Divorce - Financial Advice Needed

Rich_Synaps

I am looking to get some impartial advice on how to separate assets in my upcoming divorce. Thank you in advance for your time in reading this and I appreciate any honest opinions, preferably based on experience or knowledge.

My wife and I are divorcing and we have today submitted the application for it. The next step is to sort the finances. I'm so confused as to where to start but I'll give it a shot here.

We've been married 5 years but together for 12 years. There are no children. I am a 50 year old man and she is a 40 year old woman. We both work full time and have always done so.

When we bought our first house together I brought £126,000 (About 30% of the value of the property we were buying) of my own money into the purchase and had a deed of trust drawn up to say that in the event of us separating and selling the house that I would get the first 30% of the value of the sale price, then the mortgage would be paid off and then the remaining would be split 50/50.

After 3 years or so we did sell the house and bought another larger house and all the equity from the first house went in to this. A year later we married. (I assume after marriage the deed of trust becomes null and void?)

Now that we come to divorce I've been trying to figure out what is fair and how (if it ever went to court) the judge might award the assets.

As far as I can see there may be two 'fair' ways at looking at this.

Scenario 1

My initial thought was to work out what both parties have brought to the household in terms of financial contributions since we started living together. Then if, for example, one person contributed £100k more to the household over this time then that person could get the first £100k of any remaining assets before the rest are divided 50/50.

I worked two jobs for the last 3 years and so in total I have brought £360k income in to the household during the time that we have lived together along with £126k of savings from before we were together. My wife has brought £305k. This means I have contributed £181k more than her over the time. My lifestyle choices have always been more exuberant than hers (regular massages, lots of alcohol and expensive gymns) and so I deducted £30k to take account of this resulting in a net surplus contribution of approx £150k.

By this logic would it be reasonable, once the mortgage has been paid off, to take the first £150k of the equity from the proceeds before dividing everything else 50/50? 

I appreciate that this is a crude way of looking at things and doesn't factor in anything else such as future earning capacity and pensions etc and also that the courts would probably not work it out this way but I'm trying to think of what might be fair.

Scenario 2

We sell the house and pay off the mortgage - then everything is split 50/50. No previous earnings or savings are taken in to account.

Would a court then take a look at future earning capacity and pensions?

Currently I am earning around £40k p.a (although next year it's likely to be back at the £55k level) and my wife is earning about £65k p.a. Her borrowing capacity is therefore higher than mine especially when combined with the fact that she can get a 25year mortgage whereas I would be limited to a 15 year one due to my age.

I don't think pensions would have much to do with it as we've both only ever had workplace pensions?

If we were to follow scenario 1 then I would be left with approx £313k and my wife would be left with approx £163k. A quick check then shows then with an additional mortgage that I could afford a property up to about £500k and my wife could afford one up to about £450k.

In Scenario 2 If it was a straight forward 50/50 split and nothing else was taken in to consideration I would be left with £238k meaning I could afford a place up to around £425k and my wife would be able to afford a place up to around £525k.

I apologise for going on for so long but could really use an impartial point of view and some advice. We both want to keep this amicable and both want whats fair for each other. Obviously I would favour the first scenario as I do feel that the £126k I brought in to our relationship 12 years which took me more than 20 years to accrue should, in some way, be reflected in the separation of assets.

Thank you for reading.

Brie

I wouldn't have thought your earnings would be taken into account personally, it's more to do with savings and pensions.  I believe that there would be a consideration of the pension accrued during your time together (whether 12 or 5 years I don't know) but if your earnings were roughly the same and the pension plans similar that may be disregarded.  

I also believe that a calculation would be done to account for the deposit for the first house applying 30% of the equity that was transferred to the second house purchase.  This then might be used in the calculations for the savings that both of you have in whatever form - ISAs, premium bonds etc plus any significant items of value though gifts might be ignored.  So if she had given you a diamond stick pin for a birthday she wouldn't be able to say that was an asset to be counted.

As for buying a new place to live.  Why do you believe you could only get a 15 year mortgage?  Many banks go another 5 to 10 years beyond what was previously considered retirement age.

jlfrs01

There is a lot of guidance on the Government Website for those couples entering into a Divorce so probably worth a read in the first instance. If you and your wife couldn't agree on a settlement you can ask the Court to intervene but it's a bit of a drawn-out process involving mediation as well as expense. The court would take into account assets, pensions, savings, age and standard of living. It starts at a 50:50 split and then varies based on those criteria as to who is awarded what.

In your scenario, given that your wife agreed to the original pre-marital arrangement (the 30% of future property value + 50% split on the delta), then I think it's reasonable to ask this to be your starting point for the settlement. As you say, the money you originally contributed pre-dated the relationship and she will have benefitted from its investment.
You're then left with debts (assume each of you will take care of any personal debts yourselves), joint debts (split equally from the house sale so you have a clean slate) and savings which if personal you keep as is, if joint are split 50:50 and pensions (unless a big disparity in value, leave them alone). If you have any investments (like ISAs, Premium Bonds and so on), best cash these in and split 50:50.

This is a fairly broadbrush but pragmatic approach which should allow you both to get on with your lives quickly and without the expense of lawyers, etc. 

tacpot12

jlfrs01 said:

There is a lot of guidance on the Government Website for those couples entering into a Divorce so probably worth a read in the first instance. If you and your wife couldn't agree on a settlement you can ask the Court to intervene but it's a bit of a drawn-out process involving mediation as well as expense. The court would take into account assets, pensions, savings, age and standard of living. It starts at a 50:50 split and then varies based on those criteria as to who is awarded what.

In your scenario, given that your wife agreed to the original pre-marital arrangement (the 30% of future property value + 50% split on the delta), then I think it's reasonable to ask this to be your starting point for the settlement. As you say, the money you originally contributed pre-dated the relationship and she will have benefitted from its investment.
You're then left with debts (assume each of you will take care of any personal debts yourselves), joint debts (split equally from the house sale so you have a clean slate) and savings which if personal you keep as is, if joint are split 50:50 and pensions (unless a big disparity in value, leave them alone). If you have any investments (like ISAs, Premium Bonds and so on), best cash these in and split 50:50.

This is a fairly broadbrush but pragmatic approach which should allow you both to get on with your lives quickly and without the expense of lawyers, etc. 

I would like to offer a different point of view. Although your wife agreed to the original deed of trust, the deed of trust is annulled by marriage, and the expectation is that husbands and wives split the marital assets equally, unless that are good reasons not to. I think an expired agreement is not a sufficiently good reason for it to influence the settlement. Your wife has a reaonable expecation that assets would be split 50/50 if she married you, and presumably you also knew this when you agreed to marry her. Disparities between earning potential and between pension provision are good reasons to vary the split of assets away from 50/50. The variation should be based on need. 

You are assuming that pensions will not make nuch difference, but sadly women can be very disadvanted in pension provision, which is why the courts look at pension benefits when forcing an agreement on couples. I would strongly recommend you both get pension valuations that can be used in your divorce. If she has the earning potential to make up for any shortfall, this seems a basis on which the difference in pension provision could be ignored. 

I would not think it necessary take your future earning potentials in further account, unless it is to account for an unequal split of assets. You can try to argue that you should receive more of the equity in your home, because your wife can more easily make up what she has lost, but she is losing, and the question is, is this fair?

You might well find a mediator is useful to allow you to put diffeent points of view to each other in a way that is less charged with emotion, but if you are seperating on reasonable terms and are both able to remain adults, then there is no reason you need to use a mediator. 

Savvy_Sue

As I understand it, a court will only impose something on you if you can't submit an agreed way forward, OR if the agreement you put forward appears to benefit one of you very markedly at the expense of the other and you haven't had any legal input which enables you to 'justify' the different split. 

But some couples are happy to agree on a split which just allows each of them to move forward: it may be obvious that one party is getting 'a better deal' than the other, but they're happy with the resolution. In that case, it is sensible to put forward the reasons behind the agreement. 

It's definitely worth checking that each of you are happy with your current pension provision. One party claiming against the pension of the other gets complicated; getting valuations can (I believe) work out expensive. But if either of you is facing penury in old age, it's definitely worth thinking about! 

Stateofart

You're married.  It's 50/50 unless everyone agrees otherwise. 

Rich_Synaps

Brie said:

I wouldn't have thought your earnings would be taken into account personally, it's more to do with savings and pensions.  I believe that there would be a consideration of the pension accrued during your time together (whether 12 or 5 years I don't know) but if your earnings were roughly the same and the pension plans similar that may be disregarded.  

I also believe that a calculation would be done to account for the deposit for the first house applying 30% of the equity that was transferred to the second house purchase.  This then might be used in the calculations for the savings that both of you have in whatever form - ISAs, premium bonds etc plus any significant items of value though gifts might be ignored.  So if she had given you a diamond stick pin for a birthday she wouldn't be able to say that was an asset to be counted.

As for buying a new place to live.  Why do you believe you could only get a 15 year mortgage?  Many banks go another 5 to 10 years beyond what was previously considered retirement age.

Thank you for your time and comments. I agree we could likely both get longer mortgages - Would be nice not to though

Rich_Synaps

jlfrs01 said:

There is a lot of guidance on the Government Website for those couples entering into a Divorce so probably worth a read in the first instance. If you and your wife couldn't agree on a settlement you can ask the Court to intervene but it's a bit of a drawn-out process involving mediation as well as expense. The court would take into account assets, pensions, savings, age and standard of living. It starts at a 50:50 split and then varies based on those criteria as to who is awarded what.

In your scenario, given that your wife agreed to the original pre-marital arrangement (the 30% of future property value + 50% split on the delta), then I think it's reasonable to ask this to be your starting point for the settlement. As you say, the money you originally contributed pre-dated the relationship and she will have benefitted from its investment.
You're then left with debts (assume each of you will take care of any personal debts yourselves), joint debts (split equally from the house sale so you have a clean slate) and savings which if personal you keep as is, if joint are split 50:50 and pensions (unless a big disparity in value, leave them alone). If you have any investments (like ISAs, Premium Bonds and so on), best cash these in and split 50:50.

This is a fairly broadbrush but pragmatic approach which should allow you both to get on with your lives quickly and without the expense of lawyers, etc. 

Thank you for you time and comments. Some interesting points! We have no debts other than mortgage and the savings and assets we have agreed 50/50 split. It really is just about what I brought in to the marriage I guess.

Rich_Synaps

tacpot12 said:

jlfrs01 said:

There is a lot of guidance on the Government Website for those couples entering into a Divorce so probably worth a read in the first instance. If you and your wife couldn't agree on a settlement you can ask the Court to intervene but it's a bit of a drawn-out process involving mediation as well as expense. The court would take into account assets, pensions, savings, age and standard of living. It starts at a 50:50 split and then varies based on those criteria as to who is awarded what.

In your scenario, given that your wife agreed to the original pre-marital arrangement (the 30% of future property value + 50% split on the delta), then I think it's reasonable to ask this to be your starting point for the settlement. As you say, the money you originally contributed pre-dated the relationship and she will have benefitted from its investment.
You're then left with debts (assume each of you will take care of any personal debts yourselves), joint debts (split equally from the house sale so you have a clean slate) and savings which if personal you keep as is, if joint are split 50:50 and pensions (unless a big disparity in value, leave them alone). If you have any investments (like ISAs, Premium Bonds and so on), best cash these in and split 50:50.

This is a fairly broadbrush but pragmatic approach which should allow you both to get on with your lives quickly and without the expense of lawyers, etc. 

I would like to offer a different point of view. Although your wife agreed to the original deed of trust, the deed of trust is annulled by marriage, and the expectation is that husbands and wives split the marital assets equally, unless that are good reasons not to. I think an expired agreement is not a sufficiently good reason for it to influence the settlement. Your wife has a reaonable expecation that assets would be split 50/50 if she married you, and presumably you also knew this when you agreed to marry her. Disparities between earning potential and between pension provision are good reasons to vary the split of assets away from 50/50. The variation should be based on need. 

You are assuming that pensions will not make nuch difference, but sadly women can be very disadvanted in pension provision, which is why the courts look at pension benefits when forcing an agreement on couples. I would strongly recommend you both get pension valuations that can be used in your divorce. If she has the earning potential to make up for any shortfall, this seems a basis on which the difference in pension provision could be ignored. 

I would not think it necessary take your future earning potentials in further account, unless it is to account for an unequal split of assets. You can try to argue that you should receive more of the equity in your home, because your wife can more easily make up what she has lost, but she is losing, and the question is, is this fair?

You might well find a mediator is useful to allow you to put diffeent points of view to each other in a way that is less charged with emotion, but if you are seperating on reasonable terms and are both able to remain adults, then there is no reason you need to use a mediator. 

Thanks so much for your time and comments! I wasn't aware of a disparity between male and female pensions so may look in to this. I am inclined to agree that the prenup is probably null and void due to marriage (Makes me very cautious ever to marry again). If I get the scenario 1 situation then I believe it works out at around 60/40 in my favour effectively. If I were to go with Scenario 2 and somehow try to get earning potential taken in to account then I think the best situation I could end up with would result in an effective 60/40 split in my favour.

Any judges reading this like to also give me advice!

Savvy_Sue

Rich_Synaps said:

Any judges reading this like to also give me advice!

They wouldn't. And even if they did, you'd be completely unable to rely on their advice! Because a) you'd have no way of verifying whether or not they were who or what they claimed to be and b) they'd have no idea whether you'd given a true or complete picture here. 

If you want advice you can rely on (ie sue the pants off them if they get it wrong) you need to pay for it. But before you do that, you might find the Wikivorce site useful in gaining opinions and real-life experience. 

VyEu

When it comes to the split of matrimonial finances, there is a two step exercise. 1) computation. What are the matrimonial assets. 2) how to divide. re point 2) default is 50/50 but the court has a wide discretion and will take into account all of the factors, including earning capacity, income, age, disability, length of marriage, minor kids (I note you don't have any) etc. pensions are also part of the asset pot.

You need to see a solicitor, but periods of Cohab if directly before the marriage add to the length of the marriage. No one here can give you an idea of what is fair, especially if the parties haven't done through financial disclosure.