“Will I be able to manage financially after we divorce?” “Can I afford a house for myself and the children?” “How can we afford to live?” “Will I have to watch every penny?” These are the sorts of questions which worry most people going through divorce or dissolution.
The principles that guide how judges make decisions in financial divorce and dissolution disputes include the concepts of needs, sharing the fruits of the marital partnership and compensation for lost earnings. The needs of each person in the family, especially those of the children, will be the most important consideration in the vast majority of cases. “Needs” can be a trump card which defeats arguments for things like keeping inheritances intact, or for pre-owned assets being excluded from being shared out. As the needs of the family often dominate cases even where the assets may extend to several million pounds, we thought a look at what exactly amounts to “needs” would be useful.
There are two broad types of need when assessing who should have what proportion of the assets in divorce: capital and income.
Capital needs tend to be for one-off items, and can be satisfied by a lump sum in most cases. They include needs for housing, furnishing costs, purchasing cars and clearing debts. Income needs are based on what a household requires to meet ongoing, regular expenditure such as mortgage payments or rent, utility bills, food, clothes and other essentials.
So far, straightforward. However the problems come when trying to assess, objectively, what someone actually needs. The House of Lords (now the Supreme Court) has made it clear that needs should be “generously interpreted” where it is possible to be generous. In big money cases, there have been some interesting outcomes. For example, in 2011 a husband failed to convince the Court of Appeal to overturn an award to the wife , where she had only one of the couple’s five children still living at home with her, but was found to need a 9 bedroom house worth £2m, plus £75,000 to renovate the property, a further £1.65m lump sum and £75,000 a year in child maintenance. You can imagine the headlines, but on closer inspection this was in the context of an overall asset pool of £12million and a very long marriage where the family (who had five children in all) had enjoyed a very high standard of living throughout.
Where does this leave those of us without millions in the bank, or elsewhere, when trying to meet needs? Often there is no room for needs to be “generously interpreted” and more frugality is required from everyone when a marriage or civil partnership ends. The common problem is that one household does not transform into two separate households without some financial tightening of belts and moderation of expectations.
In order for everyone to work out what is fair and what each element of the family needs, both spouses have to set out a summary of their capital and income needs as part of the preparation to make a decision, or ask the court to make one. This is part of financial disclosure.
On the capital side, if you are going to have to move house, this is likely to involve obtaining information about house prices for properties which would be appropriate. If funds are tight, you might have to face a shift down in terms of size or quality of property. A judge will agree that children need four walls and a roof over their heads, but may not agree that the family need a spare bedroom or a detached garage, especially if this impacts on the other parent’s ability to care for the children. There is also the question of each spouse’s borrowing capacity, to assess how a property purchase can be funded – if you have a mortgage capacity of £X, and a property will cost £Y, then you may have an argument that you need £Z to make up the shortfall. This is part of the exercise of the process of balancing needs against resources with which your lawyer can help you.
For income needs, you should draw up a list of what you spend each month – a ‘budget’. This can entail a rather painful and longwinded trawl through bank statements and bills to see exactly what is being spent on utilities, household expenditure, travel costs, clothes, entertainment, children’s activities etc. It’s an essential part of working out what you actually need to live on, before it is possible to examine how and whether those needs are going to be met from the available resources. It is possible that some of your spending may not be ‘needed’ in strict legal terms – for example satellite television subscriptions, gym memberships, or foreign holidays, but much depends on the standard of living enjoyed by the family before the separation and what’s available to satisfy the needs set out.
Where there simply isn’t enough to go round, a judge may give only scant regard to what the parties claim their needs are, and simply divide up what limited income and assets there are, leaving both parties to cut their cloth accordingly. In others, where income is greater, things may legitimately be claimed as needs which would be excluded as luxuries from other cases.
Needs are subjective and vary from family to family. Where finances do not permit two household to be run at the spending level of the former shared home, needs will come under scrutiny and be pared down to essentials, rather than the “generous interpretation” used in the big money cases.
If you would like to talk to us about needs or any aspect of family law, please give us a ring on 01223 443333 to make an appointment to see Gail, Sue, Simon or Adam (or, from next month, Tricia!).