In January this year (2012) the Law Commission launched a consultation on pre- and post-nuptial agreements. On 11 September a supplementary consultation opened to consider the division of assets on divorce. The latest paper examines two aspects of the financial consequences of divorce/dissolution of civil partnerships, specifically: the law relating to financial needs upon divorce/dissolution and the treatment of "non-matrimonial" property on the breakdown of a relationship.
The supplementary consultation derives from the Commission's view that the current law on is unclear and lacks certainty. Family court judges in England & Wales have wide discretion which often results in inconsistent outcomes across the country - as the law currently stands, 10 different judges hearing the same case would most likely order 10 different outcomes. There is no clarity for separating couples and so the aim is to provide better guidance for judges, practitioners and separating couples alike on how to divide assets fairly on divorce/dissolution. It is hoped that this will help parties reach financial settlements to avoid costly litigation.
Firstly, the Commission seeks a fundamental review of the law relating to need. The current law provides that the financially stronger party is obliged to meet their ex-spouse/civil partner's financial needs, both in terms of income and capital. The term "need" has been applied broadly by the Courts and there is no clarity on the extent and duration of financial support which should be provided. The consultation considers whether there should be a compensatory element to needs to provide support to the financially weaker spouse or partner until they are able to earn to the standard they would have achieved (and therefore enjoy a comparable standard of living) if it had not been for decisions made during the relationship, for example, giving up a career to care for children.
It also considers whether there should be a focus on the level of needs to enable a transition to independence and whether maintenance should be limited in time. For example, in Scotland, the maximum period for payment of maintenance on divorce is three years, which contrasts starkly with our current law which can provide that the financially stronger party should support the other until death. Professor Elizabeth Cooke, the Commissioner leading the project, has said that this proposal is being approached which great caution to avoid unwarranted hardship to the financially weaker party. A further option is whether financial support should be calculated using a formula which is the method adopted in Canada.
The second area of the law which is being considered is non-matrimonial property. This is relevant to wealthier families where there are surplus assets once both parties' needs have been met. The consultation paper considers whether there is a need for (a) a legal definition of non-matrimonial property; (b) confirmation in statute that it should not be shared unless it is required to meet needs; and (c) clarity as to the circumstances (if any) upon which it can become matrimonial property, for example, as a result of the passage of time or it being mingled with matrimonial property.
The consultation will run until 11 December 2012. There will then be a response period before a report is produced in autumn 2013. This will set out the Commission's recommendations for further research or for pilot projects before a decision is taken on statutory reform. It is likely that any changes will not be implemented for years to come.
Whilst it is considered by many practitioners that clarity in this area of the law is needed, particularly in respect of non-matrimonial property, there is a concern about the ability and effect of applying some of the more rigid proposals, such as a formula approach to financial support or a time limit on its duration. Every case is different and turns on its facts (which are often highly contentious) and it is likely that such approaches would result in unfairness in a number of cases. Such radical proposals would likely have a significant impact (for better or worse) on this country's (particularly London's) reputation as the "divorce capital of the world" for the financially weaker party.
This article originally appeared in the Autumn 2012 Private Client & Tax Newsletter.