This guide is maintained as a current resource for July 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Explore the difference between capital and income settlements in financial orders after divorce in England and Wales, including periodical payments, capital orders, capitalisation of maintenance, how courts decide and practical considerations for clean break and ongoing support.
In family law cases involving divorce or the dissolution of a civil partnership in England and Wales, courts have a range of powers to resolve financial issues between former partners. A key distinction in these financial settlements is between capital orders and income orders. Understanding the difference matters because it affects how financial needs are met, whether support continues over time, and the degree of finality achieved in cutting financial ties between former partners. This article explains capital and income settlements, how the courts decide between them, the legal processes involved, and practical factors to consider.
Introduction
When a marriage or civil partnership ends, one of the primary tasks for the family courts under the Matrimonial Causes Act 1973 and the Family Procedure Rules is to ensure that financial obligations between the former partners are resolved fairly. The law allows the court to make orders affecting both capital (one‑off or fixed financial adjustments) and income (ongoing payments) as part of a financial remedy. These reflect different approaches to meeting needs and achieving financial separation.
What Are Income Settlements?
Income settlements are orders that provide regular financial support over a period of time. The most common form is periodical payments, also referred to as spousal maintenance. These involve regular payments-often monthly-made by one former partner to the other to help meet ongoing living costs.
Characteristics of Income Orders
- Regular payments: Typically paid monthly, covering day‑to‑day expenses.
- Variable: The amount and duration can be altered if circumstances change.
- Often ongoing: They may run for a fixed period or on a “joint lives” basis (i.e., until death or other specified event).
- Purpose: To address disparities in income and financial need arising from separation.
A key advantage of income settlements is their flexibility: if either party's financial situation changes significantly, the court may vary the income order to increase, decrease, suspend or terminate payments.
What Are Capital Settlements?
Capital settlements involve once‑off or fixed financial adjustments intended to redistribute a couple's resources and bring financial matters to an end. These include:
- Lump sum orders: A one‑off payment of money from one party to the other. This may be paid immediately, in instalments, or on a deferred basis.
- Property adjustment orders: Transfers of property ownership or orders for sale of an asset with distribution of proceeds.
- Pension sharing orders: Division of pension rights so that each party receives a share.
Capital orders deal with the assets and resources accumulated during the relationship rather than ongoing income. Unlike periodical payments, capital orders are generally final and not subject to variation once made, except in limited circumstances.
Capitalised Income Settlements
In some cases, the court may choose to capitalise income obligations, meaning that instead of regular spousal maintenance payments, a lump sum is paid to settle all future income support at once. This approach can be particularly appropriate where sufficient capital exists to meet future needs, or where both parties prefer a clean break from ongoing financial ties.
Capitalisation Explained
- Purpose: Converts a stream of future maintenance payments into a single capital payment.
- Clean break effect: Once capitalised, ongoing maintenance claims are generally extinguished, creating finality between the parties.
- Court power: Under section 31(7A)–(7F) of the Matrimonial Causes Act 1973, the court may order capitalisation on an application to vary or discharge a periodical payments order. This power enables substitution of a lump sum, property adjustment or pension sharing order for ongoing income payments.
- Limitations: Capitalisation requires sufficient capital to be available and may not be appropriate if future needs or uncertainties make a lump sum insufficient. Additionally, the amount is often calculated using actuarial methods (e.g., Duxbury methodology) to approximate the present value of future maintenance.
Capitalisation is attractive for both parties: the recipient obtains a defined sum, and the payer avoids unknown long‑term obligations. However, it requires careful assessment of future needs and available assets.
How Courts Decide Between Capital and Income Orders
When determining financial settlements, the court begins with the statutory checklist in Section 25 of the Matrimonial Causes Act 1973, which includes factors such as:
- Income, earning capacity, and financial resources of each party.
- Financial needs, obligations and responsibilities.
- Standard of living during the marriage or partnership.
- Length of the relationship and contributions of each party.
- Any other relevant circumstances, such as caring for children or health issues.
After considering these factors, the court has discretion to make income orders, capital orders, or a combination as justice requires. Key considerations include:
- Whether ongoing support is necessary to meet reasonable day‑to‑day living expenses.
- Whether parties have sufficient capital to achieve a fair and final settlement.
- Whether payment of a lump sum or transfer of assets will achieve a clean break, ending future financial claims between the parties.
In practice, many financial settlements combine both capital and income elements. For example, one party might receive a lump sum and a short‑term maintenance arrangement, or property rights might be transferred alongside secured periodical payments.
Practical Context and Examples
Example: Ongoing Income Needs
In a situation where one spouse has limited income and few assets, the court may order periodical payments to meet living costs. Payments could be for a set period or on a “joint lives” basis, depending on need and fairness. If circumstances change materially, either party can apply to vary the order.
Example: Capital Settlement and Clean Break
Where both parties are financially self‑sufficient or have substantial assets, the court may favour a capital settlement. This might involve a lump sum payment and transfer of property to the financially weaker party, allowing both to move forward financially without future income obligations. Such a settlement is often referred to as a clean break.
Capitalising Maintenance
If a periodical payment order exists, but later the parties identify available capital, the recipient or payer may seek to vary the order and capitalise the remaining maintenance obligations. This can achieve finality but requires careful calculation and court approval.
Risks and Considerations
Both capital and income settlements have advantages and limitations:
- Income orders offer flexibility and can adjust to changing circumstances but create ongoing obligations and potential for future disputes.
- Capital settlements offer finality and certainty, but might not provide adequate income support if future needs are underestimated or circumstances change unexpectedly.
- Capitalised settlements require sufficient funds to be effective; without adequate assets, capitalisation may not be feasible.
Choosing between capital and income approaches often requires professional financial and legal analysis, including projections of future needs and valuation of assets.
Common Questions
Can periodical payments be capitalised later?
Yes. The court has statutory powers to capitalise an existing periodical payments order by substituting a lump sum or other capital order, though this requires sufficient capital and a formal variation application.
Are capital orders final?
Generally, yes. Lump sums and property adjustment orders are final and not subject to variation once made, except in limited circumstances. Periodical payments are variable and can be changed if circumstances materially change.
Does capitalised maintenance end if the recipient remarries?
Capitalised maintenance has already been paid and converted into a one‑off capital settlement. It does not cease on remarriage, unlike periodical payments which normally terminate automatically when the recipient remarries.
Key Takeaways
In financial orders following divorce or separation in England and Wales, the courts can address both income needs and capital division between former partners. Income settlements (periodical payments) provide ongoing support and remain variable, while capital settlements (lump sums, property orders, pension sharing) create a final redistribution of resources. The court may also capitalise maintenance-turning future income obligations into a lump sum-to achieve a clean break where sufficient assets exist. The choice between capital and income settlements depends on financial circumstances, future needs, fairness and available resources, and professional guidance from family law practitioners helps ensure outcomes that meet legal and practical objectives.
