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Assets After Separation – How Are Future Earnings Treated In Financial Settlements? - Jarmans Solicitors

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Assets After Separation – How Are Future Earnings Treated In Financial Settlements?

June 22, 2022 jarmans 0 Comments

When couples are going through a divorce, agreeing on a financial settlement and what precisely should be accounted for is often a significant source of contention.

Often it can come as a surprise that all assets are considered by the Courts in determining the available asset pot, however that is not to say the Court will treat all property/ assets in the same way. The Court can distinguish between assets that are matrimonial and assets which are non-matrimonial and therefore have a discretion to decide what forms part of the overall asset pot. 

In financial settlements, there is a principle of ‘sharing’ which assumes that each spouse is entitled to an equal share of the matrimonial assets, however this is subject to meeting a party’s needs and reviewing any requirements if children are involved. The ultimate aim of the Court is to achieve fairness for the parties, and it often recognised that equal division of assets will not always produce a fair outcome for both parties, for example the primary wage earner who has a significantly greater   earning capacity than  the part time working  spouse/ home maker.  In such circumstances an equal division of assets would not necessarily produce a fair outcome for the part time spouse/ home maker. 

Thus, as with all family matters, the treatment of these assets will very much depend on the case’s individual circumstances. However, before a divorce settlement is agreed, and if couples do not divorce immediately, how do these ‘sharing’ principles apply concerning post-separation earnings? Especially if one party increases their earnings following the separation or starts a new business? 

If a spouse wishes to ‘ringfence’ an asset post-separation, departure from the equal sharing principle will solely depend upon the individual circumstances of the case. The courts will always ascertain each party’s individual needs to ensure proper provision for each party is accounted for. 

The court have identified 3 principles to guide them in trying to achieve fairness:

  1. The Sharing of matrimonial property generated by the parties during their marriage
  2. Compensation for Relationship Generated Disadvantage 
  3. Needs balanced against ability to pay 

How to determine what is included in ‘shared assets’

There are several principles involved in deciding what marital assets should be included in any settlement, and a court will generally establish the following regarding the treatment of post-separation assets:

  • A `passive` increase – Such as a natural increase in property values, pensions, and share values. The Court can take the approach that this should be included within the assets to be divided if they were already part of the matrimonial assets when the couple were together.  
  • `Active` economic growth – This can be where a party to a marriage has actively done something to improve the value of the pre-existing assets. Again, the Court would need to carefully consider the case’s specific facts and use its discretion.
  • New ventures – If one party starts a new venture after separation, which is done through funding not connected to the marriage’s assets, and they have used their own skills or expertise, there is a more substantial chance that this will be treated as non-matrimonial property. Subsequently, it will be less likely to be subject to the equal sharing principle. It will fall within the Court’s discretion to consider what would be fair.

Several notable cases highlight the issue of post-separation divorce assets, which make it clear that it is essential to distinguish between passive, active and new venture growth of a post-separation asset.

What is a Separation Agreement?

A separation agreement is an agreement between you and your ex to fairly separate your money and assets following separation but prior to  either party  issuing  divorce proceedings. 

You can reach a financial settlement at any time during your divorce proceedings, including after you have legally ended your marriage. However, we advise that you try to have a settlement in place by the time the Court awards your Decree Nisi.

Are financial settlements legally binding?

To formalise a financial agreement and make it legally binding, you or your solicitor must ask the Court to formalise the agreement in a ‘ Financial Consent Order’. However, you may not need to attend any hearings. If you cannot reach an agreement on a financial settlement with your ex, the Court will decide what is fair and make a financial order that you both must legally abide by.

Financial Settlement Agreement Solicitors

Our expert family law solicitors offer legal advice for all your Financial Settlements and Agreements. We will guide you through the entire process and ensure you are comfortable with every decision. If you would like to contact us or book a consultation with a member of our team, please click here to make an enquiry, call us on 01795 472291 or email enquiries@jarmans-solicitors.co.uk

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