The Law Commission's Matrimonial Property, Needs and Agreements consultation has opened this week.

The aim of the consultation is to consider two aspects of the law relating to financial settlement upon divorce, firstly the law governing financial needs and secondly the legal status of 'non-matrimonial property'.

The consultation stems from the Commission's consideration of pre-marital agreements and the proposal that such agreements should be binding, provided that both parties' needs are met.

The court has a broad discretion as to how the parties' capital and income should be divided upon divorce.

Financial needs

Currently, the court must ensure that, as far as possible, the 'needs' of the parties are met. However there has long been confusion as to the definition of 'needs' and, in turn, how far an individual should support their former spouse following divorce.

The consultation recommends both a reform of the law and the need for further work before a change in law can be brought about, including further research and piloting programmes.

The consultation asks for input on the following possible reforms:

  • Whether there should be compensation for needs generated by the marriage, i.e. that a spouse should be supported financially up to the point that they are able to attain the level of earnings and standard of living that they would have achieved but for the decisions made within the marriage.
  • Support for a limited period, to allow a spouse time to achieve financial independence
  • Support for a limited period to create incentives for independence.

The support provided could be calculated with reference to a formula. There could also be a statutory time limit on financial support. In Scotland, for example, there is a three year limit on financial support after divorce. The Commission, however, has indicated that this is not an option being considered for England and Wales.

Non-matrimonial property

A further area of uncertainty for the court is how 'non-matrimonial property', for example pre-acquired wealth and inheritance received during the marriage, should be treated when determining financial settlement. Currently, how such property is treated by the court is relatively unpredictable, and governed by various factors including the length of the marriage, the nature of the property and the parties' overall wealth.

The consultation is asking for input in relation to:

  • how 'non-matrimonial property' should be defined;
  • whether non-matrimonial property should be excluded from the 'sharing principle' on divorce and whether such property can ever become 'matrimonial property' for example over a period of time; and
  • whether this should in turn be subject to a further rule that it should be shared if required to meet the needs of the parties.

The Commission is proposing that non-matrimonial property should be excluded, unless it has been sold and either (a) substitute property has been bought to replace it, for use by the family, or (b) the proceeds have been invested in matrimonial property, whereby the formerly non-matrimonial property would become matrimonial property.

There is a clear rationale behind introducing principles that are easier to translate, by adopting a formulaic approach to areas such as spousal maintenance and providing guidance on likely outcomes. It will no doubt help combat the crisis that has been caused by the nigh on extinguished legal aid and the strain of excessive case loads passing through the Courts. To that end most legal practitioners and clients will welcome a degree of reform. However, at what cost? The present system allows the Courts to apply s25 Matrimonial Causes Act criteria to the individual case before them. Not every family will fit into a category or suit a formula. Judicial discretion to apply the s25 criteria to each individual case will need to remain if we are to avoid the injustices of insufficient maintenance or capital to meet parties needs adequately. We can only set so much in stone before the system fails to meet the purposes it was designed for; to determine fairly the division of finances in each family upon separation. Wherever we have flexibility we will of course always risk uncertainty. It is a case of striking the right balance and the resulting recommendations are awaited with anticipation.

The Consultation period ends in December 2012, and the Law Commission is due to publish its final recommendations in August 2013.