New divorce report: fair shares and non-marital assets

Bristol University and the Nuffield Foundation have recently released their report, Fair shares? Sorting out money and property on divorce - Nuffield Foundation, which seeks to contribute to the debate on how divorcing couples in England and Wales negotiate financial arrangements, both inside and outside the legal system. The report also discusses whether a reform of the 50-year-old law is needed.

As well as exploring the processes leading to financial orders, for those who used and did not use the legal system, the report delves into whether the parties viewed the final outcome as fair and how they and their families coped with the effects of divorce.

The data collected will be used to debate whether reform is needed to better achieve fairness and guide the legal profession and other advice providers (or even the individuals themselves) to make the process clearer and more transparent. The Law Commission is expected to prepare a paper later this year to look at reform options.

The findings

The report finds that ‘tens of thousands of couples in England and Wales get divorced every year. Figures show that in 2021, 113,505 divorces were granted – up nearly 10% from the previous year when there were 103,592 divorces.’

Interestingly, and surprisingly, the report finds that despite approximately 42% of marriages ending in divorce, ‘only two in five divorcees use a lawyer’ and ‘just one-third of divorcing couples finalise their finances through a court order, and only 10% actually go to court. Avoiding a potentially adversarial system might seem like a good thing, but with the majority of cases bypassing the legal system (which is designed to help achieve fairness), it means ex-wives are often left worse off. One reason is that pension sharing is included in just 10% of divorces, adversely affecting women who generally have smaller pension pots than men. Only two in five divorcees used a lawyer for information, advice or support, often due to fears of the cost. Worryingly, more than one in 10 sought no advice or information to help them with their divorce.’

Suggestions made in the report for reform include:

• making financial arrangements that properly recognise and value non-monetary contributions to a marriage and family;
• promoting fairness by taking into account vulnerability and inequity between separating parties, most often the woman; and
• ensuring both parties are fully informed about the assets involved and the decisions made about their division.

While we await the likely ongoing discussions regarding the report and the lead up to the Law Commission’s paper later this year, one point that is sure to be discussed is the boundary between what should be deemed as marital and non-marital assets.

The classification of assets

As most will know, the starting point is that assets accrued during a marriage are divided equally, and the guiding principles applied are ‘sharing’ and ‘needs’.

Where an equal division of all assets accrued during the marriage adequately provides for the capital and income needs of each party and any children, then this is the appropriate financial outcome. This is a sharing-type case.

Where the parties’ resources exceed their needs, applying the sharing principle generally leads to an equal division of the assets that the parties have accrued during the marriage.

The sharing principle does not apply to property that is inherited or introduced by one party during the marriage. The exception is where such property has become part of the matrimonial assets, for example, by being ‘mingled’ – put into joint names or converted into a different type of asset enjoyed by the family.

In needs cases, where the needs of the parties and any children cannot be met by equal division of matrimonial assets, an unequal division of resources may be appropriate. In these cases, needs are likely to dictate how capital and income are divided. Inherited assets, or assets introduced by one party during the marriage, may count for little.

To determine the proportion of an asset which is (or has become) marital, the court could take either a ‘broad-brush approach’ or a more mathematic formulaic approach, depending on the case specifics (and the likely cost of such an approach, usually requiring expert reporting, against the value of the asset in question). It does not follow that if it is found that a portion of an asset is indeed marital in nature, that it is to be shared equally.

Because of this, the classification of assets as being non-marital in nature is often a contested issue and perhaps is not just an area for debate in the coming months when considering legal reform on divorce but also an obvious reason for those with assets that they wish to protect from claims on divorce, to take early advice from family law experts as to the use of pre- and post-nuptial agreements, to clearly define what is and more importantly what is not marital property.