The law on divorce in the UK recently changed, with the introduction of no-fault divorce in April 2022, removing the need for an applicant to show a specific reason for divorce other than that the marriage has irretrievably broken down. Furthermore, the other party can generally no longer object to a divorce application to end a marriage.
Whilst getting a divorce has been made simpler and means you are no longer legally married to your former spouse, you will still have financial ties to them which if not addressed, could cause significant issues further down the line. Statistics released by the (MoJ) have shown that 31% fewer financial order applications have been made, despite the significant rise in divorce applications.
It is a common misunderstanding that divorce automatically breaks the financial ties between former spouses or former civil partners. This is not the case legally and financial claims can be made long after parties go their separate ways. To completely sever the financial ties between you and your ex-spouse, you will need to make a Financial Order.
The importance of a Financial Order
In the well-known case of Wyatt v Vince, the parties had divorced 18 years previously at a point when they were both relatively poor. The wife remained poor but the husband made a fortune on wind farms. The wife applied for a financial provision for herself and the children and the husband tried to get her claims dismissed without a hearing, due to the time that had passed. The courts made it clear that financial claims survive indefinitely unless a financial order has been obtained and sealed by the courts.
So, what is a Financial Order?
A Financial Order is an Order obtained by the Court that details how both parties will deal with their finances upon divorce and creates a legally binding agreement that can be enforced if either party breaches the terms of that agreement.
What if I choose to not get a Financial Order?
Essentially, there is no clean break between the parties if there is no Financial Order in place. This means that either party can make a claim through the courts for financial orders in the future.
It is important to remember that the divorce element serves to officially end a marriage or civil partnership only. Divorce alone does not bring an end to the financial claims that can be made against either party, regardless of whether the couple has already divided everything up. It is therefore critical that couples realise that, and still take all the necessary additional steps to settle their financial matters.
Of course, there is never an easy time to discuss money and even though we always recommend that clients look closely at their finances such as property, pensions, maintenance and potential inheritance, almost 65% of separating couples nationally believe that the Final Order (previously know as the Decree Absolute) ends any financial links and obligations between them. This is not the case. There is no time limit on financial claims arising from marriage and they are not extinguished by the grant of a final divorce order alone.
How might your finances be at risk and what can you do?
Whilst the ongoing development allows an online application to be made for divorce, by either party or jointly, at any time of day or night, issues can often arise in separating matrimonial assets and thereby making the process far from straightforward.
Furthermore, the online application may also tempt couples to move through the process too quickly and the situation could become even more complicated if couples decide not to obtain or use legal representation to make their initial application. Whilst some costs may be saved in doing this, it often results in couples initiating and concluding, their divorce proceedings without considering the ramifications, if legal advice has not been taken in advance.
Often, where couples have been able to divide up their assets amicably they may not know that the agreement is not legally binding. They have dealt with the divorce themselves rather than using a lawyer, so it may not even occur to them that there is a further step to be taken to ensure any agreement they have reached in respect of their finances is binding on each of them and that they cannot later change their minds.
Alongside the family home, a pension is likely to be one of the most valuable assets an individual holds. It is especially important that individuals who divorce as they approach retirement or have recently retired take independent advice from a specialist solicitor to ensure those assets are fairly considered on separation. Monthly petitions using the online service have risen to around 8,000 a month, from a low of 2,000 a month. However, despite this, fewer than two in 10 divorces have pension-sharing orders according to Now: Pensions, a campaign group trying to tackle the pensions gap.
Pensions are a marital resource that is available to be divided at divorce just in the same way as the family home or investments are split. Pension sharing orders involve the spouse with a lower value of pension savings taking a percentage of their ex-spouse’s retirement funds. However, the statistics show that women who have divorced at pension age have less than average pension capital than women who have not divorced. So there is a real risk that female divorcees will be left worse off in retirement if they have not fully considered their pension position. Seeking advice and having legal representation from the earliest stages possible means couples can secure a strategy that will help them to avoid any unintended consequences.
Furthermore, an experienced solicitor will also be able to advise you on other aspects that you should consider upon separation such as;
The first thing you need to consider is that you need to update your will and if you haven’t done so already, you need to make a will. The good thing is that by law, divorce will invalidate any provision you have made for your spouse in your will. But should you leave it at that? Absolutely not! You should always review your will after a major event and divorce is definitely among the major events that should lead you to review your will. With your spouse now out of the picture, a lot of things will change.
Jointly Owned Property:
Most family homes are owned jointly by the couple and usually as joint tenants. That means that the property will pass to the survivor of you and your spouse by operation of law. This will all probably be dealt with in the financial settlement, but financial settlements can take some time to reach. In the meantime, any provisions you make in your will for property held as joint tenants will not take effect. Consider taking steps immediately to sever the joint tenancy, unless there are good reasons not to do so.
Waiting until financial matters have been resolved before applying for Final Order:
If financial matters have not been resolved, it is important to consider carefully if there may be detrimental financial consequences of applying for the final order. For example, if one of the parties dies after the final order has been made, but before the financial remedy claims have been resolved, the other party may lose valuable pension benefits that they may otherwise have received as the widow or widower of the deceased.
Alternatively, where a matrimonial home is in the sole name of one of the spouses, it may be important to preserve the other’s right to occupy the matrimonial home under s 30 of the Family Law Act 1996 ("FLA 1996"). Under this section, both spouses have a right to enter and occupy the matrimonial home until the final order, unless the court orders otherwise under an occupation order. Where the property is in the sole name of one spouse, the other spouse may have registered their home rights to protect their rights of occupation and ensure any potential buyers and lenders are aware of their rights. These rights expire on the final order being pronounced.
If financial remedy claims have not been resolved by the time the final order has been made, the spouse will have to make an application under s 33(5) of the FLA 1996 to extend their home rights beyond the final order.
In some cases, obtaining a final order before the financial remedy claims have been resolved may also have adverse tax consequences if there are onshore or offshore trusts or offshore assets. It is therefore important to consider in each case whether to wait before applying for the final order prior to the financial matters being resolved.
With the cost of living crisis causing many relationships to deteriorate, it is expected that divorce figures will increase even further, especially next year. While there are various options separating couples can take when it comes to finances, we always recommend full and frank disclosure in respect of the finances takes place, understanding the value of assets and income is key to achieving the best possible outcome for both parties. Additionally, to dismiss any financial claims that a former spouse may have against you, you will need to have a financial order approved by the Court. This usually comes in the form of a Consent Order and until approved by the Court, there is not a full, final and binding clean break concerning your financial arrangements.
Our Family Lawyers are highly experienced in all aspects of financial matters. If you need advice on getting a divorce or making a Financial Order, please contact our Family Department at 01273 956270.