Financial Settlement Agreement

In the event of the breakdown of the marriage, both parties often seek to reach a financial settlement agreement with regard to their assets and liabilities, and pensions and incomes.

Sometimes that financial settlement agreement will be made into a Court Order as part of the divorce proceedings. On other occasions, in the event that the parties simply enter into a Separation Agreement, the Separation Agreement itself will contain details of the financial agreement.

The important factor to remember is that a financial settlement in separation should only be agreed after there has been full and frank disclosure by both parties of their respective financial circumstances. In other words, each party should provide full details of their assets, liabilities, income, outgoings and pension provisions (together with supporting documents). This is because no one should enter into a settlement unless and until they are sure that they have all of the relevant facts. Otherwise, such negotiations can best be described as “shooting in the dark”.

If an financial settlement agreement is reached, it is then encapsulated into a Court Order or a Separation Agreement.

If it subsequently transpires that either one of the parties has been less than frank about his or her true financial circumstances – it is open to the other party to apply to set aside the Court Order or Separation Agreement on the basis of non-disclosure.

For example, if the husband fails to disclose that he has a house worth £100,000 and the settlement is reached without the wife having knowledge of that fact, the wife, after subsequently finding out about this fact, may well be able to apply back to court to set aside the Court Order. However, she will only succeed with that application if it is likely that the final Order would have been different if this asset had been disclosed by the husband in the first place.

In that case, she would almost certainly succeed and she would probably also succeed in obtaining an Order for her costs against the husband for not having been frank in the first place.

Similarly, if a wife fails to provide full details of an inheritance that she has received (without the husband’s knowledge) and which she has kept in a separate bank account – the same considerations apply.

Both the husband and the wife must negotiate honestly and openly and in a way which is conducive to the parties reaching a sensible overall agreement.

It is always sensible, even in the smallest of cases, to convert the financial settlement agreement into a Court Order. This is because an agreement between the parties is less than watertight unless it has actually been sealed by the court within Divorce or Judicial Separation proceedings.

Please bear in mind this example. A wife reaches an financial settlement agreement with the husband but it is not converted into a Court Order. The agreement provides that the husband should keep his assets and the wife should keep her assets and that there should be a clean break between the two of them. In other words, neither one of them can make any further financial claims against the other into the future.

The wife then wins the lottery (£20 million).

The husband then makes a claim to the Court for a share of that money on the basis that the Court is not bound by the Separation Agreement and that the Court can decide for itself how much each party should have from the overall assets in the case.

The Court will then make its own mind up about exactly how much money the husband should have from the lottery monies. The court will not be bound by the previous Separation Agreement in any event.

If the husband and wife had converted the financial settlement agreement into a Court Order – that would have been the end of it and the wife would not now be in this mess.

It is also worth bearing in mind that no solicitor in the country can advise a client with 100% certainty about the settlement that he or she is entitled to. This is because matrimonial law gives the Judges a great deal of discretion in respect of each particular case. There is no “black and white” answer to these types of problems. It is a question of applying the appropriate legal factors to the case itself and then coming up with a fair solution.

Those factors are contained within Section 25 of the Matrimonial Causes Act of 1973 and they comprise:-

  • The income, earning capacity, property and other financial resources in the marriage;
  • The financial needs, obligations and responsibilities of each of the parties to the marriage;
  • The standard of living enjoyed by the family;
  • The ages of each party to the marriage and the duration of the marriage;
  • Any physical or mental disability of either of the parties to the marriage;
  • The contributions which each of the parties has made to the welfare of the family;
  • The conduct of each of the parties (if that conduct is such that it would in the opinion of the court be inequitable to disregard it);
  • The value to each of the parties to the marriage of any benefit which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring (i.e. a spouse’s pension).

At the end of the day, it is a question of compromise. It is also a question of getting the very best settlement that one can notwithstanding the limits of the parties’ income, assets and pensions.

For more information regarding financial settlement after separation, please contact us on 0115 941 5566 or email johnhooper@johnhooper.com

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