Sorting out Finances on Divorce: A Guide by Family Justice Council (2016), Study notes of Law

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Family Justice Council Sorting out Finances on Divorce April 2016 Family Justice Council - Sorting out Finances on Divorce 2016 2 Contents Foreword by the President, Sir James Munby 3-4 Membership of the Financial Needs Working Group 5 About this guide 6-8 A general overview of the law 9-16 Frequently asked questions – FAQs 17-25 Dividing the capital assets : Housing and other capital needs 26 • Housing needs 26-27 • Other capital needs 28 • Illustrations of how housing needs are approached 28-33 • Looking at the overall division of capital 33 • Mesher orders 34-35 • Equal division if sufficient capital after needs met 35-36 Income needs 37-41 • Child maintenance 37 • Maintenance of spouses 38-41 Dealing with pensions on divorce 42-47 Examples 48-54 Contents Family Justice Council - Sorting out Finances on Divorce 2016 5 Working Group Family Justice Council Financial Needs Working Group Members • Mrs Justice Roberts Chair • Anne Barlow University of Exeter • Jane Craig Penningtons Manches • Nigel Dyer QC 1 Hare Court • His Honour Judge Edward Hess Western Circuit • Julian Lipson Withers • Philip Marshall QC 1 King’s Bench Walk • Joanna Miles University of Cambridge • His Honour Judge Clive Million South Eastern Circuit • Simon Pigott Levison Meltzer Pigott • Peter Watson-Lee Williams Thompson Family Justice Council - Sorting out Finances on Divorce 2016 6 About this guide About this guide Who is this guide for? This guide is for you if: • You live in England or Wales, and • You are or were married or in a civil partnership, and • You are or have been involved in divorce proceedings or proceedings to end a civil partnership, or are likely to be so, and • You want to know about the law dealing with your money and property at this point. This guide is not for you if: • You live outside England and Wales or • You have been living with someone (cohabiting) without being formally married or civil partnered The law for cohabiting couples is completely different. A guide to living together and dealing with financial issues when you separate from an unmarried relationship has been developed by Advice Now, and can be found at http://www.advicenow.org.uk/ living-together/ What does this guide do? This guide provides the following information about financial settlements for couples who are getting divorced or ending a civil partnership: • A general overview of the law, dealing with Š Making an agreement without going to court Š What the law aims to do and takes into account – and so what you should aim to agree Š What sort of orders can be made Family Justice Council - Sorting out Finances on Divorce 2016 7 About this guide • Further pages discuss particular topics in more detail Š Housing and other capital Š Maintenance and income Š Pensions • Some Examples, which illustrate how the law would generally be applied in some typical situations. • Some FAQs, which deal with particular issues that come up on divorce, including some “myth-busting” of things that lots of people believe the law says but which are not true What does this guide not do? If you think you might end up needing to apply to court for an order dealing with your money without legal help, there is a further guide available which explains that process: “Applying for a financial order without the help of a lawyer”, produced by Advice Now at http://www.advicenow.org.uk/guides/how-apply-financial-order-without- help-lawyer This guide does not deal in detail with child maintenance. For information on child maintenance and a calculator for working out how much maintenance should be paid, you should visit the Child Maintenance Options site, http://www.cmoptions.org/ This guide is designed for those who have normal levels of wealth – it does not provide a guide to the sorts of complex legal issues that arise in what lawyers call “high value” cases. These are cases where there are £millions at stake. You should seek expert legal advice if your situation falls into that category. This guide does not deal with other special situations, for example, where: • there are complex business interests, trusts or other financial arrangements, or • a third party (someone other than one of the spouses) claims that they own or have a financial share in some of the assets, or • you made a pre-nuptial agreement about your finances (though pre-nups are discussed briefly in the FAQ section), or • you have concerns about your ex hiding or getting rid of assets. Family Justice Council - Sorting out Finances on Divorce 2016 10 General overview couples still manage to agree eventually so that the judge does not have to decide the case for them and they can remain more in control of the outcome for themselves and their children. Getting a ‘consent order’ Once you have made an agreement, if you want to be sure that you will both stick to it you must apply together to the court to get your agreement turned into a court order (known as a “consent order”). This is the only way to make your agreement binding, which means that both spouses must do what it says and you can take your ex to court if they don’t. The judge who reviews your application for a consent order will want to check that the agreement you have reached is a reasonable one that properly reflects what the law says. You will also have to have an order if you want to share a pension. Obtaining a consent order usually does not involve you going to the court in person, unless the judge is unhappy with or puzzled by what you have agreed. In some courts, the judge might ask to see you briefly if one or both of you is acting without the support of a lawyer so that the judge can assure him or herself that you understand what you are agreeing to. However, particularly if the terms of your agreement are complicated, it may still be sensible to seek legal advice on the wording of the documents to be sent to the court to ensure that you create a draft order that the court is willing to approve without requiring you and your spouse to come to court to explain what you were trying to achieve by the order. You will both also need to disclose to each other all your financial resources before you can apply for a consent order and fill in a “statement of information” for the court to explain the background to the agreement that you have reached. If you do not provide full and clear information about this, the judge will probably ask questions before he or she is willing to make the order that you have asked for. But you should provide each other with full information about your resources anyway, as the first step in reaching any agreement about your finances on divorce. More information about the process of getting a consent order is available on page 14 of the Advice Now guide, “Applying for a financial order without the help of a lawyer”, http://www.advicenow.org.uk/guides/how-apply-financial-order-without- help-lawyer To see the statement of information that needs to be completed go to hmctscourtfinder https://courttribunalfinder.service.gov.uk/search/ Getting legal aid to help with this process? Legal aid is not available for most divorce cases, unless there has been domestic violence or child abuse in the relationship. However, legal aid is still available for mediation and Family Justice Council - Sorting out Finances on Divorce 2016 11 General overview for legal help with mediation. A guide to legal aid eligibility can be found on the Citizens Advice Bureau website: https://www.citizensadvice.org.uk/law-and-rights/legal- system/taking-legal-action/help-with-legal-costs-legal-aid/ You can also use the Family Mediation Council’s website to contact a mediator near you to find out about local costs (http://www.familymediationcouncil.org.uk/). What you should aim for: meet needs and put children first The aim of the law is to share out all of the assets of both spouses (property, money, pension savings etc.) in a way that is fair to both spouses. People very often have different views about what is “fair” in these cases. The FAQs deal with some examples of what some people might think is fair, but where the law takes a different view. If you are trying to agree between yourselves, with or without the help of lawyers or mediators, you should take the same approach as a judge would. Then any agreement you reach can be made into a consent order without the judge raising any queries about what has been agreed. There are three key points: • If there are “children of the family” under the age of 18, the law says that their welfare is the first consideration. If you are making an agreement out of court, you should work from this starting point as well. • In most cases, the law says that a fair outcome starts by making sure – as far as possible, given the available resources – that both spouses’ needs are met, in the short term and, if the resources allow, in the long term. The law says that the judge should consider whether it is appropriate to make a package of orders which leaves the spouses independent of each other, either straightaway or over time. “Children of the family” are any children of both spouses and any other children (other than foster children) who have been treated by both spouses as children of their family. So, for example, it includes children of one of the spouses who have lived as part of the family during the marriage, but does not include new children or step-children that either spouse now has with a new partner. Those children may be relevant, as may children of the family who are aged over 18, but they are not the first consideration. All references below to the couple’s children are to children of the family in this technical sense. All circumstances of the case are potentially relevant. But needs are almost always the most important factor. Family Justice Council - Sorting out Finances on Divorce 2016 12 General overview So what are “needs”? “Needs” here is a very broad concept. It includes making sure that each of the spouses has a home and income for daily living costs, both in the short term and often the longer term (for example, it can include making sure each spouse has a pension for later life). “Needs” is not just the minimum each spouse needs to survive on: “needs” is usually interpreted more generously, taking into account the standard of living during the marriage and for how long that standard of living was enjoyed. So, for example, where there has been enough capital and/or income available during the marriage to enable both spouses to have become accustomed to a high or luxurious standard of living for several years, their “needs” may well be regarded as greater than the needs of spouses who have lived more modestly (whether through choice or necessity). However, if a high standard of living has only been enjoyed for a relatively short marriage, it may be fair for the less well-off spouse to revert to a more modest standard of living after the divorce. The standard of living enjoyed during the marriage can be measured by considering things like: What was your average monthly grocery bill? What sort of car (if any) did you have? How often did you go on holiday as a family and where to? How often did you eat out and where? Were the children privately educated? It is important also to bear in mind that a spouse’s needs, and his or her ability to meet those needs, may be affected by age, by any physical or mental disability or by illness. Significantly, choices which you both made as spouses during the marriage may well give rise to future needs when the marriage ends. For example, if you both decided at the beginning of your marriage that one of you would give up work (or take a part-time job) to stay at home in order to look after your children, it may be much more difficult for that spouse to pick up the threads of a career and/or to find employment after many years at home. Sometimes he or she may need to look at retraining or acquiring new skills. A judge would try to ensure that the objective of any financial orders made to meet needs in these circumstances was limited to enable that disadvantaged spouse to make a transition to independent living to the extent that it is possible. Sometimes, it will not be possible to achieve the goal of independence, especially if one of you is older and/or because of the choices you may have made earlier in your marriage. In most cases neither spouse will be able to continue to enjoy the same standard of living as they did during the marriage, because the assets and income usually just won’t stretch that far. Resources that were just enough to support one household will struggle to cover two. A more modest view will have to be taken about what each spouse “needs”. It will often be necessary to take welfare benefits, tax credits and housing entitlements into account, or to rely on family. But the first consideration in these difficult cases will, as always, be the welfare of the couple’s children. Family Justice Council - Sorting out Finances on Divorce 2016 15 Chapter 5 Being honest about what you’ve got It is very important that both spouses are honest about what they own and what income they have. The first step in any negotiations is for each spouse to provide full information – “disclosure” – of their income and assets. In cases that go to court, there is a special form – Form E – for doing this. This Form is also useful for couples who have no intention of going to court but who want a convenient template to use for providing disclosure, because it helps to ensure that you cover all the relevant points. You can find a useful guide to Form E in the Advice Now guide, “Applying for a financial order without the help of a lawyer”: http://www.advicenow.org.uk/guides/how-apply-financial- order-without-help-lawyer/ You must provide full information about all assets, even where you might want to make a special argument about why particular assets should not be taken into account or should be kept by you. The courts treat failure to give a “full and frank disclosure” of all assets, liabilities and income very seriously. If either spouse fails to provide full and frank disclosure, that spouse may be subject to serious penalties and your case may be reopened if it is later discovered that one of you failed to disclose significant facts. Both spouses’ contributions to the marriage count, financial or not The law generally regards each spouse’s contributions to the marriage as being equally important, whether those contributions were earning money and acquiring assets, or raising the children and looking after the home. So a spouse who earned all the money (or more of the money) cannot simply say that the other spouse has little or no claim because he or she didn’t bring in any (or as much) money or property. In most cases, where the spouses’ combined assets do not exceed their needs, the requirement to meet needs first means that it is generally not possible for either spouse to keep an asset out of the pot, for example, because they inherited it or were given it, or acquired it before the marriage. Even if the family home was inherited, or bought by one spouse before the marriage, that asset will still be taken into account to ensure that both parties’ needs are met as far as possible. How can you achieve this in practice? The court has wide powers to distribute assets. You should consider these powers when trying to reach agreement out of court, particularly bearing in mind the need to draft a consent order for the court to approve in order to make the agreement binding. You may not need to use all the different types of order in your case, and different combinations of orders may achieve equally satisfactory outcomes. How you go about doing this will partly be a matter of what you both prefer to do in your case in order to meet each other’s needs. Family Justice Council - Sorting out Finances on Divorce 2016 16 Chapter 5 These powers include: • Transferring a particular piece of property (including a rented home) from one spouse to the other, or from both spouses’ names jointly to one spouse’s name • Selling a property and splitting the proceeds from that sale between the spouses • Allowing one spouse to live in the family home for a specified period or until a particular event occurs (for example, the children growing up and becoming independent), after which it will be sold and the proceeds shared out between the parties • Requiring one spouse to pay a “lump sum” of cash to the other spouse • Sharing a pension fund or pension payments between the spouses • Requiring one spouse to make regular payments to the other spouse (usually called “maintenance”, but formally known as “periodical payments”) • Requiring one spouse to pay school fees or other special expenses regarding the children Or, in appropriate cases, simply ordering that no transfers are to be made (or no other transfers other than those already specified in the order) and/or that no maintenance should be paid now, or from some point in the future. More technical information about the full range of orders that a court can make is provided in the Advice Now guide, “Applying for a financial order without the help of a lawyer”, at page 10: http://www.advicenow.org.uk/guides/how-apply-financial- order-without-help-lawyer Except for maintenance payments, it is normal for all the other types of orders to be made together as a “once and for all” settlement of all claims relating to the capital assets. Maintenance, by contrast, is a continuing obligation. Once maintenance has been ordered, if there are any relevant changes in the circumstances of either spouse or any children it is possible to review both the amount to be paid and how long it should be paid for. Family Justice Council - Sorting out Finances on Divorce 2016 17 FAQs FREQUENTLY ASKED QUESTIONS - FAQs Do we have to go to court? No. It is usually much better if you and your spouse can reach an agreement together about how to share your assets, perhaps with the help and advice of solicitors and/or a mediator. While negotiations can sometimes take a long time, this will generally be cheaper and quicker than starting a contested court case, and will hopefully result in an agreement with which both of you are happy. If you want any agreement you reach to be binding, however, then you will need to apply to the court to have that agreement turned into a “consent order”. This may not necessarily involve you going to court in person but there is a possibility that a judge might ask you and your spouse to attend for a brief hearing if one or both of you is acting without the support of a lawyer so that he or she can be assured that you understand what you are agreeing to be agreeing to the making of a consent order. However, particularly if the terms of your agreement are complicated, it may still be sensible to seek legal advice on the wording of the documents to be sent to the court to ensure that you create a draft order that the court is likely to be willing to approve on your first application. If you cannot reach agreement, for example because your spouse refuses to negotiate with you, is refusing to disclose his or her assets, or is not making reasonable proposals in your negotiations or mediation, then you may have to apply to the court. But you may still be able to reach agreement before a judge comes to decide the case. Before you can apply to court, you will usually need to attend a mediation information and assessment meeting, or “MIAM” [see below]. Can I get financial help to make an agreement or go to court? Legal aid is not available for most private family cases, including disputes about finances. The main exception is if you are (or are at risk of being) a victim of domestic violence or abuse; this includes psychological, physical, sexual, financial or emotional abuse. You may be able to get legal aid for mediation, and for legal advice and assistance to help you with that mediation, depending on your income and assets. A guide to legal aid eligibility can be found on the Citizens Advice Bureau website: https://www. citizensadvice.org.uk/law-and-rights/legal-system/taking-legal-action/ help-with-legal-costs-legal-aid/. You can also use the Family Mediation Council’s website to contact a mediator near you to find out about local costs (http://www. familymediationcouncil.org.uk/). What is a consent order and do we need one? A consent order turns an agreement into a court order so that it is fully enforceable. Family Justice Council - Sorting out Finances on Divorce 2016 20 FAQs Can I get a “clean break” divorce? That depends on the circumstances of your case. A “clean break” divorce is one where the spouses do not (or after a period of time will not) have any continuing financial responsibilities towards each other, in particular where neither spouse is required to pay maintenance to the other. Where there are children, child maintenance should be paid. In many of those cases, and if it is affordable, it may also be appropriate to make some order for spousal maintenance to be paid as well, even if only a small amount, particularly if one spouse’s earning capacity will continue to be limited after divorce because of continuing child-care responsibilities. Sometimes just a nominal amount is ordered, simply to keep the spousal maintenance order in place to act as a safety net, which could be varied upwards in the future if a change in circumstances required this. But in many cases, particularly where there are no children, a clean break may be possible and fair, and may be desirable for both parties as they will be financially independent of each other. If I have to pay maintenance, how long will I have to go on paying? That depends on the situation. If the money you are paying is child maintenance (probably calculated in accordance with the Child Maintenance Service scheme), then that is generally payable either until the child turns 16 or until they finish full-time, non- advanced education (e.g. A levels, BTEC national diploma), up to their 20th birthday; this is the same test as the one used to decide whether you can receive child benefit. If the money you are paying is spousal maintenance – that is, money paid to your former spouse for his or her personal benefit, rather than for the benefit of the child – then how long you will have to pay depends entirely on the circumstances of your case. Ideally, spouses would become financially independent of each other following divorce, either immediately or after a period of time during which they are able to adjust to their new situation. But this is not always possible owing to the parties’ financial needs, and so sometimes spousal maintenance will be paid for a longer period or indefinitely. A judge will always try to ensure that any maintenance order made to meet future needs provides a platform for a move or transition to independence which the spouse who receives those payments will be expected to make provided that he or she can achieve that adjustment without undue hardship if those payments were to end. What is the right outcome for your situation will depend on various factors: how much you can afford to pay, given other commitments (including child support); how much your spouse needs to support themselves (you should prepare and discuss a budget); how much of that they are able to cover from their own income; how much they will be able to earn through paid employment and, if they have been out of the labour market for a time, whether and (if so) how quickly they will be able to return to employment and build up their earning capacity. That will often depend on whether and for how long they will be involved in looking after children. If your spouse remarries, your obligation to pay maintenance to him/her will come to an end automatically without the need for any further order. Family Justice Council - Sorting out Finances on Divorce 2016 21 FAQs Can’t I just leave the marriage with all the property that is in my name? No. The family court has the power to share out all of the assets that belong to either spouse, regardless of who owns what, in order to ensure a fair outcome in which the parties’ needs are met. In some cases, it will be appropriate for each spouse simply to walk away with what they own and for no transfers to be made, for example, after a short marriage where both spouses are working and financially independent. But in a lot of cases, it will be necessary to share assets regardless of ownership. Can I protect assets that I brought into the marriage from claims by my spouse? That depends on the circumstances of your case. If your case is one where the assets available do not exceed your needs and those of your spouse, then assets that you acquired before the marriage will be included in the pot of assets to be shared in order to meet those needs. Can I protect assets that I was given or inherited during the marriage from claims by my spouse? That depends on the circumstances of your case. If your case is one where the assets available do not exceed your needs and those of your spouse, then the assets that you received or inherited during the marriage will be included in the pot of assets to be shared in order to meet those needs. Can my spouse make any sort of claim against my pension fund, or can I make a claim against my spouse’s pension fund? Yes. A pension fund is just like any other asset in the marriage and the court has specific powers to share pension funds (“pension sharing”) or the benefits paid from that pension (“pension attachment”). Sharing orders are far more common than attachment orders as they allow a new pension to be created in the recipient’s name. Whether it is appropriate for a pension order to be made, and what shares each party should receive, will depend on the particular circumstances of each case. In some cases, it may be better to “offset” the pension fund by giving the other spouse a larger share of the other assets. Pensions are complex, and it is sensible to get specific legal advice if you or your spouse has a significant pension fund. If you want to share a pension, you will have to get a consent order as pensions cannot be shared by private agreement – the pension fund manager has to receive an order from the court telling it to share the fund or pay out benefits to the other spouse. How, if at all, are our benefits entitlements relevant? Your entitlement to benefits is very important and you will need to explore what your benefit and tax credit entitlements are, as well as eligibility for social housing. Your local Citizens Advice Bureau will often be a good place to get advice. Tax credits in particular are an important source of income that may well help boost the income available after separation. Family Justice Council - Sorting out Finances on Divorce 2016 22 FAQs What if our home was rented? Where your family home was rented, there are various options available. The best course of action for you is likely to depend on the type of tenancy you have and who is named as the tenant on the tenancy agreement. This is a complicated area of law and if you are unsure about your situation, it is a good idea to get specialist advice about where you stand. Shelter England (and Shelter Cymru in Wales) have a free Housing Advice helpline - 0808 800 4444. Some general guidance is given below. It is likely to make a difference whether the tenancy agreement is in joint names or in the name of just one of you so finding a copy of the tenancy document may be important. You will need to consult with and get the agreement of your Landlord if you agree to a change in the person(s) who will be the tenant(s) of the family home after separation. If you can’t agree, you may need to apply to the court to ask for the tenancy to be transferred to one of you on divorce. Any order made is binding on your landlord. Sometimes it will be possible for one of you to stay on as the sole tenant, as long as you can afford the rent (perhaps with the assistance of housing benefit) and the landlord agrees. Sometimes you will both need to move home. Remember even if you move out, if your name is still on the tenancy you are still responsible for paying the rent. What if we want to have the children share their time equally between us? Any plan for fully shared care of children will impact on your financial arrangements. Fully shared care will only be possible where both spouses are able to have accommodation that is large enough to house themselves and the children adequately for prolonged periods. That may not be possible in a lot of cases. You and your spouse will need to consider carefully what housing each of you would need, how that housing would be financed, what the running costs would be and how they would be met. If you want to share care equally, you will also need to think about how your childcare responsibilities will impact on your earnings – for example, whether you have the financial resources or childcare facilities in place to enable each of you to care for the children whilst maintaining an income to meet your financial needs, and whether one of you will need to make payments to the other in order to make it work. What if the wife has the higher income or owns more of the assets? The law that deals with the financial consequences of divorce is gender neutral. It does not matter who has been the higher earner or who has done most of the childcare. The same basic principles apply. Are debts taken out in the sole name of just one of us relevant on divorce? That depends on the circumstances of the case and the nature of the debt. Just as all Family Justice Council - Sorting out Finances on Divorce 2016 25 FAQs in the circumstances which exist at the point of divorce it would not be fair to hold them to the agreement. The courts will not regard an agreement as fair for these purposes if it does not meet each parties’ needs and the needs of the children. The sorts of couples for whom this guide is intended – that is to say, the majority of couples – are ones for whom meeting needs is the central factor on divorce. It is only in cases where there are plenty of assets available to meet both spouses’ needs, and then a surplus left over, that a pre-nup is likely to have real value. A pre-nup can be used to protect that surplus so that it does not have to be shared with the other spouse. For the majority of couples, there is no surplus remaining after needs have been met, and so nothing in relation to which a pre-nup can make any difference. The one exception to this is where an individual might want to have a pre-nup to say that a specific item of property should stay with them in the event of divorce – an agreement of that type might be respected, provided that the court did not have to use that asset in order to meet the other spouse’s needs. But if there are enough other assets available to do that, then the pre-nup can protect the particular item of property. Family Justice Council - Sorting out Finances on Divorce 2016 26 Dividing capital assets Dividing the Capital Assets: Housing and other Capital Needs This section of the guide deals with capital assets. By “capital” we mean everything apart from income - things like houses and other property, furniture, cars, investments, pensions, jewellery, and so on. 1. Housing Needs Usually the most significant need of each spouse is housing, so providing the spouses with housing is the starting point for sharing out the assets. In many cases, the housing needs may use up all the available assets and so may be the only capital issue to consider. There are various points to keep in mind when considering housing needs: • The welfare of any children is the first consideration. This means that appropriately housing the parent with whom the children are likely to be living most of the time will be the priority. But it is still important to consider the housing needs of the other parent, which may include his or her need to provide appropriate accommodation when the children come to stay. • If it was owned by you rather than rented (including where it was being paid for with a mortgage), then the family home is likely to be the main available asset. But you might also want to take into account any other high-value items that are owned jointly or by one spouse, such as investments, cars, buy-to-let property and so on. • The name in which the family home is owned is generally of no significance on divorce: the court has powers to transfer assets between the spouses in order to meet their needs. • Where the family home was rented, this may, depending on the type of tenancy, be treated as an asset and can be transferred on divorce between spouses to meet housing needs. • An important first step is to get a full picture of the assets available. This will normally mean that you need to get an up to date valuation of any property, an up to date figure for the sum due to be paid on any mortgage (including any penalties for paying the mortgage off early, known as early redemption penalties) and an understanding of the extent and repayment schedule for any other debts or liabilities. Family Justice Council - Sorting out Finances on Divorce 2016 27 Dividing capital assets • In many cases, it will also be important to establish how much each spouse will be able to borrow on a new mortgage in their own name. • You should consider whether the family home can be kept for one of spouses to live in. Keeping the family home has the benefit of reducing change at what is likely to be an unsettling time, particularly where there are children, and especially where a move may require a change of school and disrupt local friendships and activities. Keeping the family home may also have financial benefits, e.g. in avoiding the costs involved in a sale, move and purchase, and may enable the existing mortgage to be retained in a situation where getting a new mortgage may be difficult. • If you would like to keep the existing home and mortgage for one spouse, you will need to find out whether the mortgage company will agree to that and be prepared to release the other spouse from the mortgage. • Keeping the family home is often not feasible. Having to fund a new home for the other spouse (whether by renting or buying) may put so much pressure on the income available that the family home can no longer be afforded. In these circumstances, selling the family home may be necessary and it may release funds to help either or both spouses to acquire alternative, more modest homes. • The standard of living enjoyed during the marriage will provide a benchmark for the standard of housing to be considered. However, dividing the assets (and incomes) between two homes will often mean it is impossible for that standard to continue. If there is a reduction in the standard of housing, that should not fall disproportionately on one spouse, although the needs of the children may often mean that the spouse with whom they are not living most of the time has to make do with a lower standard of accommodation. • The physical or mental disability or ill-health of either spouse or any children may have an impact on housing need, (for example, where the family home has already been adapted to meet the needs of a disabled family member, which may be a further reason for that spouse / the spouse caring for the disabled family member to keep the family home, if that is financially possible). Family Justice Council - Sorting out Finances on Divorce 2016 30 b) Only enough capital for one spouse to live in an owner-occupied home Often much of a family’s capital (and income) is used to provide and run the family home. When the couple divorce, there are often not enough funds for a second property to be bought for the spouse who is leaving the family home. In these situations, where there is not enough capital for both spouses to be housed in owner-occupied property, careful consideration has to be given to the alternatives. If there are children of the family under the age of 18 still living at home, their welfare is the first consideration, and so the housing needs of the parent with the main care of the children will be the priority. This may result in the parent with main care retaining the house, if that can be afforded. But it may be necessary for that spouse to downsize to a smaller property in order to reduce the mortgage payments to an affordable level, bearing in mind the costs of accommodating the other spouse and the income available to cover both sets of costs. Ensuring that the children and main carer are appropriately housed may mean that there is little or possibly no capital immediately available for the other spouse to re-house, so that spouse may have to find rented accommodation or live with family/friends. However, we discuss below one type of order – a “Mesher order” – which involves that other parent keeping some interest in the family home and recovering some of the capital value at a later point in time. If there are no children under 18 living at home (or where there are no children), it will be harder to justify one spouse keeping the family home to the exclusion of the other without ensuring that the other spouse is compensated with capital from another source to let them re-house at a similar standard. If that is not possible, then the family home may have to be sold and the proceeds shared out. Where there are children over 18 who are still in full-time education and still living at home, consideration should be given to whether it is possible to delay any sale until they have finished their studies. c) Enough capital for both spouses to live in owner-occupied homes but at a reduced standard In some situations, divorce may lead to the family home being sold so that the capital in the property can be released and divided between the spouses so that both can buy a house. In most cases, however, even if both spouses can afford to buy a new home, these may be more modest properties than the family home. Where there are no children and the spouses have a similar income and mortgage- borrowing ability, they may have similar housing needs and a 50/50 division of the net proceeds of sale is likely to be appropriate. Dividing capital assets Family Justice Council - Sorting out Finances on Divorce 2016 31 However, that will not always be appropriate, and it will be necessary to examine each spouse’s capacity to borrow on a mortgage. Where one spouse’s earning capacity has been limited during the marriage (and/or following divorce) because of child-care responsibilities, that spouse may have less borrowing capacity than the other spouse. The spouse with greater borrowing capacity can often be expected to take out a mortgage (or a larger mortgage) in order to help fund new housing for themselves, while the other spouse is given a larger share of the capital from the sale of the house to enable them to rehouse to a suitable standard either with no mortgage or a smaller mortgage (depending on what level of mortgage can be obtained and afforded). If this sort of unequal division of capital from the sale of the family home is required, it may be appropriate to consider whether, in order to be fair, the spouse who receives the smaller share of capital from the sale should receive a greater share of other assets (see below). d) Enough capital for both spouses to live in homes of a similar standard to the family home Where there is enough capital for both spouses to have homes of a similar standard to the family home enjoyed during the marriage that would normally be the appropriate outcome. Where both spouses may wish to acquire new homes, the family home can be sold and the proceeds of sale shared or the family home may be retained by one of the spouses, especially if there are children. However, this will not always be appropriate or possible. For example, the family home may be larger than is required for the remaining spouse or the mortgage on the family home may be unaffordable. As discussed in the “Maintenance/income” section of this guide, even where payment of maintenance is appropriate, it may only be appropriate for a fixed period of time. If so, it may be necessary to sell the home immediately or before the maintenance payments are due to stop. However, after a short marriage with no children where one spouse has made a significantly greater financial contribution, it might not be fair for the spouse who has brought the lesser sum into the marriage to expect to be rehoused to the standard of living that has only been enjoyed only for a few years. But even in those circumstances, that spouse’s needs are likely to require that they are helped to secure housing, even if at a more modest level. If your family home is rented • This is a complicated area of law and if you are unsure about your situation, it is a good idea to get specialist advice about your situation. Shelter (in England) and Shelter Cymru have a free Housing Advice helpline - 0808 800 4444. Some general guidance is given below. Dividing capital assets Family Justice Council - Sorting out Finances on Divorce 2016 32 • Whether the tenancy agreement is in joint names or in the name of just one of you can also make a big difference to what happens, so finding a copy of the tenancy document may be important. This will determine who is liable to the landlord for the obligations under the tenancy agreement if you take no further steps. • If your name is still on the tenancy, even if you move out, you are still legally responsible for payment of the rent until the tenancy is assigned or transferred to your spouse or brought to an end. • While you are still married you have the right to live in a home which is rented in the sole name of your spouse for as long as the tenancy is continuing. Unless certain steps are taken this right will come to an end on divorce. • If you give notice to quit on your tenancy (whether it is in your sole names or jointly rented with your spouse), you will probably be considered to be ‘intentionally homeless’ by your local authority and will probably not be eligible for re-housing as a homeless person. • If you are joint tenants of your rented family home with your spouse, if either one of you gives notice to quit then the whole tenancy comes to an end and none of the family will be able to continue to live there. If you are worried that your spouse may give notice to quit against your wishes then you should think about obtaining a court order to stop this happening, possibly even on an urgent basis. • You should try and reach an agreement with your spouse as to which (if either of you) wish to remain in the family home after separation and divorce. If you can reach an agreement then this is likely to make things much easier to deal with. a) If your family home is rented from a social landlord (i.e. a local authority or housing association) • Your tenancy in these circumstances will probably be an assured or secure tenancy (and likely to be on more favourable terms than a tenancy in the private sector) so both you and your spouse might want to have the tenancy after divorce. • If both you and your spouse want to have the tenancy, and you cannot agree which, then the court can decide which of you should have it. • In making this decision the court is likely to favour the spouse with whom your children will be living after the divorce (if there are any), but can also take into account the respective needs and financial resources of both spouses and the Dividing capital assets Family Justice Council - Sorting out Finances on Divorce 2016 35 and if the spouse remaining in the property is continuing to provide the main care for the children for several years then the percentage could be set at between 30% and 40%. The percentage share to be retained is specified at the time of the agreement so that both spouses have certainty. The value which the non-resident spouse receives in due course will be a percentage of the value at the point of sale rather than the value at the time of any agreement reflected in a consent order. These clauses need careful drafting and it would be sensible to take advice from a solicitor. Mesher Orders will normally result in the property being transferred to the spouse who is going to continue to live in it with the other spouse having a legal charge to protect their percentage interest. Whether that is possible will depend on the attitude of the mortgage company. It will also be important to agree and record each spouse’s responsibility to pay the mortgage, utilities and insurance for the property, and for continuing decoration and repair, to avoid confusion or disputes in the future. 5. Equal division if there are enough assets to do so, after both spouses’ needs have been met In some cases, there will be enough assets involved that it will be possible to meet both spouses’ needs comfortably, and for there to be a significant surplus left over. It may be the case that an equal share of all the assets would cover both spouses’ needs. If so, the law is likely to regard equal sharing as the fair outcome, particularly after a long marriage. However, there may sometimes be good reason to depart from equal sharing. Reasons for departure from equality in these higher value cases are beyond the scope of this guidance on the interpretation of needs. However, the main reasons for departing from equality are: • In short marriages, an unequal contribution due to one of the spouses bringing more assets to the marriage. For example, one of the spouses may have brought in the family home or significantly more savings at the start of a marriage. So long as the other spouse’s housing and other needs have been met, it would be appropriate to acknowledge the greater contribution, but the significance of that contribution will reduce with the length of the marriage. • The future contribution by one of the spouses to the welfare of the family in providing for the care of the children (in so far as that has not been taken into account already). • The existence of a pre-nuptial agreement. Dividing capital assets Family Justice Council - Sorting out Finances on Divorce 2016 36 • The existence of “non-matrimonial assets”. These can include such things as assets brought into the marriage which have not been mixed with matrimonial assets and inheritances which again have not been mixed. The way in which pre-nuptial agreements and non-matrimonial assets are viewed by the courts are all developing areas of the law. If one spouse intends to propose a departure from equality in a high value case of this sort, it would be sensible to seek legal advice. Dividing capital assets Family Justice Council - Sorting out Finances on Divorce 2016 37 Income needs Income Needs The issues of income needs and housing and other capital needs are linked and should be considered in the round. When considering the affordability of any proposed arrangement, you need to take account of the fact that the running costs and the day to day living costs of two households may have to be paid from the income which previously only had to cover the costs of one. In some cases, where both spouses work and earn enough to support themselves fully, neither will need to pay the other any money to meet their day to day income needs. In other cases, where one spouse does not work, or does work but earns significantly less than the other, it may be necessary for one spouse to pay a regular sum of money to support the lower - or non-earner. This payment is usually referred to as spousal maintenance, though the court calls it “periodical payments”. Payments by one spouse to the other towards the income needs of any children, “child maintenance”, are not usually dealt with by the court. However, child maintenance needs to be included in any settlement discussions and factored into any agreement which is reached. Child maintenance Parents are encouraged to agree between themselves on the amount of money to be paid by one to the other to maintain their children. The parent with whom the children do not live most of the time, or “non-resident” parent, should pay child maintenance to the other parent. Note: child maintenance is something paid by one parent to the other to meet the income needs of their children; it is not the same as child benefit which is paid by the State. It is a good idea to use the formula applied by the Child Maintenance Service (CMS), which used to be known as the Child Support Agency, as a starting point for discussing child maintenance. The law prescribes this formula for calculating the correct amount of child maintenance to be paid. You can find out how much child maintenance you should be paying or receiving for your child by going on to the official online child support calculator www.gov.uk/calculate-your-child-maintenance. If you are not able to agree on the amount of child maintenance to be paid, either parent can apply to the CMS for it to carry out an assessment and, if necessary, to collect the payments. However, if the CMS collects the child payments for you, they will charge the payer an extra 20% on top of the maintenance payable and the person receiving the maintenance will be charged 4% of the maintenance payable. If you can agree on the amount of child maintenance to be paid, you can include this in Family Justice Council - Sorting out Finances on Divorce 2016 40 Income needs Š how much income each spouse has from all sources, including full-time and part-time employment, tax credits and benefits. Š what each spouse requires to cover their income needs. Income needs include payments for accommodation (whether rent or mortgage payments) as well as day to day living expenses. Each spouse should write out a budget to calculate their needs and the budgets should be exchanged and discussed. The budget on the Advice Now website is a useful starting point. http:// www.advicenow.org.uk/advicenow-guides/family/survival-guide-to- divorce-and-dissolution/budget-form,10095,FP.html. It is important to remember that, in a lot of cases, it may not be possible for either spouse to enjoy the standard of living that they shared during the marriage, and so each may have to reduce their living costs. Š how much the spouse who would be paying the maintenance can afford to pay, bearing in mind their own needs and their other financial obligations, including child maintenance payments. In a lot of cases, once child maintenance payments are taken into account, it may not be possible for the higher-earning spouse to pay significant spousal maintenance as well. If maintenance cannot be afforded at the time or if it is too early to say with certainty that it will never be needed, it is possible to create a safety net in such cases by making a “nominal order”. This is an order requiring a tiny payment, e.g. £1 per year, which can be varied in future to a higher amount, or cancelled, as changing circumstances require. For example, the spouse looking after the children may suddenly be unable to work at all if one of the children becomes seriously ill or suffers a disabling accident. If the other spouse can afford to pay more at that point, it would then be fair for the spousal maintenance award to be raised to a significant amount to support the spouse who is now unable to work. It may sometimes be possible to reduce one spouse’s need for spousal maintenance from the other by giving him or her a greater share of the capital on divorce. 3. If a spousal maintenance order is made, how long will it last? After divorce, the aim is for spouses to become financially independent where this is possible, although this may not happen immediately and in some cases may not be possible at all. Much will depend on the ages of the spouses, the ages of any children and the way family life was organised before divorce. However, as a general principle, the court will always want to consider whether it is possible to bring to an end any financial dependence between the parties after a divorce as soon as it is fair and reasonable to do so. Family Justice Council - Sorting out Finances on Divorce 2016 41 Income needs • If it can be shown that a non-working spouse is likely to be able to return to work and earn sufficient income to support him- or herself within a reasonable period of time, the court is likely to make a spousal maintenance order which only lasts for a set amount of time (what the court calls a “term” order). For example, a maintenance order may be fixed to last between two and five years, depending on how long it is thought it will take the non-working spouse to get back into employment and earn enough to support him- or herself. If there are children, then this sort of “term” order is only likely to be made if the children have reached secondary school age. • If one spouse is staying at home to look after very young children, a court is likely to make any maintenance order open-ended, meaning that it will not be for a fixed period of time. These open-ended orders are often referred to as ‘joint lives’ orders because they come to an end when either of the spouses dies. This type of order can be reviewed later on, for example, if the spouse receiving the maintenance is able to return to work because the children are older. • Where a couple are divorcing after a very long marriage, during which one spouse stayed at home to bring up children or be a home maker, that spouse is unlikely to be able to return to full-time work and earn enough to support him- or herself. In such cases, the court usually makes an open-ended order, i.e. one which is not limited in time. That order can be reviewed if circumstances change in the future. • After a short marriage where there are no children, then even if one person earns much less than the other, the court may only order maintenance for a limited period of time if at all, to allow the spouse who earns less (or who has not been working at all) to adjust to the need to live off his or her own earnings again. Family Justice Council - Sorting out Finances on Divorce 2016 42 Pensions Dealing with Pensions on Divorce Introduction In the aftermath of marriage breakdown, it can be tempting to focus on immediate needs, such as housing, and the assets available to meet them. But it is very important not to overlook the pension funds held by each spouse, as these are an important source of income in later life. Indeed, in some marriages, the pension funds may be even more valuable than the family home. After a long marriage and when the pension funds are large, the division of the pensions to cover each spouse’s needs in retirement can be the biggest issue to deal with. Most people have some entitlement to state pension, but this may not be extensive. Where one or both spouses have any kind of pension fund, it should be taken into account. Equally, it is vital to consider the situation of a spouse who does not have significant pension savings. This may be the case, for example, where one spouse has spent significant time out of full-time employment because of the way that child care was arranged during the marriage, and so has not had the chance to put aside pension savings. Meanwhile, the other spouse may have acquired a substantial pension fund. In circumstances like those, it would be fair for the pensions to be adjusted to help protect the longer-term position of the spouse without the significant pension. The Family Court’s powers On a divorce, the family court has the power to make a “pension sharing order” to adjust pension savings between the spouses. A pension sharing order directs the trustees of one spouse’s pension fund to transfer a percentage of the fund (anything up to 100%) to the other spouse as their own pension fund. The family court can also order one spouse to pay a percentage of their pension income to the other spouse, which is known as a “pension attachment order”. These types of order are not as common as pension sharing orders, as the pension payments will cease if the spouse who owns the pension fund dies or if the spouse receiving the pension payments remarries. An alternative to either a pension sharing order or a pension attachment order is to “offset” the pension. This means that if one spouse retains their pension fund, it is taken into account by allowing the other spouse to retain a bigger share of the other assets. The difficulty with this approach is that is it hard to equate the value of a pension fund (a right to draw income or capital in the future) with other cash assets due to the very different nature of the assets. Family Justice Council - Sorting out Finances on Divorce 2016 45 Pensions regular income payment. For example, the NHS pension also provides a tax-free sum on retirement and many employer funds also carry death in service payments. These are the sort of issues in relation to which an IFA’s advice may be particularly helpful. It may also be important to establish whether the pension rights can be “cashed in”. Since April 2015 this has been possible for people of age 55 or over for most pensions (though not including most public sector schemes such as the NHS scheme). Cashing in pension rights may, however, give rise to tax consequences at a level which makes this not a good idea so it is important to know what these consequences are before any decisions are made. Finally, it is sensible to establish from the pension trustees what they will charge for carrying out a pension share and whether they will agree to the spouse (who is going to receive a pension share) remaining within their pension scheme or whether (as is often the case) they will require the spouse to transfer their share of the fund to a another pension scheme. If the spouse receiving the pension share does need to invest elsewhere, it is sensible to take professional advice about where best to reinvest the funds. Obtaining these details can take several weeks (if not months) and it is therefore advisable to start this work early on as it is not normally possible to settle matters overall until this information is known. Step 2: How to handle the pensions in the settlement - identifying and weighing up the options There are three common ways of dealing with the division of pension funds, particularly after a long marriage. We outline those options here, but highlight below some circumstances in which a different approach might be appropriate: 1. Dividing the Pensions in accordance with the income they will produce Where the spouses are older and/or the pension funds are significant, then it is important to consider the spouses’ income needs in retirement. Where the spouses have retired, or are close to retirement, a budget of their needs as compared with their resources can be drawn up to establish what income needs each has. The pension funds can then be shared in the proportions which will provide sufficient income to each spouse to cover their retirement income needs. If there is insufficient income to do this, the shortage should not fall disproportionately on one spouse. As any children of the family are normally no longer financially dependent by the time the spouses reach retirement, it is often the case that the spouses’ needs in retirement will be similar. Accordingly, unless there is reason not to, for example because it was a short marriage, then a pension division to equalise income in retirement is often the approach that is taken. Advice may well be needed from a pension actuary as to how this is to be Family Justice Council - Sorting out Finances on Divorce 2016 46 Pensions achieved. Where the spouses are not yet close to retirement, it may be difficult to predict with any certainty what each spouse’s financial position and needs might be at retirement. Again, the assumption is usually made that you are likely to have similar needs in retirement and that the pensions will therefore normally be shared to equalise retirement income. 2. Dividing the Pensions in accordance with Cash Equivalent Values (CEV) Where both spouses are relatively young and retirement is a distant prospect, or where the pension funds may be modest and not large enough to justify the costs of calculating the division required to equalise income in retirement, then an alternative is to divide the pension funds by reference to their CEV. After a long marriage, this would result in both parties sharing equally in the total CEVs that they have between them. However, it is important to realise that simply sharing the CEVs equally will not necessarily give the spouses the same income in retirement. First, the two spouses may have different ages and life expectancies. Secondly, different types of pensions might produce different amounts of income even though their CEV looks similar. Either way, an equal division of the CEV may result in significantly different incomes to the spouses in retirement. For this reason, dividing the pensions with reference to the income they produce may be preferable, unless the relatively small size of the pension fund or the young age of the parties or some other valid reason (such as the shortness of the marriage) makes in it uneconomical to carry out the exercise of comparing the incomes produced by the pensions. 3. Offsetting the Pension funds against other assets The final alternative is offsetting. This is where it is agreed that one spouse retains their pension funds, or a larger share of the funds, in return for the other spouse retaining other assets. Examples are given above in the Housing and Capital needs section, where the parent with the main care of the children retains the family home and the other spouse retains the pension funds as a way of balancing the division of the assets. Offsetting needs to be approached with care. A party giving up a claim to a share of a pension fund might run the risk of being short of income in retirement. Also, it is important to bear in mind that pension funds and liquid capital cannot be exactly equated and is not always right to compare them on a pound for pound basis. There is no accepted formula for comparison and doing this may make it uneconomic and/or unwise. In practice, the present value of £1 is often discounted between 20% and 40% when comparing current assets with the value of £1 of pension CEV which can only be drawn in the future. However, this is not a hard and fast ‘rule’. The discount reflects Family Justice Council - Sorting out Finances on Divorce 2016 47 Pensions the incidence of tax on the pension benefits and the ‘utility’ of having cash to spend now rather than waiting for it in the future. What this means, by way of example, is that a court might treat £1,000 of pension as being worth the equivalent of £600 or £800 when set against the value of liquid assets being retained by one of you. Unequal division of pension funds? In the above guidance, it has been indicated that when dividing pension funds you should first consider the spouses’ respective income needs in retirement. If both spouses’ income needs in retirement can be met by sharing the pensions equally (either to provide an equal income in retirement or an equality of CEVs), that would be an appropriate outcome. However, there may reasons for splitting the pension assets unequally, such as: • One spouse has a demonstrably greater income need in retirement (for example owing to health issues) • It has been a short childless marriage with one spouse bringing in a larger share of the pension funds • The pension fund(s) of one of the spouses accrued prior to the marriage. This is likely to have reduced significance the longer the marriage is. If there is a proposal for an unequal division on this basis it is important that careful consideration is given to ensure that the spouse receiving the smaller proportion of the pension fund still has sufficient income in retirement to cover their needs • One or both of the spouses will have other non-pension income available to them in retirement. A helpful guide on dealing with pensions on divorce called “When a relationship ends” can be found at the Pension Advisory Service webpage at http://www. pensionsadvisoryservice.org.uk/publications/category/leaflets-and-guides Family Justice Council - Sorting out Finances on Divorce 2016 50 Examples https://www.gov.uk/child-benefit-tax-calculator So her monthly income will be about £1,350 plus the child support, so in total £1,748. It is fair that Jade’s income is more than Steve’s as she has the children with her most of the time, but the mortgage and other household bills have to be paid. It might be fair to suggest that Jade pays £300 and Steve pays £100. Then Steve will have available for himself £1,138 each month; Jade will have £1,448 for herself and the children. Jade’s claims for support for herself should not now be dismissed; because the children are so young and the future uncertain she should have a nominal order to last until Scarlett goes to secondary school. It would make sense to pay off the credit card debt by using the ISAs. If they paid the debt 50/50, Steve would have £2,250 left over and Jade would keep £1,050. No pension sharing order would be required. The home can be kept in Steve and Jade’s joint names. It can then be sold when the children have both left school or are over the age of 18. It could be sold earlier if Jade remarries or perhaps was to live with somebody else as a couple. On a future sale the mortgage will be paid off and what is left can perhaps be divided as to 60% to Jade and 40% to Steve, a division in Jade’s favour to reflect not only the continuing contribution she will make to the welfare of the family by caring for the children but also the impact that that will have on her earning capacity. Jade may then have to rent, as Steve has been doing. This is an example of a reducing maintenance order illustrating the move to independence in a case based on need Karen (49) and Sam (54) are getting divorced after being married 25 years. They have two children, Nikki (23) and Michael (20). Both now work full time, Karen having taken a career break from the NHS for 8 years from when Nikki was born until Michael went to primary school. Sam earns £40,000 per annum (£2,613 net per month) as a programme manager for their local NHS Primary Care Trust; Karen works as a medical secretary for her local GP practice, earning £17,500 a year (£1,238 net per month). Nikki lives away from home and is independent but Michael, who is in his last year at university, still lives at home. The family home is worth £240,000 and the mortgage will finally be paid off early next year. They have a joint loan of £8,000 that was taken out to help fund an extension to the house two years ago. Sam has a cash ISA account and some savings together worth £18,350 and Karen has £30,000 left over from an inheritance (of £40,000) she received when he mother died several years ago. They are both members of NHS Pensions although as Karen had her career break, Sam’s is more valuable; they have therefore agreed to share the fund value of their pensions equally. It will cost each of Family Justice Council - Sorting out Finances on Divorce 2016 51 Examples them £145,000 to buy a more modest home. Possible outcome At the end of this long marriage the family home will need to be sold as each will need somewhere to live. On a sale, once the final mortgage payment has been made, the sale costs paid and the loan repaid, there will be about £224,800 left over. It would be fair for Karen and Sam to share this asset and Sam’s ISA and savings equally, so there is £243,150 or £121,575 each. Sam and Karen will have to down size. One option would be for Karen to get £121,575 and keep her inheritance. Whilst this is not an inevitable outcome, it would enable her to re-house without a mortgage, which she will need to do because she cannot afford to pay a mortgage from her income. They have agreed to divide the fund value of their pensions equally. On this basis, Sam will need a mortgage of £35,000. On a repayment basis at 4% over 15 years this will cost £268 per month. His take home pay is £2,613 each month so after his mortgage he will have £2,345. Given the difference in their incomes it would be fair for Sam to pay some financial support to Karen until he retires. On this basis, and because Karen has kept her inheritance and has no mortgage, it is only fair on Sam that his support should be for a limited period but long enough for Karen to adjust and make the transition to independence without undue hardship. Karen’s take home pay is £1,238 each month. Sam could pay maintenance to Karen for 5 years on a sliding scale; say £400 per month in the first year (Sam would have £1,945 / Karen would have £1,638); £320 each month in the second year (Sam £2,025 / Karen £1,558); £240 each month in the third year (Sam £2,105 / Karen £1,478); £160 per month in the fourth year (Sam £2,185 / Karen £1,398) and £80 a month in the fifth year (Sam £2,265 / Karen £1,318). Then maintenance could stop. Sam would be 60 and Karen 55 and they would be independent of each other before each retires. This is an example of a maintenance order ending on retirement / a deferred clean break Mary is 63 and Adrian is 59. They are getting divorced after being married for thirty three years. They have three children but all live away from home and are independent. Mary gave up work when she was pregnant with their first child and has not worked out of the home for 27 years. The family home, a three bedroom property which they have lived in for 19 years, was bought for £125,000 with a 25 year repayment mortgage of £100,000 and is now worth £260,000; there is now only £24,000 outstanding on the mortgage. Adrian and Mary both have cash ISA accounts worth £7,000 each. Adrian is self- Family Justice Council - Sorting out Finances on Divorce 2016 52 Examples employed and owns a shop in their town’s high street (which is leased and has six years left on the lease)). Last year his income was £47,500, which is less than he has earned in the past. Business has suffered since a shopping mall was opened out of town five years ago. He has a substantial pension savings worth £300,000 in a scheme into which he has been paying throughout the marriage. Mary has no pension savings, but receives her state pension. https://www.gov.uk/calculate-state-pension Mary plans to move away from the town and live near their youngest child, who has just had a baby boy and who has asked Mary to help look after him. Adrian plans to move into a flat in the town, near his shop. Each believes they will need not more than £110,000 to buy somewhere new to live. Possible outcome Mary and Adrian have been married for a long time. The family home will need to be sold because it is their main cash asset and each will need the money to buy a new property, in Mary’s case, near her daughter and in Adrian’s case, near the shop. After paying off the mortgage and paying the sale costs, there will be £228,200. This can be shared equally. Add the ISA they each have and each will have £121,000. This will meet their housing need. Mary is a pensioner. She is active but has promised to look after their grandson. Her only income is her state pension of £490 per month, which she has received for the last two years. She will need to receive financial support from Adrian. Adrian has another six years work in front of him until he reaches 65 and retires. His income after tax and National Insurance is £2,992 per month. He will pay Mary maintenance. Were he to pay Mary £1,250 per month she will have this amount and her pension, in total £1,740 each month; Adrian will be left with £1,742 per month. The maintenance should continue until he retires. But what happens then? Adrian’s pension scheme will need to be shared now. It is as much of an asset as the family home. A pension sharing order can be made. If the pension is shared equally now, the maintenance he will be paying to Mary can stop when Adrian retires at 65. There will then be a clean break.