This blog is the first in a new series exploring Section 25 of the Matrimonial Causes Act 1973, specifically the list of factors that apply and their impact upon the resolution of financial issues following a divorce or civil partnership dissolution.
What is Section 25 of the Matrimonial Causes Act 1973
When a marriage or civil partnership breaks down, the parties will need to consider how best to divide income, any assets including property, savings and pensions as well as any debts. Section 25 of the Matrimonial Causes Act 1973 essentially sets out the factors that the family Court must consider when making financial orders.
When applying Section 25 of the Matrimonial Causes Act 1973, the Family Court has a wide discretion and looks to provide a fair outcome for the parties. The Family Court does not make the decision based on a mathematical formula and will be tailored to the facts of each case whilst considering the ‘section 25 factors’. The objective is to provide a fair and equitable financial settlement that meets the reasonable needs of both parties and any dependents.
Sub-section 1 states that the first consideration of the Family Court will be given to the welfare of any child of the family who has not reached the age of 18.
Thereafter a range of other factors are set out which the Family Court must consider whilst exercising its powers and these are provided at sub-section 2 and are set out below:
“(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;
(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
(c) the standard of living enjoyed by the family before the breakdown of the marriage;
(d) the age of each party to the marriage and the duration of the marriage;
(e) any physical or mental disability of either of the parties to the marriage;
(f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
(g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;
(h) in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit . . . which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.”
For the purposes of this blog, I am going to concentrate upon s25(2)(a) – the income, earning capacity, property and other financial resources which each of the parties to the marriage/civil partnership has or is likely to have in the foreseeable future – and then a series of further blogs exploring the other paragraphs will follow.
S25(2)(a) can often be fairly self-explanatory, but there are nevertheless aspects which may require the Family Court to form a view or exercise its discretion.
The court considers the present and foreseeable financial resources to include the savings, investments, property, and income and mortgage capacity of each party. This includes consideration of any disparity in income and the potential for any increase in future earnings.
- Income – for these purposes, historic income can generally be ascertained by looking at someone’s payslips/P60/tax return.
However, the position can become more complicated if:
- Someone is making substantial voluntary contributions to their workplace pension. That person’s take home income is less than it would be if they chose not to make those voluntary contributions.
Making voluntary contributions to a pension is not necessarily unreasonable and so the Family Court may have to take a view as to whether those contributions should be factored in when assessing income.
- If someone operates through a limited company – depending upon how the company operates, it is not unusual for a company to put provision aside rather than drawing out all of the possible income.
The Family Court may need to decide (sometimes with expert evidence) whether it feels that more income could be drawn from the company or not.
- Earning capacity – much of the time, earning capacity may be the same as what each party is earning.
However, there can sometimes be a difference between what someone is earning and what someone is capable of earning.
By way of example – if one party is working part-time in order to facilitate caring for young children then that person may well be maximising what they are able to earn at that time (although it may change in the future).
However, if someone else is working part-time with no childcare commitments or medical reason to be needing to work part-time rather than full-time then it may be felt that they could generate a higher income than they currently are.
In that situation the Family Court may decide to ascribe a higher income to the person going forwards than they are generating at that time.
- Property – it is often fairly straightforward to understand what real property is owned. In many cases it may simply be the family home and the parties are registered as the legal owners of the property at the Land Registry.
However, sometimes people own multiple properties or co-own multiple properties with other people.
This can make it more difficult to ascertain what is owned particularly if they are not registered as the legal owner of the property at the Land Registry, or the extent of their ownership is unclear.
Likewise, there can be situations where someone is registered at the Land Registry as owning a property but, for example, says that they don’t actually own the beneficial interest in the property – they are just listed as the legal owner but the actual owner is someone else.
In these types of circumstances, third parties may be required to become involved (and separate legal proceedings may be necessary) to establish what property is actually owned by whom.
However, property is also defined as things such as bank accounts, cars and shares in a company as well as other types of property.
A company may produce an income but equally have a value in its own right and sometimes expert evidence may be needed to understand what that value is. On other occasions a company may simply be a vehicle through which income is generated without any actual value save what is in the bank accounts (after tax).
- Other financial resources – this is the catch all provision and can include things such as:
- Crypto currency – which due to the frequent and significant fluctuations in value can pose a number of challenges.
- Being the beneficiary of a Trust.
However, one aspect which is not spelled out in the legislation but is nevertheless important to bear in mind is that any debts and liabilities must also be taken into account and will be factored in when assessing the value of the assets.
For example, if considering the property that is owned, is there a mortgage? Will there be a capital gains tax liability? If there is then that needs to be considered, otherwise it would present a flawed view of the available financial resources.
How is this information captured?
Often, a document called a Form E is used. This is a lengthy financial statement where each person is required to provide significant financial information (and supporting documentation). A link to this can be found below:
https://www.gov.uk/government/publications/form-e-financial-statement-for-a-financial-order-matrimonial-causes-act-1973-civil-partnership-act-2004-for-financial-relief-after-an-overseas
Part 2 of the Form E is designed to capture all the information that is relevant for assessing the financial resources of the parties.
How can we help?
For more information about divorce or separation, or to arrange a confidential discussion about your personal circumstances, please do not hesitate to contact us.
Chris Maulkin is a Director, Solicitor and Collaborative Lawyer in our Brighton office.
