Working it out: divorce settlements

The Law Commission is reviewing the way the courts approach divorce settlements. At present the English courts have little guidance and our judges use their vast discretionary powers to assist divorcing couples, focusing mainly on their assets and ‘needs’, to work out future financial support.

Many believe the court’s discretion gives rise to ‘uncertain and inconsistent’ law and a straightforward mathematical formula to divide a couple’s assets based on their income and the length of marriage may work.

Equal split

In Scotland, the general rule is that the net value of the matrimonial property is identified, valued and then divided equally, unless there are compelling reasons to justify a fair but unequal split. Further, one cannot make a claim for financial relief following the grant of decree of divorce.

This may seem straightforward and one may ask why this approach can’t be adopted. However, no two cases presents the same facts, so how can such an approach achieve fairness?

In Canada, judges use a similar formulaic approach, considering the length of the relationship and the couples’ incomes. Judges will multiply the disparity in incomes of childless married couples by 1.5 to two per cent for each year of cohabitation, up to a maximum of 25 years.

So, for example, if this formula were applied in England and there was an income gap of £50,000 (with the husband’s income being the greater), and the couple had lived together for ten years, then the husband can expect to pay his wife between £7,500 and £10,000 a year. The length of time the husband would be required to pay financial support would be between six months and a year, for each year they lived together, so in this example, five and ten years.

On the face of it, the use of mathematical formulas would provide certainty to couples. They would know from the outset how much they can expect to receive should their marriage fail.

But is this really a healthy foundation for marriage? This may lead to couples ‘sticking it out’ until they are certain they can move on and be financially comfortable. Are such formulas simply used to assist the judiciary to manage caseloads, rather than to offer ease and transparency to all? Does this result in unfairness given no two cases are the same?

Currently the courts consider all the circumstances of a case. For instance, factors such as the length of the relationship, the couples’ respective ages, whether there are children, and if so how old and what financial support is required, the couples’ income and earning capacity, the assets of the marriage, standard of living and the needs of all concerned will be taken into account.

If a wife is now living with someone else, for instance, and it is considered she is in a settled relationship, the court can assess what her new partner is, or ought to be, contributing to the relationship. Our judges base their decisions and indications on certain principles set by preceding cases and they will look at all of the circumstances. While there is no present set formula, this wide discretionary approach allows for flexibility, which is necessary and is very often invaluable in the majority of cases.

There will remain claims, however, that need clarity, especially as to the definition of ‘needs’.

Another recommendation is to omit family homes from the divorce settlement when they have been inherited or acquired before marriage. In some cases, this may be reasonable, and a judge will use his/her discretion where there are ample assets in a case to satisfy the needs of either or both couples. They will seek to set inherited assets aside wherever possible.

However, consider the case where a husband and wife have been married for 20 years and they have lived and worked on a farm (which had been inherited by the husband before marriage). If the farmhouse and farmland were excluded from the marital pot when considering a financial settlement on divorce then this would be grossly unfair to the wife and may leave her with nothing if a strict and rigid formula was used.

Mistaken belief

Although, in theory, it can be appreciated that a formulaic approach would be attractive, in practice it is difficult to see how this would really work and achieve a fair result in the majority of cases.

Perhaps the solution is to focus on encouraging parties to work together and reach a settlement out of court?

Many mistakenly believe the court process is costly and confusing and couples try to avoid court at all cost. Going to court does not have to be costly, though. It does not have to be acrimonious either.

In fact, the court can assist by placing a strict timetable in place that both couples have to obey. Such timetable can guide couples to a swift conclusion at reasonable cost, provided they are both focused on settling matters swiftly and amicably.

Couples can settle matters at any time throughout the court process. They can take control and agree a settlement that works for them. If this is not possible then the court will ultimately decide.

In some cases, the earlier an application to the court is made the better, for all concerned. Couples who have experienced the breakdown of their marriage do not necessarily have a positive mindset to deal with financial matters, in a timely fashion, or otherwise, and time means money.

Months can very often pass by with nothing really happening. This is not only frustrating for the person who wants progress but also costly, in many ways. For instance, legal fees are incurred when it is necessary for lawyers to chase progress and assets may be increasing in the interim. So, the quicker matters are dealt with the better. Delay can result in duplication of work leading to increased costs. So a court timetable can focus minds.

The breakdown of a marriage very often gives rise to sensitive issues and at first couples may not feel able to communicate with each other. There is real merit, however, in putting differences aside and working together to agree a swift and amicable settlement, one that is fair and reasonable to them.

The collaborative process can assist with this and allows couples, with the support of their solicitors, to take responsibility and control the outcome. The process guarantees confidentiality and can minimise the emotional as well as monetary cost of divorce.

It can offer couples comfort and the security that matters will not go to court. Working together can help couples move on with their lives more easily and may be extremely beneficial where children are concerned. Looking to the future, a collaborative settlement is a good foundation to build upon a relationship as parents.

Prevention is certainly better than cure, which makes pre-marital agreements a viable option for many couples going forward. As we know, divorce is on the increase in Britain. Couples in love will still marry irrespective, as they have a real desire to commit to each other. However, they should strongly consider protecting themselves as far as possible, from the outset, in the unfortunate event that their marriage does irretrievably break down.

At present, couples can enter into a pre-marital agreement before marriage and provide therein a summary of their assets and how their assets are to be divided in the event of a breakdown of their marriage.

While it is still the case that the courts will ultimately decide the financial award to be made under the Matrimonial Causes Act 1973, as pre-marital agreements are not yet binding, judges will now certainly consider and give weight to them.

The case of Radmacher changed the position in this regard fundamentally. It is therefore strongly advisable that couples record their intentions in this form. To ensure more weight is given to agreements of this nature it is important that the agreements are prepared well in advance of the marriage, both couples obtain legal advice and provide full financial disclosure.

Top tips

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Lauren Greenhalgh is a solicitor in the family law team at Howes Percival Solicitorswww.howespercival.com