Insights from the Law Commission’s financial remedies scoping report. A new era for family lawyers?

Insights from the Law Commission’s financial remedies scoping report. A new era for family lawyers?

The Law Commission's recent scoping report on financial remedies marks a significant milestone in the ongoing effort to modernise family law in England and Wales. While the report does not make specific recommendations for reform, it highlights the complexities and challenges associated with financial settlements following divorce or the dissolution of a civil partnership. The current laws are outdated having remained largely unchanged since the Matrimonial Causes Act 1973 (MCA), so the Law Commission's recommendations are both timely and necessary.    

Currently, the court has broad discretion to decide capital and income claims on divorce, aiming for a fair outcome based on factors such as the length of the marriage, the needs of each party, and their contributions. While judicial discretion has many benefits, it can lead to inconsistencies and uncertainties, making it difficult to predict outcomes. 

Key recommendations 

The Law Commission has set out possible models for reform, ranging from codification to a default regime. “Codification” of existing law, and the principles of fairness, needs, and compensation would involve minimal change to the MCA with the courts retaining wide discretion. However, this could still lead to inconsistent outcomes. 

Another idea is "codification-plus," which would introduce reforms to address unsettled areas, such as making nuptial agreements binding, while still allowing for judicial discretion. 

The third option is "guided discretion," which would enshrine clear principles in law to guide judicial decisions, using formulae as starting points to achieve more consistent outcomes. 

Lastly, the report considers a "default regime," creating a matrimonial property regime at the point of marriage, with rules for dividing property on divorce, like those in other European and Commonwealth jurisdictions, thereby limiting judicial discretion.

Key debates

The report also addresses various uncertain areas such as the extent to which costs associated with children over 18 should feature more heavily in maintenance claims. Children over 18 often remain financially dependent on their parents but (unless in exceptional circumstances) that cost is not considered when determining maintenance claims, sometimes leading to unsatisfactory outcomes.

Controversially, the potential restriction of spousal maintenance claims is also raised. This could encourage financial independence, but there are conflicting views on whether there should be prescribed statutory terms and formulae, or whether judicial discretion should be maintained. 

Lastly the report raises the thorny issue of the extent to which someone's conduct should impact the financial outcome of their case. Currently, the court can consider conduct if it would be inequitable to disregard it, typically only relevant in extreme cases where the conduct has a direct link to the finances, such as an attempted murder leaving a spouse unable to work. The issue is sensitive, with contrasting views on whether domestic abuse should have greater recognition.

Complexities remain

Alongside these debated issues, wider complex areas remain where further reforms will be needed to address the evolving nature of family dynamics. The potential for binding nuptial agreements and clearer guidelines on the treatment of non-matrimonial property, for instance, are areas that warrant further exploration. 

And what about pensions? Pensions are often the largest asset after the family home. They remain misunderstood, complex, and opaque. We need to break down barriers so that spouses, especially women, understand how valuable these assets are and how they can be fairly divided. Over time, the concept of offsetting capital against pension has evolved – this has resulted in women facing financial hardship in retirement because they have opted to take more capital, usually to re-house themselves and any children. Under the MCA, the court can make orders directly in relation to pensions, the most common of which is a pension sharing order. The introduction of mandatory pension sharing orders to equalise either capital values or retirement income, and a move away from offsetting except in exceptional circumstances, could help.

Why is this important? 

Divorce and the ending of civil partnerships are significant life events with profound emotional and financial impacts. Ensuring fair and equitable financial remedies is crucial for helping parties rebuild their lives post-separation. The current laws governing financial remedies are outdated and inconsistent, necessitating reform to provide clearer guidelines and principles. Robust protections for vulnerable parties, including those experiencing domestic abuse, are essential for safeguarding their interests. Societal and economic changes, such as increased pension wealth and evolving family structures, necessitate updates to the laws to reflect current realities and ensure fair treatment of all parties. Establishing clearer guidelines should help to ensure more predictable and equitable outcomes. 

It’s likely that the end result will be a half-way house between discretion and certainty. Implementation of any changes will be many years away. However, whatever final form these changes take, they will almost certainly be better than the current position. ■

By Victoria Batstone,

Senior Associate at Stevens & Bolton LLP