Separating but no divorce?

Have you thought about a separation agreement?

It isn’t unusual for people to separate for many months or even years before beginning divorce/dissolution proceedings.

Some just need time to save up for the court fee which is currently £550.

Others prefer to adjust to living alone, sometimes hoping that a reconciliation is still possible.

The undoing of the legal contract of marriage/civil partnership doesn’t hold the same sense of urgency for everyone. So does it make a difference? Are there any financial or other implications and if so what do you need to consider?

First of all this is not an article dealing with urgent situations such as where there has been violence. I am not going to deal with any disputes over children either. I am assuming that this is a fairly normal situation many people find themselves in, where they want to live separately but there is no immediate pressure to rush the divorce/dissolution petition off in the post.

Jointly owned property

Unless your separation is coinciding with a sale, you will need to think about who is going to pay the bills and the mortgage.

If the mortgage is capital and interest, think about whether the person paying the capital part is going to be given credit for those payments when you do come to sell and divide the equity.

For example if a £500 mortgage payment each month is made up of £300 interest and £200 capital, that will add up to £4,800 coming off the amount outstanding on the mortgage over two years. Should the person who has paid it off get credit for that?

Sometimes this is easier to agree on than others.

A couple with similar incomes and no children who are putting their house on the market and one is remaining there and paying the mortgage might agree that person will get the benefit of any reductions they make in the amount outstanding.

But say it is a couple with young children where one parent is in the home and not working and the other parent (who has moved out) is on a good wage and has been paying the mortgage but still has plenty left over. Is it still fair for the paying partner to receive the credit?

What about improvements to property? If one person carries out repairs or decoration should he/she receive credit for that at the end.

If one person spends part of an inheritance on an extension how do you later quantify how much of the increase in value is down to that inheritance and how much is down to natural house price increases.

These examples show very different sets of circumstances. But my point is, think about these issues at the beginning of the separation, not half way through or at the end. Disputes often arise just when people fail to communicate with each other.

Before you spend a lot of money don’t just hope that you will get credit for it, agree that with the other person first. If there is no agreement you can reconsider before going ahead.

Pensions

Pensions can only be divided once you have a decree absolute/final order of dissolution. If you are planning ultimately to share a pension remember that a pension sharing order can only be expressed as a percentage of the scheme being shared.

So if you have agreed that your spouse can have 35% of your scheme based on a value of £100,000 at the time you separated, and then you find that the value has risen to £120,000 by the time you are ready to have a pension sharing order, you will be sharing the additional £20,000 by 35% as well.

Of course you can always re-negotiate but that can be stressful and expensive.

So perhaps at the outset consider calculating the amount to be transferred as a fixed sum which will then be turned into a percentage down the line. In my example above, the equivalent of £35,000 was to be transferred. As a percentage of the new value of the pension fund at the time of divorce (£120,000) that is 29.2% rather than 35%. No re-negotiating required, just a little simple maths.

Debts

Often people are so desperate to keep the status quo for children that they struggle on trying to run the family home (and sometimes keeping living standards as high as during the marriage) by relying on credit. They need to buy another set of furniture and sometimes a second car. Whatever the reason these debts are often still there when the divorce comes around and the argument then is over whose responsibility they are.

Legally the responsibility to repay the money is with the person whose names is on the contract. But is that morally fair? Is it the overall picture that needs to be taken into account to determine how to factor in these new debts?

I know it may not be possible to avoid incurring the debts. But you can agree  how they should be paid off eventually. So for example, if they are being run up as a temporary measure until the home can be sold perhaps, then they should be paid off out of the proceeds perhaps before division.

What next?

If you are thinking about separating or have already separated it is time to think about your finances.

If you and your partner/spouse can’t talk think about mediation. A professional mediator will help you look at all the important financial consequences of living apart and come to agreement on how to deal with them.

Once you have an outline agreement you need to write it down.

I can help you record your agreement unambiguously and clearly so that there are no nasty surprises when you come to divorce/dissolve your civil partnership further down. For more details of my separation agreement service please email me nicola@nicolawilliams.co.uk or contact me using my contact form below.

A straightforward separation agreement costs £180. If you have a more complex situation fees will vary.

All you need to do is tell me a little bit about what you have agreed and I will send you a request for more details if I need them.

It is very important that you and your partner/spouse are open and honest with each other about the value of any property, capital, pension and debt that you each have. Otherwise this may undermine the terms of your agreement.

I also have an FAQ page for separation agreements on my main website.