Financial clean break after divorce?

Is a financial clean break possible after divorce?

Many people mistakenly believe that a divorce severs your financial ties, but that is not the case. It is necessary for spouses or civil partners to either negotiate and agree financial arrangements and have the settlement formalised by the Court, or have the Court decide how assets should be divided.

Each couple’s circumstances will be different and will determine the options available, with some people happy to maintain ongoing connections and other people keen to make a clean break.

A clean break order can be made by the Court after either a divorce or the dissolution of a civil partnership to ensure that each party’s financial ties are severed. It also means that neither party can bring any financial claims against each other in the future.

Do I want a clean break?

When deciding if a financial clean break is something that is suitable, it is necessary to consider the individual circumstances of the case.

The advantages to having a clean break, include:

enabling a fresh start with certainty and control;
avoiding the risk of having to give a share of future assets to the former spouse or civil partner; and
preventing time and costs in defending a future legal dispute over finances.

There are two main reasons why a clean break may not be desirable, namely:

if one party has a need for ongoing spousal maintenance and a lump sum buy-out is not possible (discussed further below); or
if there are young children, as the uncertainty of the future may mean it is wise to keep the ‘spousal maintenance’ option open. For example, if a child needed extra care and one parent is no longer able to work, increased spousal maintenance may be necessary at that time.

The risk of future claims

Without a clean break order, financial claims remain open and could be brought against one party decades after the divorce or dissolution of the civil partnership. There have been many high-profile cases over the years that demonstrate this, such as:

Dale Vince who built up a successful green energy business and 20 years after his divorce had to pay over £300,000 to his former spouse; or
Nigel Page who, after winning the lottery, had to pay his former spouse £2 million.

Of course, while a clean break would have been advantageous to Dale and Nigel, the absence of one played into the hands of their former spouses.

If each party wants to ensure they have control of their own finances in the future and that their former partner will not be able to share in future earnings, inheritance, or windfalls then a clean break is advisable.

When a clean break is not possible

There are some circumstances when a clean break may not be possible immediately, the main reason being the need for ongoing financial maintenance.

Spousal maintenance is paid by one spouse or civil partner to the other following divorce or the dissolution of the civil partnership as an ongoing financial obligation. The entitlement to spousal maintenance and the amount payable will depend on the individual circumstances of the case and will take into account the needs and financial resources of both parties involved.

Spousal maintenance may be due if:

there is a shortfall between income and outgoings which will likely result in “undue hardship”; or
there is a significant disparity between the incomes of each party.

It is often due where one parent gave up a career to look after the children and became financially dependent on the other parent.

Spousal maintenance is normally paid monthly. The length of time over which it is required to be paid will vary and depends both on the length of the relationship and the age of the parties.

Capitalising maintenance payments

It may be possible for a spousal maintenance claim to be capitalised into a lump sum payment in order to achieve a clean break more quickly. This means agreeing a figure that would effectively ‘buy out’ the ongoing obligation to pay monthly maintenance. This can be an attractive option for the receiving spouse or civil partner if they require a lump sum now, say for the deposit on a new home, or, if they do not want to continually have to rely on their former spouse or civil partner to pay up each month. It can also be attractive to the paying spouse or civil partner as they get to sever all ties now, meaning any future pay rises will not be taken into account.

Deferring a clean break

Sometimes ongoing spousal maintenance is a necessity, for example if the paying spouse or civil partner does not have the capital available to achieve a buyout, or if the receiving spouse or civil partner needs regular monthly income to assist with their budgeting.

If it is decided that ongoing spousal maintenance will be paid, then a delayed or deferred clean break will be possible when that maintenance ends. For example, spousal maintenance may be agreed to be paid for a three-year period. It can be agreed that at the end of that three-year period a clean break order will be made.

Conclusion

It is important to note that spousal maintenance is entirely separate from child maintenance and a clean break can be achieved even if there is an ongoing obligation for one party to pay child maintenance.

In the vast majority of circumstances, obtaining a clean break agreement is the sensible course of action.

A clean break in financial arrangements will often be the best option. Where spousal maintenance is a factor then the individual circumstances of each case need to be considered in deciding if a clean break is the best option now.

Amanda Erskine is a solicitor in the Family department at Barker Gotelee Solicitors in Ipswich.

Ipswich Family Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email [email protected]