Financial Matters After Divorce | Family Law Study Area | Law Teacher

Financial Matters After Divorce

These Family Law pages were originally prepared by the Law Department at St. Brendan’s Sixth Form College. They are no longer being updated and no responsibility is accepted for them by St. Brendan’s College or LawTeacher.net

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Now that “matrimonial offences” have largely disappeared from divorce law, there is only rarely any dispute between the parties as to the desirability of a divorce in itself. Such disputes as do occur – and there are many – generally centre either on the arrangements to be made for any children or on the division of matrimonial property and other financial arrangements. This chapter is concerned with the property and finance, though financial support for children is dealt with later. Except where otherwise stated, all the powers of the court are exercisable equally in cases of divorce, nullity and judicial separation.

Browne v Browne [1989] 1 FLR 291, CA

The facts are set out below. Affirming an order for W to pay £175k to H, Butler-Sloss LJ said an application by a husband for a redistribution of assets is not in any way an unusual application … in these times of equality of the sexes it would be a sad reflection if a husband were thought to be acting improperly by exercising the rights the law permits.

The court has considerable discretion in making financial orders following divorce, subject to the general guidance provided by statute. The doctrine of precedent operates only fairly loosely, and the appellate courts rarely interfere with an order unless the lower court applied altogether the wrong principles.

Orders available

The court can make four different kinds of order under ss.22-24A of the Matrimonial Causes Act 1973. Such orders can be made in favour of (or for the benefit of) either party to the marriage or any child of the family, though most applications for child maintenance are brought under the Child Support Act 1991.

Under s.22, the court seized of a petition for divorce, nullity or judicial separation may make an order for maintenance pending suit. That is, it may order either party to make regular payments to the other, for his or her maintenance, until such time as the matter is finally determined. The court can make such order as it thinks reasonable – the s.25 guidelines (below) do not strictly apply to this kind of order – and will take account of the parties’ respective means. Such orders accounted for under 3% of all the orders made in 1996.

T v T (Financial provision) [1990] 1 FLR 1, Owen J

H and W divorced and W sought maintenance pending suit. The family’s financial affairs were complicated, but theit capital assets were well over £1m and H had an annual income of more than £100k. In the circumstances, the judge ordered H to pay W interim maintenance at a rate equivalent to £25k per annum.

Under s.23, the court may make a financial provision order which may include an order for periodical payments, secured or unsecured, and/or a lump sum payment or payments, to the other party and/or to any specified person for the benefit of a child of the family. Payments for the benefit of a child cannot normally be required after the child’s eighteenth birthday, but the order can be extended to a child over this age if the child is still in education or training.

Under s.24, the court may make a property adjustment order, requiring either party to transfer to the other (or to any person for the benefit of a child) such property as may be specified, or varying the terms of any ante-nuptial or post-nuptial agreement or settlement. Orders for transfers to adult children are limited as in the previous case.

Under s.24A, the court making a secured periodic payments order, a lump sum order or a property adjustment order may also make an order for the sale of specified property where this seems appropriate to give effect to its previous order. This power can be exercised even where some other person has a beneficial interest in the property, though the other must be given an opportunity of being heard in the matter.

Harwood v Harwood [1991] 2 FLR 274, CA

In ancillary proceedings following divorce, H’s business partnership had (at least arguably) a beneficial interest in the house he owned jointly with W. The Court made an order for sale, half the proceeds to go to W immediately and the other half to be paid into court pending a determination of the partnership interest.

Financial provision orders

There are essentially two kinds of financial provision order: periodical payments and lump sum. An order can be made to take effect at any time in favour of a child of the family under the age of 18, and may require payment to be made to the child or (more commonly) to some other person – often the other parent – for the child’s benefit. A periodical payments order is for such period as the court may decide, but must normally come to an end no later than the child’s eighteenth birthday. Under s.29 of the 1973 Act an order cannot be made in favour of a child over that age unless the child is undertaking (or is about to undertake) education or vocational training, or there are other special circumstances which (in the court’s opinion) justify making an order.

An order in favour of a party to a marriage can be made at any time after decree nisi has been pronounced, but cannot take effect until the decree is made absolute. (An order for maintenance pending suit can be granted to cover the intervening period.) Under s.22A of the Act (as amended by Schedule 2 of the Family Law Act 1996, when it comes into force), the order can be made at any time after the statement of marital breakdown has been lodged with the court, but cannot normally take effect until the divorce or separation order is made.

A periodical payments order requires regular payments to be made by one party to the other (or to some specified person for the benefit of a child), normally at so much per week, per month or per year. Such payments are normally “unsecured”, and the payer must simply make arrangements (e.g. by a standing order) to pay them out of his own resources. If the payer has sufficient capital, however, and the court fears he may default, it may order that the payments be “secured” by the transfer of appropriate capital (usually in the form of an investment portfolio) to trustees. The capital remains the payer’s property, and any balance reverts to him if the order comes to an end.

W v W (Periodical payments: pensions) [1996] 2 FLR 480, Connell J

Following divorce, W applied for financial relief. The proceedings were protracted: the financial arrangements were inherently complex, but H was very obstructive and tried to minimise his assets. The judge said a clean break was impossible because of H’s conduct, and ordered periodical payments to W of £23k per annum, secured by an order addressed to the company holding H’s substantial pension fund restraining H from interfering with that fund or depriving W of her survivor’s pension if H should die first.

A periodical payments order in favour of a party to the marriage is automatically terminated by the remarriage of that party. This provides a powerful disincentive to remarriage, because entry into long-term cohabitation does not have the same effect and an amended court order is needed for any variation in the payments required in that situation. An unsecured periodical payments order (whether to an ex-spouse or to a child) automatically terminates with the death of either the payer or the payee, but an annuity obtained under a secured order may continue to make payments dependent on its own terms.

Under s.31 of the 1973 Act, a periodical payments order (also an order for maintenance pending suit) can be varied, discharged, suspended or (if suspended) revived by the court at a later date. In ordering any such variation, the court takes into account essentially the same factors (below) as in making the original order, with particular reference to the changed circumstances thought to justify a variation.

A lump sum order requires one party to pay to the other (or to a specified person for the benefit of a child) a certain sum either immediately or (if the court so orders) at a future date or by instalments over a period, perhaps with interest as appropriate. This may be more appropriate than a periodical payments order if the recipient has immediate expenses to be met, perhaps incurred over the period between the breakdown of the relationship and the date the order takes effect, or if the court is anxious to achieve a “clean break”, though periodical payments may be ordered as well as a lump sum in appropriate cases.

Where the parties have substantial assets, a lump sum order can be made to distribute those assets between them and to provide the payee with a capital sum sufficient to guarantee an adequate income for the foreseeable future. (The calculation of this sum, taking into account factors such as inflation, life expectancy, income tax and investment possibilities, is commonly done using an accountant-designed computer program called a Duxbury calculation, but the judges have stressed that the result is for the guidance of the court and is not binding.)

A lump sum order in favour of a party to the marriage is a “once for all” order; no variation can be made if circumstances change, and no further lump sum can subsequently be ordered in favour of the same party. However, a lump sum order can be made many years after the divorce so long as it was applied for at the time of the petition, and the court can in any case adjourn proceedings for a few years before making a final order.

Twiname v Twiname [1992] 1 FLR 29, CA

The facts are set out above. The Court of Appeal confirmed that the court has jurisdiction to order a lump sum payment as much as 15 years after the original divorce. (The decision attracted much adverse comment in the media because of its disregard of the “clean break” principle.)

MT v MT (Financial provision: Lump sum) [1992] 1 FLR 362, Bracewell J

H and W divorced after twenty years’ marriage; they had lived well beyond their income with the support of H’s wealthy family. H expected to inherit a substantial sum on the death of his father, then 83 and in poor health, and the judge granted W’s application for an adjournment of her lump sum application. Although a clean break is advisable, she said, justice demanded that after a long marriage W should receive a share commensurate with her needs and the capital available.

Under the 1973 Act, the court can vary a lump sum order for the benefit of a child, but this power will disappear once the 1996 amendments are brought into force. In any case, the courts very rarely make lump sum order for the benefit of children because of the danger that the person to whom the payment is actually made may use the money for some other purpose.

Property adjustment orders

A property adjustment order may require a transfer of property (this is the most common) from one party to the other, or to a specified person for the benefit of a child, or a settlement of property, or a variation in an existing marriage settlement. Property is anything capable of being valued in monetary terms, including property owned before the marriage and (to some extent) property likely to be acquired in the future. In practice most property adjustment orders are concerned with the ownership of the matrimonial home, though they have also been used in relation to investments and other property.

A property adjustment order can be made at any time after the decree nisi has been pronounced; when the 1996 amendments take effect, it will be at any time after the statement of breakdown has been lodged with the court. Property adjustment orders made on divorce are “once for all” and not subject to later variation, nor can additional orders normally be sought at a later date.

The court’s powers in this respect are very wide but are not unlimited; for example, the court cannot order one party to pay insurance premiums or mortgage instalments on a matrimonial home that has been transferred to the other. In practice such matters are commonly dealth with by agreement between the parties, their formal undertakings being annexed to the court order by way of a schedule. The court is also inhibited from making any order prejudicial to the rights of a third party not represented in the proceedings: if the matrimonial home is subject to a mortgage, the building society or other mortgagee must be given an opportunity of being heard before any order is made that would affect its position.

THE STATUTORY GUIDELINES

In considering a possible order for maintenance pending suit, the court is bound only by the words of s.22 of the 1973 Act, that it may order such payments “as the court thinks reasonable”. In dealing with applications for other financial provision or property adjustment orders, however, the court is subject to more detailed statutory guidelines.

Matrimonial Causes Act 1973 s.25(1)

It shall be the duty of the court in deciding whether to exercise its powers … and if so in what manner, to have regard to all the circumstances of the case, first consideration being given to the welfare … of any child of the family who has not attained the age of eighteen.

“All the circumstances” means just that, so that in Harris v Harris (see below) the Court of Appeal said it might in principle include the fact that a party had received bad legal advice.

Matrimonial Causes Act 1973 s.25(2)

As regards the exercise of its powers … in relation to a party to the marriage, the court shall in particular have regard to the following matters:

1. the income, earning capacity, property and other financial resources which each of the parties … has or is likely to have in the foreseeable future …;
2. the financial needs, obligations and responsibilities which each of the parties … has or is likely to have in the foreseeable future;
3. the standard of living enjoyed by the family before the breakdown of the marriage;
4. the age of each party … and the duration of the marriage;
5. any physical or mental diabaility of either of the parties …;
6. the contributions which each of the parties has made or is likely … to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
7. the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;
8. … the value to each of the parties … of any benefit (for example a pension) which … that party will lose the chance of acquiring [but see below]

Matrimonial Causes Act 1973 s.25(3)

As regards the exercise of its powers … in relation to a child of the family, the court shall in particular have regard to the following matters:

1. the financial needs of the child;
2. the income, earning capacity (if any), property and other financial resources of the child;
3. any physical or mental disability of the child;
4. the manner in which he was being and … expected to be educated or trained;
5. the considerations mentioned … in paragraphs (2)(a), (b), (c) and (e) above

Matrimonial Causes Act 1973 s.25(4)

As regards the exercise of its powers … against a party … in relation to a child of the family who is not the child of that party, the court shall also have regard:

1. to whether that party assumed any responsibility for the child’s maintenance, and if so the extent to which … and the length of time for which that party discharged such responsibility;
2. to whether … that party did so knowing the child was not his or her own;
3. to the liability of any other person to maintain the child.

These matters are not exclusive, and the courts are free to consider other matters as well, but the Court of Appeal has resisted suggestions that it might lay down further guidelines. In particular, a former rule of thumb that the payee (usually the wife) should receive in total one-third of the parties’ joint assets, has been largely abandoned and hardly ever features in modern judgements. Such a rule has always been inappropriate where the parties are very rich or very poor.

F v F (Ancillary relief: substantial assets) [1995] 2 FLR 45, Thorpe J

At the time of his divorce, H’s personal assets were around £200m; he offered £75k per annum as maintenance pending suit, and a lump sum of £1.5m as final settlement. W sought £500k per annum pending suit and a £9m lump sum; the judge awarded her £360k per annum and (in due course) the lump sum she asked for. The parties’ prenuptial agreement (under which W would have got much less) was disregarded in view of H’s wealth.

Dart v Dart [1996] 2 FLR 286, CA

On her divorce from an American multi-millionaire, the English court awarded W a house in the USA together with a lump sum of £9m. W appealed and sought £120m as an appropriate proportion of their joint assets, but her appeal failed. Where W has made no direct contribution to H’s wealth, said the court, there is no justification for applying a purely mathematical test: the correct test, applied by the judge, is what she reasonably requires.

Burgess v Burgess [1996] 2 FLR 34, CA

A solicitor H and a doctor W were partners in their respective firms; on their divorce the judge ordered a “clean break” based on a 50/50 division of their assets. The Court of Appeal affirmed the order: had the judge regarded equal division as a rigid rule she would have been wrong, but it was clear from her detailed judgment that she had taken it only as a starting point and would have been willing to modify it if appropriate.

Conran v Conran [1997] 2 FLR 615, Wilson J

During a 30-year marriage, W had raised three children (and two step-children by H’s previous marriage), as well as supporting H in his creation of the Habitat retail chain. On divorce, the judge considered W’s “reasonable requirements”, then took account of W’s contribution to the family and to the creation of the joint resources, and awarded her £6.2m (to be added to her existing assets of £4.3m) out of H’s total assets of about £80m.

White v White (2000) Times 31/10/00, HL

H and W divorced after 34 years with combined assets of some £4£m, mainly in the farms (one owned jointly, the other by H alone) that they had run together. The trial judge, taking account of W’s “reasonable needs”, awarded her just under £1m, but the Court of Appeal, taking greater account of W’s contribution over the years, increased that to £1£m. Dismissing appeals by both H and W, Lord Nicholls said a judge exercising his statutory discretion under s.25 should check his tentative views against a yardstick of equal provision, departing from that if and only if there are good reasons for so doing.

Welfare of any child

Under s.25(1), the welfare of any child under 18 is the first consideration, and this often results in an order for periodical payments not only for the benefit of the children but also for the maintenance of the parent (usually the mother) responsible for looking after them. It is not the paramount consideration, however, and the court may decide that in an individual case other considerations carry more weight.

M v B (Ancillary proceedings: lump sum) (1997) Times 15/10/97, CA

Varying the judge’s order for a lump sump payment, Thorpe LJ said it is a paramount consideration when granting financial relief, particularly where there are children involved, to try to stretch the available capital so as to allow each of the parties to maintain a home of his or her own. The primary carer obviously needs to be able to make a home for herself and the children, but the other parent should also have a home in which the children can enjoy their contact time with him.

Waterman v Waterman [1989] 1 FLR 380, CA

The facts are set out below. The Court of Appeal quashed an order that would have prohibited W’s seeking any extension of five years’ periodical payments. Their child (for whom W was responsible) would then be ten, and a 10-year-old child still needs care that might limit the kinds of work W could obtain.

E v E (Financial provision) [1990] 2 FLR 233, Ewbank J

Some ten years after H and W married, H’s wealthy father F made funds available for them (including funds to buy a house) by means of a discretionary trust over which F retained substantial control. H and W divorced because of W’s adultery, the children remaining with H, but W sought financial provision. The judge ordered H to pay W £200k as a lump sum, and ordered further that £250k be removed from the trust, £50k for W absolutely and the other £200k to be held for her (by new trustees independent of F) on a life interest. W’s children, he said, being the grandchildren of a rich man, should not see their mother in straitened circumstances.

Camm v Camm (1982) 4 FLR 577, CA

The facts of this case are described below. Ordering H to pay W periodical payments of £4000 per annum, Sir Roger Ormrod said is was not desirable for the children that their parents should have such totally different standards of living as they would have had under the judge’s original order.

Resources and earning capacity

In considering the income and other financial resources of the parties, the court can take into account potential or notional earning capacity where this is appropriate. A spouse cannot therefore reduce his liability (or increase his needs) by becoming intentionally unemployed or by taking a job at a much lower rate of pay than might reasonably be expected. In any case, the word “resources” is unqualified, and all kinds of financial resources can be taken into consideration.

Schuller v Schuller [1990] 2 FLR 193, CA

H and W divorced after a long marriage; H remained in the former matrimonial home while W went to work for an elderly friend. When the friend died, W acquired her flat but argued this “after-acquired asset” should not be taken into account in making ancillary provision. The Court of Appeal disagreed: it was a relevant asset, and if H paid W £8500 there could be a “clean break” on a basis of equal division.

Michael v Michael [1986] 2 FLR 389, CA

H appealed unsuccessfully against the judge’s refusal to take account of property that W was expected to inherit under her mother’s will. The Court of Appeal said expectations of this kind are in principle relevant, but in the instant case the expectation was too uncertain, both in its fact and in its timing, to influence the provision ordered.

MT v MT (Financial provision: Lump sum) [1992] 1 FLR 362, Bracewell J

The facts are given above. The judge adjourned W’s application for a lump sum in order that the court might take into account a substantial inheritance likely to fall to H on the death of his wealthy father, then 83 and in poor health.

Browne v Browne [1989] 1 FLR 291, CA

W was the daughter and granddaughter of wealthy women, and on their divorce H sought financial provision. Wood J found as a fact that W had access to substantial discretionary trusts, whose trustees in practice always acceded to W’s wishes. He therefore ordered W to pay H a lump sum of £175k, taking the trust funds into account among W’s assets even though she did not legally own them. The Court of Appeal dismissed W’s appeal and said this was the correct approach.

Newton v Newton [1990] 1 FLR 33, CA

H appealed unsuccessfully against an order that he pay W a lump sum of £750k from his substantial business. W was 56 and in poor health; there was no reasonable prospect of her becoming self-supporting.

Leadbeater v Leadbeater [1985] FLR 789, Balcombe J

H and W divorced after four years’ marriage; both had been married before. W was now 47, and although she had some work experience as a secretary, her unfamiliarity with modern office technology left her unqualified for a well-paid job. At the time of ancillary proceedings, H’s assets were about £250k and W’s about £80k; the judge ordered H to pay W a lump sum of £37.5k having regard to W’s earning capacity and the standard of living she had enjoyed before the breakdown, but taking account of the short duration of the marriage.

Hardy v Hardy (1981) 2 FLR 321, CA

H and W divorced, and W lived on social security with their two children. H had a wealthy father who employed H in his racing stables at £70 per week, but it was understood that H would take over the business when his father retired. The judge ordered H to pay W £30 a week for herself and the two children, but the Court of Appeal increased this sum to £50 per week, H’s earning capacity being considerably in excess of what he was actually receiving. H had accepted a low wage because he liked working for his father, said Ormrod LJ, but the court could see no reason why he should enjoy this privilege at the expense of W and the children. However, as H would not have any capital resources in the foreseeable future, W’s application for a lump sum order was dismissed.

Re L (Minors: financial provision) (1979) 1 FLR 39, Dunn J

The magistrates ordered W to pay child maintenance to H, who had been given custody of the children, at £4 per week per child, expressly taking account of the earnings of the man with whom W was now living. Allowing W’s appeal, the judge said this was wrong in principle: W herself (who worked as a caretaker but received no pay) had no means of her own, and no award should have been made.

Macey v Macey (1982) 3 FLR 7, Wood J

Following their divorce, H went to live with another woman X while W remained in the matrimonial home with their children. H paid the mortgage repayments and insurance on W’s home, together with a sum for maintenance, but H’s standard of living remained well above W’s largely because X was herself earning. On W’s application, the magistrates increased the maintenance order to take account of X’s earnings, and H appealed. Allowing his appeal in part, the judge said the Act requires the court to take into account the resources of the parties to the marriage, not those of third parties such as second wives or cohabitees. However, X’s income relieved H of expenditure he would otherwise have incurred, and so made a greater proportion of his income available for the payment of maintenance.

The parties’ reasonable needs

The court must take into account the reasonable needs of the parties, and of children where it is considering an order for their benefit. Even where the proposed order is in favour of the husband or wife, the needs of the children may be relevant insofar as that party is responsible for their continued support, and this may include children not related to the party required to pay.

Stockford v Stockford (1982) 3 FLR 58, CA

On W’s application for an increase in her periodical payments, the judge found as a fact that if the application were granted, H’s remaining income would fall below subsistence level. H’s capital was still tied up in the former matrimonial home now occupied by W, so that he had heavy mortgage repayments on the home he had bought for his new family. H’s obligations to his second family had to be balanced against his obligations to his first wife, and W’s application (and her subsequent appeal) therefore failed.

Slater v Slater (1982) 3 FLR 364, CA

Following divorce, W sought financial provision for herself and her children. H and his new wife now lived in Kent but worked in London, and the question was whether their heavy commuting expenses were “reasonable needs”: the judge decided they were not and awarded periodical payments of £1900 per annum. Allowing H’s appeal in part, the Court of Appeal said the husband’s travelling expenses were indeed unreasonable; however, the judge had failed to take account of W’s single-parent benefit and the payments should therefore be reduced to £1500 per annum.

Fisher v Fisher [1989] 1 FLR 423, CA

Following their divorce, H was ordered to pay W a lump sum of £50k together with maintenance of £5600 a year for herself and £1400 a year for their son. W subsequently had a second child by another man and applied for an increase in the maintenance order. The judge granted W’s application and H’s appeal was dismissed: W’s earning capacity had been reduced by the birth of the new baby, said Purchas LJ, and there was nothing in the 1973 Act to restrict the court’s discretion to vary the order so long as all relevant factors were taken into account.

Delaney v Delaney [1990] 2 FLR 457, CA

After divorce, W applied for financial provision for herself and the three children of the marriage. W lived in the former matrimonial home with the children, while H lived with another woman X in a one-bedroomed flat. H and X entered a scheme to purchase a three-bedroomed house in order that the children would be able to visit them from time to time; this left very little surplus even from their combined incomes. The registrar ordered H to pay £10 a week for each child (and a nominal amount to W), and the judge affirmed this order. Allowing H’s appeal and substituting 5p per annum for each child, Ward J said a former husband can balance his obligations to his former family against his aspirations for a new life. In the instant case, H was entitled to have suitable accommodation for staying in contact with his children, and the purchase was not extravagant or unreasonable expenditure. The court would avoid making orders which were financially crippling to H, and social security benefits were available to W to make up her shortfall.

Conran v Conran [1997] 2 FLR 615, Wilson J

See above. The judge first considered W’s “reasonable requirements”, then took account of her contribution to t