way to move forward is to sell the house and pay off the mortgage.

This can provide a clean break and be the least messy way of moving on after a separation.

In these circumstances any equity left after the mortgage has been paid off will be considered a marital asset and split between the two of you.

Exactly who gets what from the leftover funds can be open to dispute, often the quickest (and cheapest) way is to reach an agreement between the two of you about who gets what.

If you can't reach an agreement then the matter would be need to be settled in the divorce court, where you would need to seek legal advice on your rights.

2. Keep the property & Buying out the other party

If either you or your partner intends to live in the home then chances are you will need to come to a solution that transfers ownership to the occupier.

Transferring the mortgage into one name will involve one partner buying the others share in the property, including their share of any equity involved.

The first hurdle you'll face is proving that the occupier will be able to afford the mortgage on their own - remember the existing lender is under no obligation to remove either of you or to transfer the mortgage to one name.

However, if you can satisfy your lender that you can afford the mortgage then chances are that they will agree to you becoming the sole mortgage holder.

You will then need to buy your ex-partner's share in the property before the mortgage can be put into your name - this may involve getting the current value assessed to determine the level of equity in the property.

Again if you need to borrow money to fund purchasing your partner's share you would need to prove that you could afford the additional borrowing.

Moving your joint mortgage into just one name can provide the same financial break as selling up while keeping ownership of your existing home.

However there are several obstacles to overcome and if there is some dispute over the value of the property or the level of equity due to your partner you could find yourself in court to negotiate a settlement.

3. Continue Paying Existing Mortgage

In some circumstances you may decide to continue paying the existing mortgage, especially if you don't have long left and the divorce is on good terms.

If you are considering this option you would need to ensure that both you and your partner can continue to afford to pay the mortgage and any other living costs.

This may also be a good option for the mid-term if you mortgage is fixed for a number of years and would mean you'd pay high mortgage charges to move elsewhere.

Negative Equity

If you are facing a divorce while your joint home is in negative equity then your options are likely to be restricted due to your inability to sell the home to pay off the mortgage in full.

In this situation you should speak to your mortgage provider to discuss your options, it may be that you will have to split the outstanding debt between you or come to an agreement with your mortgage provider.

Remember unless you act the joint mortgage will remain in place which will hold you equally liable for mortgage repayments.

Again if you are uncertain you should seek independent legal advice.

Seek Advice

Each of these solutions can appeal to separating couples in different circumstances, for example if there are no children involved then selling the property and cutting your losses may prove the best option.

However if property is the family home then either you or your partner may want to continue living there to reduce the impact of the divorce on your children.

Whatever option you are considering, you should seek independent advice on your circumstances; there are several charities that can explain what you will need to do and point you in the direction of legal advice if required.

No name on the Deed?

If you are separating from your partner and your name is not on the mortgage or deed of the house that does not mean that you have no rights or claim on the property.

When it comes to divorce in the UK the matrimonial home is considered a joint asset and you cannot be forced to leave by your partner.

If your name is not on the mortgage or deed you can register your matrimonial rights through the Land Registry to stop your partner selling without your consideration.

However, it is worth noting that if your partner owned the property before your marriage then you'll have little legal claim to it when it comes to divorce proceedings.

If you find yourself in this situation you should seek legal advice to determine exactly where you stand.

Disagreements & Legal rulings

Ultimately if your divorce has not proved as amicable as you had hoped and there is some dispute over who is entitled to what then you may be faced with going to court.

You should be aware that very rarely is it a case of a simple 50/50 split when divorce proceedings head to the courts.

Courts take into consideration a wide range of circumstances when making a decision on what happens to the marital home.

If there are children then their well-being will be the primary concern of the court, they will also consider both parties' financial circumstances when making a decision.

If your divorce has reached this stage then you will need to seek independent legal advice, while this can be a time consuming and expensive undertaking, it is the only realistic option you have when faced with a trip to court.

Remember to consider other financial assets

From an emotional perspective the fate of your home is likely to be at the top of the agenda when it negotiating a divorce, however you should also consider what will happen to other financial assets as well.

Most people believe the home represents their biggest marital asset, yet depending on age and individual circumstances pension funds that you have built up over the course of your marriage may actually be worth more.

It's important to take these other assets into account when discussing the fate of your marital home.

For step by step information on coping with the financial impact of divorce or separation take a look at our guide: How to get a fair financial divorce settlement.

Source:- http://www.money.co.uk/article/1006150-what-divorce-means-for-your-mortgage.htm