How are assets divided on divorce in England and Wales?

One of the most common concerns during a divorce is what will happen to the family home, savings, pensions and other assets.

There is no automatic rule that everything must be divided equally. Although an equal division is a useful starting point, the court’s objective is to reach a fair outcome after considering the couple’s individual circumstances.

This article explains how assets are divided on divorce in England and Wales, what the court considers and the steps separating couples can take to formalise an agreement.

What assets can be divided during a divorce?

The financial arrangements following a divorce may involve:

• The family home and other property
• Savings and investments
• Pensions
• Business interests and shares
• Vehicles and valuable personal possessions
• Debts and other financial liabilities
• Income and future earning capacity

The court may make orders requiring property to be transferred or sold, directing one person to pay the other a lump sum, providing for ongoing maintenance or dividing pension benefits.

The available orders are principally governed by the Matrimonial Causes Act 1973.

Is everything divided 50/50?

Not necessarily.

In some cases, particularly after a long marriage in which both spouses have contributed to family life, an equal division of matrimonial assets may be considered fair. However, equality is not a rigid rule, and the court can depart from an equal division where the circumstances justify it.

For example, one spouse may receive a greater share of the available capital because they:

• Are the primary carer of young children
• Have a substantially lower income or earning capacity
• Need suitable accommodation for the children
• Have a disability or significant health needs
• Gave up or reduced their career to care for the family which tends to result in them having a lower income and future earning potential than the other spouse

The outcome will depend on the resources available and the needs of both parties.

What does the court consider?

When deciding how to exercise its financial powers, the court must consider all the circumstances of the case. The welfare of any child of the family who is under 18 is treated as a first consideration.

Section 25 of the Matrimonial Causes Act 1973 identifies a number of factors, including:

Income and financial resources

The court considers each person’s income, earning capacity, property and other financial resources, both now and in the foreseeable future.

This may include salary, bonuses, investments, business income, rental income, trusts and expected pension benefits.

Financial needs and responsibilities

The court assesses each person’s present and future financial needs, obligations and responsibilities.

Housing needs are often particularly important, especially where children will spend most of their time living with one parent.

The family’s standard of living

The standard of living enjoyed before the marriage broke down is relevant, although maintaining two households will often mean that neither party can continue the same lifestyle after divorce.

Age and length of the marriage

A long marriage may create greater financial interdependence than a short marriage.

The court may also consider a period of cohabitation before the marriage where it formed part of a continuous relationship.

Physical or mental disability

Any physical or mental health condition affecting a party’s housing requirements, ability to work or future financial needs may be relevant. Although, it can be usual for one or both parties to suffer during and shortly after divorce, as divorce can be extremely stressful and upsetting for the parties and family, especially when there has been lengthy court proceedings over the finances, and this would not usually affect the division as it is likely to be temporary.

Contributions to the family

The court considers the contributions each person has made or is likely to make to the welfare of the family.

Financial contributions are not treated as more valuable than caring for children or managing the household. A spouse who stayed at home to care for the family is not regarded as having made a lesser contribution simply because they earned less or had no independent income.

Conduct

Conduct is considered only where it would be unfair for the court to disregard it. Ordinary disagreements, relationship difficulties or blame for the end of the marriage will not normally affect the financial division.

Financial misconduct, such as deliberately disposing of assets to prevent the other spouse receiving a fair settlement, may be relevant.

The loss of benefits

The court may consider benefits a spouse will lose because of the divorce, including potential pension rights.

What is the difference between matrimonial and non-matrimonial assets?

A distinction is sometimes made between matrimonial and non-matrimonial property.

Matrimonial assets commonly include property and wealth acquired during the marriage, such as:

• The family home
• Savings accumulated during the marriage
• Pensions built up during the marriage
• Businesses developed during the marriage
• Investments purchased using marital income

Non-matrimonial assets may include:

• Property owned before the marriage
• An inheritance
• Gifts received personally from a third party
• Assets acquired after separation

However, describing an asset as non-matrimonial does not guarantee that it will be excluded.

The court may take such property into account where the couple’s matrimonial assets are insufficient to meet their reasonable needs. Its treatment may also depend on whether the asset was kept separate or became part of family life.

For example, a property owned by one spouse before marriage may be treated differently if it later became the family home. It may also be treated differently in long marriages compared to short marriages. An inheritance received 10 years before separation may be treated differently than if it were received 1 year or less before separation.

What happens to the family home?

The family home is often the most valuable asset and may also be the most emotionally significant.

Possible outcomes include:

• Selling the property and dividing the proceeds
• Transferring the property to one spouse
• One spouse buying out the other’s interest
• Postponing a sale until a specified event, such as the youngest child reaching a particular age
• Keeping the property in joint names temporarily

The right solution will depend on affordability, mortgage capacity, the needs of any children and the availability of alternative accommodation.

A transfer of ownership does not automatically release a spouse from the mortgage. Any proposed arrangement must therefore be considered with the mortgage lender.

How are pensions divided?

Pensions can be one of the largest assets in a marriage and should not be overlooked.

The court may make a pension sharing order, under which a percentage of one spouse’s pension is transferred into a pension arrangement for the other spouse. Other approaches may include pension attachment or offsetting pension rights against other assets.

Offsetting might, for example, allow one spouse to retain more of the family home while the other retains more of their pension. However, pensions and property provide different types of benefit and cannot always be compared on a simple pound-for-pound basis.

Specialist pension advice may be appropriate where there are defined-benefit, public-sector, armed forces, police, NHS, judicial or unusually valuable pension arrangements.

Are business assets included?

A business interest may form part of the overall financial resources available on divorce, even where only one spouse owns or operates the business.

The court will usually try to avoid damaging a viable business unnecessarily. Instead of ordering a sale or transfer of shares, it may be possible to compensate the other spouse through property, cash or payments over time.

A professional valuation may be required to establish the value of the business, its liquidity and the income it can reasonably produce.

Does a prenuptial agreement determine the outcome?

Prenuptial and postnuptial agreements are not automatically binding in the same way as commercial contracts. However, the court may give substantial weight to an agreement where:

• Both parties entered into it freely
• Each understood its implications
• Relevant financial information was disclosed
• Each party had an opportunity to obtain independent legal advice
• Giving effect to the agreement would be fair in the circumstances

An agreement is less likely to be followed where it would leave one spouse or the children without their reasonable needs being met.

Do both parties have to disclose their finances?

Yes. Full and honest financial disclosure is fundamental.

Each person will normally need to provide information and supporting documents concerning their property, bank accounts, investments, debts, income, pensions and business interests.

In court proceedings, detailed disclosure is ordinarily provided using Form E. The official guidance confirms that Form E is used where an application has been made for a financial order in connection with divorce or related proceedings.

Hiding assets or providing misleading information can have serious consequences. The court may draw adverse conclusions, make costs orders or revisit an order obtained without proper disclosure.

Can divorcing couples reach their own agreement?

Many couples resolve their finances without asking a judge to decide the outcome.

Options may include:

• Direct discussions
• Solicitor-led negotiation
• Mediation
• Collaborative law
• Private financial dispute resolution
• Arbitration

An agreement should be converted into a legally binding consent order and approved by the court. The divorce itself does not automatically bring financial claims to an end.

Separating couples may agree how to divide money and property, but a court order is required to make the financial agreement legally binding. Where no agreement can be reached, either party may apply for a financial order.

What is a clean-break order?

A clean break ends the parties’ ability to make certain financial claims against each other in the future.

Where appropriate, the court will consider whether financial obligations can be terminated immediately or after a defined period. However, an immediate clean break may not be realistic where one spouse needs ongoing maintenance.

Even where no assets are being transferred and neither party presently intends to make a claim, obtaining an appropriate financial order can provide important certainty.

When should a financial agreement be finalised?

Financial arrangements are legally separate from the divorce application.

It is usually sensible to resolve the finances before applying for the final divorce order, particularly where pensions, inheritance rights or other benefits may be affected. The appropriate timing will depend on the case, so legal advice should be obtained before finalising the divorce.

How long does a financial settlement take?

The timescale depends on:

• The complexity of the assets
• Whether valuations are required
• The quality of the financial disclosure
• Whether the parties can negotiate an agreement
• The availability of the court
• Whether either person is hiding or dissipating assets

A straightforward negotiated agreement may be resolved relatively quickly. Contested proceedings involving businesses, trusts, overseas property or complex pensions can take considerably longer.

Speak to a divorce solicitor

The division of assets on divorce is highly fact-specific. Early advice can help you understand what information is required, protect your position and identify a realistic range of possible outcomes.

Our family law team can advise on property, pensions, businesses, maintenance, financial disclosure and the preparation of consent orders.

Contact us to arrange a confidential initial discussion.