How divorce settlements are calculated and when is best to draw one up

Guy Mawson, senior associate, Forsters, 30/08/2022

In financial settlements on divorce, as in much of life, the devil is in the detail.

The principles to be applied so that both spouses, or civil partners, receive a fair financial outcome are relatively simple. 

The first stage is to work out what is in the “pot”.  In most cases, what the spouses own between them is easy enough to identify and agree. 

However, when financial arrangements are more complex with trust structures or business assets, both what the assets comprise, and what they are worth can become contentious (and expensive to ascertain, requiring for example forensic accountancy experts). 

This first stage is made all the more difficult if one party, contrary to their legal obligation, refuses to provide full, frank and clear financial disclosure.

The second stage is to categorise the assets.  Are they “matrimonial”, built up during the marriage as a product of the joint endeavour of the couple? 

If so, as a starting point they are divided equally.  Alternatively, they might be “non-matrimonial”, not a fruit of joint endeavour, but instead either owned before the marriage, acquired after the parties separate, or inherited/gifted. 

If the asset is “non-matrimonial” then as a starting point it is kept outright by the person who owns it.

Often this categorisation is fairly straightforward too, with the spouses having a clear sense of what belongs to them jointly and what does not.  But there can be complications. 

What about an asset which began its life prior to the marriage as “non-matrimonial” but which has been used by the couple during the marriage.  In that case, it could be said to have become “matrimonialised”, mingled with martial assets and so losing its “non-matrimonial” flavour and therefore falling to be shared on divorce. 

Or what about a business, which was started before the marriage, grew slowly and steadily prior to it, but then really took off during the marriage.  Some of it may be “non-matrimonial”, some of it may be “matrimonial”, and if the couple cannot agree, then the court is there to impose an answer.  

Judges have a wide discretion; one judge may have a different view to another, but neither be wrong to the extent that the decision could be appealed. 

The third stage is a cross-check for fairness. Can each party meet their “reasonable” capital needs with their own “non-matrimonial” property and their 50 percent share of the “matrimonial” property? 

If not, the party with a surplus will be required to top-up the party with a deficit.  Simple in principle, but what comprises a “reasonable” need varies widely from case-to-case, depending in part on the standard of living enjoyed during the marriage.

That is the capital distribution. There may then also be an income distribution. Can each party meet their own day-to-day expenditure needs from their own resources?  If not, the party with a surplus may need to top up the party with a deficit, usually by way of monthly maintenance payments, sometimes (if there is enough money) by a one-off cash lump sum.

For many, this process marks the end of the matter and parties comply with the court order. However, for some this may barely mark the beginning.

Sir Frederick Barclay hit the headlines recently.  In March 2021 he was ordered to pay £100 million to Lady Hiroko Barclay, £50 million within three months of the judgment and the other £50 million a little over a year later.

But the recent publicity relates not to the fact of the £100 million obligation, but from Sir Frederick’s failure to pay it. When a spouse does not pay, the other has to enforce the order.

There are various ways to enforce an order. A spouse can seek a charge over the other’s property and then force an order for sale.

Alternatively, a party’s assets which are held by a third party (such as a bank account) can be frozen and seized, or earnings can be deducted from the non-payer by an employer and paid to the spouse who is owed the money.

However, if assets are offshore, or controlled through a trust then the above options may not be effective. That leaves the enforcement option of last resort, committing the non-payer to prison. 

To be successful, it must be shown beyond a reasonable doubt that the person in breach of the order had sufficient sums to pay what they owe.

Seeking to commit Sir Frederick to prison was the option Lady Hiroko Barclay took. Sir Frederick was found in contempt of court for failing to pay £245,000 in monthly maintenance payments and legal fees. 

However, Lady Hiroko was not successful in proving beyond a reasonable doubt that Sir Frederick had enough funds to pay the £100 million outstanding. At the sentencing hearing a few weeks later Sir Frederick was spared immediate jail time because he had by then paid the £245,000. The judge adjourned any sentencing hearing for three months to give Sir Fred the chance to pay the £100 million.

On Sir Frederick’s case, he is unable to raise the money needed because his wealth has all been placed into offshore trusts and his nephews have “turned off the tap”. Whilst the scale of the family dispute may make this case unusual, it contains a warning for all cases with assets offshore and/or in trust. 

A bird in the jurisdiction is very often worth two outside it; in such cases enforcement needs to be considered at the very outset and may present a major stumbling block for a spouse to ultimately receive that to which they are entitled.

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