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Negotiating out-of-court financial settlements

As explained by stage 4 of our ‘tour de family law’, an English divorce or dissolution of Civil Partnership will merely bring the legal marriage or partnership  to an end – in effect, allowing the divorced parties to remarry. A divorce or dissolution does not settle or dismiss the various financial claims existing between the parties.

To achieve this, and to protect the parties from the risk of future financial claims, they will need to obtain a separate financial Order, addressing the parties’ finances, whether by consent (hopefully outside of court litigation but not necessarily) or eventually by judicial determination, if the parties cannot agree to a settlement between themselves.

It will not be sufficient for the parties to simply reach a financial arrangements between themselves. Any agreement that is intended to be permanent, legally binding and enforceable, will need to be converted into a formal consent Order ratified by the Court.

Interaction with the divorce or dissolution proceedings

Consideration must be given to the fact that by obtaining the final grant of Decree Absolute (i.e. the final Court Order dissolving a marriage in England and Wales) the parties will lose certain inheritance and pension rights, increasing the importance of obtaining financial Orders before a divorce is completed.

Despite this caution, it is nonetheless important to initiate divorce proceedings so as to obtain a Court case number and obtain the Decree Nisi (interim order of divorce). It is only in the context of live divorce proceedings that any agreement reached between parties in relation to financial matters can be deemed legally binding and ultimately approved by a Judge into a formal Court Order.

The available process options

Reaching an agreement outside of Court can be achieved in various ways.

Direct discussions between the parties

Usually, the most cost-effective way will be direct discussions between the parties.

There will need to be a mutual understanding of what comprise the marital assets or this can be determined by following a more formal process of voluntary financial disclosure between the parties. This is usually achieved by completing and exchanging the court prescribed form of disclosure, known as ‘Form E’, together with documentary evidence in support.

As explained below, it is important to ensure that any conversations or proposals made during such a process are stated as being ‘without prejudice’. This is whether they are carried out in written or verbal communications.

Mediation

Another cost-effective option can be attending mediation.  This is a ‘without prejudice’ process whereby a neutral mediator (i.e. who will not be in a position to provide legal advice to either party) will look to broker a financial agreement between the parties and explain to them, on the basis of the financial disclosure and all the circumstances of the case the likely outcome were the matter determined in court.

If an agreement is reached in mediation, this is treated as a provisional ‘without prejudice’ agreement and the mediator will usually request that the parties each seek independent legal advice on the terms of the provisional agreement before it is then confirmed.

Once the parties have sought legal advice and they remain content with the provisional agreement, then it will be confirmed in correspondence between solicitors and at that point it will become legally binding.

At this point, the agreed ‘heads of terms’  are converted into a more formal legal document known as a Consent Order, which is then filed at Court for judicial review and approval.

It is worth noting that judicial approval is not an automatic ‘rubber stamp’ process. The Judge reviewing the proposed agreements and orders will have a duty to consider in broad terms the parties’ financial position and the effects of the settlement with particular reference to the criteria under section 25 Matrimonial Causes Act 1973 – colloquially referred to as the ‘section 25 factors’

Negotiations via Solicitors

In the event that direct negotiations or mediation are not possible (say due to communication difficulties and/or acrimony between the parties), a third process option is negotiation through solicitors.  This is usually slightly more costly than say attending mediation but in the right circumstances will usually be more cost-effective than Court proceedings or arbitration.

In negotiations between solicitors there will usually be a process of voluntary financial disclosure, once again utilising the Court prescribed Form E to exchange facts, figures and supporting documentation in order to ascertain each party’s assets and to determine the marital assets open for division between the parties.

It is only once both parties financial disclosure has been considered that solicitors can properly advise as to what the Court would consider a fair and reasonable settlement in all the circumstances of the case.  In the absence of such disclosure, it will not usually be possible to provide advice on settlement proposals. However, if the parties do reach agreement without full and frank disclosure, so long as they acknowledge this, solicitors can undertake the exercise of drawing up a formal consent Order for filing with the Court for approval by a judge.

The meaning of without prejudice

Where parties look to agree a financial settlement by consent, anything which is communicated orally or in writing, clearly stated to be ‘without prejudice’ cannot be referred to in later court proceedings where negotiations have proven unsuccessful.

The purpose of without prejudice communications is to encourage parties and their representatives to communicate more freely in the aim of reaching a settlement, knowing that whatever is said cannot be used against them by way of admission in later proceedings

If you are considering obtaining a divorce in England & Wales or your spouse has commenced divorce proceedings, it is important that you obtain advice on the procedure and steps you should take as soon as possible. At Rayden Solicitors we have specialist family lawyers who can advise you on all aspects of divorce and financial matters, including those matters with cross-jurisdictional issues.

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