Negotiating Out-of-court Settlements to Divorce & Separation Financial Disputes

If you are divorcing or separating, it is almost always quicker, more cost effective and less stressful to negotiate a financial agreement out of court – achieved by a consent order.

Our award-winning family law experts can support you through this entire process, applying their expert judgement to secure the very best negotiated outcome.

What is an out-of-court settlement in divorce?

It is an agreement between a separating couple to divide their marital assets without going to court. Unlike a decision made by a judge, which both parties have to comply with – a process which can be expensive and emotionally challenging – out-of-court settlements give parties the opportunity to control their financial settlement without the pressures of formal financial proceedings.

The aim of an agreed out-of-court settlement is to reach a solution that both parties consent to, and that a court will approve as fair. It can be difficult to define what is a ‘fair’ financial settlement as no two cases are the same.

Generally, the aim would be to achieve equality between the parties on both income, capital assets and pension benefits. An experienced family law solicitor will use their knowledge and experience to help you determine the best achievable outcome.

If you reach an agreement, you can ask the court to approve that agreement as a consent order, sometimes referred to as a financial court order or clean break order. Consent orders are unique to the parties’ individual needs and requirements; they are legally-binding documents usually prepared by solicitors. They detail the agreement between the two parties on the division of marital assets.

How do you negotiate out-of-court settlements to financial disputes?

A key initial stage in negotiating a financial settlement is financial disclosure, which is a process where both parties share with each other their financial positions openly and transparently.

This can be done by a Statement of Information Form (D81) or, in some cases where matters could be disputed, a Form E. This is a more detailed document requiring a comprehensive disclosure of financial circumstances.

If the breakdown of the relationship is amicable, then both parties to the marriage may be able to agree to a direct, informal negotiation between each other, without the need for solicitors – it is not uncommon to involve a mediator in these discussions.

However, even in cases where an agreement is reached without the involvement of solicitors, it is recommended to obtain legal assistance to ensure the fairness of the terms. There is a risk, however, that informal agreements may not be valid or enforceable by the court.

The more traditional, formal process is for each party to instruct a solicitor to advise and represent them. They can provide the appropriate legal advice to assist with the negotiation process, including in the preparation and exchange of offer letters and counter-offer letters.

This should help parties reach an agreement without needing to proceed with the court process, which can involve significant cost.

During this process, any offer letter can be stated as ‘without prejudice’ – that is, they cannot be referred to in later court proceedings should the negotiations turn out to be unsuccessful.

There are different types of assets to consider in a financial settlement when you separate or divorce. These fall into several categories: capital (which includes property and other savings and investments), pension benefits, income and child or spousal maintenance.

Capital, property and savings

When getting divorced, any money that you have – including your family home, savings, life policies or an interest in a business – will be divided between you. These things are often referred to as your ‘capital’.

The ‘sharing principle’

Regarding the division of capital, the court’s general approach is a 50/50 split of assets of both parties to achieve equality. This is known as the sharing principle.

However, in some cases, there can be a departure from the sharing principle. This is based upon certain factors, the most important taken into consideration being the financial needs of any dependent children. The welfare of children will be a key priority; they should be financially provided for and have somewhere to live.

A court will consider the parties’ needs and contributions to the marriage. These can include parties' financial contributions, housing needs, the duration of the marriage, or any disabilities. The court will look at each case individually and will divide assets to achieve a fair settlement.

Whether you are acting for yourself, using a solicitor or using a mediator, they will all take into consideration:

• The value of your family home and other properties which you own including whose name the property is in and individual contributions made towards the purchase of the property.

• Any outstanding mortgages you may have.

• Any current income and benefits

• The value of any monies in bank accounts, savings and shares.

• Any involvement or interest in a business.

• Any debts which you have.

• Any pensions you have.

Once the value of the capital is agreed upon, it will be divided between you. Options include transferring or selling properties, paying lump sums or transferring or surrendering policies.

Pensions

Pension benefits can be one of the largest matrimonial assets. Although you may feel that the investments are not easily accessible and are only for future consideration, the value of those investments matters.

There are different types of pensions and some are more valuable than others. The way in which they are valued also differs: some pensions offer more benefits than others, such as the right to retire early.

Since April 2015, there has been more flexibility in the way in which pension investment can be accessed for over 55s. Those who once had no prospect of accessing cash when divorcing will be able to draw investment from pensions more easily and flexibly. 25% of the pension pot will remain tax free, and those who want to withdraw the investment by way of cash as a lump sum.

The starting point for valuing pensions in divorce is to obtain the cash equivalent value (CEV). A recent Pension Advisory Group report and case law have given judicial guidance that pensions should be divided in a way that gives equality of income in retirement. This will often involve the instruction of a pension expert to provide a detailed report on equalisation of pension benefits. Any benefits accrued pre-cohabitation can usually be disregarded, however the individual’s needs are still considered.

Some couples still prefer to consider a capital offset – for example, one party keeps the house (or a greater share of the house), or more capital (such as investment and savings) and the other keeps a pension.

Income and maintenance

There are three main types of maintenance to consider when negotiating a financial settlement: interim maintenance, spousal maintenance and child maintenance.

Interim maintenance (or ‘maintenance pending suit’)

This is a payment to ensure one party to the marriage is able to afford utility bills, family home mortgage payments, food and petrol.

This is usually paid only for a short interim period until an agreement is reached relating to financial issues regarding the settlement.

Spousal maintenance

This is a payment made by one party to the marriage to the other that is separate from child maintenance payments. It can be made for a term – for example, until a wife has returned to work, until a wife has finished further education, or for a specific number of years. These are typically a short term, such as five years.

If asked to decide this issue, a judge will take into account current income and expenditure of both parties and any significant likely changes in income. Spousal maintenance can also be capitalised – that is, paid as a lump sum instead of as a monthly amount of income.

Child maintenance

This is a payment made by one party to the marriage to the other that helps towards the living costs of the children.

You can enter into a voluntary arrangement directly with your spouse as to what you feel is an appropriate amount of financial support towards the living costs of your children.

Alternatively, you can contact the Child Maintenance Service (CMS) for guidance about the statutory amount that would be calculated if a formal application is made.

Parties can use the government’s CMS calculator to obtain the correct amount of child maintenance for them.

Statutory child maintenance is calculated as a proportion of gross earnings with an allowance for the number of nights on average children stay with the parent that they don’t usually live with.

If no agreement can be reached about the payment of child maintenance, a formal application to the CMS can be made. However, in this case, both you and your partner will be charged to use the service. The payer pays more and the payee receives less.

There are deductions from this calculation for the number of dependent children living in the home of the payer, as well as an allowance for the number of nights on average the children stay with the payer. Parents can calculate the amount of child maintenance for their children through the gov.uk website.

Emsleys: award-winning legal advice for financial issues surrounding divorce and separation

Since 1987, we have helped many individuals to negotiate out-of-court settlements to financial disputes.

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For a free, no-obligation 15-minute initial consultation, contact our family law experts today.