In a Divorce, a Home Short Sale Can Be the Answer
The number of divorces has trebled over the past half century and is continuing to rise. The most recent figures from the Office for National Statistics reveal there were 313,600 marriages and 167,100 divorces in the UK during 2004, up from 305,900 marriages and 154,600 divorces in 2000. However, the fallout particularly on the financial side can be felt for years afterwards if the process is not managed properly from the outset.
The emotional aspects of separation can be difficult enough without having to address the minutiae of budgets, pensions, savings and investments. But it is vital to dedicate time to sorting out the financial details and seek professional advice or you could end up paying a heavier than expected price for the split.
People are planning for their divorces now both before and during their marriage and wealth protection is a whole new issue that needs to be considered.
This trend could be partly apportioned to last years high-profile litigations, known as the Miller and McFarlane cases, which redefined the concept of compensation where wives gave up good earning careers to have children and deal with the domestic side of the family.
In particular, the Miller case also demonstrated that even where a marriage did not last very long, this does not necessarily affect the principle of equal division of matrimonial assets.
Before potential financial settlements can be discussed, anyone considering filing for divorce needs to work out how much the divorce process itself will cost.
Any action will obviously depend on the individual circumstances of the case, but there are some general themes to bear in mind. The earlier you plan for a possible divorce the better. Taken to extremes, cynics - often including those who have been married and divorced before - argue that a pre-nuptial agreement is worth considering. While pre-nuptial agreements are not binding under British law, they are increasingly being given greater priority in court, after the Miller and McFarlane cases.
Even so, the vast majority of couples do not consider pre-nuptial contracts. For those who find themselves sadly overtaken by events it is important to build up a record of your partner's finances.
For couples with joint bank accounts or credit cards, both parties are jointly and severally liable for any outstanding debts. That means there is no splitting of the debt between couples on divorce and lenders reserve their legal right to pursue either or both parties for the entire debt, regardless of what the divorced couple may view as their share.
Banks can also freeze an account on the request of either party if there is a dispute. But if an account is not frozen, then the account's normal terms and conditions apply. For example, that means one partner can withdraw funds without the other's permission.
Any other action, such as changing the account to another type of account, can only be taken with the written agreement of both parties.
Two people are not jointly responsible for debts taken out in individual names just because they are married. The marriage has nothing to do with it. So, your partner could have a £10,000 loan in his name and you are not liable for it, he is. It depends whether or not you took out the debt in joint names. This is an important distinction to make.
However, it could get messy if you are both named on a mortgage and the deeds of the property and your partner cannot afford to pay a loan in his name. The creditors can then apply for a charge on his share of the equity in the property.
For example, this might have nothing to do with the wife if it is a loan to the husband's business but the family home could still be at risk.
There have been several court cases in recent years where banks have sought to repossess homes where wives have signed agreements for loans to their husband's business but subsequently denied having understood the consequences.
Most people's second-most valuable asset is their pension fund. Usually, this will be in the husband's name and, often, a non-earning wife may have little or no pension fund of her own.
However, there are also cases where the wife has access to a final salary or defined-benefit pension which might be far more valuable than a husband's money purchase or defined-contribution scheme and so could substantially alter the division of assets. Anyone involved in a divorce should be aware of the three main options facing them if a private pension pot has been built up.
The first possible arrangement is known as offsetting, where couples agree one party keeps the pension while the other gets the house, usually as a home for children. Although this can cause problems in the future as the person with the house still needs something to live on when they retire. You sign away those pension rights at your peril. The second option is known as ear-marking, where the parties agree that the individual with the pension will pay a percentage of it to the other party on retirement. The problem here is that in the meantime the person with the pension still has control of it and so this may not work out to the advantage of the other party. The third option, called pension splitting, is where the person with the pension allocates a part of it to the former partner and those assets are then transferred into a pension in the former partner's name. In the majority of cases, could be the most attractive solution as it gives the person acquiring the pension control and they are not reliant on their spouse for those pensions rights.
You may get shared additional state pension if you divorce or have your marriage annulled after December 2000 or if your civil partnership ends.
Often women are still reliant upon their husbands to provide for them in retirement. However, in the case of a divorce this can often leave the ex-wife with little or no pension provision.
Both parties should get their financial house in order as soon as possible and avoid attempting to conceal any assets as the process is based on both parties making full disclosure of their assets and liabilities.
The number of divorces where family wealth was split half and half between husband and wife more than doubled in 2005, up to 63 per cent of cases, against 30 per cent in the previous year, according to forensic accountants Grant Thornton.
Any assets transferred between husband and wife in the tax year of separation are free of capital gains tax (CGT). So, while January is a popular time for people to file for divorce for emotional reasons, financially April 6 may prove a wiser choice.
If you separate on April 1, you only have a small window of a few days before the end of the tax year and realistically you are not going to get everything sorted in that time. People may decide to wait until April 6 so you can benefit from the whole of the tax year to move assets around without the tax implications.
If either party has brought assets to the marriage, it is important that records are kept as it is possible that those assets may be ring-fenced and excluded from the settlement.
But if filing for divorce is the only option, taking time to plan the split and filing for divorce at the start of the tax year instead may be your best financial move.
- Gather information and keep records of your partner's financial income, gains and assets
- Don't tell the bank of a dispute as they may freeze the account, leaving you with no money to fight your corner
- Keep records of your expenditure, to prove your standard of living
- Check whether you should be entitled to some of your partner's pension
If you would like to find out more about the services that we provide, please visit our website http://www.mfgsolicitors.com to arrange a meeting.
Family Law Attorneys are standing by call 1-800-564-2707