One of the first questions many people ask when they are going through a divorce is: “Who gets what?” It is a perfectly understandable question, but the answer is rarely straightforward.
One of the first questions many people ask when they are going through a divorce is: “Who gets what?” It is a perfectly understandable question, but the answer is rarely straightforward.
Many people assume that the law simply requires everything to be shared equally. Others believe that the spouse who earned the money will automatically retain the majority of the assets. Neither assumption is correct. The Courts in England and Wales have a broad discretion when deciding how finances should be divided following divorce. The objective is to achieve a fair outcome based on the circumstances of each individual family. There is no fixed formula, and every case turns on its own facts.
Over the last half century, Parliament and the Courts have developed a number of principles which guide judges when exercising their discretion. Understanding these principles can help explain how financial settlements are reached and why different families may receive different outcomes.
The court’s redistributive powers
The family courts have wide ranging powers to redistribute assets on divorce. This means that the court can transfer assets between spouses where necessary to achieve a fair outcome. Those powers extend to dealing with a wide range of financial resources, including:
The family home and other properties
Savings and investments
Businesses and company shares
Pensions
Income and, in some cases, future earnings
The fact that an asset is legally owned by one spouse does not necessarily mean that person will keep it following divorce. Equally, assets acquired during a marriage are not automatically shared. Instead, the court considers all of the circumstances of the case before deciding what financial orders should be made.
The legal framework
The court’s powers are contained in the Matrimonial Causes Act 1973. Section 25 of the Act requires the court to consider all the circumstances of the case, with the first consideration being the welfare of any children under the age of 18.
The court must consider a number of factors, including:
The income, earning capacity and financial resources of each spouse
Their financial needs, obligations and responsibilities
The standard of living enjoyed during the marriage
The ages of the parties and the length of the marriage
Any physical or mental disability
The contributions made by each spouse, whether financial or non-financial
In exceptional cases, the conduct of either party
The value of any benefits lost as a result of the divorce, such as pension rights
These factors are not applied mechanically. Instead, they provide a framework within which the court exercises its discretion to achieve fairness.
The two stages: Computation and Distribution
A useful way of understanding the court’s approach is to consider financial remedy cases in two stages: computation and distribution.
This framework was articulated by Mostyn J in JL v SL (No. 2) [2015] EWHC 360 (Fam) and provides a helpful explanation of the process involved when the court exercises its redistributive powers.
Stage one: Computation
The first stage is computation.
Before deciding how assets should be divided, the court must establish what financial resources actually exist. This involves identifying, investigating and valuing all relevant assets, liabilities and sources of income. This may include:
Property
Savings and investments
Businesses
Pensions
Bank accounts
Valuable possessions
Debts
Income and earning capacity
This stage relies upon both parties providing full and frank financial disclosure, usually using Form E.
The importance of this stage cannot be overstated: the court cannot fairly divide assets unless it has an accurate understanding of what exists.
If there are concerns that assets have been hidden, undervalued or transferred elsewhere, further disclosure or investigation may be required before the court can properly assess the available resources.
Stage two: Distribution
Once the available assets have been identified and valued, the court moves to the second stage: distribution.
This is where the court decides how those resources should be divided between the parties. It is during this stage that the court exercises its powers of redistribution, applying the factors set out in section 25 of the Matrimonial Causes Act 1973 together with the principles developed through case law.
White v White – The Modern Starting Point
The landmark decision in White v White [2001] 1 AC 596 fundamentally changed the way financial settlements are approached in England and Wales. Before this case, there had sometimes been a tendency for the court to favour the spouse who had generated the family’s wealth, particularly where one spouse had been the main earner.
The House of Lords firmly rejected that approach. It established that there should be no bias in favour of the breadwinner and against the homemaker. The court recognised that running a home, raising children and supporting a spouse’s career are all valuable contributions to the family, even though they may not generate a direct income. The decision introduced what has become known as the ‘yardstick of equality’.
This does not mean that assets must always be divided equally. Instead, equality is used as a reference point. If the court decides that an unequal division is appropriate, it should be able to explain why that outcome is fair.
The case confirmed an important principle: marriage is a partnership of equals, and contributions are not measured simply by financial earnings.
Miller and McFarlane – The Three Principles of Fairness
The House of Lords developed these principles further in the important decision of Miller v Miller; McFarlane v McFarlane [2006] UKHL 24.
In that case, the court explained that fairness in financial remedy cases is generally achieved by considering three overarching principles:
Needs
Sharing
Compensation
These principles overlap, and not every case will involve all three. In practice, most cases are decided primarily by reference to the parties’ needs and, where resources allow, the sharing principle.
Needs
For the majority of divorcing couples, needs will be the most important consideration. Where there are insufficient assets to allow both spouses to maintain the standard of living enjoyed during the marriage, the court’s priority is usually to ensure that each party’s reasonable housing and income needs are met as fairly as possible.
For example, where children spend most of their time living with one parent, that parent may require a greater share of the available capital to secure suitable accommodation.
Similarly, where one spouse cannot meet their reasonable income needs from their own resources, the court may consider whether ongoing spousal maintenance is appropriate.
Needs are assessed individually. The court will consider the particular circumstances of the family, including the parties’ ages, health, earning capacity and the standard of living during the marriage.
Sharing
Where there are sufficient resources beyond the parties’ needs, the court may apply the sharing principle.
This reflects the concept that marriage is a partnership. Assets generated during the marriage through the parties’ joint endeavours are generally regarded as matrimonial property and may be shared between them.
In many cases, this will result in an equal division of matrimonial assets unless there is a good reason to depart from equality.
However, not every asset will automatically be treated as matrimonial.
Assets acquired before the marriage, inheritances and gifts received by one spouse may be regarded as non-matrimonial property. The extent to which such assets are taken into account will depend on the circumstances of the case.
Importantly, even non-matrimonial assets may become relevant where they are required to meet the parties’ needs.
Compensation
The third principle identified in Miller and McFarlane is compensation.
This recognises that, in exceptional cases, one spouse may have suffered a financial disadvantage because they gave up career opportunities or earning capacity for the benefit of the family or to enable the other spouse to develop their career.
For example, one spouse may have given up a potentially lucrative profession to care for children while the other spouse continued to build significant earning capacity.
Compensation claims are relatively uncommon. In most financial remedy cases, the outcome is determined by reference to needs and sharing rather than compensation.
Does conduct affect the financial settlement?
Many people assume that the reasons why a marriage ended will affect the financial outcome.
Usually, they do not.
The court’s role is not to punish one party for the breakdown of the marriage. Its focus is on achieving a fair financial outcome.
Conduct is only considered in exceptional circumstances where it would be inequitable to disregard it. The threshold is deliberately high, and ordinary marital misconduct, including adultery, will rarely have any impact on the financial settlement.
Every case is different
One of the defining features of financial remedy law in England and Wales is the breadth of the court’s discretion.
Unlike some jurisdictions, there is no fixed formula which determines how assets should be divided.
Instead, the court considers all of the circumstances of the family and exercises its powers to achieve fairness.
This flexibility allows the court to deal with the wide variety of financial circumstances that arise on divorce. However, it also means that predicting the outcome of a case is not always straightforward.
The same level of assets can produce vastly different outcomes depending on factors such as children, earning capacity, housing needs, contributions and the length of the marriage.
Why taking early legal advice matters
The computation stage is the foundation of every financial settlement. Before any decision can be made about how assets should be divided, it is essential that all relevant financial information has been identified, disclosed and properly valued.
An omission, an inaccurate valuation or a failure to obtain appropriate disclosure can have a significant impact on the eventual outcome. Taking legal advice before exchanging financial disclosure can help ensure that the right questions are asked, the correct documents are obtained, and your financial position is properly understood before negotiations begin.
When attempting to reach a financial settlement, it is important to remember that every family is different and understanding how the principles discussed in this article apply to your own circumstances is critical to achieving fairness. A settlement reached without proper advice may have significant long-term financial consequences and, once approved by the court, can be difficult to revisit.
Key takeaways
There is no automatic rule that assets will be divided equally on divorce
The courts in England and Wales have wide powers to redistribute assets in order to achieve a fair outcome
Financial cases can be understood in two stages: computation (identifying and valuing the assets) and distribution (deciding how those assets should be divided)
Every case depends on its own circumstances, including the parties’ resources, needs, contributions and the factors set out in the Matrimonial Causes Act 1973
Taking specialist legal advice before exchanging financial disclosure or agreeing a financial settlement can be critical to protecting your position
Our specialist family lawyers advise clients on all aspects of divorce and financial relief, from the initial exchange of financial disclosure through to negotiated settlements and court proceedings where necessary. Whether your case involves the family home, pensions, businesses, trusts or other complex assets, our lawyers can provide clear, practical advice to help you understand your options, protect your financial position and achieve a fair outcome.
