How to record a financial agreement in divorce

If your marriage has broken down and you reach an amicable agreement with your ex-spouse in relation to the financial matters arising from your separation, it is important you ensure the agreement is properly recorded. 

This will help to avoid any misunderstanding later down the line and, depending on the nature of the agreement reached, it may then ensure your ex-spouse cannot make a financial claim against you or your estate in the future, giving you peace of mind that the finances have been dealt with once and for all.

How can separating couples agree on finances amicably?

There are many ways couples getting a divorce can resolve their financial arrangements amicably without the need for contested financial court proceedings including:

• Couples can reach their own agreement between themselves
• Family lawyers can be appointed to negotiate a settlement
• The parties can attend mediation
• The couple can engage in the collaborative law process
• The parties can use the arbitration process

If an agreement is reached using one of these methods, or indeed a combination of these methods, the next step is to ensure the agreement is properly recorded. The format for recording the settlement will vary depending on what stage you have reached so far as your separation is concerned and whether there are divorce proceedings underway.

What is a Separation Agreement?

If a financial settlement is reached before divorce proceedings have been started, then you should record the settlement in a document known as a Separation Agreement (sometimes referred to as a Deed of Separation). 

This is a contract between parties to a marriage which usually deals with the following:-

• Your agreement to live separately and apart from one another
• Your agreement to divorce at a later date
• Your obligations to maintain one another, if any
• The division of your assets
• The arrangements for the children of the family, if applicable

There are many reasons why a married couple may wish to have a Separation Agreement drawn up, mostly commonly because they have not started divorce proceedings (and do not wish to do so just yet) but they nonetheless wish to record their agreed intentions so far as the marriage, financial and children arrangements are concerned.

In other cases, there may be divorce proceedings already underway, but the proceedings may not have reached the stage where the couple can enter a financial Consent Order instead (see further below). In that scenario, the couple may wish to implement part of their financial settlement, such as the sale of the family home for example, before they can make the overall terms of their agreement legally binding.

Whilst a Separation Agreement can be useful, there are some drawbacks – Firstly, it is not binding on the Family Court in the event of a later divorce. 

This is because parties to a marriage cannot oust the jurisdiction of the court to make orders for financial provision upon divorce. That being said, the existence of a Separation Agreement is one of the factors that the court considers in the event of subsequent financial proceedings on divorce when deciding a fair outcome. 

If the Separation Agreement was entered into by the parties with the benefit of full disclosure, independent legal advice, without any undue pressure, where there have been no significant change of circumstances and where both parties knew what they were getting into, then the agreement is likely to be upheld by the court, provided it is not unfair and it meets the needs of both parties.

Secondly, a separation agreement does not enable you to share pensions as a pension sharing order can only be implemented once a Final Divorce Order has been made.

What is a Consent Order?

When divorce proceedings are underway and they have reached the stage of the Conditional Divorce Order (formerly Decree Nisi), or indeed where the divorce has been concluded with the Final Divorce Order granted, (formerly the Decree Absolute), amicable financial agreements reached between spouses/former spouses can be made legally binding by way of a document known as a Consent Order. 

Financial agreements can only be made binding once they are approved as a Court Order and sealed by the court. It is only by obtaining a sealed Court Order that the financial claims arising from a marriage can be dismissed. The dismissal of such claims can be immediate or at a specified future date depending on the terms of the agreement.

Where a financial agreement is reached during or after a divorce, a Consent Order should be drafted by a solicitor specialising in family law to record the agreed terms and which can then be submitted to the Court for approval and sealing.

The Consent Order will set out the financial settlement and contain, where necessary, the orders which the Court will make to give effect to the agreement such as:

• an order for the sale or transfer of property
• an order for a lump sum of money to be paid
• an order for spousal maintenance
• an order for educational expenses
• a pension sharing or attachment order
• a clean break

Why should a Consent Order be prepared?

Many couples think that once a divorce is finalised, that ends the right of their former spouse to make any kind of financial claim against them. That is incorrect. 

Although the Final Divorce Order (formerly Decree Absolute) will end the marriage, it does not end your right to make financial claims against your spouse or former spouse and their right to make claims against you. Such claims will continue to remain open until they are dismissed by a Court Order. 

The only exception to this is if you have remarried without your financial claims being preserved, either in the Divorce Application (if you are the Applicant) or by making an application to the Court for Financial Remedy before your remarriage.  If you remarry without preserving your claims in either of these ways, then your financial claims will be lost, but your ex-spouse's claims against you would remain open.  This is known as the remarriage trap.

Even in amicable cases where financial agreements are agreed, it is important to have a Consent Order drawn up recording the settlement and providing, if appropriate, that neither of you will be able to make financial claims against the other in the future. Failing to do so, will leave such claims wide open which means you could then face a claim from your ex-spouse at any time in the future.

If you are involved in a separation or divorce and would like to discuss the issues arising from this blog or if you would like advice about having a Separation Agreement or Consent Order drawn up, please get in touch.  

I offer a 15 minute initial no obligation chat to discuss your options and how we can help.  Please contact me directly on 01206 217378 or email shelley.cumbers@birkettlong.co.uk.