Upon divorce or dissolution of a civil partnership it is important for a couple to consider how their finances can be separated.
Financial settlements can be reached by agreement (whether directly, through mediation or via solicitors), at arbitration or through court proceedings. A settlement will need to consider all aspects of a couples’ finances including the family home and pensions. The Family Court has wide-ranging powers to make orders in financial remedy proceedings. Two commonly made orders are those providing for a cash lump sum payment and for periodical payments from one person to the other.
What is a Lump Sum Order?
In financial remedy proceedings, the court may provide for one person to make a cash lump-sum payment to the other, or to a child of the family. Such orders are typically made to adjust the final division of the couples’ assets. Often where one person is retaining the former family home, that person will be ordered to make a lump sum payment to the other to compensate and ensure a fair division of assets. Alternatively, a lump sum payment may be ordered to compensate an applicant who has incurred expenses prior to their financial remedy application as a result of the inadequate financial support provided by the respondent for the applicant or a child of the family.
It is possible for lump sum payments to be ordered to be paid by several instalments, rather than a one-off payment, if appropriate. Such orders cannot be varied once ordered.
Lump sum orders may also be made for the benefit of children. Such orders are typically dealt with under the Children Act 1989 rather than the Matrimonial causes Act 1973 or Civil Partnership Act 2004. Lump sum orders for children will likely be appropriate where the child has special needs, such as medical or educational needs.
Lump sum orders can also be made where maintenance is required for one person upon divorce or dissolution of a civil partnership (discussed below), but the couple would prefer a “clean break” and to cut financial ties completely by making one larger payment versus numerous smaller regular payments. This is known as “capitalising” maintenance.
What is a Periodical Payment Order?
A periodical payment is a regular payment, generally paid weekly or monthly, from one person to the other following divorce or dissolution of a civil partnership. Periodical payment orders may provide for payments to be made to the benefit of one party to the marriage/ civil partnership or for a child of that relationship.
While most separating couples prefer a “clean break” following separation and wish to cut all financial ties, this is not always appropriate. Most commonly, periodical payments will be ordered where there is a disparity in income between a separating couple. Where one person might be unable to meet their financial needs following divorce, and the other person has surplus income and can afford to meet those needs, maintenance should be considered. In considering whether to make an order for periodical payments, the court must consider whether a clean break will be appropriate, and whether there is a genuine need for ongoing support. The court will need to consider both the quantum (i.e. amount of maintenance needed) and also the duration (i.e. can the maintenance be time limited while the receiving party adjusts to life following divorce).
Periodical payment orders are unlike other orders made in financial remedy proceedings, such as lump sum orders, pension sharing orders and property adjustment orders. The aforementioned orders are all usually final once made (subject to an appeal). In contrast, either person subject to a periodical payments order can apply for it to be varied in the future (commonly done when circumstances change). Moreover, if the receiving person re-marries or dies, the paying person’s obligations under a periodical payments order will cease entirely (unlike with the other orders). Notably, periodical payment orders can also be secured e.g. against property. If that is the case, they may not terminate on the death of the paying party.
Periodical payment orders can also be made to benefit children of the family, although this is less common. Such orders are usually made for children under the age of 18. Orders can also be made in respect of school fees.
Why should I consider a periodical payment orders?
Periodical payment orders typically become relevant in the following circumstances: -
- Where you or/and your former partner have applied for a divorce or the dissolution of your civil partnership and one of you is unable to meet your immediate income needs (for example, where one person has moved out and has been “cut off” financially).
- Where you are concerned about your ability to meet your financial needs following a divorce or the dissolution of your civil partnership and believe that your former partner has the financial ability to meet these needs.
- Where you believe a child of the family would benefit from receipt of periodical payments from your former partner.
What are the advantages of a periodical payment order?
Periodical payment orders provide for a regular flow of income from one person to another. They should only be ordered it the receiving person has needs they cannot meet, while the paying person has surplus funds and can afford to meet these needs. The receiving person is also expected to mitigate any shortfall in their income, for example, by claiming relevant state benefits or seeking employment/ increased working hours.
Periodical payment orders are not only made in a final order in financial remedy proceedings but can also be made in respect of the period between the application for divorce and the final order being made. This is known as “maintenance pending suit” and can offer parties suffering financially with a financial lifeline to tide them over until the financial order is made.
Whilst an agreement in relation to maintenance payments may be reached between a separating couple without a court order, a periodical payment order provides certainty for both partners. In addition, as noted above, once in receipt of a periodical payment orders, either person can also make an application for it to be varied if necessary – they are flexible and can be altered to fit the circumstances of both the receiving and paying party. Having an order is also essential if you wish to enforce the maintenance payments that your former partner is paying to you.
The division of finances on divorce or dissolution of a civil partnership is highly specific and will depend on the circumstances of the case. If you require advice regarding the division of finances, lump sum orders or periodical payments, please contact Amy Harris or a member of our specialist Family Team.