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Joint vs. Individual Assets
The first step in a divorce is distinguishing between joint and individual assets. Joint assets are typically those acquired during the marriage, such as the family home, savings, and pensions. Individual assets, however, refer to property owned by one spouse before the marriage or assets received as gifts or inheritance. Despite this, assets acquired before the marriage or during the marriage as a gift or inheritance may still be shared if the court deems it fair. The court has broad discretion to treat certain assets as joint if it serves the interests of fairness, even if one partner solely owns the asset.

Liabilities
The division of liabilities is another difficult but important consideration. Just as assets acquired during marriage are often treated as joint, liabilities (debts) are generally shared as well, even if they are in one spouse’s name. Courts can treat debt incurred by one partner, such as credit card debt or loans, as a joint responsibility, especially if both parties benefited from the spending. This often leads to disagreements, particularly if one partner incurred the debt due to poor financial decisions, such as gambling or overspending. The courts may consider both parties at fault—one for accumulating the debt, and the other for failing to address it.

The Principle of Fairness
In the UK, the court aims for fairness in dividing assets, which may not always result in an equal split. While the starting point is typically a 50/50 division, the court will adjust the settlement based on factors such as the length of the marriage, the financial and non-financial contributions of each party, and the needs of any children. The primary consideration is the welfare of the children, which may lead to an unequal division if it best meets their needs. Courts prefer to achieve a “clean break” financial settlement, meaning that the couple’s finances are entirely separated, but this may not always be possible depending on the parties’ financial situation.

Assessing Assets
To determine a fair settlement, both parties must fully disclose their financial assets and liabilities. This involves providing evidence such as bank statements, valuations of property, and pension details. Property valuations can be a point of contention, with each party valuing the property according to their interests. To avoid disputes, it’s common to obtain three estate agent valuations, with the final value being the average of the three. If parties cannot agree, a chartered surveyor can be called in for a definitive valuation, but this can be expensive and still may not resolve disagreements.

Lack of transparency in asset disclosure can cause delays and tension in the proceedings. If one spouse withholds information about hidden assets, it can lead to a prolonged and contentious divorce process.

Pensions
Pensions are often one of the most complicated aspects of financial settlements. In many cases, pensions are divided through a ‘pension sharing order,’ which allows one spouse to receive a portion of the other’s pension benefits. The division of pensions can vary depending on the length of the marriage and the specific financial circumstances of the parties. For example, if the marriage lasted for a long period (usually 20 years or more), it is likely that the court will divide pensions equally, even if one spouse had acquired pension wealth before the marriage.

Short Marriages
The length of the marriage is an important factor when determining a financial settlement. For shorter marriages, particularly those lasting less than three years, the division of assets tends to focus on addressing each party’s immediate financial needs, rather than an equal sharing of assets. In these cases, younger individuals may not be entitled to a large settlement, as they have more time to build their own financial security. However, older individuals, especially those nearing retirement, may receive a larger share of the assets to meet their needs.

If children are involved, the financial needs of the children will always take priority, regardless of the marriage’s length. In cases where the primary caregiver will be responsible for the children, the court may delay the sale of the family home until the children turn 18 to provide stability, but this can lead to an unequal share of proceeds from the sale.

Seeking Professional Advice
Given the complexity of financial settlements, it’s highly advisable for individuals going through a divorce to seek professional advice. A solicitor or financial advisor can help protect your rights and provide clarity on your entitlements. While not all divorcing couples require full legal representation, it’s important to get independent legal advice early in the process to ensure you understand the legal implications of any financial agreements.

The Role of Negotiation
Once assets are assessed, many couples try to negotiate a settlement on their own or through solicitors. Mediation can also be an effective way to resolve disputes, where an impartial third party helps facilitate discussions. Although mediation can be less adversarial and costly than court proceedings, it may not always be suitable, particularly if the settlement is not based on equality. In some cases, one party may end up agreeing to a settlement that is far less than they deserve.

Court Involvement
If negotiations fail, the court will intervene and make decisions regarding asset division. The court will consider financial disclosures, the length of the marriage, the needs of the children, and other factors when making its ruling. Court decisions can be unpredictable, and litigation is usually seen as a last resort due to the costs, delays, and uncertainty involved.

Post-Divorce Finances
After the divorce is finalised, both parties will need to manage their finances independently. This includes setting up new bank accounts, reviewing budgets, and planning for future expenses. It’s also important to update any Wills or insurance policies to reflect the changes in your circumstances.

Conclusion
Dividing finances during a divorce can be a daunting and complex process. It is essential to understand the legal framework surrounding the division of assets and liabilities and to seek professional advice to ensure a fair and equitable outcome. With careful planning, transparent communication, and professional guidance, couples can navigate the financial aspects of divorce and move forward with their lives.

If you need assistance with your divorce or financial settlement, the team at Smith & Co Solicitors can provide expert legal advice and support to help you achieve a satisfactory resolution. For more information, contact Keith Holland at 01473 228016 or email keith@smithandcosolicitors.co.uk.

At Smith & Co Solicitors, we specialise in equity release transactions and can provide legal advice in a face to face meeting while observing social distancing recommendations. We are also able to answer your questions over the telephone or using online tools such as Skype, Zoom or other virtual options.

To find out whether equity release is right for you, here’s some helpful information for you…..

What is equity release?
If you own your own home, equity release is a way of turning some of the equity in your house into cash.

Will I still be able to live in my house?
Yes! 

Can anyone get equity release on their property?
Generally, the schemes are available to people aged 55 and over.

I’ve heard there are different types of schemes. Can you explain it?
There are 2 main types of equity release: –

What are the benefits of securing money through an equity release scheme?
For many people having access to a cash sum and staying in their own home is an attractive offer. And even better, with some plans, there are no regular payments to make.

Will the cash sum be taxed?
No.

Can I use the cash for anything?
Yes, once you have received your cash lump sum, it’s your choice to spend it as you please.

If I’m paying interest on the loan, can I end up paying more back than the value of my house?
No! The ‘no-negative equity guarantee’ means that you’ll never repay more than the value of your home. Your estate will neverowe more than the property is worth when it’s sold.

How do I go about getting an equity release scheme?

Is equity release right for me?
All financial decisions must be given your full attention before making a decision. We recommend you discuss the equity release scheme with your family. It could be you want to provide them with some or all of the cash lump sum. However, you must also consider that releasing equity now will reduce the equity in your property on your death and could result in there being no cash or equity left for your family.

Also, if you receive any means-tested benefits, this could have an effect on your entitlement to receive the benefits. For more information on equity release, call Natasha Price at Smith & Co Solicitors on 01473 228015.

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