Is Financial Remedy Stronger than Separation Agreements?

When married couples separate, the Family Court in England & Wales has the discretion to make a Financial Remedy order in respect of all family assets, irrespective of ownership.

Family Court judges can exercise very wide powers when dealing with Financial Remedy proceedings, enabling them to reallocate assets, regardless of how they were acquired.

If separating spouses do not apply to the Court for a Financial Remedy Order following divorce, either is able to make a financial claim against the other at any time in the future. Even if a couple has few assets to divide, it is advisable to obtain a ‘clean break’ order from the Court, which will dismiss future claims and bring an end to family law litigation.

The Importance of a ‘Clean Break’: A Case Study

The recent case of HAT v LAT [2023] EWFC 162 is the latest aide-mémoire that illustrates the importance of obtaining a Financial Remedy Order of the Court, with a view to an immediate ‘clean break’ or in the fullness of time:

This case concerned a couple who separated in 1994, and divorced in 1998. They entered into a Deed of Separation in February 1994. The deed was signed by both, and provided the husband would provide his wife with a lump sum of £702,000 and thereafter, there would be a ‘clean break.’

The husband made payment to the wife, but the Separation Agreement was never converted into a binding Financial Remedy Order of the Court - there was no legally recognised “clean break”. 

In addition to the lump sum, the husband paid the wife maintenance up to the amount of £8,500 per month from 2002 onwards, and in 2009, gave the wife upwards of £2 million to help her buy a home in London.

In March 2022, the husband informed his former wife that he would be withdrawing financial support. He started to reduce the payments in July 2022 before ceasing payments altogether in December 2022. The ex-wife then applied to the Court for an additional £5 million, also a Maintenance Pending Suit (MPS) and a Legal Services Payment Order (LSPO).  The husband argued that the Separation Agreement should be upheld, and thereby no further financial provision was available for the ex-wife.

Lord Justice Peel did not accept the former husband’s argument, although he did accept the ex-wife’s claims would be “restricted, in view of the passage of time and the Deed of Separation”. However, as there was no Court Order embodying the Deed of Separation, the Judge proceeded on the assumption that there was no formal restriction to the MPS and LSPO applications (see the links at the end of this article).

By continuing to support his ex-wife financially - despite the clean break clause in the Separation Agreement - the husband had created a situation in which she had become financially dependent on him. Consequently, she had an “arguable” case for additional financial support.

Lord Justice Peel stated that it would be unfair for the interim maintenance to be reduced or dismissed. She had become accustomed to receiving the maintenance payments and had few resources to meet her financial needs. The Judge ordered the husband to pay £8,500 a month, although this was less than the wife's expenditure budget. The Judge also decided her expenses could be pared down, and she should use her earnings from her job to contribute towards her expenditure. An LSPO in the amount of £200,000 would also be awarded.

Lord Justice Peel noted that the husband had an experienced legal team, and there was no reason why the wife shouldn’t have the same. The LSPO was intended to “level the playing field, which would otherwise have leaned heavily in the husband’s favour”.

This decision highlights the difficulties that can arise if a capital and income clean break financial order of the Court is not made at the time of the final divorce order. If they had converted their Deed of Separation into a financial order in 1994 (or later), and thereby secured a ‘clean break’ order, the Courts would not have the jurisdiction to make further financial provision, even if the former husband had continued to support his former wife voluntarily.

Time will tell whether the ex-wife’s claim for further financial support will succeed, but in the interim, she has an arguable case that it would have been unfair to hold her too closely to the terms of the Deed of Separation.

How important is a Financial Remedy Order of the Court?

In conclusion, a Financial Remedy Order from the court is really important when it comes to sorting out money matters after a divorce or civil partnership dissolution. It helps make sure that assets and money are divided fairly between both people.

This legal document gives a clear plan for financial arrangements, reducing the chance of arguments later on. The order is a binding agreement that brings clarity and security to individuals dealing with the challenges of separation. Following the order is essential for a smoother transition to financial stability after a divorce, ensuring a fair and just resolution in the legal process.

For information on the Financial Remedy process, click HERE.