The fair division of assets is fundamental to divorce and civil partnership dissolution. And the splitting of a couple’s finances presents a whole range of complex issues. Following separation what was a single household becomes two – introducing a series of budgetary repercussions and constraints. One of the most important roles a family law solicitor has is to provide guidance on what way assets might be divided if a case goes to court.
A solicitor who specialises in financial matters can be relied on to provide robust advice. Once you have a good impression of what to expect, you can negotiate authoritatively and with your eyes open. In most cases couples are able to agree financial arrangements and avoid the expense and uncertainty of asking a family law judge to make a financial order.
A degree of unpredictability arises however because of the wide discretion judges have when making financial remedy orders. Although – as we’ll see – in 2024 an influential Law Commission report proposed a radical shake up of the way asset division is handled. These recommendations could ultimately mean more certainty for people getting divorced.
So how do judges make decisions on family finances following divorce?
How do Courts Reach Fair Divorce Settlements?
As in all areas of law English judges rely heavily on previous cases to reach decisions. They also use legislation, and in divorce the Matrimonial Causes Act, 1973 is a critical tool. The overall aim of judges is to reach settlements that are fair to the parties. It’s not hard to argue with such an approach. But what does ‘fair’ mean in practice?
Section 25 of the MCA lists a range of factors that judges must take into account when deciding financial matters. So the courts will first tally up the value of assets like the family home and pensions and then decide how to distribute them. In seeking to achieve fairness the courts won’t discriminate between spouses or attach more or less weight to the roles each has played in the marriage or civil partnership. Crucially, they will always put the interests of children first.
In WC v HC, 2022 the judge provided a useful guide as to how the s25 factors are applied by judges. Mr Justice Peel made clear firstly that the preferred type of order for the courts to make is one that gives the parties a ‘clean break’. If periodical payments like maintenance are to form part of the final order the court will consider making these for a defined period. Peel J. also explained that three principles underpin the s25 factors.
The Principles Behind s25
The three principles at play when family court judges look at making financial orders are needs, compensation and sharing.
- Needs – Settlements should meet the needs of the spouses. This is the priority. In most cases the court’s examination of finances will begin and end with the parties’ needs. Making financial provision for two separate households after divorce in most cases uses up the matrimonial pot
- Sharing – It is only in those cases where there is a surplus of assets over needs that the sharing principle is engaged
- Compensation – The principle that one spouse should compensate the other financially as part of a divorce settlement (where one spouse’s career has suffered because of their time spent bringing up the children at home for example) rarely shapes the final award
What Is Meant By ‘Needs’?
Peel J described the concept of needs as ‘elastic’. A parties’ needs extend not just to their own requirements but to a range of factors, including financial obligations and responsibilities, the standard of living enjoyed before separation and the parties’ ages.
It is generally accepted that it’s not desirable for the divorce to lead to a sudden and dramatic downward turn in the parties’ lifestyle. Many judges will use the standard of living during marriage as a reference point or benchmark when assessing needs. In most cases the main needs to be met are housing needs and day to day living expenses.
What Does ‘Sharing’ Mean in Financial Cases?
When the sharing principle comes under consideration it usually means that:
- Marital assets are divided equally
- Non marital assets are kept by the party who owns them
The court may insist that some non-marital assets are shared – usually when they are required to meet the needs of the other party. Property will be treated as non-marital when it is:
- Property brought into the marriage by one or other party
- Property generated by one or other party after separation
- Inheritances or gifts received by one or other party
The case of Standish v Standish (2025) appeared to solidify the ring-fencing of non-matrimonial assets. There the Supreme Court reaffirmed that non-matrimonial property will not be shared, unless required by the needs or compensation principles.
How does the compensation principle work?
A claim to add a compensation element to a financial settlement will only be entertained after the needs of the parties have been satisfied and the sharing principle has, if appropriate, been applied. As a result, such claims are rare and usually only feature where there is a considerable amount of family wealth at stake. Compensation claims are based on the idea that the claimant sacrificed what would have been a lucrative career to look after the family. But for that sacrifice, they would currently have a high earning capacity.
Will Conduct Affect the Outcome?
We are often asked if conduct (that is conduct unrelated to finances, for example where a spouse attempt to hide assets) can affect the overall financial settlement. While conduct is one of the factors listed in s25 for judges to consider when making an award, in practice non-financial misconduct will rarely have any significant impact on the final settlement. If it is to be considered at all the claimant must establish that:
- The misconduct was extremely serious – in the words of one judge it should amount to ‘gross and obvious personal misconduct’
- There has been a financial detriment to the claimant caused by this conduct
While it may seem unfair to exclude conduct where a claimant has been treated abusively by a spouse, the courts take the view that it is not for judges to moralise or apportion blame on how the parties behaved towards each other during their marriage. In N and J (2024) Peel J made the position clear:
It seems to me that ordinarily the court will be able to arrive at a fair and balanced decision by reference to the usual factors such as needs without any reference to conduct. I struggle to envisage many situations where personal misconduct will have a material impact on the ultimate evaluation.
Comment
As can be seen, financial remedies is a complex and nuanced area where specialist advice is often necessary. It’s worth pointing out however that changes to the way judges approach financial cases have been proposed by the Law Commission and are under consideration. The Commission highlighted that the wide-ranging discretion contained in the current law means an individual going through divorce will not understand how their case will be decided, and so the law lacks certainty.