Divorce can take its toll emotionally, but it can also create many financial complexities. One of the most challenging aspects is understanding how assets are divided.
If you’re going through a separation, knowing what to expect can help you prepare and ensure a fair outcome.
Asset division
The division of assets during a divorce follows the principle of “equitable distribution.” This does not necessarily mean an equal split but rather what is deemed fair. If you agree, it’s wise to get a legally binding consent order, stating the split.
If you don’t agree, it’s likely a court will need to decide on the outcome. The starting point is often a 50/50 division, but various factors influence the final decision. These include the length of the marriage, each party’s contributions (both financial and non-financial), future needs and earning capacity.
Property and estate
Property is one of the most significant assets in divorces. Marital property typically includes your family home and any other property purchased during the marriage.
The family home often presents the most significant challenge. If you’re unable to agree on how to proceed, the court may decide that it should be sold, with the proceeds divided between the parties, or one spouse may buy out the other’s share. In some cases, the court may allow one spouse (usually the primary caregiver of children) to stay in the home until the children reach adulthood.
It can be useful to consult local solicitors if you’re dealing with complex property issues, especially if your home is in London’s competitive housing market.
Pensions and retirement funds
Pensions are often overlooked during divorce, but they can be one of the largest assets. A common method for dividing pensions is through a pension sharing order, which splits the pension into two separate funds.
It is vital to approach pension division with care, considering both the immediate impact and long-term consequences. For instance, if you or your partner has a significantly higher pension, it may be fair to balance this with a larger share of other assets for the other spouse. Tax implications and the potential loss of retirement income should also be considered when negotiating settlements.
Debts and liabilities
Just as capital is divided, so too are debts. Any debt incurred during the marriage is usually considered marital debt, regardless of whose name it is in. This can include mortgage debts, loans and credit card balances. Both parties are typically responsible for repaying these debts.
It’s crucial to distinguish between marital and non-marital debts. Protecting your credit during divorce is also essential. This can include closing joint accounts and ensuring your name is removed from any loans or credit agreements that are no longer your responsibility.
While the process can be complex, knowing the basics of division can help you both reach an agreement that’s fair and that takes into account your future financial wellbeing.
