Does the law on finances on divorce need to be reformed?

What is the current law?

When divorcing couples are looking at dividing their financial assets, the law that applies is a 51 year old statute called the Matrimonial Causes Act 1973 (MCA). This has also been mirrored into the Civil Partnership Act 2004 for couples ending their civil partnerships.

Section 25 of the MCA sets out a list of factors that a court  considers when deciding how the finances should be divided. For example, the length of the marriage, earning capacity of the parties and financial needs. However, judges have a wide discretion when applying these factors, which has resulted in 50 years of case law that also needs to be considered when advising divorcing couples on financial settlements.

What are the problems with the current law?

The Law Commission has stated that the current law is "both uncertain and inaccessible for the majority of divorcing couples".

The discretionary nature of the law means that it can be very difficult for divorcing couples to know what a financial settlement might look like, as judges and practitioners have differing interpretations of the law. For example, the application of the concepts of 'needs" "sharing" and "compensation" is varied, which creates uncertainty. The report highlights that this uncertainty exacerbates disputes between divorcing couples.

This is of course even harder for those divorcing couples who cannot afford legal advice who are trying to interpret themselves what they are entitled to.

What could reform look like?

The report summarises four models which a future reform of the law could look like, ranging from relatively minor changes to a significant overhaul:

• Codification - No significant changes however current settled case law principles (such as 'needs" and sharing') would be made into statute, which would make parts of the law easier to identify and apply. Wide discretion for the court would still apply.
• Codification Plus - Modest changes to the law, as above but also including detailed rules around currently ambiguous areas such as spousal maintenance, conduct, pensions and nuptial agreements. Wide discretion for the court would still apply, albeit limited where the areas have been codified.
• Guided discretion - Section 25 would be amended to set out a framework for the court and provide clear principles on how discretion can be applied. This is similar to the current regime in Scotland.
• Default regime - Complete change of the current law to create a set of rules that enable marrying couples to have almost complete certainty on how property will be divided on any future divorce.

These proposed models demonstrate a significant contrast in approach between discretion vs certainty. Discretion can create uncertainty, however it can also allow for flexibility and recognises each divorcing couples' specific circumstances. Certainty would increase couples' understanding of their rights, however a system that is too rigid may not lead to a fair outcome, particularly for the financially weaker party.

Other areas of reform

The report also considered other areas that may be considered for reform including:

• Pensions - concerns were raised about the lack of clarity on pension rights, with only 11% of divorcing couples having pension-sharing arrangements in place
• Pre-nuptial agreements - are not currently binding, however case law states they are persuasive, which creates uncertainty.
• Financial provision for children beyond 18 years old - with many adult children still being supported by their parents, the report questions whether there should be provision for children over 18 and if so, who should bring those claims (children or the parents).
• Conduct - the report recommends a review of how conduct is considered in financial matters and a greater recognition of financial abuse and coercive control in financial settlements.

What happens next?

The Government are under a duty to respond to the report within six months of publication and a full response within a year. If the Government do ask the Law Commission to make specific recommendations for reform, it may take many years.

In the meantime, divorcing couples will continue to operate under the current law.

If you would like advice about how to approach divorce and dividing your financial assets, please contact our New Enquiries team on 020 7405 1234, or complete the form below.