Divorce myth-busting: the couple’s assets are always divided 50/50
What share of the family assets will you receive if you get divorced? You may think that you will automatically be entitled to half of the assets but this isn’t strictly true. We look at the how the courts decide how a couple’s assets are to be divided and why a recent Court of Appeal decision means pre-nuptial agreements are more important than ever.
The general principle is that the family assets should be divided equally. This principle was, however, thrown into confusion by a Court of Appeal case last year.
It is a common misconception that on divorce a couple's assets are split 50/50. It is true this is the starting point but it is not applied in every case.
The court can deviate from a 50/50 division if it is fair and reasonable to do so. Factors that determine this include:
- The effect on the welfare of any children of the marriage under 18. If one party is responsible for caring for the children, their needs will take priority. This may include being entitled to more of the capital in order to buy a bigger home.
- The reasonable needs of the parties. Those of the economically weaker spouse take priority and this could mean them taking a greater share of the assets.
- The current and potential earning capacity of each party. For example, a wife who gave up her career to look after children may need more capital to buy a home big enough to accommodate an au pair to look after them when she goes back to work. Similarly, one party may have the ability to pay a higher mortgage than the other and should, therefore, receive a smaller capital sum than their ex-spouse.
Other factors include the loss of benefits through divorce (such as pension rights), the parties' ages and the couple's standard of living during the marriage.
Having said all the above, the general principle is that the family assets should be divided equally. This is the so-called "yardstick of equality" specified by the court in the landmark House of Lords case of White v White in 2000. This principle was, however, thrown into confusion by a Court of Appeal case last year.
In the case of Sharp v Sharp, Julie Sharp successfully overturned an earlier court decision that her former husband was entitled to half the fortune she built up during their marriage.
Julie and Robin Sharp were in their early 40s and had no children when they got divorced. They had been married for four years, having previously lived together for two years. Their incomes were similar when they got married but during the marriage, Mrs Sharp, a trader, received bonuses of £10.5m.
The High Court determined that the couple's marital assets of £5.45m should be divided equally and Mr Sharp received £2.725m. Mrs Sharp appealed this and the Court of Appeal ruled in her favour, reducing the award to £2m. The basis for the decision was that the marriage was short, the parties kept their finances separate during the marriage and they each had their own career.
Lord Justice McFarlane said in his judgment: "The husband made no contribution to the source of the wife's bonuses and this is not a case where … the husband is said to have contributed more to the home life or welfare of the family than the wife."
After the judgment, a number of lawyers were quoted in the press as saying the decision had thrown the law into confusion. As if anticipating this, one of the judges said that nothing in the judgment was "intended in any manner to unsettle ... the approach that is to be taken in the vast majority of cases".
He continued: "The focus of the present appeal, which is very narrow, is upon whether there is a fringe of cases that may lie outside the equal sharing principle."
The case gives no great clarity about the "fringe of cases" that will fall outside the equal sharing principle and we can expect more litigation on this issue in the years ahead.
For this reason, entering into a pre-nuptial or post-nuptial agreement to give clarity and avoid expensive litigation on divorce is more important than ever. If there had been one in the Sharp case, it is unlikely the case would ever have gone to court.
To discuss issues relating to the division of assets on divorce or putting in place a pre-nuptial or post-nuptial agreement, please contact Mark Goldstein at [email protected].