Teresa Cullen and Anna Wakeling explore proposals to reform financial provision on divorce, and the potential impact of such measures.
The Divorce (Financial Provision) Bill [HL] 2017-19 (the Bill), a private member's bill introduced by Baroness Deech (a crossbench peer), received its first reading in the House of Lords on 3 July 2017, with a date still to be announced for its second reading. This is not the first time such reforms have been proposed, nor is it the first time the Bill has been before the House of Lords.
Baroness Deech and others, including the Law Commission and family lawyer organisation Resolution, have been pushing for an overhaul of family law in England and Wales for a number of years. Suggestions have focused on the way in which assets are split on divorce, how maintenance is determined and making marital agreements binding in statute.
A key proposal in the Bill is that s25(2), Matrimonial Causes Act 1973 (MCA 1973) be replaced. That section contains the only statutory guidance for judges when making orders for financial provision on divorce. The matters the court must presently consider when determining financial provision can be summarised as:
- the income, earning capacity, property and other financial resources of each party;
- the financial needs obligations and responsibilities of each party;
- the standard of living enjoyed by the family during the marriage;
- the age of each party to the marriage and the duration of the marriage;
- the contributions that each of the parties has made or is likely in the foreseeable future to make to the welfare of the family; and
- the conduct of each of the parties, if it would be inequitable to disregard that conduct.
In contrast with many other jurisdictions, there is no standard formula for calculating appropriate financial provision on divorce in England and Wales. All of the factors to be taken into account by virtue
of s25, MCA 1973 are discretionary, and the judge must decide 'whether to exercise [the] powers and if so, in what manner' and 'have regard to all the circumstances of the case (s25(1), MCA 1973). Each case must therefore be considered on its own facts, with reference to the s25 criteria. The absence of any detailed guidance in MCA 1973 on what constitutes a fair and equal division, combined with a wide judicial discretion, has meant that the law in relation to the division of assets has largely been led by judges and shaped on a case-by-case basis.
What are the proposed reforms?
The Bill proposes the following main areas for reform:
Matrimonial property
Under the Bill, the starting point for division of assets on divorce would be a 50/50 split of the net value of the matrimonial assets acquired during the marriage. Inherited assets acquired by a party during the marriage would be ring-fenced from division, save where the concept of 'need' required the inheritance to be invaded. Currently, the starting point is a 50/50 split of all assets, which is usually irrespective of whether the assets were acquired by a party prior to the marriage, unless there is a good reason to depart from that 'yardstick of equality. The s25, MCA 1973 factors are applied by the court to each case, which may lead to a departure from a 50/50 split. The Bill proposes that pre-marital assets are excluded from division, which is the case in many other jurisdictions, such as Scotland, the US and much of Europe. The following matters would then be considered to determine whether an equal division of marital assets is appropriate:
- the terms of any agreement reached between the parties relating to the ownership or division of any matrimonial property;
- any destruction, dissipation or alienation of marital property by either party;
- the needs of any children of the family under the age of 21; and
- actual or prospective liability for any expenses of valuation or transfer of property in connection with the divorce.
Spousal maintenance
The Bill seeks to restrict the court's powers to award spousal maintenance by providing set criteria for when maintenance can be provided, and by placing a five-year limit on the payment of maintenance, save in exceptional circumstances, thus bringing an end to the so-called 'meal ticket for life' maintenance awards.
This limit on maintenance would bring the UK into line with many other European countries. In Scotland, by way of example, the emphasis and starting point is to divorce on a clean break basis with party autonomy if that is possible. Under Scottish law (per s9(1)(d), Family Law (Scotland) Act 1985 (FL(S)A 1985)), 'periodical allowances' (maintenance payments) are generally limited to a three-year period. FL(S)A 1985 does enable the court to order maintenance payments for more than three years where there is a long-term need, such as childcare, or where a cap would lead to severe financial hardship. In Germany, the emphasis is on achieving financial autonomy following divorce with maintenance only awarded until financial independence is achieved, while in Finland court-ordered maintenance is very rare with both parties expected to work and support themselves from the outset.
Pre and post nuptial agreements
The Bill makes provision for any pre or post nuptial agreement (which is in writing and signed by both parties) to be treated as binding on them, after the needs of the parties and any children have been taken into account, unless:
- the agreement attempts to impose an obligation on a third party who has not agreed in advance to be bound by it (in which case the agreement is not binding on the parties insofar as it attempts to impose that obligation);
- a party neither received independent legal advice, nor had an adequate opportunity to do so, before the agreement was made;
- in the case of a pre-nuptial agreement, the agreement was made less than 21 days before the marriage;
- one or both parties failed to make proper disclosure of their assets before the agreement was made; or
- the agreement is unenforceable under any rule of law relating to the validity or enforceability of contracts generally.
The Bill, if enacted, would safeguard the position of a nuptial agreement by statute. The current position is
simply by reference to case law, in particular, the Supreme Court decision in Radmacher v Granatino [2010]. In Radmacher, the Supreme Court quoted (at para 75) the Privy Council decision in MacLeod v MacLeod [2008] that:
The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.
As such, pre and post nuptial agreements are currently treated as persuasive, but not binding in law.
Why is change needed?
Baroness Deech is not alone in her calls for reform. The Law Commission, for example, has also recommended that pre-nuptial agreements be binding, with certain safeguards, for example that the agreement cannot be used to contract out of provision for financial needs.
Critics of s25, MCA 1973 say that it is an outdated piece of legislation, not having been significantly reformed for over 40 years, and that it harks back to a time when wives were often dependent on their husbands for financial support both during the marriage and for the rest of their lives. In a world where many couples now choose to cohabit instead of marry, and where women are often financially self-sufficient, with increasing moves towards equal pay and treatment in the workplace, arguments abound that the law needs to be updated to reflect the changing realities of our society.
This has been compounded by reports in the press of so-called 'big money' cases, with London being labelled as the divorce capital of the world due to generous awards. Juffali v Juffali [2016] is a recent example of a case involving a generous award. The wife sought an award of £196m to meet her 'reasonable needs'. She was awarded £53m which, when added to her own assets, gave her £75m.
Baroness Deech has argued that there is a 'moral, legal and practical imperative for the Government to do something about this area of law' (see: www.legalease.co.uk/deech- 2nd-reading), and, as a result of the leading judgments that inevitably arise from 'big money cases, the law has developed in a way that is not necessarily helpful for lower income families. She has also said that the 'crux of the issue is the value of juridical discretion in every case versus plain rules, as contained in the Bill'. The wide exercise of judicial discretion inevitably leads to unpredictability and uncertainty, with judges differing in their awards. This has led to claims of a 'postcode lottery with differing outcomes in courts across the country.
A review of Scottish divorce law by the University of Glasgow (see: www.legalease.co.uk/built-to-last)
concluded that FL(S)A 1985 provides certainty and enough flexibility to provide a fair outcome for all divorcing couples. Baroness Deech, in the second reading of the 2016-17 version of the Bill, championed the benefits of Scottish law on which she said the Bill is very closely modelled (see: www.legalease.co.uk/deech-2nd-reading).
Furthermore, the removal of legal aid for many family law cases has seen an increase in divorcing couples
representing themselves (see: www.legalease.co.uk/family-court-stats). Such individuals are left with no
option but to try to navigate the law on the division of assets without legal advice, often in emotionally charged situations. Baroness Deech argues that in cases where the parties are unrepresented judges have to intervene and do the work of lawyers, often leading to delays and long drawn-out, costly proceedings.
Impact of implementing the Bill
The Bill strives to create certainty and, by simplifying the statutory guidance and limiting judicial discretion, to provide more clarity at the outset as to the likely outcome of each case. The aim is for such certainty to limit the scope for dispute between divorcing couples, which should ultimately reduce the time and costs, both financial and emotional, required to resolve any such dispute.
Baroness Deech's clear intention is also that the Bill reflects our changing society and that as a matter of principle it is wrong that a spouse should beable to indefinitely financially rely on their former spouse following a divorce.
However, critics of the Bill argue that a 'one size fits all approach is not appropriate to the separation of assets, as no two couples' circumstances are alike. Instead each case should be decided on its merits, on a case-by-case basis. Furthermore, a cap on maintenance of five years could put the family's primary caregiver at a significant financial disadvantage. A spouse whose career has taken a back seat in order for them to care for the children, while the other spouse continues to develop their career, will likely find their earning capacity restricted. A five-year cap on maintenance is unlikely to go far enough in compensating such a spouse for the sacrifices they havemade to their career, or to support them financially in the long term.
A report by the Chartered Insurance Institute in 2016 found that women are often far less resilient to financial shocks than men. Although the gender pay gap is narrowing, women are more likely to be working part time and in zero-hours contracts than men. This financial disparity is more apparent on divorce; 48% of divorced women expect to rely on the state pension compared with 38% of men (see: 'Risk, exposure and resilience to risk in Britain today, Women's Risks in Life — an interim report' at www.legalease.co.uk/ciireport). It can be argued that women often take on a greater financial risk on marriage and on divorce, and that even the current legislation does not provide lifelong financial security for women.
Critics also argue that the Bill appears in part to be a reaction to 'big money cases, and an attempt to restrict disproportionate financial awards, however, these are a very small minority of cases and in reality spousal maintenance orders for life are now incredibly rare. Judges are already, of their own volition, limiting spousal maintenance for a term or, in some cases, not even making such an award. The idea that one party receives a 'meal ticket for life' on divorce is rarely the case. What is important is that judges currently have the discretion to determine what provision is appropriate, without automatically having to adhere to a five-year limitation. Lord Wilson, in his address to the University of Bristol Law Club in March 2017, remarked on the stringent nature of the Bill, stating:
Some of the rigid provisions which the group have included in their proposed reform bill... would have grotesque consequences if they were to have been applied to a number of the cases in which I have participated during my career. (see: www.legalease.co.uk/wilson-speech).
What next?
A date is still to be announced for the Bill to have its second reading, but it is anticipated that this will be during 2018. It remains to be seen whether the Bill will be implemented as law, but either way the calls for reform are unlikely to go away.
Pre and post nuptial agreements are already becoming more common in England and Wales, and if the Bill were to take effect it seems likely that they would only increase in popularity. A more stringent regime as to maintenance would also mean that we could see a 'rush to divorce' by financially weaker spouses if it looked like the Bill would be passed and take effect as law.
Juffali v Juffali
[2016] EWHC 1684
MacLeod v MacLeod
[2008] UKPC 64
Radmacher v Granatino
[2010] UKSC 42
Teresa Cullen, Partner, Fladgate LLP (tcullen@fladgate.com)
Anna Wakeling, Associate, Fladgate LLP (awakeling@fladgate.com)
