Reforming financial remedies

Richard was employed at the Law Commission as a legal practice adviser on its financial remedies project

On 18 December 2024 the Law Commission published its Scoping Report, Financial remedies on divorce and dissolution, on the law governing financial remedies.

We have concluded that the law, found primarily in the Matrimonial Causes Act 1973 (and set out in the same terms, for the dissolution of civil partnerships, in the Civil Partnership Act 2004), as interpreted by a vast amount of case law, needs to be reformed. Our report presents the government with four possible models on which to base future reform.

Background/Terms of Reference

Our task was to review the operation of the existing law and to consider the fundamental question of whether the current law relating to financial remedies on divorce and dissolution provides a cohesive framework in which parties to a divorce or dissolution can expect fair and sufficiently certain outcomes.

In addition to this fundamental question, we were asked to identify:

• Any problems in the current law of financial remedies on divorce, and whether there is a case for law reform.
• Possible models on which future reform of financial remedies law could be based.
• A range of questions that would likely need to be considered in detail at any consultation phase.
• Any policy choices that government would need to make to enable a revised scheme of financial relief to be designed.

We also considered whether there may be ways to structure the discretionary basis of the current law with a clear set of underpinning principles, in order to create more certainty as to outcomes.

Finally, we looked at the potential for reform of some specific areas of the law, which we consider below when we discuss our findings.

We were assisted in our work by the research of the Nuffield Foundation-funded “Fair Shares” report of November 2023, which looks at how couples divide money and property on divorce. This helped us to understand the position of “everyday” couples in resolving their finances.[1] Members of the Fair Shares team have subsequently produced further work based on their data which we have considered, including their report looking at cases where domestic abuse was present, published in November 2024. [2]

Our work

Over the course of the last 18 months the team met with legislators, judges at all levels of the Financial Remedies Court, practitioners, academics, representative organisations such as Resolution and the FLBA, as well as civil society groups with a particular interest in our work. We invited members of the public to share their experiences with us, and hosted an online event for them. In addition to considering the current law in England and Wales, we met judges, academics and practitioners in other jurisdictions including Scotland, Australia, Singapore, New Zealand and continental Europe. We listened carefully to the opinions of those with whom we engaged on the current state of the law and in what direction law reform in this area could take.

Criticisms of the current law

Criticisms primarily centred around the wide discretion that judges have to reach a fair result for the parties in any given case. Whilst the flexibility of the current statute allows courts to craft fair outcomes based on the particular, individual circumstances of the parties before it, this same flexibility does not lend itself to certain and predictable outcomes. For parties navigating the law alone (either in or out of the court system – and most couples do not use the courts)[3] reaching an agreement, or early resolution, becomes so much harder to achieve. The lack of resources for many would-be litigants (including lack of public funding) means that they cannot afford to get to court to hear the “right” answer for their own circumstances. Whilst lawyers are familiar with the current legal position, there is scope for different views to be taken on the outcome of a particular case. The practical reality is that the “ideal” of a bespoke solution endorsed by a court is not the experience of most divorcing couples.

Further, despite some amendments, the Matrimonial Causes Act 1973 does not reflect the significant developments in case law since its inception 50 years ago. Judicial interpretation from the senior courts and the introduction of concepts such as non-discrimination, matrimonial and non-matrimonial property, and the interplay between sharing, needs and compensation have all fundamentally shaped the law, but individuals looking at the statute alone would not be able to discern this.

Finally, the existing statute we are all familiar with provides a checklist within s25(2) of the matters that the court should take into account, but it does not currently provide an objective, as is sometimes the case in other jurisdictions. We raise the issue in our report of whether any reformed law should include such an objective.

The Law Commission’s conclusions and possible models for reform

We conclude that the law should be reformed. The wide-ranging judicial discretion contained in the current law, coupled with the significant developments to financial remedies law arising out of judicial decisions which are not reflected in the statute, means that it is not possible for an individual going through divorce to understand, by reading the statute, how their case will be decided. Far from providing “sufficiently certain outcomes”, the law lacks certainty, and accessibility, to an extent that it could be argued to be inconsistent with the rule of law. Given this conclusion, the fairness of outcomes must also be called into question.

Therefore, to answer the question posed in our Terms of Reference, the current law does not provide a cohesive framework in which couples going through a divorce can expect fair and sufficiently certain outcomes.

How then could reform be achieved?

We put forward four possible models for reform upon which reform could be based. These are:

1. Codification
2. “Codification-plus”
3. Guided discretion
4. A default regime

The codification model would, in effect, marry up the existing settled case law to any new or reformed statutory provision. The priority of meeting needs ahead of sharing and compensation and only sharing non-matrimonial property where needs requires it are examples of existing law which could be codified. The statute could be explicit about the inclusion of settled, seamless, cohabitation within the duration of the marriage. The current section 25 provisions would likely be retained in a codification model, but with necessary additions to align with settled case law. Codification would be the simplest and least radical option. It would make the revised statute more cohesive and easily accessible to all. But codification of the current law would not bring any greater certainty: it would retain the current wide discretion of the court.

“Codification-plus” goes a stage further. In addition to bringing the existing statute up to date with developments in case law, the “codification plus” model may also cover specific issues which are not currently settled law. Binding nuptial agreements, how pensions should be dealt with on divorce, provision for children over the age of 18, determining the effect of conduct/domestic abuse, and limitations around periods of spousal maintenance could all conceivably be included within such a model.

A guided discretion model would provide greater certainty for couples. Such a model has at its heart a set of clear principles and objectives which will guide any discretionary decision-making by judges. Adopting this model of reform would require moving away from the current approach under s25.   Scotland and New Zealand operate versions of the guided discretion model, which also provides the basis of the Divorce (Financial Provision) Bill introduced into the House of Lords by Baroness Deech. We look at all three of these examples in our scoping report, though a guided discretion model need not replicate the features of any of these examples.

Finally, another model to consider is that of a default matrimonial property regime, found in a number of other countries around the world. This model prescribes rules which apply from the date of the marriage and which affect the disposition and distribution of property, often both during the marriage and upon divorce. Default property regimes are generally accompanied by other sets of rules which apply to the wider financial consequences of divorce, such as spousal maintenance, pensions, and the family home. This package of rules provides greater certainty in the likely outcome, thereby reducing the role of judicial discretion. Countries which operate default regimes also provide for couples to draw up their own nuptial agreements if they do not wish to be governed by the default regime. There is a range of matrimonial property regimes in operation and the socio-economic context in which they operate clearly impacts the outcomes for divorcing couples. Should England and Wales decide to adopt a default regime, such a regime could be developed to take into account the specific context in which it would operate; it would not be simply a case of transplanting an existing regime from elsewhere.

Other areas of reform

In addition to the four potential models, we looked again at our earlier Matrimonial Property, Needs and Agreements report from 2014 and the question of legislating for binding nuptial agreements – which we call Qualifying Nuptial Agreements. Binding nuptial agreements could be introduced alongside any of the four models of reform, except a simple codification of the current law.[4] Our 2014 recommendations provide that a nuptial agreement cannot prevent the court making an order to meet a party’s needs. However, we are concerned that, in the context of nuptial agreements, “needs” may now be being interpreted in a more restrictive way than we envisaged in 2014. If “needs” is to remain central to any reformed law, a definition of needs in this context may be required.

We also considered the question of spousal maintenance and whether there is scope to incorporate maximum term limits on such orders. We did not reach any conclusions on this but have noted within our report the limited number of term maintenance orders being made in practice (or, as Fair Shares indicates, informally agreed). We also note that lifetime orders are rare, in any event, and the potential unfairness for vulnerable spouses and children dependent upon spousal maintenance.

We also consider provision for children aged 18 and older. We were told that the current law is unsatisfactory, requiring applications from the children themselves against their parents, and that the current law fails to recognise the increase in the length of dependence for “adult children” in the modern world.

Pensions were highlighted in our terms of reference, and it is clear from Fair Shares that many people have little or no awareness of pensions.[5] Pension orders are infrequently used, partly because they require a court order, which the majority of couples do not obtain. The prevalence of offsetting (confirmed by the work of the Pension Advisory Group)[6] can result in long-term unfairness, particularly towards women. Law reform could consider whether pension sharing should become the default position or, if s25 is retained, whether pensions could be one of the explicit factors for consideration by the court. Another question for law reform is whether, if a default statutory position were to be adopted, equal sharing of pensions should be the starting point.

Finally, we looked at the operation of “conduct” in financial remedies law. Our engagement with stakeholders was dominated by the current debate about the extent to which domestic abuse should be treated as conduct, and how it should impact on financial remedy outcomes. Resolution’s report on domestic abuse in financial remedies cases,[7] and the Fair Shares work on cases featuring domestic abuse,[8] were both informative and helpful, and we have considered recent case law dealing with this issue. There was no clear consensus from stakeholders on this issue, but our scoping report concludes that it would be beneficial for the law to clarify what conduct would be applicable and the impact that must be demonstrated for it to be considered.

Conclusion

We are clear that the existing law is in need of reform. We have provided the government with potential models of reform and highlighted the advantages and disadvantages of each. We have also commented on specific areas of the law, which could be considered as part of any model of reform. We now await the government’s response.

The review was instigated by the government, and our Terms of Reference were agreed, in April 2023. Since then, of course, we have had an election, and it is now for the current government to take the next steps on the path to any reform of financial remedies. Under the Protocol agreed between the Law Commission and the Lord Chancellor, the Minister for the relevant Department (the Ministry of Justice) will provide an interim response to us as soon as possible, and in any event within six months from our scoping report. A full response must follow within 12 months of the report.

If the government accepts our conclusion that there is a need for reform, we would be well placed to carry out a law reform project, once the government has decided which model such reform should adopt. A law reform project would then include a public consultation on provisional proposals before a final report with recommendations for reform, possibly accompanied by a draft Bill.

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[1]                E Hitchings, C Bryson, G Douglas, S Purdon and J Birchall, Fair Shares? Sorting out money and property on divorce (2023)

[2]                E Hitchings and C Bryson, Dividing property and finances on divorce: what happens in cases involving domestic abuse (2024)

[3]                See the discussion in our scoping report at paras 1.13 and 1.14.

[4] Codification on its own could go no further than reflecting the current position in the case law, under which nuptial agreements are not binding, even though they should be upheld if fair and freely entered into.

[5]                E Hitchings, C Bryson, G Douglas, S Purdon and J Birchall, Fair Shares? Sorting out money and property on divorce (2023), pp 77, 78, 82 and 195.

[6]                Pension Advisory Group, A Guide to the Treatment of Pensions on Divorce (Second Edition) (2024). P 41 (para 7.1).

[7]                Resolution, Domestic abuse in financial proceedings (October 2024).

[8]                E Hitchings and C Bryson, Dividing property and finances on divorce: what happens in cases involving domestic abuse (2024).