Out of Court Divorce Settlements Explained

What is an ‘out of court divorce settlement’?

An ‘out of court divorce settlement’ is an agreement between two divorcing spouses on how to divide their finances and assets, reached without the involvement of the court. It covers the financial side of divorce, including property, savings, pensions, investments, debts, and any spousal maintenance.

A divorce settlement is also referred to financial settlement, which can include:

• What happens to the family home and any other property
• How savings, investments and other assets are divided
• How debts are dealt with
• Whether one spouse will pay spousal maintenance to the other, and if so, how much and for how long
• How pensions are shared or offset

Child arrangements and child maintenance are usually dealt with separately from the divorce settlement. A divorce settlement focuses on the division of matrimonial assets and income between the spouses, not on arrangements for the children.

How to settle a divorce out of court

Settling a divorce out of court generally requires the divorcing couple to reach an agreement on financial matters through direct negotiations between themselves or through another form of non-court dispute resolution, such as mediation. The process typically follows four main steps:

1. Exchange financial information and disclosure
2. Identify the issues that need to be resolved
3. Negotiate and reach an agreement
4. Record and formalise the agreement

Each of these steps is explained in more detail below:

Exchange financial information and disclosure

The first step is for both parties to provide ‘full and frank’ disclosure of their financial position. This means setting out everything each person owns, earns and owes. It covers income, property, savings, investments, pension values, business interests and debts. Full financial disclosure is a legal requirement if you are seeking a court order. Even if couples can agree without going to court, honest disclosure is important. If disclosure is later found to be incomplete, inaccurate or misleading, any agreement reached may be set aside by the court.

Identify the issues that need to be resolved

Once both parties have exchanged financial information, the next step is to identify what needs to be agreed. The main issues in most divorces include:

• What happens to the family home: whether it is sold, transferred to one spouse, or whether the sale is deferred.
• How other assets, such as savings, investments, vehicles and personal property, are divided
• How pensions are dealt with
• Whether spousal maintenance will be paid, the amount, and whether there will be a clean break
• How debts and liabilities are allocated between the parties

Negotiate and reach an agreement

There are several ways to reach an agreement on the financial issues. These include:

• Direct negotiation: the couple agrees between themselves, with or without the help of their solicitors
• Solicitor-led negotiation: each party instructs their own solicitor, who negotiates on their behalf through correspondence or meetings
• Family mediation: a trained, neutral mediator helps both parties work through the issues and reach an agreement. Mediation is voluntary and the mediator does not make decisions
• Arbitration: a qualified arbitrator makes a binding decision on the financial issues. This is a private alternative to a court hearing
• Collaborative law: each party and their collaboratively trained solicitors meet together to reach an agreement without court proceedings
• Private Financial Dispute Resolution (private FDR): a private judge or senior family lawyer gives a neutral evaluation of the likely outcome, which helps the parties reach a settlement

Before making an application to the family court for a financial order, parties are generally expected to attend a Mediation Information and Assessment Meeting (MIAM) and to have considered non-court dispute resolution. This is a requirement under Practice Direction 9A and the Family Procedure Rules.

Record and formalise the agreement

Once an agreement is reached, it should be recorded in a legally binding document. For financial matters, this is done through a Consent Order. A Consent Order is a court order that records the financial agreement reached by both parties and is approved by the family court.

To apply for a Consent Order, both parties must complete and sign the agreed order and submit it to the court along with Form D81. Form D81 sets out each party’s financial position and explains the basis for the agreement. The court reviews the documents and, if satisfied that the agreement is fair, seals the order, making it legally binding.

It is important to understand that without a Consent Order, there is no clean break. This means that either party could make a financial claim against the other at any point in the future, even after the divorce is finalised.

Does an out-of-court divorce settlement mean no court involvement?

An out-of-court divorce settlement does not mean the court is entirely removed from the process. For financial matters, it is generally advisable to have the agreement approved by the family court as a Consent Order. This makes the agreement legally binding and prevents future financial claims between former spouses. Even couples who have agreed everything between themselves still need the court to seal the Consent Order.

In addition, the legal divorce itself must always follow the formal court process. Even if you agree on everything regarding finances and children, you still need the court to grant the Conditional Order (previously called the Decree Nisi) and the Final Order (previously called the Decree Absolute). These are the court orders that legally end the marriage.

In some cases, the court may also need to be involved if financial disclosure is incomplete, inaccurate or disputed, or if one party later argues that the agreement was reached without proper disclosure or under pressure.

Is it better to settle a divorce out of court?

Settling a divorce out of court can have practical advantages, but it does not work for everyone.

The main advantages of settling out of court include:

• Quicker and cheaper – contested court proceedings can take many months and involve significant legal costs. Reaching an agreement out of court is generally faster and less expensive
• Greater control – both parties have more say over the outcome, rather than leaving the decision to a judge
• Less stress and conflict – resolving matters without a contested hearing can reduce emotional strain, which is especially important when children are involved
• More privacy – financial details discussed in court hearings may become part of the court record, whereas out of court discussions are generally private

However, settling out of court may not be possible or appropriate in all cases. It is unlikely to work where:

• One party does not cooperate or refuses to engage with negotiations
• Financial disclosure is incomplete or one party is suspected of hiding assets
• The parties cannot agree on how to divide money and property despite good faith efforts
• There are complex financial arrangements, such as business interests, overseas assets or significant pension entitlements requiring expert valuation
• There is urgent financial risk, for example where assets are being dissipated or there is a risk of one party disposing of property

Where there is an urgent financial risk, the court can act quickly to protect assets. Paragraphs 19 to 20 of Practice Direction 9A make clear that in urgent cases, parties may apply to court without first complying with the usual pre-action requirements. If you are concerned about urgent financial risk, you should seek legal advice immediately.

If you are considering a divorce and want to understand your options for settling out of court, our divorce lawyers can advise you on the approach that best suits your circumstances. Contact us for a consultation by calling 020 3744 2797 or completing our online enquiry form.

References:

JUSTICE.GOV.UK: Practice Direction 9A