How to calculate a fair financial divorce settlement
The aim of this section is to provide a guide to what the law says about calculating a fair financial settlement. Although there are varies guidelines and benchmarks defined in Family Law and clarified by Case Law, it remains notoriously difficult to work out a precise settlement.
We offer two ways for you to get an indication of what a fair settlement should be:
Equality (White vs White)
In October 2000, the House of Lords delivered a very important judgment in a case involving “big money”, called White vs White. In that judgment, the House of Lords said that:-
- In seeking to achieve a fair outcome, there was no place for discrimination between husband and wife and their respective roles;
- The Court’s aim should be to achieve a fair result and before making a division of assets a judge should check his tentative views against the yardstick of equality. As a general guide, equality should be departed from only if, and to the extent that, there was good reason for doing so
- Where a wife does not work (or only works part time) and instead looks after the home and children, her contributions must be regarded as equally valid and valuable in the overall family’s partnership as those of the husband who makes the main financial contributions (the same principles apply where it is the husband who looks after the home and the wife is the main breadwinner).
There have been a considerable number of decisions of the Court of Appeal since adding more guidance as to how the law should be applied and in 2006 the House of Lords delivered a further important Judgement in the cases of Miller and McFarlane. Although these cases also involved “big money” there was useful guidance for all cases:-
- The court has to try and arrive at a fair result for the husband and wife and three principles have emerged
- Firstly, the assets of the husband and wife should be divided primarily so as to make provision for their housing and financial needs to take into the account the various criteria.
- In most cases once you have achieved that, that is the end of the matter as there rarely sufficient resources to provide adequately for the needs of two homes.
- Secondly, in some cases the husband and wife may have organised their affairs so that one of them is severely disadvantaged financially and should receive some sort of compensation for that. An example of this is where you have two potentially high earning spouses and one of them gives up their career to look after a child.
- There is then a third principle of sharing which comes from the concept of the husband and wife committing themselves to sharing their lives and when the partnership ends, they are each entitled to an equal share of the assets unless there is a good reason to the contrary. However, this does not necessarily dictate a mathematical equal division of the assets for often where there are children one spouse will earn substantially more than the other and that higher earning power is a substantial resource. The ultimate object is to give each of the husband and wife an equal start on the road to independent living.
- There is a distinction between what is referred to as matrimonial property and non-matrimonial property. Matrimonial property is that acquired during the marriage (other than by inheritance or a gift) and will include assets such as the family home. The non-matrimonial property is property that the husband and wife bring with them into the marriage or acquire by inheritance or gift during the marriage.
- In the case of a short marriage then fairness may well require that the matrimonial property should be divided equally but not the non-matrimonial property. As years go by and the marriage is longer then the distinction between matrimonial and non-matrimonial property will diminish.
The full implications of these decisions continue to be debated by the lawyers and judges practising in the Family Division and there is considerable uncertainty as to how income should be dealt with in cases where there is both substantial capital and income but not enough capital to enable both spouses to be fully independent of each other. Each case will continue to be argued on its own facts.