Divorce is a significant life event, and it's important to sort out your finances to avoid problems later on. While you can finalise a divorce without immediately dealing with financial issues, without a financial settlement your ex-spouse can make financial claims against you years after the divorce. This can affect assets like inheritance or property you acquire after the divorce, and lead to unexpected financial obligations.
This article explains why it's important to sort out finances during a divorce and what can happen if you don't.
Table of Contents
- Do I need a financial settlement to get a divorce?
- What happens if we don't sort out our finances before divorcing?
- What if the divorce is amicable?
- What are the types of financial orders in divorce?
- How do we make our financial agreement legally binding?
- Do I need a financial order if I have no assets?
- Do we need a financial order if one of us intends to buy the other out of the house?
- Do we have to go to court if we agree on the financial order?
- What should we do if we can't agree on a financial order?
- What happens if one of us doesn't comply with the final financial order?
- How long does it take to get a consent order?
- Get support with Lawhive
Do I need a financial settlement to get a divorce?
While you can legally end your marriage without sorting out financial matters, it is generally not recommended.
What happens if we don't sort out our finances before divorcing?
If you don't sort out your finances before finalising your divorce, either party can make a financial claim against the other at any point in the future. This can lead to unexpected financial obligations and disputes long after the divorce is finalised.
The case of Wyatt vs. Vince highlights the importance of having a financial settlement. Dale Vince and Kathleen Wyatt divorced in 1992 without a financial order. Years later, Vince became a millionaire, and Wyatt successfully claimed £300,000 in 2016.
Impact on remarriage
If you remarry without having a financial settlement from your previous marriage, you lose the right to make any financial claims against your ex-spouse. However, your ex-spouse can still make claims against you unless they also remarry.
Tax implications
Certain tax exemptions available to spouses, such as Capital Gains Tax relief, are lost once the divorce is finalised. This means you could face higher tax liabilities if asset transfers aren't completed before the divorce is legally recognised.
What if the divorce is amicable?
An amicable relationship today doesn't guarantee that disputes won't arise in the future. For example, if one party receives a large inheritance or wins the lottery, the absence of a financial order could lead to claims by the ex-spouse.
As such, it's advisable to sort out finances using a financial order to provide peace of mind and financial security, regardless of what happens in the future.
What are the types of financial orders in divorce?
The two main types of financial orders in divorce are:
Consent Order
Clean Break Order
Consent order
A consent order is a legal document that confirms an agreement between divorcing parties about how to divide their finances and assets, like property, savings, and pensions. They can include arrangements for lump-sum payments, property transfers, and spousal maintenance.
It makes the agreement legally binding, which means that if one party fails to comply, the other can enforce it through the court.
Clean break order
A clean break order is a specific type of consent order that severs all financial ties between the divorcing parties. This means that after the divorce, neither party can make any future financial claims against the other.
This type of order is particularly useful for providing financial certainty and independence, allowing both parties to move forward without ongoing financial obligations to each other.
How do we make our financial agreement legally binding?
To make sure your financial agreement is enforceable and both parties are protected, it needs to be made legally binding. The steps to do this include:
Sharing information about all assets, liabilities, income, and expenses;
Drafting a consent order;
Signing the consent order;
Submitting the consent order to the court along with a D81 Statement of Information;
Getting court approval.
A judge will review the consent order to make sure the divorce financial settlement is fair and reasonable.
If the judge approves the order, it becomes legally binding. If the judge finds any issues, they may request amendments.
Do I need a financial order if I have no assets?
Yes! Even if you think you have no assets to divide, getting a financial order is essential to protect against future claims.
As in the Wyatt vs. Vince case, where Mr. Vince became a multimillionaire years after his divorce, circumstances can change dramatically. And, if you don't have a financial order, claims can be made in the future, including on assets like inheritances, increases in income, and even lottery winnings!
A clean break order makes sure this can't happen. This is especially useful when there are no ongoing financial obligations, such as spousal maintenance, allowing both of you to move on independently.
Do we need a financial order if one of us intends to buy the other out of the house?
Deciding what to do with the family home is a significant part of many divorces. If one party intends to buy the other out, a financial consent order makes the agreement legally binding, specifying the terms of the buyout, such as the amount to be paid and the timeline.
Without one, verbal agreements or informal arrangements may not be upheld in court if disputes arise later.
Do we have to go to court if we agree on the financial order?
When both parties agree on how to divide their assets and finances, the process can be handled mostly through paperwork. This means you don't have to physically go to court. However, for the consent order to be legally binding it has to be reviewed by a judge along with accompanying documents to ensure that the agreement is fair and reasonable.
The judge's role is to protect both parties and make sure that the agreement has been made with full financial disclosure and without any undue pressure.
What should we do if we can't agree on a financial order?
If you and your spouse can't agree on how to split your assets, one of the first steps to consider is a divorce mediation solicitor, which can be quicker and cheaper than going to court and is often required before you can proceed to court unless there are circumstances such as domestic abuse.
If mediation doesn't work, you might consider collaborative law or arbitration. Like mediation, both methods can provide more control over the process and outcomes compared to court proceedings.
If you still can't agree, you may need to go to court where the judge will make a final binding decision on how to divide your assets.
What happens if one of us doesn't comply with the final financial order?
If one party doesn't follow the terms of the order, the other party can take legal steps to enforce it. A solicitor can send a warning letter to the non-compliant party, notifying them of the intention to enforce the order if they do not comply.
If the warning letter doesn't work, the next step is to file an enforcement motion with the court. This involves presenting evidence of non-compliance and asking the court to enforce the order.
Following this, the court will schedule a hearing and the judge will decide on the best course of action. Possible outcomes include:
Issuing a writ of attachment, allowing for the seizure and sale of the non-compliant party's assets to satisfy the debt;
Ordering the non-compliant party's employer to deduct payments directly from their wages.
As a last resort, the court can send the non-compliant party to prison. However, this is rare and typically used only when other enforcement methods fail.
How long does it take to get a consent order?
The time it takes to reach an agreement and have the consent order drafted depends on the complexity of the financial arrangements and the cooperation between both parties. This part of the process is within the control of the parties involved and their solicitors.
Once submitted, the time for court approval typically ranges from 4 to 6 weeks but this can vary based on the court's workload.
Get support with Lawhive
Sorting out financial matters during a divorce is super important, even if there are no significant assets to divide. A financial order ensures that both parties have a clear understanding of their financial rights and obligations, preventing future disputes and claims. It provides a clean break and peace of mind, allowing both individuals to move forward with their lives securely and confidently.
At Lawhive, we specialise in providing expert legal advice and support for all your divorce and financial settlement needs. Our network of experienced divorce solicitors is here to guide you through the process, ensuring a fair and legally binding agreement.
Contact us today to learn more about how we can assist you in achieving a secure and fair financial settlement.