Law Commission review: the financial consequences of divorce

Each year, around 115,000 couples divorce in England and Wales, according to Family Court statistics. Almost all of them will have financial issues to resolve, for example: what should happen to the family home; should one former spouse make ongoing payments out of income for the other or for the children; how should any pensions be divided?

The current statutory law governing the financial consequences of divorce (The Matrimonial Causes Act 1973), which also now applies to the dissolution of civil partnerships, is celebrating its 50^th birthday this year. Back in 1973, measurements had just gone decimal, three TV stations had just started broadcasting in colour to the 90 per cent  of households who had a TV, and around 60 per cent of homes had a washing machine. Monopoly, Trivial Pursuit, and Abba were yet to arrive on the scene.

England has moved on since then. So has the law, but not through any overhaul of the MCA 1973. It is largely the courts, through an exercise of their discretion, which have instead been responsible for the considerable developments in this area through interpretations and re-interpretations of the statute. As I explain further below, during the last 50 years, the courts have moved from placing parties in the position they would have been in had the marriage not broken down, to meeting reasonable requirements, to sharing marital assets equally, where we are now. Financial laws on divorce have turned out to be a particularly acute example of the advantages and disadvantages of precedent in a common law system: there is a lot of flexibility and discretion for judges, but there can be uncertainty as to what the law actually is, and it can be difficult to predict how a court will rule in a particular case.

What is the project?

The question the Law Commission is asking is whether the current law "provides a cohesive framework in which parties to a divorce or a civil partnership dissolution can expect fair and sufficiently certain outcomes".

The Law Commission is, for the moment, doing some preliminary work on the project, with the aim of publishing a scoping paper by September 2024. The scoping paper will contain a detailed analysis of what the current law actually is, and how that compares to the law in some other countries. It will, through this analysis and consultation with stakeholders, identify any problems with the current law and possible models for future reform.

What is the current law?

The MCA 1973 contains a list of the wide powers the court has to make financial provision when a marriage or civil partnership breaks down. It can order the payment of a lump sum, the adjustment or transfer of an interest in property, the adjustment of interests in trusts, pension sharing, and spousal maintenance. Child maintenance tends to be dealt with as an administrative matter by the Child Maintenance Service according to a formula, but the courts still have the power to make top up orders in certain circumstances or to make orders for the payment of school fees.

The MCA 1973 also contains a list of "factors to which the court is to have regard" in exercising these powers, including the ages of the parties, any disabilities either may have, their financial resources, their financial needs, the standard of living during the marriage, the contributions each party made to the welfare of the family, and the conduct of the parties. "Particular regard" is to be had to the financial needs of any children, and how they are to be educated.

But what the MCA 1973 importantly does not contain is a statement of the overall objective which is to be achieved. As originally drafted, it did contain an objective of "minimising loss", which meant placing the parties in the position they would have been in had the marriage not broken down. But this was repealed in 1984 and nothing took its place so, at different times since 1984, the courts have filled the gap in different ways. There was first an approach of guaranteeing a wife (and it was usually a wife) her "reasonable requirements but, unofficially, there used to be a £10 million to £12 million ceiling on this. But since the year 2000 (and the landmark decision of White v White [2000] UKHL 54) the courts have said that, in the pursuit of fairness, there is no place for financial discrimination between husband and wife and that equality in the division of marital assets should be departed from if, and only to the extent that, there is good reason for doing so. Later cases (Miller v Miller, McFarlane v McFarlane, [2006] UKHL 24) have built on this by saying that two other strands of fairness can be discerned alongside sharing: financial needs and compensation.

Financial needs is difficult to define. The Law Commission's 2014 report 'Matrimonial Property, Needs and Agreements' defined needs as "a very broad concept with no single definition in family law". The meaning of 'needs' in family law does not correspond to the ordinary usage of the term in which needs are basic, absolute and capable of being contrasted with what one might want. Instead, in family law, needs are an elastic concept and are relative to the individual case. They are informed by (though cannot be equated with) the marital standard of living. For some people, needs might include private jets, designer clothes and security. But the main component of financial needs in most cases will be the need for housing and the need for a regular income. Compensation, meanwhile, was intended to reflect what one party would have had or been able to earn if certain choices had not been made during the marriage but it is, in practice, an argument rarely run.

If there is more than enough to meet needs, a different (ie non-sharing) approach tends to be taken to property acquired prior to or after the marriage, and to inherited or gifted property where this has been kept separate from matrimonial property during the course of the marriage.

Overarching issues with the current law

As mentioned above, one of the main issues with the current law is the room it allows for judges' discretion. This means that, while there is room for a judge to do whatever fairness demands in a particular case and to order a 'bespoke' solution, there can be a lot of uncertainty as to what the law actually is, because so little of it is to be found in statute and it is instead found spread disparately over a huge number of judgments, and subsequent judgments' treatment of those judgments. This makes the law, sitting as it does in (sometimes lengthy and technical) judgments, difficult to access for anyone other than lawyers. And at a time when there are more and more litigants who are unrepresented.

Historically, part of the problem has been that the family courts have been a relatively closed part of the court system, because of the desire to maintain confidentiality for families who must turn to the courts to resolve their intimate disputes. There has for many years, but particularly in the last couple of years, been a lot of attention given to ‘transparency’ and the need to enhance public confidence in the Family Court. This has led to recent changes, such as judges being encouraged to publish at least 10 per cent of their financial remedy judgments and members of the press being able to (with the court's permission) access documents which are relevant to a hearing they are reporting on. While the aim of these changes is laudable, an unintended consequence of the new plethora of information might be that case law is even more difficult to navigate for non-lawyers. As the courts are becoming more transparent, case law is becoming less transparent to the spouse or couple without legal representation and so something more is needed, such as guidance in a consolidated format.

Of the 115,000 couples who divorce every year, only around 40 per cent of those couples record a financial agreement in a court order, and this 40 per cent may be a vague proxy for how many couples have the assistance of lawyers. The other 60 per cent are presumably negotiating 'DIY deals', which may or may not be fair in the eyes of the law. We simply do not know whether these deals are guided by the law, because any settlement negotiated out of court is confidential.

Discretion also leads to regional variations. Anecdotally, and certainly historically, more generous spousal maintenance settlements can be found in London than outside of it.

Discretion is also demanding of judges' time, which is contributing to the feeling that the Family Court is 'running up a down escalator' to keep up with demands on its time. I recently issued an application for financial remedies for a client and it was listed for a First Appointment (which is, by default, a simple housekeeping appointment) in eight months' time, double the waiting time the rules set down.

Are current outcomes fair and sufficiently certain?

Returning to the question the Law Commission is asking itself – "does the current law provide a cohesive framework in which parties to a divorce or a civil partnership dissolution can expect fair and sufficiently certain outcomes?" – the question of fairness raises value-laden questions about the obligations which marriage creates and the extent to which they should survive a divorce. These are not questions for lawyers, or certainly not for lawyers alone, because laws have to reflect the values of the society they regulate. For what it's worth, and if English matrimonial property laws were being designed from scratch, there may well be a place for 'matrimonial property contracts', which couples would enter into at the time of marriage in order to determine for themselves how their assets would be shared if the marriage ended by divorce or death. But that might detract from the romantic element of marriage for too many and be precisely why these questions should be determined by society's values as a whole rather than lawyers.

So, focusing instead (as I have anyway chosen to do in this article) on whether the current law provides sufficiently certain outcomes, I doubt the Law Commission will find that outcomes are certain, because of the wide discretion that judges have. There are ways in which the law could operate in a more certain way; for example Canada has a spousal maintenance formula in place of discretion, which gives couples a much clearer idea of what maintenance might be payable.

Are outcomes in England sufficiently certain though? For couples who can afford the assistance of lawyers, I think they are. It's my and other lawyers' jobs to know the law as it stands, to keep up with developments and I am exposed every day to how judges are deciding cases. This enables me to give clients advice on outcomes from the outset, which can help them settle cases early.

Legal representation of course comes at a cost. As I say, early advice on outcomes can lead to early settlement of cases which saves costs, as can alternative dispute resolution.

But there are some for whom even early advice or ADR is not affordable. What I think has to be a focus of the Law Commission's evidence gathering is the 60 per cent of divorcing couples who do not have the assistance of lawyers. I simply do not know how the current law is working for these couples. The current law may be failing the 'silent majority'.

Jennifer Dickson is a partner at Withersworldwide.