Divorce has a far-reaching impact on every aspect of an individual’s life. The Finance Act of 1988 has somewhat relaxed the financial stringency of divorce laws of the 1970s. The Act maintains that both spouses should be treated fairly and all financial division should be in accordance with the terms of the financial settlement or court’s discretion. The female marital partner i.e. the mother should not give undue financial preference because she is usually the primary caretaker and sole custodian of the children. In this respect, it becomes important to be aware of the varied financial implications of divorce:
Tax Affairs: The 1988 Finance Act declares that neither spouse is exempt from any tax deductions or benefits in addition to the maintenance by the divorcer to former spouse and children. In this regard, the court also argues that all joint fixed and liquid assets ought to be sold and the proceeds should be equally divided between the two parties. However, the division of the proceeds of any fixed or liquid assets can be decided by the court depending on the location and situation of the children. The court argues that the future and present state of the child in divorce is important. Thus, the child should not suffer in any way. The court accords a larger percentage of the financial proceeds to the custodian of the children. In other words, since the court always favours the mother with sole custody of children – the mother ends up claiming a greater share in all joint and fixed and liquid financial assets.
The Matrimonial Home: The clause of equal division also applies to the matrimonial home. But in case the sole custodian of the child plans to relocate and demands a share in the house, the court usually orders the sale of the house and an unequal division of the financial proceeds. But, the court also has to take into consideration the concept of ‘Joint Parenting’ and ‘Nesting’. In such scenarios, the court places the matrimonial home under the names of the children with authority of the local guardian appointed by the court. Neither parent can claim a financial interest in the matrimonial house. But the court does not believe in depriving either partner of any capital gain which can be attained from the sale of the house. In such cases which account for more than 20% of contested divorce cases, the child is accorded a separate legal status with the local guardian. In short, the house is sold and the sale proceeds are divided into three shares:
- The child
- The female spouse
- Male spouse
Business Assets: Courts are often unwilling to order the sale or the destruction of a joint business including its viability. The court usually issues a financial division order which grants the spouse with custody the right to access into the capital funds of the company. This order applies to all joint partnership endeavours as long as the marital spouse is able to prove her or his emotional and financial investment in the successful functioning of the company. The court may also order the sale of joint minor business assets in accordance with the terms of the financial settlement. However, the division of business assets is upheld in case of absence of children or when children above the age of 16 are involved. In other words, the court concerns itself primarily with the financial future of minor children and their guardian. But it must be noted that in divorce cases the court accords little or no weightage to partnership or company laws. The court holds that if the wife is deemed an active business partner only for company tax purposes contributing minimal work or capital to the firm, she may receive less than the wife who has contributed, worked and managed the firm with her husband – helped to build a true joint enterprise.
Pensions and Insurance: The finalization of divorce usually spells a great disadvantage for the wife. She loses her entitlement to a widow's pension or death in service benefits from her husband's employment. The Finance Act of 1988 says that if the divorced husband is approaching retirement age and has pension provision, the wife may be compensated – but this clause stands only when the husband is due for retirement when the divorce application is lodged. Supposing the husband retires a few years after the divorce final decree has been issued, the wife gets nothing – she only gets a share in pension and insurance if husband retires or is due for retirement during the divorce application and hearing period. If the husband pays a substantial maintenance to ex-wife and children in accordance with the terms of the financial settlement, the wife and children can also seek insurance cover. This clause somewhat is a disadvantage to the male spouse. The male partner can refuse any sort of insurance benefits towards ex-wife and kids if he is not paying any maintenance fund.
Divorce changes lives – the spouses have to cut down on lifestyle and expenses. They have to realize that now there is no other person to bear the financial burden – they have to bear it alone.
