Financial Remedies: The Law Commission’s Scoping Project
Published: 21/11/2023 07:00
On 4 April 2023, the Law Commission announced that it would be undertaking a project to review the current law governing financial remedies on divorce or dissolution of civil partnership.1 The purpose of the project is to determine whether there are problems with the current law that require reform, and what the options for reform might look like. Since that announcement, we have been laying the groundwork for our scoping report, which we expect to publish in September 2024.
This article sets out an explanation of our scoping exercise and the work we will be carrying out. It also highlights, in broad terms, a few issues that have been raised with us to date. At this early stage, we cannot provide any indication of our likely conclusions, but hope to provide an update when we publish our report next year.
What is a scoping exercise?
The financial remedies project is a scoping exercise – it will not result in a consultation paper, nor in the publication of recommendations for reform. Instead, the Law Commission will publish a scoping report: a standalone publication focused on exploring the issue(s) at hand to assess whether an area of law may need reform, and the questions that any future project of reform will need to address. We have carried out scoping projects before, including the scoping paper on weddings law, ‘Getting Married’ which was published in 2015;2 we engaged in a scoping project before public consultation because the law of marriage raised complex legal, social and religious issues. Our scoping work enabled us to identify the key problems and concerns and analyse the legal issues that would arise in devising suitable solutions. We think that a similar context applies here.
In the case of the financial remedies project, our scoping report will evaluate the law on financial remedies in England and Wales, and will identify:
- issues with the law and whether there is a case for reform;
- possible models on which any future reform could be based upon, or draw inspiration from;
- the necessary parameters for further legal and policy work relating to financial remedies law;
- questions that should be considered during any future consultation phase; and
- policy choices that would need to be made by government prior to devising a new scheme for financial relief.3
As such, we are not making recommendations for reform of the law at this stage. The contents of the scoping paper may best be viewed as a toolkit for government to use when considering future law reform. The scoping report will enable government to decide whether the law governing financial remedies is in need of reform and, if so, what that reform should seek to achieve including, for example, whether the law should adopt a different model to that provided by s 25 Matrimonial Causes Act 1973. The scoping report could, therefore, lay the foundations for future reform, whether any further work is conducted by the Law Commission or by government.
So, in one sense this scoping exercise is narrower than a full project. In another sense, however, it is very broad indeed. As part of our analysis of financial remedies law, our scoping exercise considers whether the conclusions we reached about three significant areas covered by the Commission’s 2014 Report on Matrimonial Property, Needs and Agreements (2014 Report)4 (financial needs, matrimonial and non-matrimonial property, and nuptial agreements) need to be reviewed beyond the recommendations we made in our 2014 Report.5 We will not be repeating the substantive work we carried out in considering those issues in 2014. However, the conclusions of the 2014 Report were made within a context of limited, targeted reform that did not seek to disturb the overall statutory framework.6 The point of the current work is to approach that framework with an open mind as to whether it needs to be replaced, and what that replacement might look like. It is therefore possible that any possible models for reform which we identify might have a knock-on effect on the conclusions to the 2014 Report.
Our reference from government
The Law Commission takes on work in two ways – some projects are suggested to us by individuals or organisations responding to consultations on our Programmes of Law Reform, in which we invite suggestions for reform. Others, such as the financial remedies project, are directly referred to us by government, when it wishes us to consider reform of a particular area of law.
Our Terms of Reference (which have already been considered in detail in this publication7) are available on our website, and set out the scope of the work that we have agreed with government that we will carry out. The Terms of Reference identify the matters on which we will provide government with an independent view.
Engaging with stakeholders
The Law Commission’s work would not be possible without consulting stakeholders, those with an interest in and affected by the area of law under consideration. Engaging with stakeholders from all backgrounds is critical, particularly because – as we note below – reported financial remedies cases do not reflect the reality experienced by most divorcing couples.
The Terms of Reference provide that we should ‘consult with key stakeholders’, including ‘specialist lawyers and judges (including the senior family law judiciary) and academics, civil society and legal representative organisations, and other Government departments’.
The Terms of Reference do not provide for a formal public consultation, because of the short timeframe for the project and its scoping nature. We understand, however, that there is considerable public interest in the area.8 We want to ensure that we can, in so far as is possible, take on board the views of members of the public, and listen to their experiences of the law. Not least because this may assist us in understanding what the ‘typical’ case is, and what problems – if any – arise with the law as applied to ‘typical’ cases.
To this end, we will be organising an online event to engage with members of the public (in addition to those who have already contacted us directly). We will publish more information about this event in due course. In the meantime, our project inbox,9 is open to any and all submissions that stakeholders – members of the public or otherwise – wish to make.
Evidence available to us
Our Terms of Reference provide that we will ‘consider the current legal and socio-economic research on the operation of the existing law’. This will include the Nuffield Foundation’s ‘Fair shares? Sorting out money and property on divorce’ project, due to be completed in November 2023, which investigates how divorcing couples negotiate their financial arrangements.10 The Nuffield Foundation’s work will provide valuable insight into the operation of the current law in practice, providing evidence of how it operates in the average case.
Our Terms of Reference note that the project will consider ‘the treatment of pensions on the division of parties’ assets on divorce’. To address this complex aspect of financial remedies law, we are engaging with the Pension Advisory Group and, in particular, anticipate the publication of its second report in January 2024.
We are grateful to have available to us respected research that has already been conducted.
A further key source of evidence available to us is the experience of what happens in other jurisdictions such as in Scotland, other common law jurisdictions (such as Australia, New Zealand, Canada and the United States), as well as civil law jurisdictions which operate choice of matrimonial property regimes.11 This will involve consideration of how those laws operate in practice, being mindful of the different socio-economic contexts in which they operate.
Issues raised with us
The focus on ‘ultra-high net worth’ reported cases
Since the project was announced, we have heard from a range of stakeholders, including legal practitioners, members of the public, academics and others. These discussions have highlighted the disconnect between reported cases – typically falling into the high or ultra-high net worth category – and those low-to-average money cases which are not often reported (or even litigated). Particularly prominent in the former category of cases is the presence of high legal costs. Judicial criticism has been levelled at ‘apocalyptic’ levels of costs,12 consisting of a substantial proportion of the assets.13 The lack of many reported cases involving more normal levels of assets means it is not immediately clear if disproportionate spending on costs is a problem confined to the extremely wealthy, although a rare recent reported example of such a case14 suggests that the issue may be universal.
Costs aside, reported ultra-high net worth cases are unrepresentative of the way the law operates. We want to ascertain whether reform is required, ensuring we understand how the law works in typical cases where there may not be enough to go around and the parties’ basic needs are not met. In an ultra-high net worth case, once needs are met principles such as ‘sharing’ and ‘compensation’ familiar from case-law will come into play. Couples with substantial assets will be more likely than those of modest means to enter into nuptial agreements, and to be able to afford to litigate over the effect of those agreements.
A focus on ultra-high net worth couples in the case-law has given rise to another point raised with us by stakeholders – the extent to which ‘needs’ have been broadly interpreted in the light of the parties’ standard of living, with ‘needs’ for housing and other items set at an extremely high level.
Codification of case-law
Financial remedies law has developed through case-law. This means that principles have been established in those judgments, such as sharing and compensation, which are not mentioned in the Matrimonial Causes Act 1973. One suggestion that has been made by stakeholders is that the statute should, as a minimum, set out the law as it now stands.
Stakeholders have also made reference to the Nuptial Agreements Bill included with our 2014 Report, and there have been suggestions from those in favour of reform that the Bill could be introduced in advance of our scoping report. The Bill introduced qualifying nuptial agreements, which would, subject to certain procedural safeguards, be enforceable, but could not be used to avoid meeting the financial needs of either party or any children. As noted above, our Terms of Reference provide for us to consider whether our recommendations in the 2014 Report need to be reviewed. In particular, any reform that moved away from the current role of financial needs would necessarily require our recommendations on qualifying nuptial agreements to be amended to integrate with a new law.
We hope that this article provides some insight into the nature and extent of the work we will be undertaking, and look forward to engaging with members of the legal profession and other stakeholders over the next year.