There are a range of different ways in which a financial settlement can be reached between a couple on the breakdown of their marriage or civil partnership. The options summarised below range from the least legal involvement through to full use of the court process.
1. The options
1.1 Agreement between a couple, with background legal help
It may be possible for an agreement to be reached in discussions between the parties without any involvement from solicitors, or with some advice in the background if either party requires it. If an agreement can be reached this way, the only legal assistance required may be:
- an overview of whether the terms of the agreement are broadly fair and in line with normal legal principles; and
- drafting of the documents required to achieve a binding agreement or court order.
It is still recommended that each party takes independent advice, and there must be an exchange of financial information, though this can be quite limited if that is agreed.
Neither party has to attend court to obtain a financial order by consent.
If a financial agreement is not recorded in an order of the court, it will not usually be enforceable or binding, and each party’s financial claims against the other remain open. It is therefore strongly recommended that an informal agreement should be translated into a binding order of the court, made as part of divorce or dissolution proceedings, to obtain certainty and finality.
If both parties agree, they can see a specialist family mediator to assist in reaching a financial settlement. We can provide the details of specialist mediators if required. The mediation process usually involves each party meeting the mediator separately to begin with, and then joint meetings are arranged in which the mediator assists in resolving issues in dispute.
The mediator must remain impartial and cannot give advice. For that reason it is common for each party to have a legal adviser in the background from whom he/she can take advice as the mediation process progresses.
If an agreement is reached in mediation, the mediator will draft a Memorandum of Understanding, which is an "off the record" document which is not enforceable. It is therefore normal practice for each party to take independent legal advice after reaching an agreement in mediation, with a view to getting a binding agreement or order drawn up.
The procedure is then the same as at 1.1 above.
1.3 Collaborative Law
Collaborative Law is a process in which each party instructs a specialist collaboratively trained lawyer. The clients and their lawyers then sign up to a Collaborative Law or "Participation" Agreement in which they agree to cooperate to work out arrangements for their divorce/dissolution and the financial settlement, and to work within the principles of the collaborative process.
If an agreement cannot be reached within that process, the stakes are high because the solicitors have to stand down and both parties have to start again with new lawyers.
The exchange of information and negotiations about the finances takes place largely in meetings, rather than in correspondence. For Collaborative Law to work, there must be a real commitment on both sides to reaching an agreement, and a willingness to be completely frank about exchanging financial information.
We have two trained collaborative lawyers at Burges Salmon. More information can be obtained about the collaborative process at www.resolution.org.uk in a booklet called "Separating Together: Your options for separation and divorce".
1.4 Voluntary disclosure between solicitors, agreement in negotiation
If it is too difficult to discuss financial matters directly with the other spouse, and particularly where the finances are complex, it may be unrealistic to think that direct negotiations or mediation will work. This is particularly true where one party has more financial information or knowledge than the other, so that there is a sense of imbalance in the negotiation process.
In these circumstances it is recommended that each party has their own solicitor, but this does not mean there has to be a battle. All family solicitors should be willing to work towards a negotiated agreement without using the court process, and will commit to negotiating in a non-confrontational way, if that is what their client wants.
It is therefore very common to agree between solicitors at an early stage that they will each provide and exchange detailed financial information on an agreed timetable, followed by discussion about settlement either by correspondence or in meetings with everyone present. It may be necessary to obtain valuations of properties or other assets as part of the negotiation process.
The voluntary process does rely on both sides cooperating in providing full financial information, and answering questions raised.
Once a settlement has been agreed, an order has to be drafted, signed and filed with the court to make the settlement binding. As before, neither party is required to attend court for this.
If it is not possible to reach an agreement through negotiation, it is possible to enter into arbitration. This is a private dispute resolution process where the parties jointly appoint an arbitrator, who is a specially trained independent third party, to resolve their dispute. Arbitrators are all specialist family solicitors, barristers or retired judges.
The process can be adapted to suit needs. The parties can choose their arbitrator, the issues upon which a decision is sought, and the time and place for the arbitration. Arguments will be put to the arbitrator in much the same way as they would to a judge. It is important the parties have legal advice in the background, as the decision of the arbitrator will be binding. This decision will need to be converted into an order and approved by the court.
The main advantages of arbitration are that it is often quicker than the court process and it is conducted in private. The press have access to family courts but not private arbitrations, so arbitration is a good option if this is a particular issue. Both parties must agree to use this process.
1.6 The Court process
At any time after divorce or dissolution proceedings have been filed, either party can file an application at the court office for a timetable to be fixed for reaching a financial settlement. This may be necessary where:
- there is a willingness to reach an agreement, but a determination to do this within a strict timetable, so that there will be a definite end to the process;
- negotiations have broken down without a settlement being reached;
- there is a dispute about the true value of an asset which cannot be resolved; or
- one party does not cooperate/is unlikely to cooperate with providing financial information.
Before making an application it is necessary to attend at least one mediation session, unless there is a valid reason why this would be inappropriate. There could be penalties imposed by the court if it is later discovered this was not done without good reason. It is a requirement that a form is completed giving the result of the mediation, or the reason why mediation was not undertaken before starting court proceedings.
The court application, once it is made, will start a court timetable running, which both parties have to comply with. Even if the court process is used (for example to obtain missing financial information), the vast majority of people reach an agreement along the way before a judge imposes a final decision.
The court process can involve the following steps:
The court timetable provides for each party to complete a sworn financial statement called a "Form E" approximately seven weeks after the application to the court is made and five weeks prior to an initial hearing (timings will vary according to the court and can be subject to further variation).
If that statement is incomplete, each party can file a questionnaire raising additional questions.
- First Appointment ("FA")
The FA is an administrative court appointment designed to get all the necessary financial information together. The judge can order either party to answer further questions about their finances, and/or may order that there should be valuations of assets. The court will then set the date for the next hearing.
If the issues are straightforward there can be negotiations at court even at this early stage, and it is sometimes possible to combine the FA with what is usually the second hearing, the FDR.
- Financial Dispute Resolution Appointment ("FDR")
The FDR is a court-led settlement meeting where the judge hearing the case gives an opinion on what the outcome might be if the matter went to a final hearing, and encourages a negotiated settlement where possible.
The court cannot impose a decision at the FDR; the hearing is intended just to encourage settlement. The judge who hears the FDR cannot then deal with the matter again as he/she will have heard about the negotiations that are taking place, and about offers for settlement made prior to that date.
Many cases settle at the FDR stage, or soon after it. It is possible to reach a settlement at any stage in the court process, and negotiations will usually continue, and are encouraged, after the FDR stage, with a view to avoiding the need for a final hearing.
It is also possible to have "private" FDR hearings by agreement. This would be in the same format as a court-led hearing, but is organised outside the court process and the appointed judge would be paid to attend. Private FDRs can take place at any time, even without court proceedings.
- Final Hearing
If an agreement is not reached, a further hearing is scheduled where each party’s case is put before the court and a judge decides how the finances should be settled. Very few cases get to this stage, known as a Final Hearing, and there are strong incentives not to.
The costs are significant, and it is a stressful process. Final Hearings can also be risky and unpredictable, as the judge has a wide discretion as to the orders he or she can make.
It can, however, be necessary to go this far if there is a failure to negotiate, or one person takes a completely unreasonable negotiating position.
The whole court process from start to finish can take around a year (depending on the court used) from the initial application to a Final Hearing. In most cases, however, a Final Hearing is not necessary, as an agreement is reached, so the timescale will be much shorter.