This section provides information for those entering into the Mediation Process. It provides information about the legal considerations, key factors and principles for agreeing a financial settlement. It is important to obtain a complete picture of the financial situation before considering the options and deciding what is “fair”.
There are many principles, both legal and other that should be taken into consideration if the settlement is to be robust and mutually acceptable.
The law states that on Divorce, a Judge should take the following factors into account and then exercise discretion accordingly. (Section 25 – Matrimonial Clauses Act 1973)
- The income, earning capacity, property and other financial resources currently available or likely to be available in the near future.
- The standard of living enjoyed before the breakdown of the marriage. (Case Law has substantially reduced the weight given to this factor)
- The ages of the parties to the marriage and the length of the marriage or relationship.
- Any physical or mental disability.
- Contributions made or likely to be made to the welfare of the family by the parties, including any contribution by looking after the home or caring for the family.
- Conduct, if it is such that it would be inequitable to disregard it. (Conduct must be very serious in order for it to be considered a relevant factor)
- Any benefit which might be lost upon divorce.
- Similar considerations will apply in relation to the provision of capital or income for any child of the family who is not yet 18.
- First consideration should always be given to the welfare, during minority, of any minor child.
- Consideration should always be given to the possibility of creating a “clean break” between the parties. (Finality of payments either now or at a later stage)
Considerations from Case Law about division of Capital and Property
It may seem reasonable to start from the point that current capital and property should be divided equally between the parties. A number of things might work against this especially, in a typical case, the need to provide sufficient resources for future accommodation, in particular to accommodate dependent children.
Where possible, money should be available for both parties to buy new properties, especially where there are children. A House of Lords decision (White & White Oct 2000) redressed the balance in higher asset cases more in favour of equality than just meeting need and subsequent cases have reinforced this starting point.
Considerations should also reflect a more recent House of Lords decision (Miller & McFarlane 2006) which sought to clarify the position in relation to both income and asset division, encouraging private settlement (as in Mediation) by attempting to make the Law more predictable. It made clear that, Fairness is the Guiding Principle :-
- The first priority is to (minor) children
- The future as well as the past and present is considered
- Consideration is given to a “clean break”
- No discrimination between the wage earner and the home builder / child carer
- Meeting “needs” first
- Compensation where one party’s earning capacity is reduced by commitment to childcare
- Conduct is not considered unless deemed to be very serious and unfair to disregard
- The ultimate objective is to give each party and equal start on the road to independence – an equal start doesn’t necessarily mean equal division
- Consideration is given to income and ongoing income needs
- Equality may be departed from in very short marriages (1 to 4 years approximately). Consideration may be given to the contributions made prior to marriage, and these contributions may be ‘added back’
- The nature of assets and whether they are “matrimonial” or “non-matrimonial” may be a consideration
A further consideration :- In 2007 the “big money” case of Charman & Charman emphasised equality and the importance of “compensation” and “special contribution”. The most senior Family Judge called for the Law to be changed due to lack of certainty about outcome. This provided a strong case for Mediation.
- The Net Effect Principle
This is based upon accurate information relating to the Current Earnings and likely expenditure of both parties and considers the net impact of any payment. In considering this, it is helpful for parties to work together to find ways of maximising income and reducing expenditure. Maximising income would take into account any contribution from new partners, realistic earning capacity and the availability of benefits. The principle of ‘reasonable need’, taking into account all resources is an important but not an absolute principle
In the event of disagreement, Child Maintenance can no longer be fixed by the Court. An application needs be made to the Child Maintenance Service (CMS). Where accurate information is available, it is possible to use the CMS online facility to calculate the likely level of Child Support for any particular scenario. Maintenance for children can, in most cases be agreed without the need for the CMS to become involved. This can be done through mediation.
It has often been the case that Children have been used as a bargaining tool for levels of or non-payment of maintenance. This invariably damages the children, has wider negative side effects and impacts negatively on the capacity of the parties to reach a mutually acceptable outcome and should be avoided no matter how tempting it may seem.
A pension is an asset which must be taken into consideration during the course of a financial settlement. It is however, different from other assets as it is not usually readily available to be shared. Pensions are usually valued by their Cash Equivalent Transfer (CET) value and can be made subject to a Pension Sharing Order. Alternatively, Pensions can be “offset” giving due consideration to the knowledge that they cannot be valued in the same way as readily redeemable assets.
Although compensation for a loss of Pension can be achieved by a lump sum payment from other assets or from a property transfer, recent Case Law shows that they are considered a different kind of asset and Courts may prefer to consider equalising the pension assets and non-pension assets as two entirely separate entities.
Specialist Financial and / or Legal Advice should always be considered when resolving issues regarding Pensions.
In regard of Court Procedure, if parties cannot reach mutually acceptable proposals during Mediation, in Court, parties will be encouraged to co-operate at every step. Full Financial Disclosure is essential and the forms completed during Mediation will help you.
The position is pretty much the same for Civil Partners but not for unmarried couples.
Why Mediate a Financial Settlement?
Whilst it remains difficult to predict exactly what a Court outcome might be, it is also clear that the law reflects common sense and gives participants “permission” to reach their own flexible conclusions. Mediation is not bound by these guidelines, although participants are encouraged to seek independent legal advice on any proposals.
Mediation is allows individuals to look constructively at the issues regarding children and finances together, and to consider how they impact upon each other.
The three main forms of family finance, that is, capital, income and maintenance, can very effectively be conjoined in a single package in mediation. Similarly, expenses and reallocation of debts can be brought into the equation.
Often a trade-off between capital and income lead to more mutually acceptable arrangements. Just as in a marriage, money is likely to stretch further if the options are considered together.
Reaching a Financial Resolution
- Asset Sharing – Splitting The “Matrimonial Pot”
What is fair from a legal perspective?
As a starting point assets are divided equally and then consideration is given to the following:
- Does a 50 / 50 split meet the needs of the children?
- Does this split meet reasonable need for each party in regard of – housing, living expenses?
- What is the duration of the marriage (S / M / L).
- The period of co-habitation before marriage.
- Income is viewed in the context of need, especially in relation to children. The amount one party has earned during the marriage is not regarded as an individual contribution.
- Are inheritances to be shared or are they to be retained by the person who inherited?
- Case law precedence says that if they are held jointly they go in to the matrimonial pot (usually) if held individually they “could be” ring fenced, if the inheritance has not been contributed in any way to the ‘matrimonial pot’.
- Monthly Expenditure
- Spousal Maintenance
- Child Maintenance (CMS guidance and formula – on line.)
- Pensions (What was contributed prior to marriage is usually discounted)