What Happens to Your Finances When You Divorce?

What happens to your money, house, savings and pensions when you divorce? Are finances automatically split 50/50? And what are you actually entitled to?

These are some of the most common questions we hear from people considering divorce.

A common misconception is that getting divorced automatically sorts out your finances, or that everything you own will be divided equally. Neither is necessarily true.

Divorce and finances are actually two separate legal processes. Your divorce ends your marriage, but you will usually need to deal with your financial arrangements separately.

Below, we explain how finances are dealt with on divorce in England and Wales, what happens to the family home and pensions, and how the court decides what a fair financial settlement is.

What Am I Entitled to in a Divorce?

There is no set formula for deciding what each person is entitled to when they divorce.

Instead, your financial settlement will depend upon your individual circumstances.

The starting point is to establish exactly what assets and liabilities you both have. This can include:

• Your family home and any other property;
• Savings and investments;
• Pensions;
• Businesses and business interests;
• ISAs and shares;
• Mortgages, loans and credit cards;
• Income; and
• Other significant assets or debts.

Importantly, an asset does not necessarily belong solely to the person whose name it is in.

For example, if the family home is registered solely in your husband's or wife's name, this does not automatically mean that you have no financial claim against it.

The same applies to savings, investments and pensions.

Are Finances Split 50/50 in a Divorce?

Not always.

You may have heard that everything is automatically divided 50/50 when you divorce. While an equal division can be an appropriate starting point in some cases, the court's overall objective is to reach a fair financial settlement.

The court considers several factors when deciding what is fair, including:

• Your respective incomes and earning capacities;
• Your property and other financial resources;
• Your financial needs and responsibilities;
• The needs of any children;
• Your ages;
• The length of the marriage;
• The standard of living enjoyed during the marriage;
• Any physical or mental disability; and
• The contributions each of you has made to the family.

Contributions do not just mean who earned the most money.

Looking after the children and home is an important contribution to a marriage and is not treated as less valuable simply because it did not generate an income.

In many cases, needs are one of the most important considerations, particularly where there are children who need housing.

What Happens to the House When You Divorce?

The family home is often the biggest asset and, understandably, one of the biggest concerns when couples separate.

There is no automatic rule that the house must be sold.

Depending on your circumstances, the family home could potentially be:

• Sold and the proceeds divided;
• Transferred into one person's sole name;
• Retained by one person with the other receiving a greater share of other assets; or
• Kept for a period of time and sold at a later date.

If you have children, their housing needs will be an important consideration.

However, having the children living with you does not automatically mean that you will be entitled to keep the family home indefinitely.

The court will also consider matters such as mortgage affordability, borrowing capacity, income and whether suitable alternative accommodation is available.

Can My Husband or Wife Claim My Pension in a Divorce?

Potentially, yes.

Pensions are assets that can be considered as part of a divorce financial settlement, and they should not be overlooked simply because retirement may still be many years away.

For some couples, pensions can actually be worth as much as, or more than, the equity in the family home.

There are different ways to deal with pensions.

One option is a Pension Sharing Order, where a percentage of one person's pension is transferred for the benefit of the other spouse.

Another possibility is pension offsetting, where one person retains more of their pension. At the same time, the other receives a greater share of another asset, such as the equity in the family home.

Pensions can be complicated, particularly where there are defined benefit, public sector, military or particularly valuable pension schemes. Specialist pension advice may therefore be needed in some cases.

What Happens to Savings When You Divorce?

Savings will usually need to be disclosed as part of the financial process.

This includes savings held in:

• Bank accounts;
• ISAs;
• Premium Bonds;
• Investment accounts;
• Stocks and shares; and
• Other savings or investments.

It does not necessarily matter that the savings are held in only one person's name.

However, whether particular savings should ultimately be shared can depend upon factors such as when they were accumulated, where they came from, the length of the marriage and, importantly, whether they are needed to meet either person's financial needs.

What About Money or Property I Owned Before We Married?

Assets owned before marriage can sometimes be treated differently from assets built up during the marriage.

However, there is no automatic rule that everything you owned before getting married is protected from a divorce settlement.

The court may consider when and how an asset was acquired, whether it has been mixed with matrimonial assets and whether it is required to meet either person's needs.

For example, a house owned before marriage which later became the family home may be treated differently from an investment which has always remained entirely separate.

This is a particularly fact-specific area, so it is worth taking advice if significant assets were owned before your marriage.

What Happens to Debt When You Divorce?

Debts also form part of the overall financial picture.

This can include:

• Mortgages;
• Loans;
• Credit cards;
• Overdrafts; and
• Other liabilities.

It does not necessarily follow that all debts will be divided equally.

The court can consider when a debt arose, why it was incurred and whether the money was used for the benefit of the family.

A joint loan used to improve the family home, for example, may be viewed differently from substantial debt incurred by one person following separation.

Does Divorce Automatically Separate Your Finances?

No.

This is an extremely important point.

Getting your Final Order of divorce does not automatically dismiss your financial claims against one another.

This means you can be legally divorced while financial claims remain unresolved.

Where you have reached an agreement, you would normally consider asking the court to approve it in the form of a Consent Order.

A Consent Order records the financial agreement you have reached and makes it legally binding.

Depending upon the circumstances, it can also provide for a clean break, preventing further financial claims between you in the future.

Do I Need a Financial Order If We Agree?

It is still sensible to consider obtaining a Financial Order even if you and your former spouse have reached an agreement yourselves.

You might have agreed that:

"You keep the house, and I'll keep my pension."

Or:

"We'll split everything equally, and neither of us wants anything else."

The problem is that an informal agreement does not necessarily give you the same legal protection as a court-approved order.

Having your agreement properly recorded in a Consent Order gives both of you greater certainty about your financial position moving forward.

Do We Have to Go to Court to Sort Out Our Finances?

Not necessarily.

Going to court is not the only way to reach a financial settlement after divorce.

Many couples can agree their finances through:

• Solicitor negotiations;
• Mediation;
• Collaborative law;
• Direct discussions; or
• Other forms of dispute resolution.

Even if solicitors are involved, that doesn't mean you'll automatically end up in court.

In many cases, our role is to help you understand what a fair settlement could look like and negotiate an agreement without needing a judge to decide the outcome.

What Happens If We Cannot Agree on a Financial Settlement?

If you cannot reach an agreement, either person can make an application to the Family Court for a Financial Order.

Both parties will generally be required to provide full and frank financial disclosure.

In financial remedy proceedings, this usually involves completing a Form E, which sets out detailed information about your property, income, savings, investments, pensions, and debts.

The court process normally involves three main stages.

First Appointment

The First Appointment is generally used to identify the issues between you and decide whether any further information or evidence is required.

Financial Dispute Resolution Hearing (FDR)

The FDR is a hearing specifically designed to encourage settlement.

A judge considers the financial information and proposals from both parties and will usually indicate the type of outcome they consider reasonable.

Many financial cases settle at or around the FDR.

Final Hearing

If you still cannot reach an agreement, the matter may proceed to a Final Hearing.

A judge will hear the evidence and ultimately decide how the finances should be divided.

Court proceedings can be expensive and time-consuming, which is why reaching an agreement outside court is usually explored wherever appropriate.

Can My Ex Hide Money During a Divorce?

Both parties have an obligation to provide full and frank financial disclosure.

This means being open about your:

• Property;
• Bank accounts;
• Savings;
• Investments;
• Pensions;
• Income;
• Businesses; and
• Debts.

Trying to hide money or deliberately failing to disclose an asset can have serious consequences.

If a financial agreement or court order was made without proper disclosure, it may later be challenged.

What Is a Clean Break Divorce?

People often talk about wanting a "clean break divorce".

Strictly speaking, the divorce itself does not create the clean break. The financial order does.

A clean break means that financial claims between former spouses are dismissed so that, subject to the terms of the order, neither can return in the future seeking further financial provision from the other.

A clean break may be appropriate immediately in some cases.

In others, ongoing financial arrangements may be necessary, such as spousal maintenance, meaning an immediate clean break may not be possible.

Should I Sort Out the Finances Before the Final Order?

It is generally sensible to consider your financial position before applying for the Final Order of divorce.

Ending the marriage before financial matters are resolved can have financial consequences, particularly in relation to certain pension benefits.

This does not mean you cannot progress your divorce while negotiating the finances. The two processes frequently run alongside one another.

However, you should consider taking legal advice before applying for the Final Order if your financial settlement has not yet been resolved.

Frequently Asked Questions About Divorce and Finances

Does my husband or wife automatically get half of everything?

No. An equal division may be appropriate in some cases, but there is no automatic rule that every asset must be divided exactly 50/50.

Can my ex claim my pension?

Pensions can be taken into account when deciding a financial settlement, regardless of whose name the pension is in.

Can I keep the house after divorce?

Possibly. Whether this is realistic will depend upon factors including affordability, mortgage capacity, the available assets and the housing needs of both parties and any children.

Can we agree the finances ourselves?

Yes. However, you should consider incorporating your agreement into a Consent Order so it becomes legally binding.

Do I have to disclose all of my bank accounts?

Yes. Both parties are expected to provide full and frank financial disclosure.

Does the divorce automatically give us a clean break?

No. The Final Order ends your marriage but does not, by itself, dismiss financial claims between you.

How long does a divorce financial settlement take?

There is no fixed timeframe. If you can reach an agreement relatively quickly, matters may be resolved much sooner than if court proceedings are required.

Speak to a Divorce and Financial Settlement Solicitor

If you are thinking about divorce, you may be worried about what happens next financially.

Will I have to sell my house? Will my spouse get half of my pension? What am I entitled to? Will I have enough money to start again?

You do not need to work all of this out by yourself before speaking to a solicitor.

At Harrington Family Law, we can help you understand your financial position, what a fair settlement might look like and the different options available for reaching an agreement.

We can advise you about the family home, savings, pensions, debts, spousal maintenance and clean break orders, and help you work towards a settlement which allows you to move forward.

If you are separating or considering divorce and would like advice about your finances, contact Harrington Family Law to arrange an initial appointment with one of our family law solicitors.