HomeWhy having a financial settlement on divorce is ESSENTIAL.DivorceWhy having a financial settlement on divorce is ESSENTIAL.

Why having a financial settlement on divorce is ESSENTIAL.

Meanings for the word “divorce” include break, detach, split, sever, and divide. Despite the clear connotation that divorce means to end something, it is always surprising to hear of cases where that does not happen. The case of HAT v LAT heard in the Family Court in July 2023 is such a case. It is a cautionary tale of why it is essential to obtain a financial settlement on divorce.

The facts of the case:

The parties married in 1984 and separated in 1993, with Decree Absolute (the Final Order) being pronounced on 3 November 1998.

In February 1994, the parties entered into a Separation Agreement. The main terms of the Separation Agreement provided for the husband to pay the wife a lump sum of £702,000, and also provided for a clean break between the parties. In accordance with the terms of the Separation Agreement, the husband paid the lump sum of £702,000 and implemented other, more minor provisions of the Separation Agreement.

Crucially to the case, the terms of the Separation Agreement were never converted into a draft consent order.

The husband continued to provide voluntary financial assistance to his ex-wife for nearly two decades despite having no legal obligation to do so under the terms of the Separation Agreement. In March 2022, the husband informed his ex-wife that he would be ceasing all financial assistance. This resulted in the ex-wife making an application to the Court in May 2023 for full financial provision claiming her financial claims had not been dealt with at the time of their separation. The ex-husband’s case was that financial matters had already been dealt with.

The Judge’s decision:

In hearing the case Mr Justice Peel concluded that the absence of a Consent Order, and a delay in bringing a claim for financial remedies (even after 29 years) was not by itself a jurisdictional or procedural bar to making a claim. He therefore allowed the wife’s full financial claim to go to trial.

The moral of the story:

The moral of the story is: always obtain a final divorce financial settlement, even if only to seek the dismissal of financial claims. Failure to do so will result in a “ticking timebomb” ready to go off at any time.

Many people make the serious mistake of thinking that financial matters are automatically resolved upon divorce. As is shown by the above case, this is incorrect. Even with the existence of a Separation Agreement which had been complied with, unless you have a divorce financial settlement in place approved by the Court, then financial claims are still alive.

In order to ensure financial matters arising from a divorce or dissolution of civil partnership are concluded, you must make a separate application for a financial order, whether by way of a Consent Order following the reaching of an agreement as in the case of HAT v LAT, or through a Court hearing with a Judge deciding on the outcome if agreement cannot be reached.

Even if you have the most amicable relationship, or have no assets or property, or were married for a very short period time; you should always enter into a clean break Consent Order and have it approved by a Court.

What type of Consent Orders are there?

A clean break financial order is the simplest type of Consent Order that will cut any financial ties between you and your ex-spouse/partner now and in the future. Such a Consent Order will provide you with a lifetime protection and peace of mind for a small cost.

In cases where assets are involved such as HAT v LAT, the terms of the agreement reached should always be converted and incorporated into a Consent Order. A Consent Order can include the following details:

  • your home – whether it will be sold or transferred to one of you, and how the proceeds will be divided.
  • how other assets such as savings, investments or business interests will be dealt with.
  • what will happen to personal possessions such as furniture.
  • how any pension schemes will be shared.
  • child maintenance for any children.
  • whether one of you will pay maintenance to the other, and for how long.
  • any other expenses – for example, if one of you will continue to pay for life insurance or private healthcare.
  • how any outstanding debts will be dealt with.
  • an agreement that neither of you can make a claim as a financial dependent when the other dies.
  • A clause which cuts any financial ties between you and your ex-spouse now and in the future.

Once the Consent Order has been agreed by the Judge and sealed by the Court, it is final and all financial claims by either party is settled.

Can a Separation agreement be converted into a Consent Order?

Yes, it is possible to convert a Separation Agreement into a Consent Order. If the Separation Agreement reached by HAT v LAT had been converted into a Consent Order and approved by a Court, the ex-wife’s application for financial provision would be automatically dismissed.

When considering what weight the court should attach to any agreement, a Court will take into account:

  • Both the husband and wife must enter into the agreement of their own free will, without undue influence or pressure, and informed of its implications.
  • Each party should intend that the agreement should be effective.
  • Are any of the standard vitiating factors: duress, fraud, or misrepresentation, present? Even if the agreement does not have contractual force, those factors will negate any effect the agreement might otherwise have.
  • Unconscionable conduct such as undue pressure (falling short of duress) will also be likely to eliminate the weight to be attached to the agreement, and other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, would reduce or eliminate it.
  • When the Court considers whether it would be fair to hold the parties to their agreement, it will ensure that the reasonable requirements of any children of the family are not prejudiced by the agreement.

Provided there is nothing to suggest that any of the above factors negate the Separation Agreement, then it is very likely the Agreement will be converted into a Consent Order.

Other frequently asked questions

Can we have a Financial Consent Order if we are not getting divorced or having our civil partnership dissolved?

No, you can only have a Consent Order after divorce or dissolution of a civil partnership. If there are no divorce/dissolution proceedings, you should think about a Separation Agreement as in the above case.

How does a judge decide a financial settlement?

As a matter of practice, the Judge will usually embark on a two-stage exercise in considering the proposed divorce financial settlement contained in the Consent Order. These 2 stages are:

  • calculation of the assets and
  • distribution of the assets

Whilst there is no set formula that a Judge uses when it comes to determining a financial settlement on divorce, there are a set of principles that a Judge will use to reach a fair outcome. These three key principles are: needs, sharing, and compensation.

In addition to above three key principles, a Judge must also take into account common sense factors when deciding a fair outcome. These are contained in Section 25 of the Matrimonial Causes Act 1973 and include:

  • The welfare of any minor children of the family.
  • The income, earning capacity, property, and other financial resources which each spouse has – or is likely to have – in the foreseeable future. This includes, in the case of earning capacity, any increase in that capacity which it would be, in the opinion of the court, reasonable to expect a person to take steps to acquire.
  • The financial needs, obligations, and responsibilities, which each spouse has or is likely to have in the foreseeable future.
  • The standard of living enjoyed by the family before the breakdown of the marriage.
  • The ages of each spouse and the duration of the marriage.
  • Any physical or mental disability of each spouse.
  • The contributions which each spouse has made or is likely to make in the foreseeable future to the welfare of the family, including any contribution by looking after the home or caring for the family.
  • The conduct of each spouse, if that conduct is such that it would in the opinion of the court be inequitable to disregard.
  • The value to each spouse of any benefit which one spouse because of the divorce will lose the chance of acquiring (most usually pension provisions).

What is the difference between a consent order vs a clean break order?

A Consent Order is a legal document entered into by both parties (by consent) which formally records the details of a negotiated financial agreement reached between them. The terms of the financial settlement in divorce may be incorporated into a document like a Separation Agreement or Prenuptial Agreement. The Consent Order makes the terms of the financial agreement legally binding.

A clean break consent order is a court order that includes a “clean break” element in the Order. The clean break element legally cuts financial ties between you and your former partner. Once a clean break order is made, neither party to the marriage/civil partnership will be able to make further financial claims against the other person. This means there can be no further claims for maintenance, lump sums, pension orders or for property.

It is important to note that if the parties’ have children, a clean break order does not remove the obligation to pay child maintenance. Child maintenance payments are required by law and are usually paid until the child is 16 years of age (increasing to 20 years of age if the child is in approved education or training). If the parties can agree child maintenance, this can then be incorporated into the consent order. 

Why would I want to enter into a Separation Agreement rather than obtain a Consent Order?

There may be various reasons. One reason maybe you have not been married for 12 months or longer and cannot get divorced or your civil partnership dissolved. In those circumstances you may wish to formalise your separation and a divorce settlement by entering into a Separation Agreement.

Another reason is because you are not ready to divorce and wish some time to reflect by separating instead of divorcing.

What is the remarriage trap?

If you remarry without reaching a divorce financial settlement approved by a Court, you will not be allowed to apply for a financial claim. For example – in the case of HAT v LAT, if the ex-wife had remarried, she would not be entitled to claim a share of the family home or investment properties, seek regular maintenance payments, or obtain a further lump sum payment.

What is a clean break divorce?

A clean break divorce is a divorce where you agree to legally cuts financial ties between you and your former partner. Once a clean break order is made, neither party to the marriage/civil partnership will be able to make further financial claims against the other person. This means there can be no further claims for maintenance, lump sums, pension orders or for property. So even if your former partner wins the lottery or receives an inheritance, you will not be able to make a financial claim against them as your financial claims will have been dismissed under the clean break divorce.

When should I apply for a financial order or Consent Order?

You can only apply to the Court to approve a Consent Order once you have started the divorce/dissolution process and reached the Conditional Order stage.

We are already divorced. Can I obtain a Consent Order after the divorce/dissolution has been finalised?

Yes, you can get a Consent Order at any time after the divorce/dissolution, even after a divorce has been made final many years earlier. The only exception is if you have remarried.

The best practice however is to finalise your financial arrangements before the final order is made in the divorce/dissolution. Without a final financial Order in place either party can make a financial claim against the other at any point after divorce/dissolution.

Can a Consent Order include our arrangements for the children?

No, a financial consent order can only deal with financial issues.

What happens if we cannot agree a split in a divorce?

If you are cannot agree a financial split, you can apply to the Court to make a financial settlement for divorce. This will involve one party commencing financial proceedings for a financial order.

If court proceedings are commenced there are normally three hearings required to make a financial order which could take a minimum of 12 months. It will also result in the parties incurring significant legal fees unless an agreement can be reached during the proceedings. It is far quicker, cheaper, and less stressful if the parties can reach a financial agreement outside of court.

Can a Financial Consent Order be changed?

Generally, not. The point about a financial settlement is that it is final.

It is therefore important you should think about it carefully before you commit to it. A Consent Order must be freely agreed between the two of you. You are each free to negotiate a change to the agreement at any stage before signing.

Once the Consent Order has been agreed by the Judge and sealed by the Court, it is final.

There have been some exceptions to that in truly unusual situations, for example where one of the parties unexpectedly died very shortly after the order had been agreed. But if you enter a Consent Order you should expect it to be conclusive.

You may be able to challenge a Consent Order if:

  • your spouse did not provide full or honest financial disclosure, for example hiding significant assets or a new highly paid job offer.
  • there was some kind of fraud or misrepresentation, for example if the valuation of an asset is very inaccurate.
  • you signed the order under duress or lacked mental capacity (for example, because of a mental illness).
  • an unexpected event occurs shortly after the consent order is sealed and completely undermines its terms, for example if your ex has a sudden, large windfall.

What is the difference between consent order and financial order?

A consent order is made by consent after negotiating a divorce financial settlement between the parties. A financial order is a divorce settlement imposed by the Court following an application for a financial claim because no agreement could be reached.

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