Typical divorces

Every divorce is different, and your own divorce will be no exception.

When it comes to sorting out financial arrangements, every family has different circumstances and a whole range of different factors are taken into account. The examples below are based on a particular set of circumstances, but help to illustrate some of the issues that need to be considered.

The average family

Alan and Becky are in their mid-thirties, have been married for ten years and have two children, aged five and seven. They live modestly, taking one family holiday a year and trying to avoid unnecessary expenses.

Alan works full time and earns £30,000 a year. As well as looking after the children, Becky has a part-time job earning £10,000 a year. Until their first child was born, Becky worked full-time.

Alan and Becky have been renting a flat together since they got married while they save towards a deposit to buy a house. They have £10,000 in a joint account. Alan has also built up a pension fund valued at £8,000. They have one family car worth around £4,000 which Alan drives to work.

Alan and Becky have agreed that the children should continue to live with Becky. The children will stay one night a week with Alan, with an additional two weeks' holiday with their father each year.

Reasonable outcome

There isn't a lot of money to go round, so a reasonable agreement is likely to see both Alan and Becky making financial sacrifices.

Becky's income is low, and it would be difficult for her to increase it while looking after the children. It's also worth noting that Becky has accepted lower earnings in order to bring up the children, and that Alan took part in that decision.

Although Becky may be entitled to additional state benefits after the divorce, a judge would be unlikely to accept that Becky should rely on the state without Alan making any contribution to her financial needs.

Regardless of spousal maintenance, Alan will also need to pay child maintenance. This could be based on the 'basic rate' of statutory child maintenance payable for two children: 16% of gross salary (after deducting pension contributions). This would be reduced slightly to take into account that the children will spend more than one night a week with their father.

If they can, Alan and Becky should negotiate agreement between themselves. This might be something like:

• Childcare arrangements as agreed between Alan and Becky.
• Child maintenance based on the 16% basic rate of statutory child maintenance payable for two children. Alan and Becky can use the child maintenance calculator to get an idea of the amount. After taking into account the fact that the children will spend one night a week with Alan, child maintenance works out at around £340 per month.
• Spousal maintenance of £300 per month, based on Becky's monthly budget for herself and the children and taking into account her salary, benefits and child maintenance. This would be subject to review if circumstances change.
• Alan to keep his pension fund and £1,000 of their joint savings. Becky to have £9,000 and the family car - Alan is better placed to get another car on credit.

The overall effect is that Alan is paying £640 per month in child and spousal maintenance payments, out of his monthly after-tax income of £2,000. This leaves Alan £1,340 a month.

Becky receives £830 as monthly salary, plus £300 spousal maintenance and a further £340 child maintenance. This leaves her total income at £1,470 to cover both her and the children.

Alan isn't happy to be 'giving away' so much of his salary, while Becky thinks it's unfair that she will be bringing up the children with little more than Alan has to spend on himself. However, this level of income is within the parameters that a court might consider to be fair. Consideration needs to be given to how long maintenance would be paid for. In general terms, child maintenance is paid until the children finish their secondary education. Spousal maintenance is paid as long as either the parties agree it should be paid for, or how long the court orders it should be paid for. The children here are quite young but both of school age, so one might hope that within a few years Becky might be able to increase her earnings to make up the £300 that Alan is paying to her. Once she is able to meet her own financial needs, spousal maintenance is likely to end.

The short-lived marriage

Chris and Davina are both in their twenties and have been married for two years. They have no children and both work: Chris earns £30,000 a year and Davina £50,000.

They bought a house for £300,000 a year ago, using £100,000 given to Davina by her parents as a deposit and a £200,000 mortgage. The house is now worth £320,000.

Chris and Davina contribute equally to mortgage payments and other household expenses. In each of the last two years they have been on a luxury holiday paid for by Davina. Chris spends all he earns and has no savings other than a small company pension fund. Davina has investments worth around £50,000.

Davina has decided that she made a mistake marrying Chris and wants a divorce. Chris has no objection but thinks he should get a payoff for agreeing. Davina wants to continue living in the house.

Reasonable outcome

Although Chris's standard of living is likely to fall a little after the divorce, it would be hard to argue that his needs justify spousal maintenance from Davina even though she earns more than him. This would also be the same were Chris to be the higher earner.

This is particularly true given the relatively short marriage and that neither partner has needed to look after children.

As they contributed equally to costs, both Chris and Davina are entitled to an equal share of the increase in the value of the house - ie £10,000 each of the increase from £300,000 to £320,000.

Davina feels that the money from her parents, and the savings she has built up, are hers. Chris thinks he's entitled to some of this, because the house was bought in joint names and his contribution to household expenses has been a larger part of his income.

A reasonable agreement might be:

• Davina to keep the house and take over responsibility for the mortgage.
• Chris to be paid £20,000 out of Davina's savings, representing his £10,000 share of the increased value of the house plus a further £10,000. Agreeing between themselves (after taking legal advice) avoids unnecessary court and legal fees.
• Chris and Davina to sign a consent order so that neither has any future financial claim against the other.

In effect, they are each walking away from the marriage with roughly what they put into it financially. Chris accepts that he doesn't have any real justification to claim more of Davina's wealth or income, and Davina is happy to have got a clean break at a relatively low cost.

There is no precise formula to work these figures out, so the £20,000 is illustrative. The outcome will depend on what the parties agree, or what the judge orders. But one thing that Chris and Davina would need to take into account when negotiating is the relative cost of legal fees if the matter was to go to court. They might only be arguing over £5,000, but the legal fees might end up being much more than that and the outcome might remain equally unsatisfactory.

The high earner

Edward and Fiona have been married for five years. Edward is in his early thirties and Fiona in her mid-twenties. They have no children.

Edward works in the financial markets and earns around £200,000 a year, typically made up of £100,000 'basic' salary and £100,000 bonus. Fiona gave up her work as a temporary secretary soon after meeting Edward.

Edward's salary funds a luxurious lifestyle, with frequent meals out, entertainment and expensive holidays. Their London flat worth £750,000 is in joint names but paid for entirely by Edward, who both paid the deposit and finances the mortgage. Edward also has a pension fund valued at £100,000.

Edward's savings of £50,000 are in an account in Fiona's name to save tax. Fiona also has jewellery worth £20,000 given her by Edward.

Reasonable outcome

There is plenty of room for argument over what would be a reasonable financial settlement in a case like this. While there's clearly justification for spousal maintenance to support Fiona while she makes the transition to financial independence, the question is how much and for how long.

Fiona would argue that she can't be expected to rely on her own resources. She hasn't worked for several years, and even if she starts doing so again her earnings will be far from enough to keep her in the style to which she has become accustomed.

Edward would argue that Fiona has made little contribution - she hasn't been looking after children or running the household, just living off his money

But the law does not try to distinguish between wealth-creating contributions and non-wealth-creating contributions in a marriage. They are seen as equally valuable. Edward and Fiona chose to take on certain roles and those choices were made together.

Both Edward and Fiona take legal advice and ask their lawyers to negotiate for them. After some to-ing and fro-ing, Fiona's lawyers come up with their 'final offer':

• Even though Edward paid for the flat, Fiona is entitled to a share of this 'matrimonial home'. So Edward must finance the £250,000 costs of acquiring and furnishing a one bedroom flat for Fiona.
• Edward's pension fund is split 50/50. Fiona has had no chance to build a pension fund during the marriage, and Edward will have plenty of future opportunity to make further investments.
• Fiona keeps her own possessions, including the jewellery that was given to her. She also gets £10,000 of Edward's savings but the remaining £40,000 is Edward's.
• Edward is to pay Fiona spousal maintenance of £30,000 for two years.

Edward's lawyers feel that this is still on the generous side, but explain to Edward that if he doesn't accept then a court case seems likely. One way or another, Edward will in effect pay the costs of continuing the dispute, so it's in his interests to reach agreement as painlessly as possible.

Edward reluctantly accepts, and the agreement is made legally binding with a consent order.

It is worth noting that the outcome might be very different if they had children. In that case, putting the children's needs first might well have seen Fiona and the children staying in the flat, with Edward paying maintenance until such time as he can show that Fiona no longer needs it. As well as spousal maintenance for Fiona (who would be looking after the children), Edward could expect to pay substantial maintenance for the children - including, for example, private school fees if they could be afforded.

The elderly couple

George and Harriet are in their late fifties and have been married for thirty years. After one too many indiscretions by George, Harriet has had enough.

George is nearing the end of a successful career with a major company. While he never reached the top, he earns £70,000 a year. When he retires in three years' time, his company pension will pay him £45,000 a year.

Meanwhile Harriet looked after their three children, though they now have an 'empty nest' since the youngest, aged 23, graduated from university and started work. With more time on her hands, Harriet has become an increasingly enthusiastic gardener and enjoys regular visits to art galleries and the theatre.

The family home is worth £800,000. George and Harriet each have investment portfolios worth £200,000.

Harriet would like to stay in the family home but also needs an income to live on.

A reasonable outcome

Both George and Harriet have made significant contributions to the marriage - in George's case as the main income earner and in Harriet's by looking after the house and children. A reasonable starting point would be to say that they should split both income and assets equally. The fact that George has been unfaithful has no bearing on the financial settlement.

Harriet could in theory look for work, or start a training course, but she has almost no work experience and is already approaching the age at which she might expect to retire. So her ability to finance herself might well be ignored in reaching a settlement.

So a settlement needs to fairly share out:

• George's annual income of £70,000 a year for the next three years (an after-tax total of £140,000);
• George's pension fund which has been valued at £900,000;
• the house worth £800,000;
• investments totalling £400,000.

There is enough money available to allow the couple to have a clean break settlement, but it will not allow Harriet to both keep the house and get a reasonable income. Harriet is keen to be in a position to buy somewhere smaller, while George's priority is to have a high income.

George and Harriet agree:

• George will pay Harriet half his salary for the next three years.
• George will keep his pension (worth £900,000) and £150,000 of his investments - so a total value of £1,050,000.
• Harriet will get the proceeds from selling the house (£800,000). She keeps her investments (£200,000) and gets £50,000 of George's, giving her a total value of £1,050,000 as well.

Both George and Harriet ask their lawyers to review the proposed settlement. Harriet's lawyer is concerned that although they end up with equal capital, Harriet has no way of earning her own income; she will need to downsize hugely to be able to invest enough for a reasonable income. After further discussions, Harriet decides that it would be safer to split all their assets - including George's pension - equally.

Although this isn't really what George wanted, his lawyers advise him to agree. The lawyers handle the pension sharing arrangements and draw up a consent order to finalise the settlement.

Perhaps surprisingly, the outcome might not have been much different if George and Harriet had never had any children (but Harriet had still not worked during their thirty years of marriage). Although it would be possible to argue that Harriet had contributed less to the marriage, Harriet's earning ability and financial needs would remain the same.