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Finances

Mediation – Financial issues

The first step to successfully mediating financial issues is to establish a complete and accurate picture of the whole situation.  In divorce the law requires that any financial settlement is based on a full and frank disclosure of all relevant financial information.  For unmarried couples it may also be worth adopting a similar approach as the foundation of any settlement.

Financial disclosure requires you to list all assets, liabilities, income and expenditure.  We have forms available to help with this process.  You need to establish an approximate date to which the financial information relates.

Assets

Assets may be jointly or individually owned, but if you are married they are considered to be assets of the marriage until such time as you divorce, or enter into a legally binding separation. In mediation we discuss what assets are to be included in the disclosure – normally anything worth £500 or more, and how these are to be valued.

Land and Property

For many the family home is the main asset.  Most people are willing to rely on three estate agents’ valuations as the basis for an agreed value, against which sale costs and any outstanding mortgage liability will need to be deducted to arrive at a figure for the equity which might be available for distribution. All properties owned will need to be valued and assessed ready for the division of assets.

Pensions

Pensions are often valuable assets. The person in whose name the pension is, needs to obtain from the pension provider, the Cash Equivalent Value (CEV) of the pension.  Pension providers must provide this information in writing, if requested for the purpose of a divorce settlement.  Sometimes they can be slow to do this; you may need to wait up to three months for your pension CEV.  It is not necessarily included in the annual statements typically issued by pension providers.

The CEV is not an entirely satisfactory measure of a pension’s value.  Unlike other assets the value of a pension is not immediately realisable, it depends on survival and is taxable. You will have to give some thought to pensions (Pensions on Divorce on our website).  In some circumstances it may be worth obtaining an actuary’s report on the value of the pension.  But the first step will always be obtaining an up-to-date CEV.

Money and Savings

Details need to be obtained for all Bank and Building Society Accounts. Three months of statements should be sufficient. We often designate current accounts, which fluctuate as income is paid in and expenses are paid out, as variable. If you are owed money, this also needs to be included as an asset.

Income

All sources of income should be disclosed.  Three months’ payslips should be sufficient evidence of employed income, together with evidence of any annual or exceptional bonus paid. For the self-employed annual accounts + the last available tax return may be sufficient. This can, if necessary, be supplemented by more recent information. All other sources of income should be evidenced; for example child benefit, working tax credit, child tax credit, income from shares/savings, rents, lodgers.  In mediation we prefer to use the net monthly figure for income.

Business or company

If you own a business, a lot of thought will need to be given as to how this can fairly be valued.  It may be that the annual accounts and tax return will be a sufficient basis for valuing a business.  Many small businesses have few assets but rely on the skill, expertise and reputation of the owner, who in turn depends on the business for his or her income.  On the other hand if the business is jointly owned, or has substantial assets, you may need to consider obtaining the advice of an accountant.  It is almost always best jointly to agree to the instruction of an independent expert in circumstances in which the valuation of assets is likely to be problematic.

Vehicles

These need to be valued in an agreed way; many people rely on online services for this.

Personal belongings

You may own jewellery, antiques, works of art or other items.  If their value exceeds £500 you need to take them into account.  Ideally an independent, written estimate of the value should be obtained.

Liabilities

These may include mortgages, other loans, hire purchase, overdrafts and credit card balances that are not paid off on a monthly basis.
It is important to bear in mind that, just as assets, whether owned jointly or individually are, as long as you are married, considered to be assets of the marriage, so liabilities, in whoever’s name, as long as you are married are also attached to the marriage partnership, in that sense you share joint responsibility for them.  If you have already separated it may be fair and reasonable to consider individual liabilities incurred following separation in a different way to liabilities entered into when you were together. It is usually helpful and sensible to keep one another informed of any major new liabilities you may need to incur in the period after you have separated, but before a financial settlement has been achieved.  If communication between you is difficult it may be best to discuss issues of this kind in mediation.

Expenditure

Our income/expenditure forms ask you to itemise present expenditure in detail, and also ask you to consider future expenditure.  It is important that you each undertake this exercise separately.  For most separating couples the crucial financial conundrum is how the additional expenses associated with two households can be met from the resources available. Any settlement will have to address this reality. Expenditure figures are likely to include estimates, try to make them as fair and reasonable as possible.  We find it is often worth discussing expenditure figures in some detail in mediation.

The Open Statement of Financial Information

At Progressive Mediation we build up a draft schedule of financial information as the information is obtained.  Once we have all the figures, and they have been documented, discussed and agreed, we ask you to provide three copies of all the documentary evidence.  We can then provide you with an Open Financial Statement, supported by the relevant documentation.  Our charge for this is £50 or £25 per person.  Unlike all the other documents which we prepare in mediation the Open Financial Statement is not confidential or ‘without prejudice.’  It is, essentially a statement of evidence which you will both need to sign off as honest and accurate.  It may be produced in court, or to a solicitor or legal representative as evidence that a full and frank disclosure of all relevant financial information has been properly undertaken in your case.  As mediators we can only record the information you provide for us, we cannot verify it or confirm its accuracy.  We therefore ask you both to sign the open financial statement; your signatures guarantee its authenticity.

When there is Mistrust

Whenever couples separate or divorce there is likely to be a significant element of mistrust.  Any suspicion that either party is withholding or falsifying financial information is likely to be very damaging to the process of financial disclosure and may make it impossible for us to draw up any Open Financial Statement.  Disputes in respect of financial disclosure are very difficult and potentially hugely expensive to resolve.  We therefore strongly recommend that you both adopt a straightforward, honest and business-like approach to the tedious but necessary process of ascertaining and documenting the information required. In that way we can help keep your mediation on track and move towards a financial settlement which takes full account of the reality of your particular situation and the best way to deploy available resources to meet the  your and your children’s needs.

Exploring the options

You will probably be thinking of options for settlement as you assemble the financial information.  At this stage you may also be seeking advice.  Are there benefits to which you might be eligible following separation – for example housing benefit, working tax credit, child tax credit?  Would it be possible to renegotiate the terms of your existing mortgage, or find a better deal elsewhere? What is the maximum amount you could borrow? How affordable is this?

What are my rights?

People often ask us ‘what are my rights?’  This is not a question that can be easily or simply answered, and as mediators we cannot compromise our impartiality.  We can refer you to the law – in particular section 25 of the 1973 Matrimonial Causes Act which sets out the principles to be followed in financial settlement in divorce.  But these are very general principles, how they should properly be applied in any particular case is always going to be arguable – potentially endlessly and expensively so.  It is prudent to seek legal advice.  Do make sure that your advisor is fully informed of the relevant facts – your Open Financial Statement is invaluable for this.

Division of Assets

Any financial settlement will need to address the fair division of assets and the ongoing need for income to maintain your and your children’s lifestyles.  In mediation we look at the options in terms of what is realistic and affordable for you both.

For example, if you jointly own a home either it must be sold, or one or other of you can remain and somehow fairly compensate the other for relinquishing their interest.  There are a number of ways in which this can be done.  Mediation enables you to look at the options in terms of the implications for both of you, and, of course, the children.  Sometimes the decisions to be made will be difficult.  We believe that you are the best people to make these decisions; you are the ones who will have to live with them.

Child Maintenance

In deciding how to divide assets most separating couples try to achieve a ‘clean break’ so freeing themselves of any residual financial obligations to one another, if possible.  Where there are children this can rarely be done; on-going payments for child support usually need to be considered.  The government set up the Child Support Agency in order to remove responsibility for child support from the courts, and has subsequently taken further steps to encourage separating parents to take responsibility for making their own decisions about child support.  We strongly recommend that you look on-line at the government  child maintenance calculator.  Using this, and if necessary the associated helpline, you should be able to calculate the level of child support recommended in your case.  This is usually a helpful guideline figure which can inform any discussion of child support in mediation, along with information about income and expenditure.  Child support is always going to be a matter which may need reviewing in the light of changes in circumstances.  An informed discussion in mediation, which need not take long, can provide a sound foundation for dealing with this fairly and effectively in the future.

Earning Capacity

‘Earning capacity’ is one of those elements, referred to in section 25 that is often inherently extraordinarily difficult to define with accuracy, and easy, therefore to argue over.  Claims for spousal maintenance are often pursued in the context of an evident and significant difference in earning capacity.  This may be the consequence of the demands of dependent children, or the legacy of years spent in a marriage caring for the children and home while a spouse develops a career or business.  In mediation spousal maintenance can be looked at in the context of both of your future life plans.  These days few divorcing or separating spouses want to remain financially dependent on their ex indefinitely.  But if someone has been out of the labour market for reasons to do with their role in the marriage partnership, it is reasonable to consider how the higher earner might offer support to allow for retraining, or an initiative to establish a business. In this way a return to earning can be facilitated, and the scope for continuing argument over the issue of spousal maintenance narrowed.

Reaching agreement

In mediation, reaching agreement in respect of a financial settlement is rarely easy.  Good agreements are based on common sense and practical realities.  You need to be pragmatic, willing to compromise, understanding of the other person’s point of view, and above all, if children are involved, their needs have to be paramount.  Because discussion in mediation is ‘without prejudice’ we cannot arrive at a legally binding agreement. What we aim to achieve as a final outcome document is a ‘Memorandum of Understanding’ (MOU) which sets out proposals for settlement in very specific terms and the underlying rationale on which these are based. For preparing this document, which may also refer to children’s living arrangements, we charge £50 (£25 each).  You then choose how to implement this.  Most people will want to translate the MOU proposals into a legally binding order.  We recommend you use a solicitor for this.

Related Articles

Below are a selection of related articles from our blog:

Pensions on Divorce – In order to reach a financial settlement in divorce proceedings it is necessary to obtain the cash equivalent value of any pension acquired during the marriage.

Child Support – The facts and a useful Child Maintenance Calculator.

Principles guiding decision-making –‘Section 25 factors’ – A court will always take into account the needs of a child under 18 as a priority when financial matters are being resolved. In addition Section 25 (2) (b) of the Matrimonial Causes Act 1973 sets out a number of factors which the court should take into consideration when deciding on applications made in divorce proceedings.

 

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