How does the court decide a financial settlement?

The answer to this question may be found in many places. However, a recent Family Court judgment contains an excellent summary, which should act as a useful starting-point for anyone wanting to know how the law decides financial settlements on divorce.

The summary sets out the following legal principles that the court will follow:

1. The first is simple: The objective of the court is to achieve an outcome which is “as fair as possible in all the circumstances”.

2. Importantly, fairness means that there is no place for discrimination between husband and wife and their respective roles. Accordingly, for example, the primary ‘breadwinner’ in the relationship will not be entitled to any more than the primary ‘homemaker’, just because they brought more money into the marriage.

3. In evaluating what is ‘fair’, the court has a broad discretion, but is required to have regard to the statutory criteria laid down by parliament, the first consideration being given to any minor child of the family. The statutory criteria include: the parties’ financial resources, their needs, their ages, the duration of the marriage, their contributions to the welfare of the family, and their conduct.

4. The court should seek a ‘clean break’ between the parties (i.e. so that they have no further financial responsibilities towards one another), if possible.

5. For reasons that will become clear in a moment, the court must decide which assets are ‘matrimonial assets’ and which assets, if any, are ‘non-matrimonial assets’. The difference is that matrimonial assets are assets acquired during the marriage, through the joint efforts of the parties to the marriage. Usually, non-matrimonial assets have one or more of 3 origins, namely: property brought into the marriage by one or other party, property generated by one or other party after separation, and inheritances or gifts received by one or other party.

6. Lastly, the court must take into account three particular principles, set out in the case law:

(i) Needs – The needs of the parties, in particular their financial needs, taking into account the standard of living during the marriage. In the vast majority of cases the court’s enquiry will begin and end with quantifying and meeting the parties’ needs. It is only in those cases where there is a surplus of assets over needs that the sharing principle (see below) is engaged, and where the outcome suggested by applying the needs principle is an award greater than the result suggested by the sharing principle, the needs principle will prevail.

(ii) Compensation – i.e. compensation for ‘relationship-generated disadvantage’, for example where a wife gives up a lucrative career to bring up the family. In practice, successful compensation arguments are very rare.

(iii) Sharing – The principle that, as a starting point, the parties are ordinarily entitled to an equal division of the matrimonial assets, whereas non-matrimonial assets are usually retained by the party to whom they belong, unless there is a good reason to the contrary. In practice, ‘needs’ is usually the only justification for a former spouse sharing in non-matrimonial assets.

If you wish to read the full judgment you can find it here.

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