The Risks of Divorcing Without a Formal Financial Settlement

The Risks of Divorcing Without a Formal Financial Settlement

Divorce is the legal process to end a marriage. In England and Wales, while most couples focus on obtaining a  final order in their divorce proceedings to legally end their marriage, many overlook an essential aspect: securing a financial settlement which has been approved by the Court. Many couples reach an agreement and do not have this incorporated into a Consent Order, which a Judge can then approve, to ensure they achieve a “clean break”. Without a court-approved financial remedy order (known as a Consent Order), divorcing couples may find themselves subject to claims being made against their assets and pensions in the future, many years after the divorce proceedings have been finalised.

 

The Scale of the Issue

Government statistics show that there were 27,908 divorce applications made between January to March 2024, with only 11,600 financial remedy applications during the same period. Furthermore, according to the Nuffield Foundation, discussing the findings of the FairShares research project in November 2023, only 2 in 5 divorcees use a lawyer and just one-third of divorcing couples finalise their finances through a court order. One of the main reasons for this, is the worry of what it will cost without consideration that the legal system is designed to help achieve fairness. This statistic means that ex-wives are often left worse off. One reason is that pension sharing is included in just 10% of divorces, adversely affecting women who generally have smaller pension pots than men. 

 

What is a Financial Remedy Order?

A financial remedy order in a divorce is a legally binding order that divides the financial assets and obligations between the two parties. This can include property, savings, pensions, investments, liabilities and future income. In the absence of a mutual agreement, the court can step in to make decisions on how to divide these assets fairly.

Crucially, securing a financial remedy order ensures that neither party can make financial claims against the other after the divorce is finalised. The financial remedy court order, known as a "consent order" (if the couple agrees to the terms) or a "financial remedy order" (if decided by the court), is legally binding and offers both parties a "clean break."

 

Risks of Not obtaining a Financial Remedy Order

1. Future Financial Claims
   The most significant risks for divorcing couples who fail to get a financial settlement is that their financial ties remain open. Even many years after the divorce, a spouse may be able to apply to the court to claim a financial order and pursue assets owned by the other party. This can happen even if one party's financial situation drastically improves later in life. Without a court order, there is no legal "clean break," meaning that both parties may be vulnerable to future claims. A high-profile example of this was the case of Wyatt v Vince (2015). In this case, Kathleen Wyatt, who divorced her husband Dale Vince over 20 years earlier, successfully claimed a financial settlement from his multimillion-pound fortune, which he amassed after their divorce. The lack of a financial order at the time of their divorce allowed Wyatt to make her claim decades later.
2. Unenforceable Agreements
   Many couples opt to handle their financial affairs informally, agreeing between themselves who will take what. While this may work amicably in the short term, these informal agreements are not legally binding. If one party later decides to break the agreement, there is little legal recourse available without a court-sanctioned financial order. For example, if one party agrees to pay ongoing spousal support but later reneges on this promise, the other party cannot easily enforce the arrangement without a court order.
3. Disputes Over Pensions
   Pensions are often one of the most valuable assets in a marriage, but they are also one of the most frequently overlooked aspects of financial settlements. Without a financial order, pensions cannot be shared, this may leave one party without adequate pension provision in retirement. The Courts in England and Wales have mechanisms for dealing with pensions fairly, such as "pension sharing orders," which split the pension funds between the parties. Without a formal settlement, the lower earning spouse could be left in financial hardship upon retirement. The Courts and Tribunals Judiciary have produced a guide to the Treatment of Pensions on Divorce
4. Inheritance Issues
   A lack of a financial remedy order also complicates inheritance issues. If an ex-spouse dies without a financial order in place, the surviving spouse may still be entitled to make claims on the deceased's estate under the Inheritance (Provision for Family and Dependants) Act 1975. This could cause significant conflict between the deceased’s family and the surviving ex-spouse, leading to costly and lengthy legal disputes.
5. Impact on Children
   Divorcing without a financial remedy order may also negatively affect any children involved, particularly in cases involving child maintenance or housing. While child maintenance is typically arranged through the Child Maintenance Service, other child-related financial matters—such as who will pay for schooling or extracurricular activities—can remain contentious if not formalised. Furthermore, if the division of assets is unclear, it can impact the financial stability of the child’s primary caregiver, leading to further disputes over living arrangements and the child’s welfare.

 

Why Couples Don’t Get a Financial Remedy Order

There are several reasons why divorcing couples may fail to secure a financial remedy order through the courts:

• Lack of Awareness: Many couples mistakenly believe that obtaining a final order in the divorce proceedings also severs their financial ties. In reality, a separate financial remedy order is required.
• Amicable Divorce: Some couples who part on friendly terms assume that their informal agreement will hold. However, these agreements are not legally enforceable unless they are formalised through the courts.
• Costs and Complexity: Some couples are deterred by the additional legal costs and complexity involved in obtaining a financial settlement. While legal fees can be a concern, the long-term risks of not securing a financial order and a future claim against them often outweigh the initial expense.
• Delaying the Process: In some cases, couples delay sorting out their finances due to the emotional stress of divorce or simply because they don't have many assets to divide at the time of the split. However, as financial circumstances change over time, this can lead to problems later on. It is possible to simply have a ‘clean break’ financial remedy order, which dismisses any future claims being made.

 

How to Secure a Financial Remedy Order

To avoid the potential pitfalls of divorcing without a financial remedy order, couples should consider taking the following steps:

1. Seek Legal Advice: Consulting a family law solicitor early in the process ensures that both parties are aware of their legal rights and obligations. Solicitors can help draft a consent order or advise on seeking a financial order through the courts if an agreement cannot be reached. The Courts and Tribunals Judiciary has produced a guide for separating couple negotiating their own financial agreements.
2. Mediation: Mediation services can help couples reach an agreement on financial matters in a less adversarial setting. This agreement can then be formalised by the court.
3. Apply for a Consent Order: If the couple agrees on how to divide their assets, they can apply to the court to approve a consent order/financial remedy order. This makes their agreement legally binding, ensuring that no further claims can be made in the future.
4. Be Proactive: Even if there are few assets at the time of divorce, it is still essential to secure a clean break by applying for a clean break order. This prevents either party from making future claims, regardless of changes in circumstances.

 

Conclusion

Failing to secure a financial remedy order after divorce in England and Wales leaves both parties vulnerable to future claims and legal disputes. Without a court-approved financial remedy order, financial ties between ex-spouses remain open, potentially leading to financial instability, family conflict, and unforeseen legal battles. To ensure a clean break and peace of mind, couples should seek legal advice and formalise their financial arrangements through the courts.

 

Our expert team of solicitors can advise you on all aspects of divorce including financial settlements, obtaining financial remedy orders and matters relating to children. You can contact them via email at FamilySupportTeam@bannerjones.co.uk or using our Contact Us webpage.