Divorce and financial settlements – how does the court decide?

My wife/husband has said they want a divorce – how will the court decide how to divide our assets?

The court has complete jurisdiction to make an order covering all assets held by the parties in divorce, irrespective of whether they are held in one party’s sole name or where they came from.

The first step is to establish the value of each asset and formally disclose this to the court. Many farms are run as partnerships and the value of the divorcing parties’ interest in the partnership may need to be established by an independent expert. The same applies to farms that are run as limited companies.

If the parties are tenant farmers, the court would consider the divorcing parties’ interest in any company or business structure established to run the farm and this could potentially include any preferential terms relating to the purchase of land that may be incorporated into the tenancy.

Once the court has established what the assets are, it must decide how to divide them. This is done based on criteria set out in the Matrimonial Causes Act 1973 and case law. The court’s starting point is generally an equal division of all assets, a principle established in the landmark case of White in 2000. .

The parties in White married in 1964 and continued a very successful farming business throughout the marriage. At the time of the divorce, the parties held assets worth in the region of £4.6m. Mrs White was initially awarded a lump sum of £800,000, which in combination with her own resources of about £193,000 (mostly pension provision), was found to be sufficient to meet her needs.

Mrs White appealed against an award based on her needs and sought a greater share of the capital. The Court of Appeal, in a decision later upheld by the House of Lords, awarded her a lump sum of £1.5m, taking her award to just more than one-third of the overall capital.

Importantly, the House of Lords found that the court would be “well advised” to check its views on the division of the matrimonial finances against “the yardstick of equality” in future cases. In White, a departure from equality was considered appropriate because of contributions made by Mr White’s family to the farm in the early years.

The court also has power to make maintenance orders in favour of spouses. In farming cases this can be complicated by the fact that the parties’ main asset is often also the main source of income. The court need to balance the need to provide both parties with adequate capital to house themselves after the divorce, a fair division of the assets after a long marriage (with the principle of equality in mind) and the need to ensure that both have an income going forward.

The court will try to avoid the business being jeopardised by its decision. This may require a loan to be taken out using the farm as security, to allow capital payments to be made to a party on divorce, with the loan repayment obligations being taken into consideration when each party’s net income is considered.

When will the court depart from an equal division of capital?

There may be good reason to depart from an equal division. In the average case, where the court is trying to create two households out of one, the predominant factor is each party’s financial needs, with the resident parent’s needs taking priority, as they will have to look after the children until they are independent. This may require the resident parent obtaining a greater share of capital.

While the court does not exclude or ring-fence assets simply because they were inherited or gifted to one party before or during the marriage, consideration is given to the contributions that each party has made to the marital assets.

Inheritance may form part of this analysis. In the 2004 case of P v P, the court found that the circumstances of the case justified limiting the wife’s award to her reasonable needs (the farm had been inherited by the husband and both agreed it would be better to avoid a sale, if possible) rather than dividing the assets on a percentage basis. The court is therefore sensitive to the dynastic nature of farms.

Length of marriage is also relevant, with the court likely to consider it unfair to apply the sharing principle as rigidly if the marriage has been short, with little contribution from the party making a claim.

Having said that, the court is required to consider each party’s needs going forward, and even after the shortest of marriages, a capital award based on the weaker party’s financial needs is a real possibility.

The farm is a family enterprise, will the court force its sale even though this would affect other family members?

The court would not exclude a party’s interest or share in a farm simply because it is a joint enterprise. It will be valued along with all assets.

In cases where there is no substantial capital asset aside from the farm that could be used to offset the other party’s claims against the farm, the court may look at other options such as a loan. Where this is not possible, the court may consider whether the divorcing party’s interest in the farm can be liquidated, to meet their spouse’s capital claims.

Will a prenuptial agreement protect my position?

Prenuptial agreements are not binding in England and Wales, but they are one of the factors the court will take into consideration when deciding how to divide the matrimonial finances.

Recent case law suggests that if a prenuptial agreement is freely entered into, with each party fully aware of the implications, the court is likely to respect the parties’ decision to regulate their financial affairs.

Each case will turn on its own facts, however, and an agreement that seeks to leave one party destitute on divorce would probably not be upheld. A successful prenuptial agreement may therefore seek to exclude the sharing principle and limit the weaker party’s financial claims to the amount needed to house them, for example, which could even be quantified in the agreement.

There has been a marked increase in prenuptial agreements in recent years and they are an extremely sensible way of protecting family wealth. It is a complicated area of law and specialist advice should be sought on the content of an agreement.

I am already married, can I enter a postnuptial agreement?

In terms of enforceability, the position on postnuptial agreements is the same as with prenuptial agreements. They are often entered into where the marriage is in difficulty, the parties would like to attempt to save it but have the certainty of a financial outcome if this does not succeed.

Case law suggests that postnuptial agreements are more likely to be upheld, as there is less pressure to enter into them than an agreement before marriage.

Thomas Duggins is an associate in the family team at Charles Russell LLP. He advises on family law, including divorce, related financial claims and children.