The impact of the continued increase in the cost of living on divorcing couples
The last few years have been a challenging landscape for everyone with the pandemic and then the turbulent economic climate, as a result of the significant increase in the cost of living. This has had an impact on divorcing couples and the decisions they make following separation.
Divorce and separation are for most a difficult time and hard to navigate through without support, and therefore the assistance of a strong legal team is critical. However, with a lot of people already struggling with meeting their basic outgoings, the cost of meeting legal costs may feel beyond their means, resulting in an increased number of couples attempting to resolve the issues between themselves and settle matters, known as a ‘DIY Divorce’. The term “DIY Divorce” relates to the resolution of the financial matters as the divorce process has been simplified by the introduction of the ‘no fault divorce’ on 6 April 2022, divorce formally ends your marriage but not the financial relationship that exists by virtue of the marriage.
The risks associated with a DIY Divorce
A DIY Divorce could result in an unfair settlement to one party, or both, particularly if all the parties’ assets are not included, such as pensions, or assets which one party may not be aware of. The involvement of a solicitor would ensure that a full review is undertaken of both parties’ financial positions, and this would include a full assessment of both parties’ full and frank financial disclosure, to ensure that all assets are disclosed to each party.
Couples may when negotiating between themselves, agree to disregard the pensions or not consider them as an asset available for division. However, a pension can be a very valuable asset and one which should not be disregarded and by doing so could result in an unfair settlement overall.
A pension share is where one party receives a share of the others pension fund, if there is a disparity in the value of their pension funds. The involvement of a solicitor is required, and potentially a pension expert dependent upon the value the pension funds, but this would ensure that fair provisions are available to both parties upon retirement from the available pension funds between them.
Advice should always be sought on pensions on divorce.
No Clean Break
If parties reach an agreement between themselves regarding the finances without the assistance of a solicitor, and without the agreed settlement being formalised by way of an approved court order, then the party’s financial relationship has not been formally ended leaving both parties open for the other to pursue the other in the future. It is critical for a consent order to be prepared, and a clean break order if this is appropriate in the circumstances as this prevents either party from being pursued for further financial support in the future. Only when an order embodying the financial settlement reached is approved by the court is the party’s financial relationship formally ended.
There is no time restrictions on the pursuit of your former spouse for the resolution of financial matters, but should one party remarry then they would not be able to pursue the other for periodical payments or a lump sum, but the pursuit of a pension share would remain open.
Impact of the increased mortgage rates
The concern around mortgage rates and significant increases in recent times has had an impact on the ability of parties to raise a mortgage and to decide what to do about their existing mortgage. Whether one party resides in the family home or both, if the mortgage is a joint mortgage both parties remain liable for the mortgage repayments, and it is important that the mortgage payments are maintained to prevent any negative impact on the parties’ credit rating, and thereby impacting their ability to raise an alternate mortgage. If repaying the mortgage is a struggle, then swift assistance should be sought from the mortgage lender.
Some parties reach an interim agreement to occupy the family home on an alternating basis, so one party resides at the property on set days a week whilst the other party stays elsewhere with family or a cheaper rental property, and then vice versa (this is known as ‘birdnesting’). This is generally a short-term solution and one that would not work for all parties, especially if there is an increased hostility between the parties, and this merely delays the resolution of the financial matters.
The options available to parties when deciding what to do with the mortgage secured against the family home are set out below, but no formal steps should be taken until a financial settlement has been agreed overall to prevent either party from being prejudiced.
- For one party to buy out the others interest in the family home and take over the mortgage in their sole name.
- For one party to continue to reside in the family home, and an agreement is reached regarding the repayment of the mortgage. It may be agreed that one party has a set period of time to continue to reside at the family home before they either secure a mortgage releasing the other party and buying out their interest or setting a date when the property is to be sold. This option can buy some time before the upheaval of the family home being sold especially if there are children involved, but it is rarely a long-term solution as it prevents the conclusion of matters and may prevent the other party from securing an alternate mortgage.
- The sale of the family home- an agreement must be reached regarding the division of the capital in the family home and consideration given to the timing of marketing the family home for sale, considering the concerns currently around the reduction in house values.
An affordability assessment from a mortgage broker should be obtained in all the above scenarios to assess whether the proposed settlement is realistic and achievable.
If the current mortgage is on a low-interest rate, then both parties may wish to retain the benefit of this, and in that instant, they would need to contact their mortgage lender to discuss whether their product is portable, i.e can the parties take a percentage of this mortgage product each and secure against an alternate property.
If one party is weaker financially than the other, i.e. that they either don’t work as they care for the children or they have a lower-paid role, then in light of the increase in the cost of living, ongoing spousal maintenance may become a greater consideration. A financial settlement should not be agreed piecemeal and should be agreed overall, including capital and income, to prevent disputes down the line such as the stronger financial party agreeing to a more favourable division of capital to later be pursued for ongoing maintenance.
What we can offer
As a firm, we work as cost-effectively as we can, and this includes working as a team and if appropriate a more junior fee earner would undertake work on your file to keep costs down where possible. We also offer some fixed fee options including the preparation of a clean break order.
If you would like any assistance regarding divorce and settlement do not hesitate to contact us.