Financial settlements on divorce and the factors at Section 25 of the Matrimonial Causes Act
Why are the section 25 factors important?
The Matrimonial Causes Act 1973 (MCA 1973) sets out the powers of the Court to make Financial orders upon divorce.
There is no standard formula for calculating the appropriate division of matrimonial assets in divorce proceedings. Instead Section 25 lists the matters that the Court must consider when making financial orders in connection with Divorce. These are known as the section 25 factors.
What about the children of the family?
A child of the family is defined as any child who has been treated by both parties as a child of their marriage. This includes step-children but not children conceived outside the marriage who have not been part of the marital home. When considering your matter the Family Court must consider all the circumstances of the case and the first consideration will be the welfare of any minor children of the family. However that doesn’t necessarily make their welfare paramount or overriding of any other consideration.
Having given first consideration to any children, the Court must then refer to the factors at Section 25 of the Matrimonial Causes Act.
What exactly are the section 25 factors?
- Financial resources.
“The Court shall have regard to the income, earning capacity, property and other financial resources that each party to the marriage has or is likely to have in the foreseeable future”.
- i) Income and Earning Capacity
The Family Court will look at a party’s present and potential earnings and will consider whether it would be reasonable to expect the parties to re-train or increase their working hours. The Court will also take into account their property.
- ii) Other financial resources – expectations under a Will
Very rarely an interest under the Will of a living person, rather than an actual inheritance, may be taken into account.
Another relevant factor is whether a party is co-habiting with a new partner after the divorce or separation. The co-habiting party may have more income available to them. The Court might need to decide whether the new partner should make a financial contribution.
- iv) Resources owned or administered by Third Parties
The Court will need to look at the reality of the situation and will take into account external resources, such as an interest under a trust that a party has access to. If the court believes that any shortfall in the payer’s resources will be made up by a third party then this may lead to a more generous award to the receiving party.
- “The financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future”
- i) Needs can include any reasonable expenses. Where there is more money and the resources of the parties exceed their needs, then their needs will usually be more generously interpreted.
- ii) Obligations
Obligations can include any legal or moral obligation to meet expenses, including obligations to third parties, not only to children but also other dependants such as disabled or elderly relatives, which may be given high priority.
- “The standard of living enjoyed by the parties before the breakdown of the marriage”
In most cases where one household is effectively being split into two households there will not be sufficient resources to maintain the standard of living enjoyed during the marriage for either party. In this situation the Court will aim to not allow one party’s standard of living to drop significantly below the other.
In cases where there is more money it would still be unusual for the Court to assess their needs on the basis of maintaining the same standard of living separately as they enjoyed together.
- “The age of each party to the marriage and the duration of marriage”
- i) Age of Parties
This factor is relevant mainly for earning capacity and retirement. For example, a wife (or husband) in their later 50s who has never worked may be more generously treated than a younger spouse in their 20’s or 30’s with most of their working life ahead of them. The young spouse will normally have a higher earning potential whereas the older spouse may be seen as facing employment difficulties with little time to build up provision for their old age.
- ii) Duration of Marriage and Pre-Marriage Co-habitation
Where a relationship moves seamlessly from cohabitation to marriage without any major alteration to the way the couple lives then resources accumulated during cohabitation may be regarded as matrimonial assets.
iii) Short Marriages
After marriages of extremely short duration such as less than a year, the Court may Order no financial provision at all. However, the Court may regard a marriage that’s lasted longer, for example six or seven years, as a long marriage where financial orders are appropriate.
- v) Needs of the Children and Parties
Even after a short marriage the needs of any children must be considered. If there are children, even though the marriage may be of a short duration, one parent may have to contribute to the marriage for the next two decades. If a short marriage has a profound and continuing consequence for one party’s earning capacity in the short to medium term, there may be a case for a more generous settlement.
- “The contributions which each of the parties has made or is likely to make in the foreseeable future to the welfare of the family, including any contributions made by looking after the home or caring for the family”
- i) Marital and Non-Marital Assets
Financial contributions may be made to marital assets, which are created during the marriage by the efforts of the parties or can be made to non-matrimonial assets, such as pre acquired assets like a property owned before the marriage, or an inheritance. Non matrimonial assets can also be those assets that are generated after separation.
Do non-monetary contributions count?
Relevant contributions are not just limited to financial contributions and contributions to the welfare of the family, including looking after the family home, often referred to as “domestic contributions” must be taken into account. There should be no bias in favour of the breadwinner at the expense of the homemaker.
- “Any physical or mental disability of either of the parties to the marriage”.
If either spouse has a physical or mental disability, this may be relevant to their earning capacity and their needs. However, if the disabled spouse can claim benefits while the other is on a low income, the court may not make an order in their favour.
- “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”
(i) It is very rare for a court to take into account unreasonable conduct or to look at the causes of the matrimonial breakdown. There is a very high hurdle to overcome before conduct is likely to be relevant. An example of relevant conduct would be attempted murder.
(ii) Non-Disclosure and Financial Misconduct
Relevant conduct might also include making false statements or wilful non-disclosure of assets during proceedings. This is more likely to affect or lead to an Order for legal costs rather than a change to the distribution of assets.
- “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 divorce or nullity, that party will lose the chance of acquiring”.
An example of such a benefit would be a pension so the court may make a pension sharing order to ensure both parties have provision for their retirement.
Will the court make a Clean Break order?
The Court must consider where it can order that the financial obligations of each party towards the other will be terminated as soon after the divorce as is reasonable. This means the Court should endeavour to divide the assets once and for all between the divorcing spouses with no further obligations between them, leaving each free to move on This may only be possible in cases with ample assets or if both parties have enough income potential to make maintenance unnecessary.
Do I have to take into account section 25 factors in my divorce settlement?
Yes and the court may refuse to approve your divorce settlement if the Judge believes that it does not adequately comply with the section 25 factors.
How can Lincolns Family Law help?
If you are planning to negotiate a financial settlement upon divorce or if you have already agreed an outline settlement with your ex, we can provide legal advice and representation tailored to your own particular circumstances and we can show you how the section 25 factors are relevant to you. We offer a no obligations free enquiry or alternatively you can call to arrange a fixed fee initial consultation, which will not be time limited, so you will have enough time to discuss your situation with us in detail.