Understanding the financial settlement

What is a financial settlement?

A financial settlement is an agreement about how you’ll divide everything you own when you divorce. It covers:

• Property – the family home and any other properties
• Savings and investments – bank accounts, ISAs, shares, bonds
• Pensions – workplace and private pension schemes
• Debts – mortgages, loans, credit cards, overdrafts
• Other assets – businesses, vehicles, valuable items
• Ongoing support – spousal maintenance and child maintenance

The settlement aims to achieve a fair division that meets both parties’ needs, not necessarily an equal one. What’s “fair” depends entirely on your circumstances.

Divorce and finances are separate

An important point many people miss: getting divorced doesn’t automatically sort out your finances.

Your divorce can be finalised without any agreement about money. But this is risky – without a proper financial order, your ex-spouse could make claims against you years or even decades later.

The famous case of Wyatt v Vince demonstrates this danger. Kathleen Wyatt successfully claimed £300,000 from her ex-husband Dale Vince nearly 20 years after their divorce, because they’d never obtained a financial order.

To properly close the financial chapter of your marriage, you need a court-approved consent order, even if you agree on everything.

How assets are divided

There’s no fixed formula for dividing assets. The court has wide discretion to achieve a fair outcome based on your circumstances.

The starting point

The law starts from a presumption of equality – a 50/50 split – but this is a starting point, not an automatic outcome. The court then considers whether equal division would be fair, given all the circumstances.

Section 25 factors

When deciding what’s fair, courts must consider factors set out in Section 25 of the Matrimonial Causes Act 1973:

The welfare of children – this is the first consideration. If you have children under 18, their housing and financial needs take priority.

Income and earning capacity – what each person earns now, and what they could earn in future. This includes assessing whether someone could realistically return to work or increase their hours.

Financial needs and obligations – what each person needs to live on, including housing, and any other financial responsibilities.

Standard of living – the lifestyle you enjoyed during the marriage. Courts try to minimise the drop in living standards, though this isn’t always possible.

Age and length of marriage – longer marriages typically result in more equal divisions. Short marriages may see each person leaving with what they brought in.

Contributions – both financial (earning money) and non-financial (raising children, running the home). The law treats these as equally valuable.

Conduct – only considered if it would be unfair to ignore it. This is rare and applies to extreme behaviour, not general relationship breakdowns.

Loss of benefits – for example, losing entitlement to a spouse’s pension on divorce.

The three principles

Judges typically apply three overlapping principles:

Needs – the most important factor for most couples. What does each person need to meet their basic requirements, particularly housing?

Compensation – has one person sacrificed their career or earning potential for the benefit of the family? They may deserve compensation for that loss.

Sharing – assets built up during the marriage should generally be shared equally, though non-matrimonial assets (owned before marriage or inherited) may be treated differently.

Common settlement patterns

Every case is different, but some patterns emerge:

Where there are children

The parent with primary care often receives a larger share of the family home (or stays in it) to provide stability for the children. This might mean a 60/40 or 70/30 split of equity, or the home being held until children reach 18.

Where there’s one main earner

The lower-earning spouse typically receives a larger share of capital assets to compensate for their reduced earning capacity, or ongoing spousal maintenance.

Short marriages with no children

Each person may leave with roughly what they brought in, with only assets acquired together being shared.

Long marriages

These tend toward more equal division, regardless of who earned what. Decades of contributions – financial and non-financial – are treated as building shared wealth together.

Reaching agreement

Most couples reach agreement without going to court. Options include:

Direct negotiation – talking between yourselves, perhaps with legal advice in the background.

Mediation – working with a neutral mediator who helps you find common ground.

Solicitor negotiation – having your solicitors negotiate on your behalf.

Collaborative law – both having solicitors, but committing to resolve matters without court.

Whatever route you choose, you should both make full financial disclosure – sharing details of everything you own and owe. Without this, any agreement could later be challenged.

Financial disclosure

Before any agreement can be fair, both parties need to know what’s actually in the pot. This requires full and frank disclosure of:

• Income from all sources
• Property and other real estate
• Bank accounts and savings
• Investments and shares
• Pension valuations (called CETVs)
• Business interests
• Debts and liabilities
• Expected inheritances or windfalls

In court proceedings, this is done through Form E – a detailed 29-page financial statement. Even outside court, similar disclosure is essential.

Making it legally binding

Once you’ve agreed how to divide things, you need a consent order to make it legally enforceable. This involves:

1. Drafting the order – setting out exactly what’s been agreed
2. Completing Form D81 – a summary of both parties’ financial positions
3. Submitting to court – with the £60 fee
4. Judicial approval – a judge checks the agreement is fair

The consent order can only take effect after you have your conditional order (the midpoint of divorce), and ideally before your final order. Once approved, it’s legally binding and enforceable.

Without a consent order, your agreement is just a private arrangement with no legal force.

When you can’t agree

If negotiation fails, you can apply to court for a financial remedy order. This involves:

• Completing Form A (the application)
• Full financial disclosure through Form E
• Attending a First Directions Appointment
• Attempting negotiation at a Financial Dispute Resolution hearing
• If still unresolved, a final hearing where a judge decides

Court proceedings typically take 9-12 months and can be expensive. Most cases settle before the final hearing.

Getting help

Financial settlements can be complex, especially where there are significant assets, pensions, or business interests. Professional advice is valuable for:

• Understanding your entitlements
• Valuing complex assets like pensions or businesses
• Negotiating effectively
• Ensuring agreements are fair and comprehensive
• Drafting legally sound consent orders

A family solicitor can advise on your specific situation, and a mediator can help you reach agreement more amicably.