Jacqueline Major, a solicitor in the family team at Winckworth Sherwood, asks whether we are heading to the right destination on the division of assets on separation.

Jacqueline Major, a solicitor in the family team at Winckworth Sherwood, asks whether we are heading to the right destination on the division of assets on separation. The views expressed here are not necessarily endorsed by this publication but it is very happy to share them with readers. As ever, feedback is most welcome.

The UK Law Commission has recently announced that it is to investigate and report on two key areas of financial provision on divorce that are in need of reform. In its consultation paper it likens a family judge to a bus driver who is given a large number of instructions on how to drive the bus, but who is not told where to take the bus – only that it must be a “reasonable and fair destination”.

Dealing with property and money following the breakdown of a marriage or civil partnership has long been a thorny issue. How to get the “reasonable and fair” result, in a system where judges have discretion, has spawned much litigation. Getting to a destination in each different case is a very subjective exercise, and we have ended up with an uncertain system, with inconsistent results across the country.

The Law Commission initially set out to consider the status and enforceability of marital property agreements – commonly known as pre-nups and post-nups. The project has now been extended to cover two aspects of financial provision: first, the law relating to “needs” – looking at to what extent a spouse or civil partner should have to meet the needs of the other party following the breakdown. Secondly, how to treat non-matrimonial property – by which the courts mean property that a party acquired before the marriage, or during if received as a gift, or property which is the result of inheritance or was in some way independently generated and not connected to the relationship.

Greater clarity greatly needed

The Commission aims to bring “clarity and predictability” to these two uncertain areas, which would be very welcome to judges, lawyers and every person trying to resolve their financial arrangements as quickly, fairly and cost-effectively as possible.

So, a great end destination – but how can it be achieved? The consultation paper explores several “models for reform”. In relation to needs, one solution is that needs should be met only if those needs are generated by the relationship. In the case where a wife has given up work to care for a family, that wife should be compensated for any earning capacity they have lost. This is fair from the angle that if a wife makes this economic sacrifice she is safe from loss knowing that on divorce she would get what she would have had but for giving up work. The unappealing side of this model is that if the wife was a low earner and able to return to that employment after divorce she has no claim. 

“Unravelling the merger over time” is another option – a period of income sharing based on the length of the marriage. A spouse would be given a percentage interest in the other’s earnings; the longer the marriage, the greater the merger and so the longer the period of support after divorce. Similar systems for spousal support exist in France and Germany, although “the devil in the detail” will be arriving at the percentage interest itself.

Complex calculations

Then there are proposals involving mathematical calculations, based on disparity of earnings after dissolution. The formulae used will incorporate loss in standard of living and loss in earning capacity due to the relationship. The calculation will also be based on the length of the relationship and would be subject to a ceiling of 40 per cent of income. The duration of payments would depend on the length of the marriage, with no maximum. This method would produce certainty, i.e. an actual figure can be worked out, and both parties would know at the outset how much and for how long they are to pay or receive.

There is much to be said in favour of a calculation that offers a result at the outset. The Commission also proposes to allow departure from the calculation if it were to cause “substantial injustice” to a party, so keeping an eye on the “fairness” test at all times.

When can we expect to have our bus drivers given an actual (fair and reasonable) destination? The report and recommendations on all aspects of the consultation will be out in 2013. The Government will then consider whether there ought to be reform through either a new statute or revision of the existing legislation for divorces and dissolutions of civil partnerships. 

A note of caution though: the Government shelved the last set of proposals by the Law Commission that would have provided greater financial certainty to cohabiting, unmarried couples. There is no guarantee that, even with proposals for reform, the Government will implement them. It remains to be seen whether our family judges will have to continue to navigate the complex area of financial provision to their own perceived fair and reasonable destination.