When a marriage ends, many assume that the granting of a Final Order (formerly known as the Decree Absolute) signals the conclusion of all matters between the spouses. However, while the Final Order legally dissolves the marriage, it does not automatically resolve financial issues. Without careful planning and legal safeguards, financial uncertainty can persist long after the Final Order is granted. Here are some key financial implications divorcing individuals must consider:

1. Unresolved Financial Matters

While a Final Order ends the marriage, it doesn’t automatically close off financial claims between spouses. Spousal maintenance, division of assets, and pension sharing must be formally addressed through a court-approved financial order (such as a consent order or clean break order). Without a financial order, either party could pursue financial claims, even years after the divorce is finalised. This is in line with UK law under the Matrimonial Causes Act 1973, which governs divorce and financial settlements.

2. Division of Assets

The Final Order does not automatically divide assets such as property, savings, or pensions. These must be addressed through a financial order approved by the court. Without a financial order, financial claims remain open, and important benefits, such as pension sharing or widow/widower rights, could be lost. Securing a financial order is crucial to ensuring that both parties’ financial futures are protected, and that assets are divided fairly.

3. Pension Sharing

A pension sharing order is a legal mechanism used to divide one spouse’s pension between both parties. However, this order only takes effect once the Final Order is granted. If there’s no pension sharing order in place, one spouse may forfeit their right to the other’s pension post-divorce. Ensuring pension entitlements are addressed is crucial for both parties’ long-term financial security, as pensions often represent a significant marital asset.

4. Inheritance Rights

Once a Final Order is granted, both parties lose their automatic right to inherit from each other unless specified otherwise in a will. Under the Inheritance (Provision for Family and Dependants) Act 1975, an ex-spouse may still claim against the estate if there is ongoing financial dependency or a financial order in place. It is vital to update wills and estate planning documents after divorce because Section 18A of the Wills Act 1837 automatically revokes any provisions made for an ex-spouse in a will, unless otherwise specified.

Failing to update these documents can result in unintended financial consequences. If an ex-spouse dies before a financial consent order is in place, the surviving ex could lose any inheritance or financial provision that would have otherwise been secured through divorce proceedings.

5. Tax Implications

Tax issues following divorce can be complex, especially regarding asset transfers. Here are the key points to bear in mind:

• Capital Gains Tax (CGT): Normally, transfers of assets between spouses are exempt from CGT, but this exemption ends after divorce. The Finance Act 2023 extended the CGT exemption window, giving separating couples up to three tax years after the end of the tax year in which they separate to transfer assets without triggering CGT. This is crucial for couples dividing investments or property. If asset transfers are part of a court-approved divorce settlement, CGT will not apply until the Final Order is granted, no matter how long the divorce takes.
• Private Residence Relief (PRR): For property such as the family home, PRR can protect against CGT. PRR may be extended after separation under certain conditions, such as when one spouse continues to live in the property as their main residence.
• Stamp Duty Land Tax (SDLT): SDLT is generally payable on property transfers after divorce, unless specific reliefs apply, such as when property is transferred under a court-approved financial settlement.

To navigate these complexities, it’s essential to seek expert advice on the tax implications of asset transfers during and after divorce.

6. Debts and Liabilities

The Final Order does not resolve joint debts or liabilities. Both spouses remain jointly liable for debts unless specified otherwise in a financial order. If debts are not addressed in the financial settlement, creditors can pursue both parties, regardless of who incurred the debt. This can lead to significant financial strain if not properly managed. It’s crucial to include clear provisions for debt responsibility in any financial settlement to avoid future liability.

7. Future Financial Claims

Without a financial order, future financial claims remain possible, even after a Final Order. This means that an ex-spouse could make claims against assets acquired post-divorce, creating ongoing financial uncertainty. To protect against this, divorcing parties must secure a clean break order or consent order that ensures no future financial claims can be made.

8. Property Rights and the Matrimonial Home

If the family home is in one spouse’s name, the other spouse may lose the right to remain in the property once the Final Order is granted. Under the Family Law Act 1996, non-owning spouses may have a right to remain in the home until financial matters are resolved. However, it’s critical to secure these rights through a financial order that clearly outlines property arrangements post-divorce.

9. Clean Break Orders

A clean break order ensures that neither party can make future financial claims on each other. This is particularly important for anyone looking to move forward without the risk of an ex-spouse making claims on future assets, such as lottery winnings, business profits, or inheritance. Without a clean break order, financial ties remain, leaving the door open for future claims.

10. The ‘Remarriage Trap’

The remarriage trap is a legal issue that arises if one party remarries before securing a financial order. Under Section 28(3) of the Matrimonial Causes Act 1973, remarrying before finalising a financial settlement eliminates the ability to make certain financial claims, such as spousal maintenance or claims to a share of property. To avoid falling into this trap, it is crucial to resolve all financial matters and obtain a financial order before remarrying.

Conclusion

While the Final Order legally ends a marriage, it does not automatically protect either party’s financial interests. It’s essential for divorcing couples to address financial matters through a court-approved financial order to ensure certainty and fairness. Whether through a consent order, clean break order, or other formal agreements, taking proactive steps to settle financial matters is key to avoiding unexpected claims, tax implications, and other financial pitfalls. Always seek legal advice to ensure your financial interests are fully protected before the Final Order is granted.