How to divide assets in a divorce

When going through a divorce, arguably one of the most challenging parts of the separation can be how to divide the marital assets. A common misconception is that the assets within the matrimonial pot should be divided equally on a 50:50 split basis. However, this is not a hard and fast rule but merely a starting point.

The starting point

Whilst there is an overriding principle of ‘fairness’, each individual divorce case comes with its own unique set of circumstances, and it is important to remember that ‘fair’ doesn’t always mean an equal 50:50 division when it comes to agreeing to a divorce financial settlement.

There will no doubt be many cases where a 50:50 split is the correct approach, however, there may be reasons for not dividing the assets equally enabling the court to decide that one spouse is potentially entitled to a larger division. For example, an unequal division may be necessary to meet one of the parties’ particular needs, or if some of the assets are non-matrimonial in nature which we will consider later.

When determining if any deviation away from a 50:50 split is not only necessary but also reasonable, the court considers a number of factors which are set out in Section 25 of the Matrimonial Causes Act 1973, such as:

• the income, earning capacity, property and other financial resources each of the parties has or is likely to have in the future
• the financial needs, obligations, and responsibilities that each of the parties has or is likely to have in the future
• the standard of living enjoyed by the family before the breakdown of the marriage
• the age of each party in the marriage and the duration of the marriage
• the conduct of either party where it would be unfair to disregard it
• any physical or mental disability of either party
• any contributions made or to be made by each party, (note that this does not only mean financial contributions but also includes caregiving to the children, as in the eyes of the law, caring for the children of the family is just as valuable).

However, regardless of the above, the court’s primary consideration will always be the welfare of any children under the age of 18. Therefore, other ratio splits may be more appropriate to ensure both the parties’ and any children within the family’s needs are met.

How is a house divided in a divorce?

For many couples in the UK, their house is considered the largest asset to be considered as part of any financial settlement in a divorce. The court will consider several factors, including each party’s contributions made, (financial or otherwise), when determining how a house is dealt with during a divorce.

Divorcing couples have three main options for resolving the ownership of their marital home:

1. Sell the house and divide the proceeds

Selling the house offers a clear financial split and provides immediate access to funds. This money can be used as a down payment on new homes or to cover rental costs while both individuals rebuild their lives financially. It also offers a financial clean break whereby there are no ongoing obligations for either spouse towards each other beyond the date of their divorce. However, selling isn't always ideal. Recently purchased properties may result in a financial loss due to potential market fluctuations and selling costs.

2. One spouse buys out the other's share, potentially requiring a mortgage refinance to remove the other from the loan

If staying in the house is a priority for one spouse and they have the financial means, they can buy out their ex-partner's equity share. This may require adjusting the mortgage arrangements. Like selling, this approach offers a clean break and avoids the costs associated with buying and selling new homes. However, with rising house prices, affording a buyout can be difficult for many couples, especially in today's competitive housing market.

3. In certain circumstances, the couple may choose to continue co-owning the house

For couples who recently purchased a home, cohabiting as housemates post-divorce can be a practical solution, either temporarily or even long-term. While it doesn't provide a clean break, this option is often the most affordable and least disruptive.

Continuing a joint mortgage might be another temporary solution if neither a buyout nor selling the house is feasible. This could be the case if they recently purchased the property and selling would result in a loss, or if neither spouse can secure separate financing on their own. However, some reconfiguration of the existing mortgage might be needed to reflect the financial settlement agreed upon in the divorce. This could involve changes to the ownership percentages, how much each person contributes towards the mortgage payments, or changing the co-ownership structure from joint tenants to tenants in common.

Who gets the house in a divorce with children?

When children are involved, especially young ones, the court will prioritise ensuring they have a suitable place to live with each parent whilst also attempting to minimising disruption to the children’s lives.

Therefore, often the decision of who keeps the family home is tied to child arrangements, and the parent who is designated as the primary caregiver may be awarded the right to remain in the family home.

However, losing access to the family home doesn't automatically erase the other spouse’s financial ties or legal rights to the property. Even if one spouse no longer resides at the home, alternative financial arrangements can be made regarding the property. These arrangements can then be finalised by the court in a property order.

For instance, one parent might be allowed to live in the house with the children until a predetermined time, e.g. when the youngest child reaches 18. At that point, the house could be sold and the proceeds divided according to the court order. Alternatively, the ownership could be transferred to one spouse with the other receiving an agreed-upon percentage of the value when the property eventually sells. This is called a Mesher Order.

Is a limited company protected from divorce?

In the UK, a limited company is not guaranteed protection during divorce. Just like all other assets, any ownership or stake in a business must be disclosed during the divorce process. This means the value of any business interest and its holdings will then be factored into the overall ‘pot’ of marital assets to be divided fairly between spouses.

It should be noted that, whenever possible, courts prioritise solutions that keep any business intact and strive to minimise disruption, allowing the business to continue operating. This means a spouse might not be forced to sell or give up ownership. However, they may need to compensate the other spouse by offsetting against this other assets or a financial agreement in exchange for their share in the business.

Nevertheless, the final decision on how the company is handled depends on the unique details of the case, the formation of the business, and the type of assets the business owns.

Read a previous article on business valuations on divorce.

What assets cannot be split in a divorce?

Assets known as “non-matrimonial assets” can sometimes be excluded from divorce settlements. Non-marital assets refer to possessions that either spouse individually owned prior to or after the marriage. These assets are not held jointly so are typically not then subject to division during divorce proceedings.

However, there are circumstances where a non-marital asset could be divided in a divorce settlement, particularly if the matrimonial assets within the ‘pot’ are insufficient to meet the needs of one spouse or if they were acquired before the marriage but then utilised during the marriage. For example, if one spouse solely owned a property where the family then resided together or if one spouse started a business before the marriage and the proceeds generated by the business are used to support the family.

Summary

Overall, dividing assets in a divorce is a nuanced process tailored to each couple's specific circumstances, so matters will be decided on a case-by-case basis. The court considers factors as listed above like accustomed living standards, future earning capacity, marriage duration. However, paramount consideration will be given to children's needs and ensuring a fair and balanced outcome which will ultimately meet both party’s needs.