How to protect your own money and assets is a common concern on divorce. Family Lawyer and Mediator, Sarah Jackson, explores this topic. Our Family Law Team are available on 01225 462871. Alternatively, you can email them, or complete the Contact Form at the foot of this page.
The question ‘How do I protect my money on divorce?’ is often one of the first questions I am asked by my clients, whether they have already separated from their spouse or are contemplating a separation. To fully answer the question, it helps first to look at how, in the absence of an agreement between spouses, the court distributes assets and income on divorce.
How are finances split in a divorce?
There is no standard formula for calculating appropriate financial provision on divorce. Instead, the court has a duty to consider all the circumstances of the case and to take into account a range of specific statutory factors set out in section 25 of the Matrimonial Causes Act 1973 (section 25 factors).
The section 25 factors can be summarised as follows:
- The capital and income resources available to the parties, either existing or reasonably foreseeable.
- Details of the financial needs of the parties, including their standard of living, their ages and the length of the marriage and any disabilities.
- The respective contributions of each party.
- The conduct of each party (although only in exceptional cases); and
- Any benefit either party will lose as a result of the divorce (such as a spouse’s pension).
When considering the section 25 factors and determining a fair financial outcome, different judges may reach different conclusions on the same facts, all of which would be within their judicial discretion. However, over the years, case law has developed a standard approach to the way the courts are likely to consider a given situation.
The guiding principles that apply to reaching a fair financial outcome are ‘equal sharing’, ‘needs’ and ‘compensation’. The starting point is that assets accrued during a marriage (known as matrimonial assets) are divided equally; where an equal division of the matrimonial assets adequately provides for the capital and income needs of each spouse and any children, this is usually the appropriate financial outcome. However, where the needs of the parties and any children cannot be met by an equal division, an unequal division of assets may be appropriate instead. In these cases, needs are likely to dictate how assets are divided.
Are premarital assets protected in divorce?
Whilst equal sharing is the starting point when dividing matrimonial assets on divorce, the sharing principle does not apply to property that is brought to the marriage or inherited or introduced by one party during the marriage. The exception is where such property has become part of the matrimonial assets, for example, by being put into joint names or converted into a different type of property enjoyed by the family (such as an inherited picture sold and used to buy a holiday home). Thus, the matrimonial home is usually considered a matrimonial asset and is shared equally even if it was owned by one spouse before the marriage.
However, the principle of ‘needs’ trumps the principle of ‘equal sharing’. This means that where assets are entirely, or largely, non-matrimonial, the division of resources will need to be determined entirely with reference to the parties’ needs. Where possible the court will try to ensure that a party who inherited or introduced a particular asset retains it as part of the resources to meet their own needs (even if this means allocating a larger share of the matrimonial assets to the other party). In some cases, the sharing principle may be applied at a later date, with a reallocation of assets in the future. Typically, this may involve one party having a deferred interest in the matrimonial home that will be realised once any children finish their education (often to first degree level).
In conclusion, premarital assets that have not been converted into matrimonial assets during the marriage are likely to remain intact on divorce provided both parties’ needs can be met from a division of the matrimonial assets alone.
How to protect your assets during a divorce
If you have yet to separate from your spouse and you want to protect assets or an inheritance that you brought to the marriage or have received during the marriage, you should see if your spouse will agree to entering into a post-nuptial agreement. Entering into a post-nuptial agreement will not guarantee that your premarital assets or inheritance will remain intact on divorce but it increases the chances.
If you expect to inherit money or assets in the future, you should also consider appropriate trust planning, which can help to protect legacies in certain circumstances.
Otherwise, if you have already separated, it is always open to the two of you to agree that premarital assets or an inheritance should be retained by the spouse who brought the monies to the marriage, whether this is what a court would decide or not. You can then ask the court to make a financial remedy consent order on this basis. You will, however, need to disclose the value of the monies retained and the court will probably want confirmation from you both that the agreement you have reached is sufficient to meet the needs of both parties and any minor children of the family.
Can you get divorced without sorting out finances?
A divorce does not bring an automatic end to any financial obligations you and your spouse might have to one another. Unless the split of your assets is set out in a court order (known as a ‘financial remedy order’) you will not have a clean break from your spouse, which may mean that they can claim further money or property from you in the future even if decree absolute has been granted.