How Mr and Mrs Average can agree a financial settlement on divorce
October 30, 2013 18 comments
“Big Money” cases are highly prized, glamorous cases to us family lawyers. The lives of the rich (and in some cases famous as well) can be fascinating, and during the case we often learn about lives spent at fabulous homes around the globe where money is no object. We lawyers still retain our professional approach of course – we aren’t fazed, we know what to do and how to handle such clients (often they require kid glove treatment).
We know how to assess their wealth and at the end, we part company, job done. There will have been ups and downs along the way. These cases will frequently start off with a loud bang – for example, a worldwide freezing order, if one party doesn’t want to play ball – but most cases do settle down in time. There might be a lengthy discovery and disclosure process, some long and hard negotiation, but the case will ultimately settle or a hard headed High Court judge will give judgement. In most cases the sums due are paid, the parties move on and at the end of the day, any depletion of wealth is not going to affect the divorcing couple all that much. The case is closed and the boxes of files and papers, sometimes huge, will be carefully archived away.
So that’s Mr and Mrs Big Money. But many years of my career were spent representing Mr or Mrs Average, and even Mr or Mrs Below Average, and looking back, I think representing them was in many ways, more of a challenge.
Recent requests for help I have received on the blog from people who don’t have lawyers and are trying hard to sort out their finances when there is very little to go round set me thinking back to those years. Things haven’t changed much. The issues are still the same. How do couples with very little to split between them sort out their case and settle?
The real beauty of our often criticised divorce law is this: it does not revolve around a simple mathematical division.
Many readers of this blog are under the misapprehension that there is an automatic, set percentage division of assets in every case. Readers write to complain their spouse won’t accept a 50/50 split or even a 60/40 split and want my opinion, which they hope will reinforce what they believe to be correct. Other readers complain that their spouse won’t agree a Mesher type order and still others complain about the effect of a Mesher order which they have previously agreed.
None of them understand what the law really, and how it is applied.
So let me help. I won’t set out the law. You can read it all for yourself in my book Divorce & Splitting Up: Advice from a top divorce lawyer.
Firstly, in a case involving limited means forget any idea that there is a percentage division. There is not.
Similarly, don’t try to and run before you can walk. By that I mean, don’t think a Mesher order is the answer, because you are desperate to stay in your hom e. Yes, it may allow you or your spouse to stay in the house for a given period (usually until remarriage or the youngest child finishes secondary education) but you must first explore all the obvious, immediate options. Mesher orders have a sting in their tail which readers of my blog already know. Frequently women with low incomes find themselves having to sell their home at a point in time when their income capacity hasn’t improved and there isn’t enough money left out of their share to buy a new home. Their former spouse may also find their future windfall hit by capital gains tax. It isn’t ideal by any means, and I would not recommend a Mesher order unless it is clear there will be enough money for both parties to eventually buy new homes after the sale.
Instead, consider your immediate, reasonable financial position: what you both have and what you both need. Work them out (my book and this blog provide spreadsheets and budgets). Then, when done, try and agree them together, if at all possible.
How much money do you have in the pot? How much capital is there right now? Put pensions to the side for the time being, and deduct the costs of sale for your home, and any debts, and then work out how much net income you both have, including all your earned income as well as any benefits.
Is it possible for either of you to reasonably earn more? Don’t put yourselves under unnecessary pressure, because child care is exhausting, but if either of you can, then it makes sense to do so. The aim of the legislation is to help you become financially independent as soon as practicable.
Having worked out how much there is in terms of capital and income, you then need to work out your reasonable financial needs.
The first consideration, of course, will always be the children. Who is going to care for the children? Where and with whom will they primarily need to live?
Then, ask yourself how much will it cost to re-house you and your spouse. Have a look online at all the local estate agents to give yourselves an idea. Is it practicable to move further afield? How will that impact on the children’s education and social needs? You both have to be reasonable, no matter how difficult it may be, and try to agree what to do with your limited capital.
How much will you then need to meet your budget out of the available income?
If one spouse earns nothing at all, or less than the other, he or she will probably need more capital to find a new home. The other spouse has more income, in order to take on a mortgage, but paying a mortgage and child support, will reduce income for spousal maintenance. Spousal maintenance is important and mustn’t be overlooked. Many readers assume it isn’t paid and from there, arguments can deepen. So be pragmatic. Spousal maintenance can be a thorn in your side but it is payable in cases of financial need. The income of the family is also divided in such a way as to ensure that both families can manage reasonably and equitably. The same goes for capital.
There may still, however, be room for a trade-off. If you earn more, can you offer more capital in return for paying less maintenance, or a cut-off date for paying spousal maintenance?
Consider how long spousal maintenance should be paid. If the spouse receiving the money cannot earn any income at all, then in cases where there are children, or a long marriage, there may be no cut off point, unless they remarry, die, or a further legal order is made.
It might be worth offering more capital, however, in exchange for having an end in sight.
But in most cases, the ‘recipient spouse’ can go to work, especially as the children grow older and become less dependent. There may be ‘term maintenance’ agreed – a spouse may agree to accept more capital from the house in return for a certain cut-off date, or even to swap no maintenance at all for more capital. Alternatively, there may be an agreement reached that after a certain period of time a spouse has to demonstrate to the court why maintenance should continue.
The pension may come in useful here. A deal might be done for the paying spouse to receive all or most of the pension in exchange for an agreement on paying more immediate capital or maintenance (or both).
In the end, it’s far from easy, but it boils down to taking a long, hard and cold look at what there is, and what is needed, for Mr and Mrs Average or Less-than-Average, to practicably move on.
Photo by yum9me via Flickr under a Creative Commons licence