In the previous blog post, we introduced Section 25 of the Matrimonial Causes Act 1973 and its role in financial settlements during divorce. This post will delve into the first factor the court considers: the income, earning capacity, property, and other financial resources of each party.
Understanding the First Factor
This factor requires the court to assess the current and future financial positions of both parties. This is a broad inquiry, encompassing:
• Income: This includes all sources of income, such as salary, wages, self-employment income, pensions, benefits, and investment income. The court will examine payslips, P60s, tax returns, and other relevant documents to determine each party’s income.
• Earning Capacity: This refers to a party’s potential to earn money in the future. The court will consider factors like age, skills, qualifications, health, and employment history. If a party is not working to their full potential, the court may consider what they could reasonably earn.
• Property: This includes all assets owned by each party, such as real estate, vehicles, bank accounts, investments, and personal possessions. The court will need a clear picture of all property and its value.
• Other Financial Resources: This is a broad category that captures any other assets or resources available to either party. This can include things like company benefits, inheritances, trust funds, cryptocurrency, and potential claims. It also includes debts and liabilities, which will be factored in when assessing the overall financial position.
Key Considerations for the Court
When evaluating this factor, the court will consider several key issues:
• Current and Future Resources: The court is interested in both what each party currently has and what they are likely to have in the foreseeable future. This might include anticipated inheritances, future bonuses, or changes in earning capacity.
• Earning Potential: The court can “impute” an income to a party who is not working or is underemployed. This means they can assess what a party should be earning, based on their skills and experience, rather than just their current income.
• Company Income: If a party operates through a limited company, the court may scrutinise the company’s finances to determine if more income could be drawn from it. Expert evidence may be required in complex cases.
• Hidden Assets: The court will be alert to any attempts to hide or dissipate assets. If a party is found to have acted dishonestly, this can have serious consequences for their financial settlement.
• Debts and Liabilities: All debts and liabilities must be taken into account when assessing the overall financial position. This includes mortgages, loans, credit card debts, and other financial obligations.
• Cohabitation: If one partner is cohabiting with another person, they may well have extra income available to them. The court considers the extent to which the new partner ought to be contributing to the domestic economy.