Financial settlements arising on divorce — a quick guide to family law in England/Wales and Scotland

Since the Supreme Court decision of Villiers, considerable attention has been given to the differing legal jurisdictions in England and Wales, and in Scotland.

Different laws and processes apply in each jurisdiction, and below we highlight some of the main differences for financial settlements arising on divorce.

England and Wales

In England and Wales, all resources held by the parties, whether in their joint or sole names, or whether held with third parties, worldwide, are assessed when ascertaining the terms of a reasonable and fair financial settlement.

The court will consider which assets constitute ‘matrimonial property’ acquired during the marriage, and consider assets acquired both before the marriage/relationship and those acquired post-separation.

All are available for consideration when ascertaining the terms of an appropriate financial settlement.

Scotland

In Scotland, there are key differences.

The matrimonial property available for a fair financial settlement is limited to those resources acquired by the parties during the course of the marriage up to the date that they separate. For example, if a party won the lottery or received a significant inheritance the week after separation, the other spouse would not have any entitlement to a share of the same on divorce.

Any gifts or inherited assets are not considered matrimonial property if they remain in the same format as received, and have not been sold or converted into new assets during the marriage. They would effectively continue to belong to the party that received them.

Any assets acquired before the marriage would not be considered matrimonial property and again would continue to belong to the party who acquired them.

There is an exception to this last rule in that any property or its contents acquired before the marriage which the parties use as a family home would be deemed to be matrimonial property and liable for division on divorce.

Entitlement to a fair share

In both jurisdictions, any division must be fair and reasonable having regard to the parties’ respective resources.  

The court in England/Wales and Scotland will consider whether an equal division is appropriate, or whether it is fair in that case to depart from equality.

Each jurisdiction will apply its own case law and legislation.

Maintenance/periodical allowance

In both jurisdictions, if one party is going to be in a position of financial need they can also apply for spousal maintenance/aliment. Maintenance after divorce in Scotland is called periodical allowance.

This may be assessed as giving financial support to allow one party who may have been financially dependent on the other sufficient time to adjust to the separation. During that time, they might be expected to retrain or try and find employment or it may be they have young children to care for and will need some time to get back properly to employment.

Duration of payments

However, a key difference between England and Wales, and Scotland, is the duration of maintenance payments.

In Scotland, this is normally limited to no more than three years of payments. In rare cases where there is likely to be severe hardship, this can be paid until death or remarriage. An example of this might be where one party cannot work due to longstanding illness.

In England and Wales, the court has a wider discretion to assess the duration of payments.

Procedure

In both jurisdictions, most couples try to negotiate an amicable separation agreement based on the above principles to deal with their finances rather than going to court.

England

In England, parties are always advised to seek a court order to record the settlement that has been negotiated.

On marriage and divorce, the law provides both parties with a wide range of obligations and financial responsibilities towards their spouse, or former spouse. Unless those obligations are formally dismissed and so brought to an end by a court order, they are still potentially available for the other party to make a claim against in the future. If a party inherited a significant sum or won the lottery for example, or if circumstances change such that they or their spouse need the support of the other, in England/Wales they could be at risk of a claim, even if a divorce was finalised several years ago.

As such, it is important to obtain a properly drafted court order to dismiss the risk of a former spouse making a claim in the future.

Scotland

Unlike England, such an agreement does not have to be approved by the court in Scotland. Once such an agreement is negotiated, agreed and signed it is effectively a contract between the parties. It can be registered to become binding and enforceable in the same way a court order would, but the court will not scrutinise it.

Once an agreement has been concluded, the parties need only ask for a straightforward divorce at some point later when it suits them. The parties generally agree that the action will be undefended so it can proceed quickly. Neither party has to attend court.

If the parties have no children under 16 they can apply for the even quicker and cheaper simplified divorce provided at least one year has elapsed since separation.

Contested proceedings

In both jurisdictions, it is only if parties cannot reach an amicable agreement that they will need to apply to a court to ask a judge to decide the matter.

Prenuptial agreements

Legal Status — England and Wales

Prenuptial and postnuptial agreements are not legally binding in England and Wales as this would require a legislative change. However, they are persuasive evidence in financial proceedings, especially if certain safeguards are adhered to.

The Supreme Court case of Radmacher shifted the balance so that it is extremely likely in the future a prenuptial agreement will be upheld by a court unless it can be shown that doing so would be unfair to the other party in the circumstances at the time of the divorce.

The Law Commission has also reported on prenuptial agreements and recommended that they should be largely upheld provided that they meet the needs of both parties.

The safeguards that should be adhered to can be summarised as:

1. The agreement meets contract law criteria (no fraud, undue influence or misrepresentation);
2. The agreement is signed as a deed no less than 28 days before the wedding;
3. Both parties must have been informed of its implications, appreciated those implications and considered (and ideally sought) legal advice;
4. Both parties have made full disclosure of their assets and resources.

Legal status — Scotland

Prenuptial agreements are treated differently in Scotland and are considered legally binding.

Prenuptial agreements have been used in Scotland for centuries. They have a long history in Scotland and have always been recognised as valid agreements, having been used in Scotland since the Middle Ages to regulate financial arrangements during marriage and on divorce.

Validity of prenuptial agreements in Scotland

Prenuptial agreements have been recognised as valid in Scottish courts for some time and provided they are prepared and signed properly they will be recognised and deemed valid in the event of any divorce. The Family Law (Scotland) Act 1985 specifically recognises that the parties to a marriage might have already reached an agreement pre-marriage or during their marriage.  

The court is required to take into account an agreement when deciding if they should make any financial order in the divorce. The courts in Scotland are unlikely to interfere with the arrangement set out in an agreement unless there is a very good reason to do so, such as the agreement not being entered into fairly or with the appropriate capacity. The fact that the consequences of the agreement may be deemed to be unfair or harsh by the time of the divorce is not usually considered relevant if the agreement was deemed fair and reasonable when the parties signed up to it.

There are no conditions that a prenuptial agreement in Scotland needs to be signed within a certain time period before marriage. There are plenty of examples where the agreement was signed a few days before the wedding or indeed on the day of the wedding. In Scotland, if there is insufficient time to get an agreement completed, the agreement is sometimes concluded as a postnuptial agreement and will be equally as valid. It is however recommended that any such agreement is considered well in advance of any wedding where possible.

In Scotland, it is not a requirement that both parties to the agreement need to have legal representation but again it is recommended where possible as this will avoid "lack of legal advice" being cited later as a reason the agreement might have been unfairly entered into.

Summary

In both jurisdictions, the test for challenging the validity of any prenuptial agreement is a high one.

Accordingly, a well-drafted prenuptial agreement will provide considerable protection and financial certainty for any person going into a marriage in either jurisdiction.

We can provide specialised advice in both England/Wales and Scotland and can assist in any cross border family cases which span both jurisdictions.