18th October 2019
I recently referred to the perception that the law/court favours one party over another. I found myself writing far more than I had intended and so the idea for this blog on reaching fair divorce settlements was born.
What is Equality in Divorce?
Many people understand the concept of equality, and everyone accepts that a 50/50 split of anything provides you with a half each. But the concept of equality in Family Law does not necessarily mean half, or a 50/50 split. Our family law solicitors frequently explain that equality in Family Law means putting both parties in a similar position and invariably that means that it won’t be a 50/50, or an equal, split of the matrimonial assets in a divorce settlement.
The best way to explain this statement is by an illustration of a common scenario faced by a fictional couple. After Dave’s and Jane’s marriage has broken down, the guidelines in section 25 of the Matrimonial Causes Act 1973 (s25 MCA) are applied. These guidelines, which I referred in my previous blog (point 6), are used to distribute matrimonial assets between parties to provide equality.
Dave married his childhood sweetheart, Jane, when they were 19 and after they had finished school. They enjoyed a few years together and then decided they wanted a family, and eventually Jane became pregnant and gave birth to Chloe.
Dave had joined the Army when he finished school in order to build a career, earn a living and a good pension, and support his family. They had agreed Jane would stay at home to care for Chloe. Jane hadn’t had a career of her own, nor any real qualifications, but it didn’t matter as Dave was earning a good salary and Jane, for her part, looked after the house and raised Chloe.
Sadly, their marriage broke down.
Jane, now aged 40, was still the primary carer for Chloe, who is now 10. Jane had been working part-time at the local supermarket to earn extra money for the family, which helped pay for holidays the family had enjoyed. The majority of Dave’s income went towards meeting the household outgoings. Jane still had no discernible skills nor a career of note, while Dave had been promoted a number of times in the Army and was earning good money. Jane has no pension of her own either. During their marriage, Dave and Jane had bought and sold a couple of houses, rolling the equity into each new property, while the latest of which had been taken on as a development project and had quite a large mortgage on it as a result.
What does section 25 of the Matrimonial Causes Act 1973 (s25 MCA) mean for Dave and Jane?
How are the relevant factors and considerations of s25 MCA applied? Surely the assets after a long marriage are split equally, aren’t they?
Chloe remains under 18, so her welfare is always going to be the first consideration. She is very close to Jane so wants to stay living with her and given her age, this is not disputed by Dave. He accepts that his work, and hours, mean he is unable to have Chloe living with him full-time. Chloe also wants to stay with Dave at the weekends and sometimes during the week, which Jane encourages. Both Jane and Dave will need their own houses, with a minimum of 2 bedrooms so that Chloe has a room of her own at each house.
Jane would like to remain living at the large house they currently live in, but it has 4/5 bedrooms which is more than she needs for her and Chloe, plus the mortgage payments every month are significantly more than what Jane earns. Jane is realistic and understands that she could only afford to stay there if Dave continued to pay the mortgage, as well as paying her additional money on top of that payment in order to meet the outgoings as well, as Jane’s income is insufficient. This would cause Dave significant financial problems, however.
There are similar 2/3 bedroom properties in close proximity to one another nearby, which would be ideal and enable Chloe to spend time with Dave regularly.
Jane has only a small income and a small mortgage capacity as a result of her lack of skills, so her ability to buy even a 2 bedroom property is extremely limited. Dave, meanwhile, has a much larger income from his consecutive years of service in the Army, and following a number of promotions. Therefore his ability to afford to rehouse is much greater.
To afford the new property Jane will need all of the equity from the current house and will still have to take out a small mortgage. Dave can afford to buy his new property using his mortgage capacity and a government/MOD loan. With Dave’s child maintenance payments to Jane for Chloe, and a small monthly spousal maintenance payment on top of her income, Jane can afford to meet her mortgage and her outgoings. Also she hopes to pick up more hours at the supermarket, but will also look for alternative work over the course of the next couple of years when Chloe becomes more independent and gets to Secondary School, or even retrain to start a career for herself. At this point Dave’s spousal maintenance payments will reduce to a nominal level, until Chloe reaches 18.
Pension rights in divorce
As a result of the capital imbalance in Jane’s favour, Jane accepts that she will not look for a share of Dave’s Army pension. He has been paying into this since he began his Army service and is building it up ready for when he leaves at the end of his service. He intends to use his pension and the lump sum he receives on retirement to pay off his large mortgage, and the loan he took out to rehouse himself. Jane acknowledges that this is his plan. He is also on a promotion track at work which will enable him to continue climbing the ladder until he retires.
Now although specific figures have been left out of this example, most people would acknowledge that in no way does this represent a 50/50 or equal split of the matrimonial assets between Dave and Jane, despite the fact that this is a long marriage.
While Dave’s Army pension may be valuable, as a result of his continuous service, its value is somewhat oblique because he will only benefit from it when he reaches retirement age. If he dies before retirement the asset dies with him, while Jane can use the money from the sale of the current house to benefit her immediately. But that is also the point. This is a needs case, as most cases often are. Meeting those immediate needs, especially where the is a minor child living with one of those parties, takes precedence.
What this case also shows is the equality argument over the equal split.
Positive outcomes for both parties
With the proposed division of the assets, when applying the S25 MCA guidelines, both parties are put in a position to rehouse themselves and the child of the family, as well as being able to afford that housing on a month to month basis.
There may be a perception that Dave is being hard done by. Yet Dave has a guaranteed income at a much higher level than Jane has, or is ever likely to have. He can afford to take on a mortgage for his housing and pay it off. Jane knows she has to find a job, but it has to be accepted that Jane has been looking after, and raising Chloe, and that is equally as important as Dave’s role has been as ‘breadwinner’. Now, at the age of 40, Jane has to build a career on a limited skill set having lost the security of Dave’s income, and the future security of his pension. Acknowledging that Dave is losing access to capital now, the quid pro quo is that he retains his pension to put him in a similar position of being able to clear his mortgage down the line.
If the assets were to be simply split equally, or on a 50/50 basis, the dynamic would change significantly and the settlement would be impractical. What you would find is that Jane simply would not be able to afford to buy her own house, while Dave would be able to do so comfortably. Jane could rent with the money she receives from the sale of the matrimonial home, but that provides no security for Chloe and it would eventually run out. A 50/50 split does not meet the parties needs and creates a significant imbalance.
Equality is not the same as 50/50
I hope that by breaking it down and looking at it in this way I have been able to shed some light on why there can be a perception that certain settlements appear to favour one party over the other. When we look a little deeper we can see that equality has been achieved, even if that means the asset split is not ‘50/50’.
How do I get a fair divorce settlement?
If you are unsure about what equality might mean in your situation – or if you have any other questions – please send me an email or call 01608 686590 and ask for Ian Davies. I’ll be pleased to arrange a time to meet you in Brailes, Banbury or Bicester.
The influence for this blog came when writing my earlier blog about busting the myths and perceptions surrounding courts and the court process. If you haven’t read it, please have a look.