It can be difficult when you separate from your spouse to see how the shared pool of assets and income can be divided fairly between you taking into account all of the background of your relationship, family life and assets. Further to this you may have a business you need to protect and maintain, children to provide for or may have had little involvement in family finances up to now – either way the uncertainty divorce brings can be very stressful.
The importance of preparation
Before a legal advisor can help you work out what that distribution might look like, they need to know exactly what is available and so if you can gather the main financial details before you take advice the first meeting can provide you with a lot more guidance.
If you or your spouse have complex assets it will be important to involve an appropriate accountant or financial adviser to ensure the true value and tax implications of dealing with those assets are understood before negotiations begin – this avoids doing anything which inadvertently creates an unnecessary tax liability, for example. It is really important that the relevant professionals are involved as soon as possible to avoid any potential pitfalls.
These are the steps your legal advisor will take to ensure all relevant information is available to work out a financial settlement:
1. Disclosure your financial position
Essentially this means you and your partner complete detailed forms to confirm all your assets, pension schemes, debts and sources of income and exchange them so that you get a clear understanding of the total “pot” available to divide between you. The disclosure includes details of any property you may own (including up to date valuations), mortgages or loans, business accounts, bank accounts, investments, pensions and tax returns/pay records. It also covers the tax you would have to pay if assets were sold, even if those will be retained as part of your settlement, because solicitors always look at net values.
You will need to provide full details of your pension schemes (including any dormant ones from previous jobs), including the “cash equivalent value”. For many pension schemes, this information is only provided on request and it can take many months to obtain. It is, therefore, a good idea to start gathering all of this information as soon as possible – you may need to add to it later on in the process, but at least you will know where to find the information when it is required. The more detail you are able to provide, the better, as you are able to build up a clear picture of your current financial position, and the more promptly you are able to provide it, the faster you can have your matter finalised.
If you are confident that both you and your partner have a full awareness of the available resources and trust each other to fully disclose everything this process can be streamlined. However, to prepare the necessary documentation to formalise any financial agreement you reach there will need to be an exchange of supporting documents to evidence the account numbers of joint assets and ensure the court order is accurate and avoid problems later.
Sometimes the trust between you will have broken down and you will want to see evidence of the available resources.
We always advise that financial disclosure is exchanged before you put forward proposals to resolve matters so that there is clarity before committing to any financial agreement.
2. Understand your future housing needs
The court will want to ensure any final settlement meets the needs of each of you, living independently, and its priority is to meet the needs of any children.
Therefore, as well as a clear picture of your current financial position, you need to ensure that any financial settlement will enable each of you to live independently in a secure home. There may be scope to retain your current home but often you need to consider what it would cost to move to a suitable new home. Unless the pot enables you each to rehouse without a mortgage your legal advisor would need to know what you might be able to borrow in terms of your mortgage capacity based on your own sources of income. You should also research the costs of houses to understand what an alternative home would cost each of you.
A disparity in your incomes and borrowing capacities can result in an unequal division of the assets if that is necessary to meet housing needs.
3. What are your wider future needs?
Meeting needs is the first element in any financial settlement before any surplus assets are shared. Getting a clear understanding of what you each need to fund your living costs in the short, medium and longer-term, into retirement, is often crucial.
In terms of income during your working age, the lower earner will be expected to maximise their own income from all sources before their spouse would be expected to top them up. The court considers spouses’ earning capacities rather than what they actually earn at the moment and so if, for example, you care for children full-time, it will be important to consider whether or not you could take on work, even part-time, to contribute towards your future living costs and research your entitlement to benefits and financial assistance with child care costs. Child maintenance is always payable by the parent with whom the children spend less time to the parent taking the main care responsibilities and so that may be another element of income.
To understand if you have a shortfall between your income and what you need to live you will need to put together a detailed budget of your outgoings.
An independent financial adviser will be able to paint the picture of your existing retirement provision and what additional pension provision you might need. This can be a crucial element for the court to consider how pensions should be shared between spouses, particularly if some was built up before the relationship started.
It can be overwhelming trying to work out what life might look like post-divorce, but the more information that you are able to provide initially to your solicitor, the sooner they can steer you as to what to expect in the future. In fact, you may find that taking all these steps also helps you to feel more in control of your life again and focus on what you want for yourself.