What are the risks of not looking at finances during a divorce?

Divorce marks the conclusion of a marriage, yet it's worth noting that divorce alone doesn't break the financial connections between partners. The definitive way to accomplish this is by acquiring a final financial court order.

More couples are opting to separate and divorce before resolving their financial matters. This trend may be linked to the introduction of No-Fault divorce on 6th April 2022 and the ability to carry out the process online using the HM Courts and Tribunals Service (HMCTS) portal. 

However, despite the simplicity of the divorce process, there are still risks it is essential to recognise the consequences of not settling financial issues by obtaining a court order.

In most cases reaching an agreement is advantageous for all parties especially in relation to finances as a settlement can encourage closure and finality and we always promote this when feasible. However, it is crucial to formalise the terms of the agreement in a court-approved financial consent order, ensuring its legal validity.

If a financial order is not obtained, financial claims between ex-spouses can persist even after the marriage ends in divorce.

Possible claims may involve:

• Maintenance payments
• Property transfers
• Lump sum orders
• Pension claims

Even in the event of an ex-spouse's passing, the surviving spouse retains the right to make claims for financial provision unless they have been specifically restricted or terminated by a court order from the divorce proceedings.

Why you should settle your finances quickly

Pensions

Pension provision is a good example of why delay is not a good idea.

During marriage, if your spouse has an occupational pension, it is probable that you would receive a dependent's pension in case of their passing. 

It is advisable to secure a portion of the pension through a Pension Sharing Order before obtaining the Final Order. This ensures that the lost dependents' pension is replaced by a stable pension fund under your name. Failing to take these measures may result in the ex-spouse facing a total loss of pension benefits if the pension holder passes away before the order is finalised.

Property

If property matters are not addressed promptly, there is a risk of facing capital gains tax (CGT) issues. If the couple resolves these matters after divorce, they may encounter a significant CGT liability that could have been prevented by addressing finances concurrently with the divorce.

Maintenance

If maintenance is required, ex-spouse who may wish to seek maintenance, could set a precedent by managing without making immediate claims, thus showing that support may not be necessary.

On the other hand, a spouse who provides a substantial amount of voluntary maintenance without an agreed financial order runs the risk of setting a precedent for long-term support that may not have been necessary if they had sought timely advice.

Remarriage

One more reason to act promptly is that after a divorce, a portion of individuals will choose to remarry.

If you remarry without applying for a financial order beforehand (such as for a portion of pension or property), you forfeit the right to make that claim after remarriage. An exception to this is if you were the applicant in the divorce and specifically included a claim for financial provision in the divorce document.

How can Hegarty help?

Obtaining a financial order promptly during a divorce helps prevent overlooking the financial implications of remarrying without a proper settlement in position.

Our expert family team are here to help you discuss your options an get an outcome that best suits you and your needs. 

We look to gain an appreciation of the situation and circumstances as soon as possible to manage expectations at an early stage and to keep you informed. We are also always prepared to seek alternative methods to seek a solution, for instance, if the two parties can no longer reach an agreement through negotiations; we would strongly advocate mediation of other forms of non-court dispute resolution to encourage a timely and amicable process.