Financial Settlements in Divorce: How Are Assets Divided?

Divorce ends the marriage but does not automatically resolve the financial relationship between the parties. A financial settlement requires either a negotiated agreement approved by the court as a Consent Order, or a contested financial remedy order made by the court after a hearing. Without one of these, the financial claims remain live indefinitely.

The starting point: fairness

There is no formula in English law for dividing assets on divorce. The court applies the Section 25 factors from the Matrimonial Causes Act 1973, which require it to consider: the income, earning capacity, property, and financial resources of each party now and in the foreseeable future; their financial needs and obligations; the standard of living during the marriage; the age of each party and length of the marriage; any physical or mental disability; contributions made by each party to the welfare of the family including non-financial contributions; and the conduct of each party where it would be inequitable to disregard it.

What assets are included?

All assets are potentially included in the pot regardless of whose name they are in or when they were acquired — the matrimonial home, savings, investments, business interests, and pensions. Assets brought into the marriage or inherited during it may be treated differently depending on the length of the marriage and the extent to which they have been mingled with matrimonial assets. There is no automatic ring-fencing of pre-marital wealth.

How pensions are treated

Pensions are often the most valuable asset in a marriage — particularly where one party has worked throughout and the other has not. They must be disclosed and valued. There are three options: pension sharing, where a percentage of one party’s pension is transferred into a pension in the other party’s name; pension offsetting, where the pension is set against other assets such as the family home; and pension attachment orders, where part of the pension income is paid to the other party when it comes into payment.

The family home

Where children are involved, the court will prioritise providing a home for the children — often resulting in the primary carer remaining in the family home until the children finish full-time education, with a deferred sale thereafter. Where there are no children or they are grown, the home may be sold immediately and the proceeds divided, or one party may buy out the other.

What is a clean break?

A clean break order permanently severs the financial relationship between the parties — neither can make financial claims against the other in the future. It is generally the preferred outcome where both parties have sufficient resources to meet their own needs. Where one party is financially dependent — for example having given up a career to care for children — spousal maintenance may be ordered instead, either for a fixed term or without limit.