Couples struggling to agree divorce settlements amid cost of living crisis

1 Aug 2022 | Lisa Pepper

The cost of living crisis and uncertainty about future mortgage rates are scuppering divorce negotiations as couples fear reaching financial settlements that later become unaffordable.

Divorcing couples are finding it increasingly difficult to estimate future costs, with soaring inflation, energy bills expected to hit over £3,000 a year and mortgage rates inevitably set to rise.

Lisa Pepper explains, “Lower earning spouses, particularly those who are hoping to keep the family home and take primary responsibility for the children, are concerned about whether future maintenance payments will allow them to pay their bills. Higher earners, likely to be taking on responsibility for a large mortgage or perhaps more than one mortgage, are worried that future interest rates will make it harder to keep up payments further down the track.

“Ex-partners can of course agree changes between themselves after divorce, but the reality is both parties are unlikely to agree unless ordered to by the court. Pressure to get it right at a time when the cost of living is rising so fast is impacting their ability to draw up a binding settlement that is fair for both parties.”

Post-divorce it is possible to ask the court to change existing maintenance agreements, should they become unaffordable following a change in financial circumstances (for either party), but successful applications to vary court orders are rare.

Lisa explains, “It is possible to make a variation application to the court if you can no longer pay the same level of maintenance due to unforeseen circumstances but the criteria accepted by the court is generally very limited. While significant life changes such as illness, retirement or redundancy will be considered, it is unlikely that rises in the cost of living would meet the high bar set in cases of this kind.”

When negotiating or going through the courts, both spouses are required to put together a budget covering day to day costs which is used as the basis for negotiating the maintenance agreement and informs the court if the Judge is to decide. This should be carefully thought through to take into account future increases in expenditure.

Lisa says, “Setting an optimistic budget that does not take account of current economic turbulence is risky so there is the temptation to plan for the absolute worst case scenario and estimate costs accordingly. This, however, is unlikely to persuade a Judge should it go to court, so it is best to land cost estimates somewhere between the two, giving yourself a little wriggle room to take account of interest rate rises and continued bill increases.

“There are no easy options in divorce – splitting into two households will inevitably be more expensive for all concerned. Those negotiating settlements need to be realistic, working to reach a compromise that is affordable for both parties in the long term.”

If you would like to speak to a divorce specialist from the family team, contact Lisa or complete the enquiry form below.

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