The Law Commission: Reform on Financial Remedies on Divorce

Going through a divorce or dissolution of a civil partnership is often a very difficult and stressful time for a couple. It is therefore really important that the law on financial remedies is easily understandable and sufficiently predictable to avoid unnecessary disputes and costs arising between the parties.

On 18 December 2024, The Law Commission published a scoping report on whether the law governing financial remedies upon divorce and dissolution in England and Wales requires reform. The statute that governs this area is more than 50 years old, and the report concluded that the current law “does not provide a cohesive framework in which parties to a divorce or dissolution can expect fair and sufficiently certain outcomes” and that reform is therefore necessary.

The report proposes to the Government four potential models for reform to enhance fairness, clarity, and certainty for separating couples going through financial proceedings. The Government now holds the responsibility for determining the direction and shape of reform to come.

The Current Position

The law governing financial remedies on divorce and dissolution is contained in the Matrimonial Causes Act 1973, which is mirrored in the Civil Partnership Act 2004 for dissolution of civil partnerships. Under the current legislation, the Court is granted the power to make a number of financial orders on divorce or dissolution. The current law grants the Judge hearing the case a wide discretion when deciding whether to make financial remedy orders.

A series of key cases have shaped how the Court uses this discretion. In practice, where the available assets are insufficient to cover the couple’s individual financial needs, the Court will try to ensure the needs of the divorcing couple are met when dividing the marital pot. In cases where the available assets are surplus to the couple’s individual needs, the Court will default to an equal sharing unless there is a reason to depart from equality. Case law has also specified that non-matrimonial property will not generally be shared once the couple’s individual needs have been met. Despite these developments, the statute has remained largely unchanged since 1973 and therefore no longer accurately reflects how the Court reaches decisions in individual cases.

Key findings from the report:

• Outdated Legislation: The report found that the Matrimonial Causes Act 1973 does not reflect the significant developments arising out of judicial decisions and fails to provide a cohesive framework for fair and predictable outcomes. This means an individual going through a divorce will not be able to understand how their case will be decided simply by reading the statute.
• Excessive Judicial Discretion: A discretionary approach to financial remedies may seem desirable due to its flexibility. However, the report found that the broad discretion granted to the Court results in unpredictable outcomes, making it challenging for couples to anticipate the division of assets and financial responsibilities post-divorce. This degree of discretion was found to “promote disputes”, rather than facilitate amicable settlements. This results in protracted proceedings, naturally leading to higher legal and court fees for both parties.

Proposed Models for Reform

The report does not make recommendations for reform of the law. It instead puts forward four different models for reform for the Government to consider. These models range from the codification of existing case law to the introduction of a fixed model of distribution of assets to be followed in all cases. Once a method of reform has been chosen, the Law Commission will assist with the adoption of this approach.

• Codification: This approach would involve bringing existing case law principles into statute to provide clearer legal guidelines, rather than the law being contained in different Court decisions. The established principles of fairness, needs, and sharing would be written into statute to reflect the common law position.
• “Codification-Plus”: Under this model, existing case law would be inserted into the statute as above, but with additional reforms to address identified issues. The particular areas identified in the report include nuptial agreements; spousal maintenance; limitation periods for making financial remedy claims; and financial provision for children aged 18 and over. Further details on these potential areas of reform can be found within the report.
• Guided Discretion: Under a guided discretion model, legislation would be put in place to prescribe when judicial discretion can be exercised. This model is intended to provide some certainty to couples who are trying to come to their own financial arrangements “in the shadow of the law”. If the law prescribes when discretion can be exercised, it should be easier to predict when a financial arrangement will be approved by the Court.
• Default Regime: A default regime would implement a system with predetermined rules for asset division and financial arrangements on divorce or dissolution. This would greatly reduce the need for judicial intervention and would promote a high level of consistency and certainty on the financial outcome of divorce or dissolution. However, this approach is inflexible and risks overlooking the intricacies of individual cases.

Looking forward

The Government is required to provide an interim response to The Commission’s report within six months of publication and a full response within a year. The method chosen by the Government will dictate how reform in this area will take shape over the coming years. Our Family Team at Leathes Prior will keep a close eye on these developments and await the Government’s decision on how reform of this vital area of law will look.

For further details, read the full report here.

If you are affected by the issues raised in this article or have any questions, the team will be happy to have a no-obligation consultation to discuss your situation. Please do get in touch with the Leathes Prior Family Team on 01603 610911, email us at info@leathesprior.co.uk, or get started via our online tool here.