THE LAW COMMISSION’S REPORT

The Law Commission on 27 February 2014 published its long awaited report ‘Matrimonial Property, Needs and Agreements’ containing proposals about reforming the law on divorce.  The Commission set out its three main aims as follows: 

  • To introduce a draft bill that would make qualifying nuptial agreements legally binding so long as certain conditions and safeguards are met.
  • To recommend that the Family Justice Council produce authoritative guidance as to the meaning of ‘financial needs’.
  • To recommend that the Government commissions a long-term study to assess whether a non-statutory formula for spousal maintenance (such as the sort used in Canada) would work in England and Wales.

The purpose of this article is to consider in turn the potential benefits of these three main aims.

THE INTRODUCTION OF LEGALLY ENFORCEABLE QUALIFYING NUPTIAL AGREEMENTS

Currently, when exercising its statutory discretion to divide assets on divorce, the Family Courts in England and Wales can take into account a pre or post nuptial agreement if it has been freely entered into by each party with a full appreciation of its implications and if certain safeguards have been adhered to.  The fundamental change recommended by the Law Commission is that both pre and post nuptial agreements fulfilling certain criteria would be ‘qualifying nuptial agreements’ (QNAs) and would be legally binding.  The emphasis would therefore change so that the court’s powers of asset distribution on divorce would be restricted provided the financial needs of the parties and any children involved have been met.  The introduction of QNAs would be beneficial in offering parties for the first time certainty that their agreement would not be interfered with by the court so long as needs were met and children adequately provided for.  The court would only have power to interfere with an agreement to the extent necessary to meet needs in the event that the agreement did not do so adequately.

QNAs would be likely to be of most interest to wealthier couples and to those marrying later in life where the parties are each independently able to meet their own needs.  The proposals, if implemented, are also however expected to lead to pre nuptial agreements widening out from the extremely wealthy to the ‘professional’ classes, such as those with a mortgage-free home, second homes or who are likely to inherit large sums of money.  The impact of the proposals could be even more far-reaching ending one of the strongest incentives for wealthy spouses to avoid the UK courts and thereby boosting the number of divorces started by such spouses.  The introduction of QNAs is therefore a welcome development, bringing England and Wales into line with the majority of other jurisdictions where binding pre or post nuptial agreements are commonplace.

THE INTRODUCTION OF AUTHORITATIVE GUIDANCE ON ‘FINANCIAL NEEDS’

The law as it currently stands gives the courts a wide discretion to make financial orders to meet the parties’ needs, having given primary consideration to the needs of any children of the family.  This discretion has generated uncertainty, especially for litigants in person as there is no clarity in the law about the extent to which one spouse should be required to meet the other’s needs after their formal relationship has come to an end.  Significantly no actual change in the law is recommended by the Law Commission and rather only guidance as to what is meant by ‘financial needs’.  This lack of definition could therefore lead to grey areas in practice.  However, whilst the Law Commission has not gone so far as to define ‘financial needs’ its recommendation that guidance should be produced by the Family Justice Council would nonetheless be beneficial.  It would surely both encourage more consistent practice in the courts and convey to the wider public what divorcing couples should be aiming for in seeking to settle the financial consequences of divorce.  For those who cannot afford legal advice, the Law Commission’s proposals should certainly assist by making the law more consistent and transparent.

THE NEED FOR MORE PREDICTABLE SETTLEMENTS

If a non statutory formula for spousal maintenance were to be implemented and judicial inconsistency was to become a thing of the past, the parties would have the benefit of starting a divorce with the knowledge of what their likely settlement would be.  However, the Law Commission does not recommend a move to a rigid mathematical formula as a one size fits all policy would have the potential to produce unwelcome anomalies and cause unintended hardship.  Unlike child maintenance (where a set formula is a viable means of quantifying basic payments and the term of childhood is clear) no formula for spousal maintenance could take account of all aspects of each unique case.  As unpredictable as it can be therefore, the benefit of judicial discretion in deciding the quantum and term of spousal maintenance is that individual circumstances and facts are considered in deciding on an appropriate and fair outcome.  In effect therefore settlements can be tailor-made to address particular circumstances and individuals.  This would clearly not be possible if a more rigid formulaic approach were to be adopted.  Nonetheless it would be beneficial for future work to be supported by the Government investigating the possibility of achieving some guidelines by way of calculations.  Some jurisdictions, for example Canada, have successfully introduced calculations that generate guidelines which can be used as an indication of a range in which a court order might fall.  Such calculations generating a range of support in which parties can negotiate would at least be beneficial in enabling the parties to know that they are negotiating ‘within the right parameters’.  Furthermore judicial discretion could remain albeit within the prescribed constraints of a calculated range of support.  Lawyers will no doubt remain wary of too rigid a formula being adopted.  However guidelines as to the appropriate quantum and term of spousal maintenance would be welcome, would not need to be too formulaic and would enable judges to retain some discretion to ensure that fairness prevails.

CONCLUSION

The Law Commission’s report builds on existing practice in family law while aiming to promote certainty and clarity across the financial spectrum of cases seen in the family justice system.  The proposed legislation in respect of QNAs would introduce a much needed element of wealth protection and certainty for couples.  It would allow couples greater autonomy and control and make the financial outcome of separation more predictable.  The provision of guidance as to the meaning of ‘financial needs’ would also be beneficial in encouraging consistency in the courts and managing the expectations of parties.  It may be that more can be achieved in the future in respect of the provision of a non statutory formula for spousal maintenance.  Certainly the recommendation that further work on this issue be supported by the Government is welcome.  Even if formulaic guidelines to calculate maintenance are then introduced, one could still predict fertile ground for argument between parties and their lawyers – albeit within narrower parameters!  To what extent the proposed reforms will meet the above aims remains to be seen.

This article was published in Resolution's 'Review' in April 2014.