Financial Arrangements In Separation: Part 2
Part two of our guide to financial arrangements in separation, covers spousal support and maintenance - what to do about shared property, possessions, bank accounts, debts etc. There are also sections covering wills and guardianship of your children, alternative dispute resolution and negotiation.
If you haven't already read part 1 it can be found here.
Spousal support / maintenanceSpousal maintenance consists of regular payments to help with the cost of everyday living expenses. This may be paid to your former partner if you have no children, or may be an additional sum on top of child maintenance. It may terminate on the death of the paying party, or the re-marriage of the receiving party.
The agreement may be for a set amount, or simply that one of you pays certain bills for the other. You can agree this amount in your separation agreement, which is always the cheaper and more flexible option.
- How much money does each party earn?
- How much money do they need to live on?
- What other money will you get from joint property / accounts / benefits?
- What financial contribution did you each make to your marriage?
- What non-financial contributions (such as staying at home with children) were made?
If you cannot agree, you may apply to the courts for a 'financial order'. However this can be a costly process and will usually require legal assistance from a solicitor. It is therefore advisable to try to agree arrangements between you.
You do not have to fund a celebrity lifestyle for your ex, but you can be expected to help them maintain the lifestyle you both shared. For example if you both rented a house during your marriage, you are not expected to help fund the purchase of a property for your ex partner, but will have to help them to afford their rent and security deposit.
Shared propertyYour house is usually your most valuable property. If this was jointly owned, you need to decide how you are going to split its value (commonly referred to as equity).
The first stage is to decide whether one of you wants to keep the house and buy the other out, or whether you agree to sell the house and use the money from the sale to purchase or rent separate properties.
The second stage is to decide what share of the equity each party will take. Your starting point will be a 50/50 split, but there are several reasons why you may choose to vary this, for example:
- One party contributed a larger amount to the initial deposit (such as their family money)
- One party will need more money from the sale to buy or rent a larger property due to having your children living with them
- One party will need more money from the sale to buy or rent a property as they have considerably less income than the other
- You would rather allow your ex to have more money from the sale of your property than later share your private pension fund.
Possessions within the homeYou may also want to make specific agreements about who will keep specific possessions within your home, or how the value of any items (particularly expensive items) is to be split. For example is one item a hereditary antique that belongs to one side of the family and so one particular party will want to keep? Is one item such as a boat used more by one party than the other? You are advised to avoid any "games" and simply be honest with each other about which items you want to keep so they can be factored into your arrangement and other items sold to release their monetary value.
You may also want to consider whether you can afford to keep property that costs money, such as a car. Even if you agree for one party to keep the car, that party will still have to pay for insurance and car tax. They may also have to pay monthly for the car if it was not bought outright. Can you afford to keep the car on this basis? If not, you may wish to sell the car and use some of any money from the sale to buy a cheaper car which is in a lower insurance band or uses less fuel.
What if you have rental property?So what happens if your property includes a rental property bringing you a monthly or weekly income? In this case you have to consider whether either of you wish to keep this arrangement going. If so, then you will have to split the income and continue jointly owning the property, or one of you buys out the other. If you wish to sell the property, you can immediately split the value of the property but will lose out on further income generated by renters.
Joint accountsWhen you split, you may have already stopped using joint accounts to pay bills etc. However you may not have considered any money remaining in the accounts. Again it is up to you how you split this money, and may depend on your agreements in relation to spousal/child maintenance and division of property.Even if the account is empty, you should both agree to shut down "sleeping" joint accounts as they will nearly always include an overdraft which could allow one party to run up debts in both your names.
Debt and loansAny loans in joint names will leave you both liable to pay them. This means that even if one of you pays off half the loan, you will both still be liable for the other half. You therefore need to come to an agreement about any joint loans :
Pay off the loan: Agree how much each party must pay off and by when (you may want to agree that a defaulting party has to pay off any late payment charges their late/missed payment accrues).
Both take out an individual loan to pay off your half - but this could mean accruing even more debt and so is often not a practical solution.
Joint DebtsJoint debts can be more difficult to identify; just because a debt is only in one party's name does not necessarily mean that it is only their responsibility. In the case of any debts in single names that you consider joint liabilities, you will need to agree that this is the case with the other party. An example might be a loan taken out in one party's name but used to pay for a jointly used car. These debts will then also need to be considered with joint loans.
If you have several joint loans / debts, you may choose to pay them off by one party taking responsibility for one debt, and the other for another. This will allow you to swiftly take debts out of joint names even if you can't yet afford to pay them off, as most banks or loan companies will allow you to change a debt from joint into sole names as they still have someone liable and paying off the loan. You may however have difficulty with this if one party is unemployed or hasn't got enough security for the bank to satisfy themselves that you are able to pay off any debt.
Joint savingsAny joint savings in the form of money in a savings account should be split between you both and put in separate accounts. How you choose to split this money may again depend on your agreements in relation to maintenance payments and division of other assets.
Complications come where savings are in the form of investments, stocks and shares. You may again wish to transfer these into just one of your names (or some in one name and some in another) as part of your agreement. However remember that these will not usually pay out money immediately and so you may want to factor this into your division of assets so that you both have enough to pay for future accommodation rent / purchase of separate properties.
Many investments, stocks or shares can be sold to retrieve an immediately monetary value. The value of stocks and shares varies however and so you are not guaranteed to get back as much money as you paid for them. You may wish to keep these savings in joint names. However this can create problems with agreeing whether to sell them at a later date.
If your savings are in an ISA (Individual Savings Account), they will by definition be in one person's name. Any money in this account therefore legally belongs to the named owner. Like joint debts however, this may not reflect the reality of where the money came from and so you may wish to make an agreement in relation to the money in any ISAs. It is quite common for couples to save money by putting up to individual limits in ISAs for tax reasons, but the money in them came from joint current accounts and was contributed by you both. If no agreement is reached, the money will belong to the party named on the account and will only be accessible by them.
Company owners and directorsWhere you both jointly own a business, you will have a further decision to make as to whether you are able to still work together. If not, you will either have to sell the business or one partner buys the other out. This can cause problems if you cannot afford to buy out one partner (who may not even work there but simply hold a significant amount of shares).
Often the best solution for both of you to get the maximum amount of benefit is for a staggered agreement to be put in place. This would mean that the business is able to keep running, but that an agreed percentage of shares / equity is bought off the absent partner annually.
Example: Tim and Sue jointly own a business 50/50. Tim wants to buy out Sue's shares when she leaves the company so that he can continue earning money in the business rather than sell it.
Tim can't yet afford to buy out Sue outright. They agree that in Year 1, Tim will buy 20% of Sue's shares, which Tim and the business can afford.
Tim will still make a profit, but it will be reduced by the payment to Sue.
In Year 2, Tim buys another 20% of Sue's shares, plus a small extra sum to compensate her for interest she would have made had the money been withdrawn a year earlier. If this continues, Tim will buy out Sue within 5 years.
This method is essentially a loan from the exiting party, but allows the business to keep running which may ultimately mean they end up with more money in maintenance as Tim otherwise won't be able to pay anything towards the children or Sue's maintenance.
Other benefitsIn addition to savings, you may also have benefits such as a private pension. You may decide to factor this into your agreement by:
- Agreeing to pay a share of your pension payout each month to the other party
- Agreeing for the other party to take a slightly larger share of savings to give them extra money for after they retire
You may also have life insurance whose beneficiary is your ex partner. The obvious move following your separation is to change the beneficiary of this insurance to someone else, perhaps your siblings or other close family. You may however want to consider any life insurance set up so that your former partner can continue to afford to support your children as a single parent; if anything were to happen to you, they would still have to do this, so the purpose of the insurance still exists. You may therefore want to keep your policy without changes to the beneficiary to protect your children's future.
WillsYou may have already written your wills with your former partner as a beneficiary. You may want to change this part of your will so that you have a cleaner separation. However your ex partner may still be a trustee if you wish to give money to your children who would not be able to claim it until they are 18 years old.
You should discuss what will happen to your children should something happen to one of both of you. If one of you were to die, you may agree for the other parent to take full custody of your children. It is however increasingly common to include an agreement that in this event, you agree to allow your late partner's family contact with the children. In the event that something were to happen to both of you, you may wish to jointly nominate someone to care for your children. If you have already named someone jointly in your wills, you may be happy to keep this person. If you have not named someone, it is advisable to do so to prevent any arguments at a later stage of tensions between your families.
Alternative dispute resolutionThere are alternatives to going to court to resolve any issues you may have in agreeing matters such as payments or contact with children. Below is a guide to some of these methods which both allow you more control of the process, and if they work can be far cheaper.
NegotiationSuggesting resolutions and compromising to eventually reach a solution. This can be as simple as you writing letters to each other or meeting to discuss matters at a neutral location. You can get solicitors involved in this process or conduct it yourself.
ArbitrationPutting your side before a specially trained independent third party who will adjudicate and tell you what you each must do. This is much more like going to court, except that you and your solicitor argue your case in front of a trained arbitrator who is not a judge, out of court. This can still be costly due to still paying for a trained person to judge your case, and usually needing legal representation. However you have "rights of audience" during arbitration and so you can also speak to the "judge" to explain your case.
MediationAn independent third party assists you in your negotiations. You will negotiate with each other and are responsible between the two of you for agreeing matters rather than having a decision imposed on you. However you will have an independent third party to help to come to an agreement by focusing you on the main issues and "policing" discussions to ensure you both have chance to speak.
There are other methods of alternative dispute resolution (ADR) that you could try, but these are the most common. Your local Citizens' Advice Bureau should be able to advise you further on these methods.ADR is often dismissed by parties without real attempts to make it work. It can however vastly reduce the costs involved in settling matters and can result in you both having an agreement tailored to your individual case and what you want. You will have to consider it when starting any court proceedings under the Civil Procedure Rules so you might as well really try to make it work and avoid additional expense and stress!
Need More Information?There are more guides and templates in this section, read on to:
- Read Part 1 of Financial Arrangements in Separation
- See a completed example of a separation agreement which you can use as a template
- Check out your rights in our Guide to Parental Responsibility
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