Sorting out your divorce finances is essential. If you don’t agree a financial order, your ex-spouse can still claim against you, long after the divorce.
A recent Freedom of Information request has revealed that 65% of those who divorce fail to obtain a financial order from the divorce court. Many people believe that by obtaining a Decree Absolute, they end any financial obligations between them – but this could not be further from the truth.
If you don’t sort your divorce finances, you could regret it
If you don’t obtain a financial order, all financial claims that ex-spouses have against one another in divorce, subsist after the marriage ends in divorce.
Claims could include:
- Maintenance payments;
- Transfers of property;
- Lump sum orders; and
- Pensions claims.
Even if an ex-spouse dies, the surviving spouse can still bring claims unless those have been terminated or limited by a divorce court order.
Prioritise your divorce finances
It is vital to obtain an order dealing with financial provision as soon as possible.
Frequently we negotiate an agreement leading to an order before the divorce is made Absolute. The divorce court has the power to approve a financial order once a Decree Nisi has been made although it is not enforceable until Decree Absolute. There is therefore no good reason to delay sorting out financial matters until the divorce is obtained. In fact, there are often very good reasons why it is essential to address financial matters before a divorce is finalised.
Why it’s important to settle your finances early
Pensions
Pension provision is a good example of why delay is not a good idea.
Whilst married, if your spouse has an occupational pension you are highly likely to have a dependents pension if they die before you. Once divorced by Decree Absolute your rights to a dependents pension will usually be lost.
Good practice is to have obtained a share of the pension by way of a Pension Sharing Order before Decree Absolute is obtained. This effectively replaces the lost dependents pension with a secure pension fund in your name. If none of these steps are taken then an ex-spouse risks a complete loss of pension provision should the ex-spouse with the pension die before an order is finalised.
Property
If property needs to be dealt with, any delay can lead to a capital gains tax (CGT) problem in that when the couple eventually sort matters out after the divorce, there can be a substantial CGT bill that can be avoided if the finances had been dealt with at the same time as the divorce.
Maintenance
If maintenance is needed, the person who manages without making such claims could establish a precedent of not needing that support by delaying in bringing claims and managing in the meantime.
Conversely, a spouse paying a high level of voluntary maintenance without a financial order being agreed risks establishing a long term precedent of support which may not have applied if prompt advice was taken.
Remarriage
Another reason for acting promptly is that following the divorce, a percentage of people will remarry.
If you remarry without making an application for a financial order first (for example to obtain a share of pension or property), then the right to make that claim is lost on remarriage, unless you were the petitioner in the divorce and included a special claim for financial provision in that document.
Bringing a financial claim promptly at the time of the divorce avoids the risk of forgetting the financial consequences of remarriage without a financial settlement in place.
How to discuss divorce finances
Of course, many people are often concerned that raising financial matters at the time of the divorce can cause further upset.
There are now many good ways of resolving financial matters such as mediation, arbitration, collaborative law and private financial meetings. There is much to be said for tackling financial issues contemporaneously with the divorce, rather than putting matters off, only to have to rake over old ground again well after the divorce has been finalised.
Even with little assets, it’s important to settle divorce finances
Sometimes people in modest circumstances think it isn’t worth obtaining an order from the court dismissing their financial claims against one another. They believe that if they have few or no assets then it is not worth the cost of obtaining the order for a financial clean break from one another.
The well-known case of Vince v Wyatt illustrated why this was a mistake. The parties had nothing when they divorced and didn’t bother to get any clean break order, but Mr Vince became a multimillionaire after the divorce through his own business activities in green energy. Mrs Wyatt was allowed to bring financial claims against him 20 years after the divorce.
This principle could also apply to any wealth inherited by one of the parties after the divorce – if there is no clean break order barring further claims then a claim could still be brought many years later.
In conclusion, everyone going through a divorce should take specialist advice to obtain a financial order concluding financial matters at the time of the divorce.
For more information on common misconceptions around divorce, please see our article series here.