Will divorce ruin me financially?

Will divorce ruin me financially?

That may sound like quite a drastic question, but it is a genuine fear held by many people facing the prospect of divorce. They see their wealth, which they may have carefully accumulated over years of hard work, suddenly coming under threat from an avaricious spouse.

But do they really need to fear financial ruin?

The answer to that is almost certainly ‘no’, although it should be pointed out that many divorcing couples have brought financial ruin upon themselves, simply by spending all of their wealth arguing over who should have it!

Leaving that to one side, let’s have a closer look at what is likely to happen to a person’s wealth when they get divorced.

 

Basic principlesno-fault divorce image

There are a number of factors that must be taken into account when considering what is an appropriate financial settlement. We will not list them all here, but the most important is the financial needs of the parties and, in particular, any dependent children.

If the court is asked to sort out the financial settlement it will want to ensure that those needs are met, if possible (sometimes there simply won’t be enough assets to meet the needs). ‘Needs’ include not just income needs, but also housing and (if appropriate) pension needs.

How this will work out in practice depends upon the circumstances of the case and, in particular, the amount of assets available. (Note that the court will take into account the needs of both parties, although obviously the needs of any dependent children will take precedence.)

Accordingly, for example, if one party has to provide a home for themselves and the children, then their needs will be greater than the other party, and they may therefore receive a greater share of the assets. This does not, however, mean that the other party will receive nothing, unless there are simply no other assets available after the needs of the children are met.

If there are more assets available than what is required to meet the needs of the parties and any dependent children then, subject to what we say below, any balance will usually be shared between the parties.

It is also of course possible that one party will be required to pay maintenance for the other, or any dependent children. However, the amount of the maintenance will take into account the payer’s own income requirements.

Those are the basic principles. However, two types of assets often give rise to particular concerns: assets acquired or owned prior to the marriage, and business assets.

 

Premarital assetsLady holding house

We said above that assets over and above what is required to meet needs are usually shared equally. However, any assets acquired or owned prior to the marriage are usually excluded from this sharing, if they have not become ‘mixed’ with assets acquired during the marriage. These premarital assets will therefore remain the property of the party who owned them prior to the marriage, although note that premarital assets can be used to meet needs, if there are insufficient other assets available.

 

Business assets

Business assets are perhaps the most common type of asset that give rise to the ‘financial ruin’ fear. The party who owns the business will often have built it up through their own hard work, over many years. They worry, for example, that the other party will be entitled to half of the business, or that they will have to sell the business to meet the other party’s financial claims.

It is true that a business can sometimes be used to raise capital to pay off the other party. However, the business will usually be the main source of income, from which all the family will benefit, even after the divorce. The court will not want to jeopardise that by damaging the business. Dividing a business may irreparably damage it, and selling it deprives the family of income. There is no rule that says a business must be divided or sold as part of a divorce settlement.

 

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It will be seen from the above that divorce does not automatically mean financial ruin and, indeed, the court will endeavour to ensure that that does not happen.

Obviously the above is just a very brief outline of some of the principles involved in sorting out financial settlements on divorce. For more detailed advice specific to your case, you should consult an expert family lawyer.

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