Clean Break Order. The Essential. Guide. to Clean Break Orders

Transcription

1 The Essential Guide to Clean Break Orders 1

2 The Essential Guide to Clean Break Orders Introduction 3 The Clean Break Order 5 What Exactly is a Clean Break? 6 Some Vital Points to Consider 9 What can a Clean Break Order include? 10 Advantages and Disadvantages of a Clean Break Order 11 How do I know if I am eligible for a Clean Break? 12 How do Consent Orders Work? 13 Pensions and Inheritance with a Clean Break 14 Offsetting 14 Ending a Relationship 15 Wealthier Couples and the Clean Break 15 Legal Aspects of the Clean Break Order 16 Changes to the Law 20 Ancillary Relief Application 21 The Six Golden Rules of a Clean Break 24 Conclusion 25 Example Statement of Information Form for a Consent Order 26 2

3 Introduction to Clean Break Orders A Clean Break Order (Consent Order) * service allows you to make sure that following your divorce neither party can go back to court to ask for more money or assets. You may have made the decision to divorce and have agreed on what will happen regarding your financial arrangements. For example, you may have agreed to sell the matrimonial home and divide the proceeds equally or you may have agreed to transfer your entitlement to the family property to your spouse and receive a lump sum in return. Whatever the agreement you both may have reached you should now consider having your agreement made legally binding by way of a Consent Order. The Consent Order is the only way that divorced parties can ensure that any agreement reached is enforceable by law and that no further claims can be made. Even if you already have a separation agreement you will still need to obtain an official Consent Order to put the terms of the agreement into effect. This is a personal drafting service that will involve some interaction with expert legal advisors to ensure that the final order is acceptable for both you, your spouse and the court. A legally binding Consent Order is filed after The Court in divorce proceedings has pronounced Decree Nisi and is a final binding order on both parties. * Clean Break and Consent Orders are two names for the same thing. 3

4 It is advisable for you to arrange your Consent Order at the same time, or very soon after you have initiated your divorce proceedings to ensure that there is no delay in obtaining the order from the court. The procedure to obtain the Consent Order is extremely straightforward and does not involve either party attending court in most circumstances. The Order will deal with any property division or transfer, savings, shares, policies, personal property, spouse maintenance, child maintenance, and pensions including pension sharing orders. The concept of the Clean Break is alive and well in the UK and there seems to be no new suggestion that there should be an on going obligation to share future earnings indefinitely after divorce. It is very important for divorcing couples to end their financial inter dependence and the judgment in these cases invariably supports that view. 4

5 The Clean Break/Consent Order A Clean Break, as the name implies, is the once and for all split of all the assets between the parties involved in the divorce process. Once the assets have been divided, neither party can make any financial claims against the other, even if there is a lottery win, redundancy/loss of employment or a substantial inheritance. Clean Breaks are becoming increasingly desirable as they free the couple to carry on with their lives without any continuing obligation to each other. 5

6 What Exactly is a Clean Break? Under the Matrimonial Causes Act of 1973, the courts are given direction for the resolution of the financial matters for a couple on divorce and this includes having regard to a Clean Break. This means that the matrimonial assets will be divided between the couple resulting in a complete separation when the marriage ends, usually sometime after The Court grants the Decree Absolute. However, where there is an obligation to maintain children of the marriage it may not be possible to achieve a Clean Break. This could occur if there were limited assets of the marriage and one of the parties was a high earner (usually the husband) whereas the other party looked after the children (usually the wife). On divorce she would be unable to support herself and there may be a requirement for a maintenance order. Even so, the courts will usually expect an order for maintenance for the spouse to be restricted by time so as to achieve a Clean Break in the future. One assumption is that the wife will have existing skills from a previous employment, can be re trained and will eventually have a sufficient income to support herself. Where there is a pension arrangement involved and an earmarking order against the members pension rights at retirement age, a Clean Break will not be possible. This arrangement will mean the former spouse will have to wait until the member chooses to retire before payment of a pension income or any tax free lump sum. As most couples usually want a Clean Break of the financial matters on divorce, it is understandable why earmarking is only occasionally used to settle the retirement benefits. Clean Breaks only apply between spouses not children. Both parties remain responsible for maintaining their children until they are 18 years of age. 6

7 A Clean Break is a settlement where it is ordered that neither the husband nor wife will claim any maintenance or capital from the other in the future. If one party cannot earn at all, or can only earn much less than the other, a Clean Break will only be possible if substantial assets are transferred or if a lump sum is paid which is large enough for that party to meet his or her needs. A Clean Break can be fair and reasonable when there is capital available in the place of maintenance. The availability of funds is crucial and the court will look into all circumstances. Maintenance can be ordered for an indefinite period or sometimes for a specified time, after which there will be a Clean Break. Such an order will be appropriate if, for example, the wife needs time to retrain if he or she plans to return to work when the children reach a certain age. Maintenance orders come to an end automatically if the recipient remarries. A Clean Break is a way of saying that the maintenance rights of both of the parties are dismissed, whether or not one party has received maintenance in the past. Once maintenance rights are dismissed, they cannot be re opened. The courts encourage both parties to be financially independent after divorce and to earn whatever they can. Each parties age, health, family commitments and the availability of appropriate employment will be taken into account. 7

8 The court will consider the welfare of the family and will take into consideration the desirability of a Clean Break, where the financial obligations of one party to the other end, and this will normally be either immediately or at a future date. If a Clean Break is possible, it is often considered to be the best solution and the court can order it even if one party does not want it for instance a wife might prefer openended maintenance to receiving one lump sum now. If a couple cohabits but does not marry then there is no obligation at the end of the relationship for one to financially support the other. The law does not allow a person who merely cohabited to acquire financial provision for them, although where children are involved there will usually be financial consequences. Clean Breaks are becoming increasingly common for young childless couples. As partners get older and nearer to retirement, Clean Breaks are not always advisable because of pension benefits and health considerations. There is no automatic rule that applies to divide the assets of the couple, or to provide continuing financial support. Instead the court will try to make orders that are individually crafted to that particular couple. 8

9 Some Vital Points to Consider: 1. The financial resources, income and earning capacity of both parties. This will involve a realistic assessment of what the parties have and what they can be reasonably expected to acquire in the future, and will include future pensions and pension funds. 2. The financial needs and obligations of both parties. This will take into account the need for housing, and any obligation one party might have to look after the children, therefore reducing their earnings. 3. The standard of living that was enjoyed by the family. 4. The age of the parties and the actual duration of the marriage before it s breakdown. Greater provision is usually needed for an older spouse who may be more disadvantaged after a long marriage than a young spouse after a short marriage. 5. Any contributions made or likely to be made to the welfare of the family. This does not just mean financial contributions. It will take into account contributions made by staying at home and looking after a family. 6. Any mental or physical disability of either of the parties to the marriage. 7. Any conduct that would be inequitable to disregard. This does not mean the court will take into account every instance of matrimonial misconduct it is exceptional for conduct or behaviour to be taken into account. 8. Any loss of benefit in the future, such as lost pension rights. A Clean Break only operates between the spouses themselves. It is not possible for the spouses to settle all claims for the future financial provision of the children in this way. Also if there is a future application for state support from the DSS, a subsequent assessment for child maintenance by the CSA may also include an amount for the parent looking after the children. 9

10 What can a Clean Break Order include? 1. The payment of a sum of money by one spouse to the other. 2. The transfer of the whole or a share of the matrimonial home or other property from one party to the other. 3. The sale of a matrimonial asset and the division of the proceeds between both parties in fixed percentages. 4. The division of the matrimonial assets. For example this may deal with the division of the contents of the former matrimonial home and cars. A Clean Break could be ordered after a specific period of maintenance (periodical payment). This period of time would be considered by the court to be sufficient for the recipient, usually the wife, to adjust without undue hardship to the end of financial dependence on the husband. Time limited orders are used less when there are dependent children. They are used more in circumstances when the marriage has been childless and the wife just needs a period of time to enable her to support herself. 10

11 Advantages and Disadvantages of a Clean Break Order The main advantage of a Clean Break Order is the certainty that it provides. Each spouse knows exactly what has to be paid and when it ceases. This would therefore encourage independence as nothing could instigate court proceedings again. A disadvantage would be that the lump sum cannot be increased at a later date and if the recipient were to fall ill and not be able to work, support could not be sought from the exspouse. On the other hand, the recipient could re marry after having received a lump sum whereas maintenance would cease at the time of the remarriage if a Clean Break had not been made. This option must be carefully considered. In the cases where there is no capital, except for the net equity in the home, a couple may decide to use this equity as the basis for a Clean Break. The courts would not be happy to do this if the wife did not have an income of her own. The courts might think that she would have to resort to receiving state benefits and may avoid this situation. Also, if the wife were a few years from retirement age, and had little prospect of getting a job to support herself, the courts would also be reluctant to consider this scenario. 11

12 How do I know if I am eligible for a Clean Break Order? Clean Break Orders are only eligible to those who have been living in England or Wales for 6 months or more, or who are living abroad and only a court in England or Wales can issue the divorce. One party must have been domiciled or habitually resident (for 1 year or more) in England or Wales. Divorce proceedings have been instituted or are shortly to be instituted. If you want a once and for all settlement. If the children have been adequately provided for and the parent looking after them is financially independent, then a Clean Break will be possible. Where there is an obligation to maintain children, it may not be possible to achieve a Clean Break. Where there is a pension arrangement involved and an earmarking order against the members pension rights at retirement age, a Clean Break will not be possible. If you wish to end all the financial claims your spouse may have against you then a Clean Break is for you. A Clean Break will be possible where you have agreed financial matters with your spouse. Note: Clean Breaks can be ordered after a specific period of maintenance (periodical payment). This period of time would be considered by the court to be sufficient for the recipient, usually the wife, to adjust without undue hardship to the end of financial dependence on the husband. Time limited orders are used less when there are dependent children. They are used more in circumstances where the marriage has been childless and the wife just needs a period of time to enable her to support herself. 12

13 How do Consent Orders Work? You and your partner may be able to settle financial matters without the need to attend court. If you would rather avoid attending court then you may want the agreement put into a Court Order to be sure that your partner keeps to the agreement in the future. Your legal advisor can draw up a Consent Order, which sets out the agreement reached between you and your partner. The Consent Order can deal with the division of money, property, pensions, savings, life insurance etc. You can also agree on the amount of maintenance to be paid for your children, if you are happy doing so, this will avoid the need to apply to the Child Support Agency. Both you and your partner will need to sign the Consent Order. You will both be required to complete a form, which is known as a Statement of Information. You will be required to give details about your capital and income, details about where you are living and whether you have future plans to remarry, or live with someone else. This information is then sent to the court together with the Consent Order. This will help the court decide whether the agreement you have reached with your partner is a fair one. You will not have to attend court. The court will rubber stamp the Consent Order if they are happy with it and proceed to send it back to your legal representative. If the courts are not happy with the Consent Order then they may ask your legal representative to provide them with more information or attend court to discuss the contents of the Consent Order and the Statement of Information. The Consent Order acts as a contract between yourself and your partner. If your partner ends up breaking the agreement you can go back to court to enforce the agreement against your partner. 13

14 Pensions and Inheritance with a Clean Break The courts can still award a wife or husband a share of the other s pension, payable on retirement if no other provision for pensionable age can be made at the time of the Clean Break. A Clean Break Order should normally include a provision to prevent one spouse from having a claim on the estate of the other after death under The Inheritance Act. Offsetting For matrimonial solicitors in England and Wales the most appropriate solution for the division of the matrimonial assets and financial matters, such as the members pension rights of any retirement benefits, has been Offsetting. The couples going through divorce that can come to an out of court settlement will usually use offsetting of the pension fund value against other matrimonial assets such as the family home. Offsetting can be the preferred method of resolution as it achieves a Clean Break between the parties. However, for wealthier and older couples the retirement benefits could be more substantial than other matrimonial assets, making offsetting impossible where the objective is an equal split of the assets. Introduced from 1 December 2000 by the Welfare Reform and Pensions Act 1999 (WRPA), pension sharing also achieves a Clean Break for the couple on divorce but will give the former spouse the opportunity to secure a percentage against the members pension rights. This would be charged as a pension debit against the member and paid as a pension credit to the former spouse that will have the choice of an internal transfer if permitted by the scheme trustees or as an external transfer to a provider of choice. 14

15 Ending a Relationship A marriage is only ended in the eyes of the law if the parties obtain a divorce, whereas a cohabiting couple can end their relationship without going to the law. However, on the ending of a marriage by divorce, the courts have wide powers to make financial arrangements and orders regarding the property of the couple. These powers are crucial because they allow the court to make what it considers are fair orders in all the circumstances of the case. Under the Matrimonial Causes Act 1973, as amended, the court will take into account a variety of different factors in determining what orders it should make. It can order the payment of periodic payments or maintenance, it can order the transfer of property, such as the matrimonial home or shares, and it can order the making of lump sum payments. Wealthier Couples and the Clean Break In better off families, it is sometimes possible to buy out maintenance rights by giving the person who would otherwise receive maintenance rights by giving the person who would otherwise receive maintenance a large capital sum. There is a commonly used method of calculation for capitalising maintenance called the Duxbury Calculation. The Duxbury Calculation is the formula for working out a lump sum appropriate for a Clean Break, based on the amount of maintenance payable, and the life expectancy of the recipient etc. Needless to say, this is quite complicated and usually only works well when the wife is close to retirement age and there is a very large amount of capital available. Before making a consent order, courts now also ask to obtain quite detailed information about the respective financial positions, and romantic intentions, of the two parties. They are keen to ensure that the parties have not obtained the agreements contained in the order in ignorance of any factor, which might have affected their agreement. They want each side to make a full, documented and recorded disclosure of their respective assets. It is also much easier if both parties have independent legal advice. 15

16 Legal Aspects of the Clean Break Order A Clean Break Order is one where the parties claims against each other are dealt with on a once and for all basis, in such a way that neither is allowed to return to the court in the future in an attempt to vary or revive an earlier claim. The importance of attempting to settle ancillary relief disputes without incurring the costs of a contested hearing cannot be stressed too heavily. There is no point in fighting over 75 if a bill of 1,000 is run up in the process. Furthermore, a continuing battle over ancillary relief does nothing to help the parties get over the breakdown of their marriage and resolve other difficulties, for example, over children. Just as each party has a duty to make a full disclosure of all material facts to the other party during negotiations, which may lead to a Consent Order. The legal advisor should not be frightened therefore to seek from the other party all the information that they consider to be necessary in order to advise their client whether a proposed settlement is acceptable. 16

17 Rule 2.61 of the Family Proceedings Rules 1991 should go some way to ensuring that relevant facts are disclosed. This rule deals with the procedure for seeking a Consent Order for financial relief. The procedure where agreement is reached before the hearing date of the ancillary relief applications should now therefore be as follows: (a) If agreement is reached before either party has filed a notice in Form A, application should be made by one or the other party in Form A for an order in the agreed terms and, in accordance with r.2.61 (1) there should be lodged with the application two copied of a draft of the order, one of which must be indorsed with a statement signed by the respondent signifying his agreement. Presumably, if agreement is reached after Form A has been filed, the applicant should simply lodge the indorsed draft order with the court requesting that the district judge should make an order in these terms. It is essential to check with the client that the draft order reflects the terms of settlement to prevent errors. (b) Section 33A, Matrimonial Causes Act 1973 (as added by the Matrimonial and Family Proceedings Act 1984) provides that, on an application for a Consent Order for financial relief, the court may, unless it has reason to think that there are other circumstances into which it ought to inquire, make an order in the terms agreed on the basis only of the prescribed information furnished with the application. Rule 2.61 prescribes the information that must be furnished. It requires that there shall be lodged with the application a statement of information on form M1 relied on in support of the application. Note: All the legal processes discussed can be handled by a legal advisor. 17

18 Matters that must normally be incorporated include: details of the duration of the marriage; the age of the parties and any children of the family; an estimate in summary form of the approximate amount or value of the capital, income resources and value of any benefits under a pension arrangement which either party has, or is likely to have, including the most recent valuation provided by the pension arrangement (Family Proceedings (Amendment) Rules 1997 (SI 1997/637), taking into account the Pensions Act 1995), and, where relevant, of any minor child of the family; details of what is intended with regard to the occupation or disposal of the matrimonial home and what is intended with regard to accommodation of both parties and minor children; whether either party has remarried, or presently intends to remarry or cohabit; confirmation that, where appropriate, the mortgagee of the property and/or the person responsible for the pension arrangement have been served with notice of the application and have not objected within 21 days (amended by the Family Proceedings (Amendment No. 2) Rules 2003); any other especially significant circumstances. Where the person responsible for the pension arrangement does object, the court must consider their objections. By doing so, the court must make such directions as it thinks fit for the person responsible to attend before it or to furnish written details of their objections. The Statement of Information can be provided in more than one document. No doubt where Form E has been filed in relation to the application this will be sufficient to provide the court with some of the information required. The client needs to be warned that the court retains a discretion to refuse to make the order in the proposed terms, especially if it takes the view that the provision for the other spouse is inadequate. Where agreement is reached only at the door or the court, this enables the court to dispense with the lodging of the draft of the order and a statement of information and to give directions for the order to be drawn and the information that would otherwise be required in the statement of information to be given in such a manner as it sees fit. 18

19 It is incumbent upon the solicitor to make sure that the order is carefully drafted so as to embody what the parties have agreed upon comprehensively, leaving no room for future doubt. Where the parties have agreed that there should be a Clean Break Order, the Order should be drafted in such a way that the arrangement works on a mutual and comprehensive basis, as demonstrated in the clause set out below: Upon compliance with paragraphs 1 and 2 of this Order and upon compliance by the Respondent with his undertaking herein the Petitioner s and the Respondent s claims for financial provision and property adjustment orders do stand dismissed, and it is directed that neither party shall be entitled to apply to the court thereafter for an Order under s. 23(1) (a), (b) or (c), s. 24, s. 24A, s. 24B or ss. 25B and C of the Matrimonial Causes Act 1973 as amended or substituted nor under the Married Woman s Property Act Pursuant to the Inheritance (Provision for Family and Dependents) Act 1975, s. 15, the court considering it just so to order, nether the Petitioner nor the Respondent shall be entitled on the death of the other to apply for an order under s. 2 of that Act. 19

20 Changes to the Law The Matrimonial and Family Proceedings Act 1984 added a new section, s. 25A, to the Matrimonial Causes Act Section 25A (1) obliges the court, when exercising its ancillary relief powers in relation to a spouse on or after divorce, to consider whether it would be appropriate to exercise those powers as to achieve a Clean Break between the parties as soon after the decree as the court thinks is just and reasonable. ( Clean Break is defined at 12.4.) Section 25A (2) applies to cases where the court decides to make a periodical payments or secured periodical payments order in favour of a spouse on or after divorce. It obliges the court to consider, in particular, whether it would be appropriate to make an order for a fixed term only of sufficient length to enable the spouse in whose favour the order is made to adjust without any undue hardship to being financially independent on the other party. Section 25A (3) enables the court to impose a Clean Break between the parties when it considers that no continuing obligation to make or secure periodical payments should be imposed on either spouse in favour of the other. In such a case, the court can dismiss an application for periodical payments without the consent of the applicant and, to put the matter beyond doubt, direct that the applicant shall not be entitled to make any further application in relation to that marriage for a periodical payments or secured periodical payments order. Even before the addition of s. 25A to the Matrimonial Causes Act 1973 by the Matrimonial and Family Proceedings Act 1984, the courts had a healthy respect for the Clean Break, that is, a once and for all settlement with no continuing provision for either party by way of periodical payments, enabling the parties to avoid bitterness, to put the past behind them and begin a new life, not overshadowed by the relationship that has broken down. What 25A has done is to oblige the courts to give thought to achieving a Clean Break between the parties in every case of divorce or nullity, whether the parties suggest it or not, and to give the court the power to dictate a Clean Break by dismissing a party s application for periodical payments, without his or her consent if appropriate. 20

21 Ancillary Relief Application Factors to consider on an Ancillary Relief application Section 25 Factors The court must have regard to all of the circumstances of the case all of which have an equal footing. The first consideration should be given to the welfare of minor children of the family who have not yet reached the age of 18. The court must consider the checklist contained in the 525 (2) factors: And: Income Earning capacity Property Other financial resources that each party either: a.) Has, or b.) Is unlikely to have in the foreseeable future Regarding earning capacity. What could the court reasonable expect each party to acquire? (If they are not working, what kind of job could they get?) The financial: a.) Needs b.) Obligations c.) Responsibilities That both parties either: a.) Have; or b.) Are unlikely to have in the foreseeable future The standard of living of the family before the marriage (should try to be maintained) 21

22 The age of the spouses (mortgage potential) The duration of the marriage (long approx 4 5years) Any physical and mental disability of either spouse The contribution to the welfare of the family either: a.) Made; or b.) Likely to be made in the foreseeable future The gross and obvious conduct of the spouses, if it would be inequitable to disregard it The value of any pension benefit that will be lost on divorce. (Irrespective of the length of time before the benefits become payable It is not possible to achieve a completely Clean Break where there are children, as applications in relation to the children cannot be finally dismissed. However, there is no reason why the dependence of the wife on the husband (or vice versa) should not be ended in such a case if she can be expected to be self supporting despite the children. However, the Clean Break principle appears to be suffering some considerable erosion at the hands of ss.106, 107, and 108, Social Security Administration Act This, when taken in conjunction with the provisions of the Child Support Act 1991, as amended, makes it doubtful whether the divorce court can realistically give effect to a Clean Break order where, for example, the wife is given the house in return for the dismissal of her periodical payments, or in return for her periodical payments being fixed in amount, limited in duration, and with her right to apply to have their duration extended being excluded. There has long been a residual power in the Department for Work and Pensions where a person is in receipt of state benefits to recover from a liable relative a contribution towards the benefit being paid for a spouse or child, but the liability would end when the claimant was no longer a spouse, that is to say upon decree absolute. Under the new regulations however, the liability will continue even after decree absolute where the former spouse is receiving state benefits and caring for a child: s. 107 (1) (b) 22