His Money, Her Money, Our Money.
Who Do Marital Money And Assets Belong To?
“The wife’s domestic contributions were considered equal to the financial contributions of the husband.”
WHITE vs WHITE, LORD NICHOLLS
“Wife’s contribution to the welfare and happiness of a family, as the homemaker and principal carer of a child, both during and after the marriage, was and would always be incalculable. Therefore financial contributions should not be prioritised over domestic contributions”
LORD JUSTICE MOYLAN
The write up on this webpage discusses the contentious subject of marital money, assets, pensions, finances and income and who they belong to in a divorce.
Newspaper articles and television series will often report on a divorce. Many will have the following headlines…
‘She took half.’
‘He gave her or had to pay her half.’
‘She’s cleared him out.’
‘She has taken him to the cleaners’
‘He’s settled with her.’
‘She’s taken him for all his worth.’
These headlines and the language used assume that marital finances generally belong to the man (the breadwinner). During a divorce, he is paying his wife (the homemaker) off and/or settles with her. It is also assumed she is trying to win whatever she can and get as much out of him as possible. These assumptions have always existed. Why? For generations, women have stayed in the home, given birth, raised children and looked after the family (a full-time 24-hour job which is both mentally and physically challenging). In contrast, men have gone out of the home, held a job, and brought finances into the home to pay for the family. He is bringing the income in, paying for everything, and accumulating the family’s wealth. So, when a couple divorces, some may think that the bulk of the family money and assets belong to him.
Rarely are the following headlines used…
“Their money was divided between them.”
Even when a wife has had a job during the marriage, she has often been on a different pay level than her husband, worked part-time while raising the children, or her career has taken second place to the family. So financially, she may have contributed less.
Generally, worldwide, giving birth, raising children, doing school runs, cooking, giving up your career, supporting your spouse in the background to succeed in their career and more are accepted and mostly respected as part of a homemaker’s duties. However, once a divorce is upon a couple, these same jobs are looked at differently, and they are not on par with going out and earning an income.
Traditionally in the British courts, there was more importance placed on the breadwinner’s financial contributions than the homemaker’s contribution. This allowed the breadwinner to be awarded a more significant percentage of the family money and assets by the courts.
Over the last 30 years, judges have ruled that this should not be the case and that a homemaker’s contribution is equally important. This has resulted in 3 essential principles being established and considered during the division of money and assets during a divorce to achieve a FAIR outcome.
WHAT ARE THE 3 PRINCIPLES?
PRINCIPLE 1 – The sharing principle
The decisions made in the divorce case, White vs White, pushed the legal profession onto the road that there must be equality in marriage and that both husband and wife are equal. They should both be entitled to an equal share of the money and assets accumulated during the marriage.
Today in most divorce cases, the starting point is a 50:50 split of marital assets. From here, the court has to consider many factors (such as length of the marriage, special contributions, earning capability etc.) and then a final split is determined and agreed upon. The most important factor is the welfare of any children under 18 years of age.
PRINCIPLE 2 – The compensation principle
This principle came about because of the divorce cases, MILLER vs MILLER and McFARLANE vs McFARLANE. These cases established that one spouse can be compensated during divorce financial proceedings where that spouse forfeited their earning capacity and career to look after the children and be a homemaker. They sacrificed their career for the welfare of the family.
This is called a relationship generated disadvantage.
Where this is the case, this spouse could be entitled to some of the other spouse’s future income to compensate for the lack of earning power in the future. Whereas spousal maintenance would have been usually calculated by a needs based approach, in these cases, spousal maintenance could be calculated by a compensation based approach.
PRINCIPLE 3 – The needs principle
This is the only principle included in section 25 of the matrimonial causes act 1973, discussed below.
The needs principle basically says that after the starting point of a 50:50 split of matrimonial money and assets, each party’s needs are an essential factor in making the final decisions of the split.
WHEN IT COMES TO FINANCES, WHAT HAS TO BE SORTED OUT DURING A DIVORCE?
When a couple decides to divorce, the following two things have to be sorted out:
- How all the marital money, assets, investments, pensions and income will be divided between the couple.
- Whether and for how long one party should continue to support the other financially.
In court language, this is also referred to as financial settlement, ancillary relief and financial remedy.
WHAT IS A MATRIMONIAL POT?
During a divorce, all of the following accumulated during the marriage are placed in an imaginary post called the ‘matrimonial pot’ –
- Money.
- Assets including property
- Pensions
- Investments
- All profits and growth of any asset owned by either party
This matrimonial pot is what the courts will divide between the couple.
WHAT IS A FINANCIAL COURT ORDER IN DIVORCE?
Once decisions have been made and agreed on how the matrimonial pot is to be split and whether either spouse will financially support the other, and for how long, these details will be written up on a piece of paper, approved and stamped by the court. This agreement is called a financial court order.
These decisions can be made privately between the couple, through mediation or by going through the court system.
HOW DOES A COURT DECIDE HOW THE MATRIMONIAL POT IS DIVIDED BETWEEN THE DIVORCING COUPLE?
Under section 25 of the matrimonial causes act 1973, there are many factors which determine asset and spousal support allocation by a court. They are:
POINT 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 a minor of any child of the family who has not attained the age of eighteen.
POINT 2
As regards the exercise of the powers of the court in relation to a party to the marriage, the court shall, in particular, have regard to the following matters:
- The income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity, any increase in that capacity which it would, in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;
- The financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
- The standard of living enjoyed by the family before the breakdown of the marriage;
- The age of each party to the marriage and the duration of the marriage;
- Any physical or mental disability of either of the parties to the marriage;
- The contributions that each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
- 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;
- In the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.
POINT 3
As regards the exercise of the powers of the court in relation to a child of the family, the court shall, in particular, have regard to the following matters;
- The financial needs of the child;
- The income, earning capacity (if any), property and other financial resources of the child;
- Any physical or mental disability of the child;
- The manner in which he was being, and in which the parties to the marriage expected him to be educated or trained;
POINT 4
As regards the exercise of the powers of the court against a party to a marriage in favour of a child of the family who is not the child of that party, the court shall also have regard:
- To whether that party assumed any responsibility for the child’s maintenance, and, if so, to the extent to which, and the basis upon which, that party assumed such responsibility and to the length of time for which that party discharged such responsibility;
- To whether, in assuming and discharging such responsibility, that party did so knowing that the child was not their own;
- To the liability of any other person to maintain the child.
The court has full freedom to determine the importance and strength of each factor.
LINK TO GOVERNMENT WEBSITE FOR SECTION 25 OF THE MATRIMONIAL CAUSES ACT 1973
WHAT ABOUT A PRENUPTIAL OR POSTNUPTIAL AGREEMENT?
This is a legal agreement signed by both parties before a marriage which details how assets, finances, income, maintenance, and pensions will be divided in the event of a divorce. A postnuptial agreement is the same as a prenuptial agreement, but it has been drafted and agreed upon AFTER the marriage.
When reaching a settlement during a divorce, the pre-nuptial & post-nuptial agreements will, or parts of it, be taken into account. These agreements are NOT totally enforceable or binding in the England and Welsh courts. They are legally binding in the Scottish courts. The English and Welsh courts will take them into consideration if they seem fair and reasonable.