Judiciary Guidance: Financial Needs in Divorce - Provisions & Checklist Factors, Exercises of Law

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Family Justice Council Guidance on “Financial Needs” on Divorce June 2016 2 Contents Foreword by the President, Sir James Munby 3-4 Membership of the Financial Needs Working Group 5 Introduction to this guidance 6-9 The statute 10-12 The overall objective 13-14 The justification of meeting needs through financial remedies 15-16 What are needs, and how are they measured? 17-27 An overview 28-29 The duration of provision for needs and the transition to independence 30-45 Annex 1: Table of MCA 1973/CPA 2004 provisions 46 Annex 2: Annotated worked examples 47-60 Annex 3: Pensions 61-62 Annex 4: Practical examples of different types of need 63-64 5 Guidance for the judiciary on financial needs on divorce Family Justice Council Financial Needs Working Group Members • Mrs Justice Roberts Chair • Anne Barlow University of Exeter • Jane Craig Penningtons Manches • Nigel Dyer QC 1 Hare Court • His Honour Judge Edward Hess Western Circuit • Julian Lipson Withers • Philip Marshall QC 1 King’s Bench Walk • Joanna Miles University of Cambridge • His Honour Judge Clive Million South Eastern Circuit • Simon Pigott Levison Meltzer Pigott • Peter Watson-Lee Williams Thompson • Sarah Woodsford Burges Salmon Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. Introduction to this guidance Law Commission Concerns  Unacceptable regional disparities  No statutory definition of needs  More litigants in person without lawyers to manage their expectations 1. This guidance is addressed primarily to courts and legal advisers and is intended: About guidance (i) to clarify the meaning of “financial needs” on divorce, with particular reference to the most commonly encountered cases in which the available assets do not exceed the parties’ needs (i.e. “needs-based” cases); (ii) to provide a clear statement of the objective that financial orders made to meet needs should (if possible) achieve, and to encourage consistency of approach by courts across England and Wales. Although, for convenience, the language of marriage/divorce is used throughout, everything discussed in this guidance applies to civil partnerships in the same way.1 2. As recommended by the Law Commission (Law Com No 343) Matrimonial Property, Needs and Agreements [www.lawcom.gov.uk/project/matrimonial-property- needs-and-agreements/], this guidance covers the following areas: (1) What are needs, and at what level should they be met? (2) The duration of provision for needs and the transition to independence. In the course of addressing those issues, it also addresses the overall objective for these cases, in light of which the assessment of needs and how they may best be met is undertaken. 3. This guidance does not address the interpretation and application of the principles of sharing and compensation. 1 A table of relevant corresponding provisions in the Matrimonial Causes Act 1973 (“MCA 1973”) and the Civil  Partnership Act 2004 (“CPA 2004”) is attached at Annex 1.  6   Guidance for the judiciary on financial needs on divorce …………………………………………………………………………………………………………….   Law Commission concerns 4. As the Law Commission observed, in an area where there are no rules or strict entitlements, there is a limit to what such guidance can achieve.2 However, the Family Justice Council agrees that such guidance would be helpful, bearing in mind, in particular, the following concerns identified by the Law Commission: (i) unacceptable regional disparities and geographical inconsistencies in the type of solutions that tend to be negotiated or ordered,3 including in relation to: (a) the amount of maintenance negotiated or likely to be ordered in different courts, and (b) the duration of any order (i.e. whether a ‘joint lives’ or ‘term order’ is made).4 (ii) the lack of a definition of “financial needs” in the law, in combination with regional variations in the way that lawyers and judges conceive of them, means that it is very difficult for members of the public to understand their responsibilities and to agree to meet them following divorce; (iii) the removal of legal aid from many family cases including those relating to financial provision means that more litigants in person are either approaching the courts without the help of lawyers to manage their expectations or to assist them in reaching a settlement, or are seeking to negotiate entirely outside the court system “in the shadow of the law”.5 5. This guidance cannot and is not intended to change the law. Its purpose is to disseminate information about the ways in which the courts’ discretion is currently exercised, and to encourage the consistent use of that discretion in a particular way and (if possible) with a particular objective.6 Accordingly, when and if necessary, the Family Justice Council will review and amend this guidance in light of case law developments. 2 Law Com No 343, Matrimonial Property, Needs and Agreements at [3.93]   3  Family  Law  Week  on  27  July  2015  Maintenance  ‘North  /  South  divide’  encourages  rush  to  London  [www.familylawweek.co.uk/site.aspx?i=ed145972] which comments upon the perceived opposition in some  parts of the country to the idea of providing applicants with indefinite spousal maintenance.  4 Ibid at [1.19] and [2.45] to [2.53] – anecdotally, ‘term orders’ are more  likely to be made by courts  in the  North, whereas courts in the South (and especially in London) are more likely to make ‘joint lives’ orders.  5 Ibid at [1.20] to [1.23]  6 Ibid at [3.86]  7   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. The statute 9. When deciding what (if any) financial orders to make under sections 23, 24, 24A, 24B and 24E, courts must have regard under section 25 of MCA 1973 to “all the circumstances of the case” (the “section 25 factors”). The first consideration is given to the welfare whilst a minor of any child of the family who has not attained the age of eighteen. When assessing “needs” courts will have regard, in particular, to the matters set out in section 25(2): The statute: MCA 1973 (a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire; (b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future; (c) the standard of living enjoyed by the family before the breakdown of the marriage; (d) the age of each party to the marriage and the duration of the marriage; (e) any physical or mental disability of either of the parties to the marriage; (f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contributions by looking after the home or caring for the family; (g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it; (h) …, the value to each of the parties to the marriage of any benefit which, by reason of the dissolution … of the marriage, that party will lose the chance of acquiring. 10. Each of these checklist factors might, in an appropriate case, have a bearing on the parties’ needs – their nature, their extent, their source – and the resources 10   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. that might be available to meet them.9 This guidance refers to some of the checklist factors in the discussion below. Section 25 (‘the clean break’) must be read in conjunction with the section 25 factors. We address section 25A in the section on the duration of periodical payment orders in paragraph 48 of this Guide. 11. Lord Nicholls in White v White commented as follows on the checklist factors: Leading cases: White v White Miller, McFarlane Clearly, and this is well recognised, there is some overlap between the factors listed in section 25(2). In a particular case there may be other matters to be taken into account as well. But the end product of this assessment of financial needs should be seen, and treated by the court, for what it is: only one of the several factors to which the court is to have particular regard. This is so, whether the end product is labelled financial needs or reasonable requirements. In deciding what would be a fair outcome the court must also have regard to other factors such as the available resources and the parties' contributions. In following this approach the court will be doing no more than giving effect to the statutory scheme.10 12. Lord Nicholls in White was of course concerned with the problem of courts in high value cases making orders which only attended to the needs – or “reasonable requirements” – of the applicant spouse, and the decision in White set the courts in those category of cases on a different path, guided by the “yardstick of equality of division”,11 further developed by the House of Lords in Miller; McFarlane.12 In high value cases, the parties’ equal shares of the capital will commonly cover and provide for their respective needs.13 But in the type of case with which this guidance is principally concerned, equal sharing will commonly be departed from in order to meet needs, and periodical payments may be required. It is on the concept of “needs” that this guidance therefore focuses. 13. The importance of addressing needs – rather than pursuing equal sharing of assets – in lower value cases 9 E.g. Charman v Charman (no 4) [2007] EWCA Civ 503, [70].  10 [2001] 1 AC 596, 608‐9.  11 Ibid, 605.  12 [2006] UKHL 24.  13 See Charman v Charman (no 4) [2007] EWCA Civ 5043, [73].  11   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. was addressed by Baroness Hale in Miller, McFarlane14 as follows: 136. Thus were the principles of fairness and non-discrimination and the ‘yardstick of equality’ established [in White]. But the House was careful to point out (see p 605f) that the yardstick of equality did not inevitably mean equality of result. It was a standard against which the outcome of the section 25 exercise was to be checked. In any event, except in those cases where the present assets can be divided and each can live independently at roughly the same standard of living, equality of outcome is difficult both to define and to achieve. Giving half the present assets to the breadwinner achieves a very different outcome from giving half the assets to the homemaker with children. 14 [2006] UKHL 24.  12   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. The justification for meeting needs through financial remedies Needs generated by the relationship  Marriage typically creates a relationship of interdependence  Dependence is commonly created by the presence of children  Potentially long term dependence can be created by decisions for one party to discharge family obligations at the expense of the development of employment potential  It is generally right and fair that relationship generated needs should be met by the other party if resources permit 17. In Miller v Miller; McFarlane v McFarlane in relation to “financial needs”, Lord Nicholls observed as follows: 17 11. This element of fairness reflects the fact that to greater or lesser extent every relationship of marriage gives rise to a relationship of interdependence. The parties share the roles of money-earner, homemaker and child-carer. Mutual dependence begets mutual obligations of support. When the marriage ends fairness requires that the assets of the parties should be divided primarily so as to make provision for the parties’ housing and financial needs, taking into account a wide range of matters such as the parties’ ages, their future earning capacity, the family’s standard of living, and any disability of either party. Most of these needs will have been generated by the marriage, but not all of them. Needs arising from age or disability are instances of the latter. Needs generated by the relationship; why they should be met Baroness Hale observed as follows: 137. So how is the court to operate the principles of fairness, equality and non- discrimination in the less straightforward cases? …[T]here has to be some sort of rationale for the redistribution of resources from one party to another. In my view there are at least three. Any or all of them might supply such a reason, although one must be careful to avoid double counting. The cardinal feature is that each is looking at factors which are linked to the parties’ relationship, either causally or temporally, and 17 [2006] UKHL 24, [2006] 2 AC 618  15   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. not to extrinsic, unrelated factors, such as a disability arising after the marriage has ended. 138. The most common rationale [for granting financial remedies] is that the relationship has generated needs which it is right that the other party should meet. … This is a perfectly sound rationale where the needs are the consequence of the parties’ relationship, as they usually are. The most common source of need is the presence of children, whose welfare is always the first consideration, or of other dependent relatives, such as elderly parents. But another source of need is having had to look after children or other family members in the past. Many parents have seriously compromised their ability to attain self-sufficiency as a result of past family responsibilities. Even if they do their best to re-enter the employment market, it will often be at a lesser level than before, and they will hardly ever be able to make up what they have lost in pension entitlements. A further source of need may be the way in which the parties chose to run their life together. Even dual career families are difficult to manage with completely equal opportunity for both. Compromises often have to be made by one so that the other can get ahead. All couples throughout their lives together have to make choices about who will do what, sometimes forced upon them by circumstances such as redundancy or low pay, sometimes freely made in the interests of them both. The needs generated by such choices are a perfectly sound rationale for adjusting the parties’ respective resources in compensation. 18. The choices the parties made during the marriage (for example, in relation to the provision of child care and/or the loss or interruption of a career) can have a short- or long-term effect upon one party’s ability to continue in employment and/or his or her capacity to return to work and/or to become wholly or partially independent and financially self-sufficient. This, in turn, requires an assessment to be made of his or her “income and earning capacity”, including that which it would be reasonable to expect that party to take steps to acquire (s.25(2)(a). 16   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. What are needs, and how are they measured? Housing and Income  The main needs in most cases are for housing and present and future income  Future income typically includes a need for income in retirement  The court will assess the level and duration of need as a question of fact  The court will decide whether the needs can best be met by capital or income provision 19. The glossary in Law Commission (Law Com No 343) Matrimonial Property, Needs and Agreements notes that “needs” is “a very broad concept with no single definition in family law” The Law Commission definition of “needs” This is elaborated upon in Chapter 3 (Financial Needs) as follows:18 …we use the term “needs” to refer to how the law of England and Wales understands spousal support, encompassing a wide range of provision: income and capital, present and future. “Needs” includes payments made with a view to providing income, whether made on a regular basis or capitalised, but it also includes the provision of a home, including privately owned housing where that is appropriate, and provision for old age.” 20. The needs of the parties are a question of fact to be determined by the court.19 In practice, in most cases the main components of “financial needs” will be the need for housing and the need for regular income. Housing (and other capital needs) and income needs are linked and need to be considered in the round. How these needs are most appropriately met and by what form of order, whether by capital provision or (spousal) periodical payments or both, will depend on all the circumstances of the case, in particular the extent of the available capital and income, including – where appropriate – welfare benefits, tax credits and Housing and income 18 Law Com No 343, Matrimonial Property, Needs and Agreements at [3.8]  19 Annex 4 provides a table of examples from case law of different practical categories of need.  17   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. establishing what both the payer and the payee need in order to meet their projected expenditure… 79. In both cases the husbands failed to complete the relevant section of the Form E and in one case the husband refused subsequent requests for information. 25. And in TL v ML and Others (Ancillary Relief: Claim against Assets of Extended Family) Mr Nicholas Mostyn QC emphasised that on an application for maintenance pending suit: 28 iii) In every maintenance pending suit application there should be a specific maintenance pending suit budget which excludes capital or long term expenditure more aptly to be considered on a final hearing (F v F)29. That budget should be examined critically in every case to exclude forensic exaggeration (F v F). 26. Courts have consistently taken the view that the lifestyle (i.e. “standard of living”) the couple had together should be reflected, as far as possible, in the sort of level of income and housing each should have as a single person afterwards. So too it is generally accepted that it is not appropriate for the divorce to entail a sudden and dramatic disparity in the parties’ lifestyles.30 In a modest or “small money” case this may be unattainable, or financial provision (e.g. periodical payments) may only be ordered for a fixed term. By contrast, where there are sufficient financial resources available, it may be fair (and so appropriate) for the court to sanction a continuation of the ‘lifestyle choices’ made during the marriage.31 27. Thus, in White,32 in relation to “needs”, Lord Nicholls commented as follows: 36. …Financial needs are relative. Standards of living vary. In assessing financial needs, a court will have regard to a person's age, health and accustomed standard of living. The court may 28 [2005] EWHC 2860 (Fam), [2006] 1FLR 1263 at [124]  29 F v F (Ancillary Relief: Substantial Assets) [1995] 2 FLR 45  30 (Law Com No 343) Matrimonial Property, Needs and Agreements at [1.16]  31 See, for example, S v S [2008] 2 FLR 113 per Sir Mark Potter P (provision made for the wife to continue to  keep horses)  32 [2000] UKHL 54, [2001] 1 AC 596  20   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. also have regard to the available pool of resources. 28. Similarly, Baroness Hale in Miller, McFarlane remarked:33 138. … In the great majority of cases, the court is trying to ensure that each party and their children have enough to supply their needs, set at a level as close as possible to the standard of living which they enjoyed during the marriage (note that the House did not adopt a restrictive view of needs in White: see pp 608g to 609a). 29. And in G v G Charles J observed that:34 ..the lifestyle enjoyed during the marriage sets a level or benchmark that is relevant to the assessment of the level of the independent lifestyles to be enjoyed by the parties. 30. In most cases, the limited extent of the available assets restricts what can be achieved. As Lord Nicholls observed in Miller; McFarlane: 12. In most cases the available assets are insufficient to provide adequately for the needs of two homes. The court seeks to stretch modest finite resources so far as possible to meet the parties’ needs. Especially where children are involved it may be necessary to augment the available assets by having recourse to the future earnings of the money-earner, by way of an order for periodical payments. This is likely to involve meeting needs at what might be a relatively modest level. The court’s priority is likely to be to provide a home for the children and one, or possibly both, of the parents.35 31. By contrast, in cases where there are more resources (including income) available and a higher standard of living has been enjoyed, “need” is likely to be assessed more generously.36 32. In an appropriate case, some reduction is permissible in the “standard of living” to be enjoyed by the payee 33 [2006] UKHL 24.  34 [2012] EWHC 167 (Fam), [2012] 2 FLR 48 at [136(iii)(a)]  35 See also M v B [1998] 1 FCR 213 (at 220)  36 And if the available assets in fact exceed the parties’ combined needs, “need” will be subsumed within the  equal sharing principle.  21   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. in the future having regard to the overall objective to enable a transition to independence.37 33. Accordingly, and as the Law Commission observed:38 …the transition to independence, if possible, may mean that one party is not entitled to live for the rest of the parties’ joint lifetimes at the marital standard of living, unless he or she can afford to do so from his or her resources. and, in SS v NS (Spousal Maintenance), Mostyn J reasoned as follows:39 35…It is a mistake to regard the marital standard of living as a lodestar. As time passes how the parties lived in the marriage becomes increasingly irrelevant. And too much emphasis on it imperils the prospects of eventual independence. and in BD v FD, Moylan J observed as follows:40 116. Usually, due to finite resources, it will not be possible for the marital standard of living to be maintained. Additionally, it may well not be fair for the applicant spouse to have his or her needs provided for at this level either at all or for longer than a defined period (i.e. not for life) due, for example, to the length of the marriage. 118. The use of the standard of living as the benchmark emphatically does not mean that, as referred to above, in every case needs are to be met at that level either at all or for more than a defined period (of less than life)... 119. I must also not be taken to be saying that the marital standard of living is “the lodestar”, quoting from Mostyn J’s decision in SS v NS (Spousal Maintenance) [2015] 2 FLR 1124, in the sense of an unchanging guide to the assessment of needs. 37 See (e.g.) SS v NS [2014] EWHC 4183 (Fam) at [46] (see para 54 below at sub‐paras (vi)‐(viii))  38 (Law Com No 343) Matrimonial Property, Needs and Agreements at [3.96].  39 [2014] EWHC 4183 (Fam) at [35].  40 [2016] EWHC 594 (Fam) at [114]  22   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. Housing and the use of Mesher orders  If the needs of the children require one party to sacrifice an entitlement to capital in favour of the primary carer then the court will consider reimbursement to the sacrificing party through a Mesher order  This may not be appropriate if the capital sacrificed can be generated through anticipated future endeavours by the sacrificing party  The fairness of a Mesher order may also be undermined by the likely effects on the primary carer at the time the trigger events apply The use of Mesher orders 40. Given the need to be fair to both parties, it is important to stand back and consider the overall balance of the orders to be made and whether there is any need to rebalance the capital division. So, for example when considering whether to make an order transferring the principal or only asset (i.e. the former matrimonial home) into the sole name of the applicant to meet an immediate “financial need” for a home for herself and the children of the family, consideration should also be given whether to make: (i) an order for an immediate sale (with the net proceeds divided between the parties) or (ii) a “Mesher” order or some form of charge so that the respondent can retain a deferred interest in the property to be realised only when the applicant’s need for housing at that level has ceased (most usually when the children of the family have achieved their independence). 48 41. In Elliott v. Elliott, having regard to the importance of the equality of treatment identified by Lord Nicholls in White v White, the Court of Appeal emphasised per Thorpe LJ: 49 7. … the husband's reasonable entitlement to deploy capital to house himself at the end of a long marriage during which he has worked hard, mainly in the police service, and has contributed his earnings to the building of family capital….The husband has a reasonable and discernible need for his share of the family capital at the earliest time that the needs of the children permit. As soon as the wife's 48 See also: Martin v Martin [1978] Fam. 12  49 [2001] 1 FCR 477  25   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. responsibilities as the home-maker for the children reach a point of natural termination, at that point clearly the husband is entitled to his capital share. 42. In such a case, there will be instances in which the interrelationship of capital and income orders may justify the increase of an applicant's capital share to counter-balance the loss of an income claim. So, in B v B (Mesher Order)50 Munby J refused to make a “Mesher” order having regard to (i) the wife’s limited ability to raise capital before one of the “Mesher” trigger events operated and obliged her to sell her home and (ii) the likelihood the husband would generate substantial additional capital before then in any event:51 At the end of the day, it seems to me that there are two factors in particular which point strongly to the conclusion that there should not be a Mesher order. The first is that the wife's realistic prospects of being able to generate capital of her own between now and the date when one of the Mesher triggers would operate is small, whereas there is every reason to believe with a significant degree of confidence that well before (and it may very well be long before) a Mesher trigger operates, this husband will be able to generate a substantial degree of capital for himself over and above that capital which, in any event, remains with him notwithstanding the deputy district judge's order. That inequality of outcome, as it seems to me it will be if a Mesher order is made, is an outcome brought about by the fact that this wife will have to devote the best part of those years of her working life which would otherwise enable her to generate capital and earn at a higher rate in later life, to the job of bringing up Will. That is, albeit in the future, a major, a very substantial, contribution which she brings to this marriage. That is a contribution which, as it seems to me, will not fairly be recognised and reflected in the award which is made if that award is subject to a Mesher charge. The other point, as I have already mentioned, is that as it seems to me, the advantage in financial terms which will accrue to this husband were 50 [2002] EWHC 3106 (Fam), [2003] 2 FLR 285  51 See also: Tattersall v Tattersall [2014] 1 FLR 997 (in which a Mesher order was refused).  26   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. there to be a Mesher charge, would confer on him a benefit which, in comparison with his other likely resources, is comparatively modest. Whereas, on the other hand, the financial burden that will be suffered by the wife if there is a Mesher order requiring her to sell the house in which she and [the child] have lived at one of the suggested trigger points, will throw upon her a financial burden much more significant in terms of her economy than the corresponding financial advantage will have upon the husband's domestic economy. 43. So too, in a larger or “big money” case, when assessing needs – which may or may not be met by the provision of a half share of the parties’ assets52 – consideration should be given as to whether there is scope for the applicant to “downsize” to a more modest (i.e. cheaper) property in later life and/or, for example, when any children of the family have reached independence, releasing additional capital from which to meet the applicant’s (income) needs in the future. Again, every case must be considered on its own facts.53 44. Courts may find it useful to look at the guidance given at pages 26-27 of Sorting out Finances on Divorce 2015. In addition, the guidance set out in A survival guide to sorting out your finances when you get divorced includes useful information on the options and issues, which may be particularly helpful to direct to litigants in person appearing before the court.54 52 Young v Young [2013] EWHC 3637 (Fam), [2014] 2 FLR 786 per Moor J. at [179]  53 Examples of such an approach include: Robson v Robson [2011] 1 FLR 751 at [91]; N v N (Ancillary Relief) [2010] 2 FLR 1093 at [171]; B v B (Ancillary Relief) [2008] 2 FLR 1627 at [30]; J v J (Financial Orders: Wife’s Long Term Needs) [2011] 2 FLR 280; Vaughan v Vaughan [2010] 2 FLR 242; W v W (Financial Remedies) [2013] 2 FLR 359; McFarlane v McFarlane (No 2) [2009] 2 FLR 1322. 54 at pages 19‐27  27   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. The duration of provision for needs and the transition to independence Duration and the transition to independence  Most case outcomes tend eventually not towards life-long support but towards independence, but this is not appropriate in all cases  If needs are to be met through a periodical payments order then the court must consider (whether making an initial order or a variation order) whether to make a joint lives order, an extendable term order or a non-extendable term order  In deciding on the duration of any order the court will need to consider the statutory steer towards the termination of obligations at the earliest point which is just and reasonable, but termination should only occur if the payee can adjust to it without undue hardship  Termination of the obligations should not be achieved at the expense of a fair result  Termination of the obligations should be justified by reference to an evidential foundation, not crystal ball glazing or pious exhortation 46. As indicated, the question of the level at which needs should be met is (usually) inexorably linked to the question of the duration for which income needs should be met, which is in turn related to the overall objective discussed from paragraph 15 above. This is so regardless of whether the eventual outcome involves capitalised maintenance or an order for continuing periodical payments. In each instance, consideration must be given to whether ongoing periodical payments are required, and if so whether such continuing financial support should be ordered on a ‘joint lives’ basis (i.e. until further order) or only for a ‘fixed term’, with or without a ‘section 28(1A) bar’ preventing any application to extend the term; or whether in fact it is appropriate to order an immediate clean break. Duration and the transition to independence 47. In practice, most case outcomes tend eventually not towards life-long support but toward independence.57 Indeed only a small proportion of divorces result in any award of periodical payments.58 But every case must be considered on its merits; and the court must exercise its discretion at each (i.e. every) stage at 57 (Law Com No 343) Matrimonial Property, Needs and Agreements at [2.42].  58 MOJ statistics on periodical payments combine child and spousal periodical payments and so do not  give a clear count of the latter; a recent case file survey by Woodward with Sefton (Pensions on Divorce,  2014) found a very low proportion of cases with periodical payments in the courts covered by that study  30   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. which the continued duration of periodical payments falls to be considered – i.e. when making the original order, when considering applications to vary or terminate an order, including applications to capitalise an order. In undertaking that exercise, the court must of course have regard to all the circumstances of the case, including the welfare whilst a minor of any child of the family and all the “section 25 factors”. It follows that in some cases, a combination of age, the length of the marriage, and duration out of the work place may render an ambition of independence impossible.59 48. Section 25 of MCA 1973 must be read in conjunction with section 25A (“the clean break”), and, on an application to vary and/or capitalise under section 31 of MCA 1973, in conjunction with section 31(7). So far as material, section 25A of MCA 1973 provides as follows: Exercise of court’s powers in favour of party to marriage on decree of divorce or nullity of marriage The clean break: s.25(A) MCA 1973 (1) Where on or after the grant of a decree of divorce or nullity of marriage the court decides to exercise its powers under section 23(1)(a), (b) or (c), 24, 24A, 24B or 24E above in favour of a party to the marriage, it shall be the duty of the court to consider whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable. (2) Where the court decides in such a case to make a periodical payments or secured periodical payments order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those payments to be made or secured only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or 59 (Law Com No 343) Matrimonial Property, Needs and Agreements at [3.49] – the majority view expressed by  the Judges of the Family Division.  31   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. her financial dependence on the other party.60 49. Section 25A(1) and (2) of MCA 1973 embodies the ‘statutory steer to an eventual clean break’.61 50. In Miller v Miller; McFarlane v McFarlane in relation to s.25A MCA 1973, Lord Nicholls observed as follows:62 Leading cases in the House of Lords: Miller, McFarlane 38. In one respect the object of section 25A(1) is abundantly clear. The subsection is expressed in general terms. It is apt to refer as much to a periodical payments order made to provide compensation as it is to an order made to meet financial needs. But, expressly, section 25A(1) is not intended to bring about an unfair result. Under section 25A(1) the goal the court is required to have in mind is that the parties’ mutual financial obligations should end as soon as the court considers just and reasonable. 39. Section 25A(2) is focused more specifically. It is concerned with the termination of one party’s ‘financial dependence’ on the other ‘without undue hardship’. These references to financial dependence and hardship are apt when applied to a periodical payments order making provision for the payee’s financial needs. They are hardly apt when applied to a periodical payments order whose object is to furnish compensation in respect of future economic disparity arising from the division of functions adopted by the parties during their marriage. If the claimant is owed compensation, and capital assets are not available, it is difficult to see why the social desirability of a clean break should be sufficient reason for depriving the claimant of that compensation. In relation to s.25A(1), Baroness Hale observed as follows:63 [130]…This applies to the whole range of the court’s powers, not just to the power to award future periodical payments. It assumes that the 60 See also s.31(7)(a) of the MCA 1973 which obliges the court to consider ‘whether in all the  circumstances…to vary the order so that payments are required to be made only for such further period as  will in the opinion of the court be sufficient…to enable the party in whose favour the order was made to  adjust without undue hardship to termination of those payments.  61 Matthews v Matthews [2013] EWCA Civ 1874, [2014] 2 FLR 1259.  62 [2006] UKHL 24, [2006] 2 AC 618 at [38]  63 Ibid at [130]  32   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. serious expectation. Especially in judging the case of ladies in their middle years, the judicial looking into a crystal ball very rarely finds enough of substance to justify a finding that adjustment can be made without undue hardship. ch’ having regard to 25A MCA 1873, as follows:65 the court considers just and relevant to the remarriage of the payee: see s of financial 53. In C v C (Financial Relief: Short Marriage), Ward LJ summarised the ‘proper approa s. (1) The first task is to consider a clean break which pursuant to s 25A(1) requires the court to consider whether it would be appropriate to exercise its powers so that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as reasonable. (2) If there is to be no clean break, and a periodical payments order is to be made, then the court must decide pursuant to s 25 what amount is to be ordered. The duration of the marriage is a factor determination of quantum. (3) If a periodical payments order is made, whether for 5p pa or whatever, the question is whether it would be appropriate to impose a term because in the absence of such a direction the order will endure for joint lives or until the 28(1)(a). (4) The statutory test is this: is it appropriate to order periodical payments only for such a term as in the opinion of the court would be sufficient to enable the payee to adjust without undue hardship to the termination dependence on the paying party? (5) What is appropriate must of necessity depend on all the circumstances of the case including the welfare of any minor child and the s 25 checklist factors, one of which is the duration of the marriage. It is, however, not appropriate simply to say, “This is a short marriage, therefore a term must be imposed”. (6) Financial dependence being evident from the very making of an order for periodical payments, the question is whether, in the light of all the circumstances of the case, the payee can adjust – and adjust without undue hardship – to the termination of financial 65 [1997] 2 FLR 26  35   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. dependence and if so when. The question is, can she adjust, not should she adjust. In answering that question the court will pay attention not only to the duration of the marriage but to the effect the marriage and its breakdown and the need to care for any minor children has had and will continue to have on the earning capacity of the payee and the extent to which she is no longer in the position she would have been in but for the marriage, its consequences and its breakdown. It is highly material to consider any difficulties the payee may have in entering or re-entering the labour market, resuming a fractured career and ns to end dependency, is not ame exercise, this time pursuant to s 31(7)(a).66 is Murphy v Murphy which Holman J concluded:67 making up any lost ground. (7) The court cannot form its opinion that a term is appropriate without evidence to support its conclusion. Facts supported by evidence must, therefore, justify a reasonable expectation that the payee can and will become self-sufficient. Gazing into the crystal ball does not give rise to such a reasonable expectation. Hope, with or without pious exhortatio enough. (8) It is necessary for the court to form an opinion not only that the payee will adjust, but also that the payee will have adjusted within the term that is fixed. The court may be in a position of such certainty that it can impose a deferred clean break by prohibiting an extension of the term pursuant to s 28(1A). If, however, there is doubt about when self- sufficiency will be attained, it is wrong to require the payee to apply to extend the term. If there is uncertainty about the appropriate length of the term, the proper course is to impose no term but leave the payer to seek the variation and if necessary go through the s 54. As Ward LJ emphasised, it is important to bear in mind that the question is, can the applicant or (spousal) maintenance payee adjust, not should he or she adjust. A useful, recent example in 66  In G  v G  [2012]  EWHC  167  (Fam)  at  [141]‐[143],  [2012]  2  FLR  48,  Charles  J  opined  that  the  approach  adopted  in C v C (Financial Relief: Short Marriage) [1997] 2 FLR 26 must be read and applied  in  light of the  significant changes that have resulted from White, and later cases (particularly Miller and McFarlane)  67 [2014] EWHC 2263 (Fam) at [36]  36   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. [36] I do not know, nor do the parties know, what the future will bring. It may be that this wife will find another partner with whom she chooses to share her life and the maintenance will all end. It may be that she will be able later, if not sooner, to obtain well remunerated employment, carrying with it a good pension, and any dependence will end. But at the moment this lady is in a precarious position. She is very largely dependent on her husband, and it is frankly impossible for me to form the opinion that section 25A(2) requires as the Relief: Short Marriage) in relation to the ‘proper approach’ to be adopted and observed as follow lusions the court has to ductions in periodical payments on disclosure of her business plans (and thus her s. trigger to then making a term order. 55. In G v G, Charles J considered s.25A MCA 1973, including the observations of Ward LJ in C v C (Financial L first instance: G v G and SS v NS eading cases at s: 68 143. As argued, I accept that C v C confirms that s.25A(2) is directed to the payee’s hardship, that the court must take an evidence based approach to whether the payee can and will adjust and that unless the court concludes, on that evidential basis, that a term should be imposed it should not impose one on the basis that the payee can seek an extension (or on any other basis). Further, I accept and acknowledge that, as with all its other conc base any re an evidential foundation. 144. But, in my judgment this need for an evidential base does not mean that the wife can assert (which at times she seemed to be arguing) that she can avoid an evidence based finding on her likely earnings by not providing an estimate of her earnings from the work she is planning to do, and/or by not co-operating in obtaining a report from an expert on her earning potential. As to the latter point, I do not accept that the absence of such a report is an indication that she is unlikely to be able to earn significant sums from part time employment. Rather, in my view, by not quantifying her earnings, and/or co- operating in their quantification, the wife acted contrary to her duty to give full and frank 25(2)(a) resources) and the overriding objective. 68 [2012] EWHC 167 (Fam) at [143]  37   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. Undue hardship ip” ee might be expected to suffer a degree of hardship - ue distinction between, for example, short childless marriages and marriages which are either long or involve children or both ’ and ‘powerful encouragement’ towards a clean break in s.25A MCA 1973, a clean break is not to be achieved at the 60. SS v NS (Spousal Maintenance), Mostyn J observed as follo rliament undue hardship nced the court ought to be thinking of providing an end date to a periodical payments ’ is a atter for the court to assess. In this regard, the observ ns of  A clean break should not be achieved at the expense of a fair result  There is a distinction between “undue hardship” and “hardsh and a pay not all reductions in the standard of living amount to und hardship  In assessing undue hardship the court is likely to draw a 59. Notwithstanding the ‘clear steer Undue hardship as Baroness Hale made plain: expense of a fair result.72 In ws:73 28… A term should be considered by the court unless the payee would be unable to adjust without undue hardship to the ending of the payments. This suggests that Pa anticipated that a degree of not in making the adjustment is acceptable. 29…Unless undue hardship would likely be experie order. 61. Given that the statute recognises that some hardship is permissible, what amounts to ‘undue hardship m atio Charles J in H v H are helpful:74 (e) the provision awarded should enable a gentle transition for the party who made the domestic contribution from the standard of living enjoyed during the marriage to the standard that she could expect as a self-sufficient woman (see Baroness Hale at paragraph 158, in 72 Ibid at [134]  73 [2014] EWHC 4183 (Fam) at [28].  74 [2007] EWHC 459 (Fam), [2007] 2 FLR 548 at [96(ii)(e)].  40   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. the context of the Miller case) and in my view the length of the marriage and the role of an ex- wife as the primary caretaker of the children of the marriage would be factors to be taken into account in determining the amount of the court’s assessment of hat does or does not amount to ‘undue hardship’ (i) in lt the requirement for support would have at least (ii) in SS v NS (Spousal Maintenance), Mostyn J ob needs in the case of a short arriage, although that is not By contrast, as indicated, in Murphy v Murphy, Holman J is likely to endure not only until they provision to meet that transition. 62. In a case involving a short (childless) marriage and/or one with a younger spouse, the w might be different, for example: M v L, Coleridge J said:75 42. Nowadays a young spouse at the end of a short marriage, and in the situation in which this wife found herself in 1973 (even with young children), would normally be expected to take proper steps to make him or herself financially independent to a significant extent within a reasonable time so that by the time the children were adu diminished if not wholly disappeared… served:76 30…It is hard to see how a relationship has generated childless m impossible. observed as follows:77 [35] What, frankly, the arguments by the husband overlook is that the having of children changes everything. Of course this wife could never have expected a "meal ticket for life" on the basis of six years of marriage and two years of cohabitation if there had been no children….But the fact of having children, and their obvious dependence in this particular case on their mother for their care, changes everything, as I have said. The economic impact on this wife 75 [2003] EWHC 328 (Fam), [2003] 2 FLR 425 at [42]  76 [2014] EWHC 4183 (Fam) at [30]  77 [2014] EWHC 2263 at [35]  41   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. leave school but, indeed, for the rest of her life. Fixe 8(1A) MCA 1973 to  here a party seeks to extend the term the court must carry out a fresh analysis of need, but the reason for the imposition of the initia order” is ppropriate, it must also consider whether any such term s 28(1A) court may direct that that party shall not be ow for the extension of the term specified in the order 64. In Flem 12…the exercise of [the] power to extend o rlane v McFarlane Lord Nicholls of Birkenhead and Baroness underpinning the original rder is key to a decision regarding variation. For examp adopt   d or extendable terms: s.2  Where a term order is made the court must decide whether it is be extendable W l term is likely to be a relevant and possibly decisive factor 63. If the court concludes that a “term a hould or should not be extendable. Section of MCA 1973 provides as follows: (1A) Where a periodical payments or secured periodical payments order in favour of a party to a marriage is made on or after the grant of a decree of divorce or nullity of marriage, the Fixed or extendable term: s.28(1A) MCA 1973 entitled to apply under section 31 bel ing v Fleming, Thorpe LJ stated that:78 obligations requires some exceptional justification n the basis that the payer had a reasonable expectation that his or her liability to make payment would come to an end. In Miller v Miller; McFa Hale of Richmond each accepted this set an applicant (i.e. to extend the term) a “high threshold”.79 65. However, some first instance judges have taken the view that the reasoning o le, in SS v NS (Spousal Maintenance) Mostyn J ed the view that:80 44…An application by a payer to discharge and an application by a payee to extend should be 78 [2003] EWCA Civ 1841, [2004] 1 FLR 667 at [12]  79 [2006] UKHL 24, [2006] 2 AC 618 at [97] and [155]  80 [2014] EWHC 4183 (Fam) at [44]  42   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. o attributing an earning capacity in view of the length of the marriage and the ex- spouse’s net remuneration and ability to seful to look at the guidance given paragraph 3 on pages 40-41 of Sorting out Finances on Divorce 2015. pay. 69. Courts may find it u in 45   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. Annex 1: table of MCA 1973/CPA 2004 provisions Provision MCA 1973 Part II CPA 2004 Schedule 5 maintenance pending suit / outcome s.22 para 38 payment in respect of legal services s.22ZA-22ZB para 38A-38B spousal periodical payments s.23(1)(a) para 2(1)(a) secured spousal periodical payments s.23(1)(b) para 2(1)(b) lump sum or sums s.23(1)(c) para 2(1)(c) child periodical payments s.23(1)(d) para 2(1)(d) secured child periodical payments s.23(1)(e) para 2(1)(e) lump sum or sums for a child s.23(1)(f) para 2(1)(f) transfer of property s.24(1)(a) para 7(1)(a) settlement of property s.24(1)(b) para 7(1)(b) variation of settlement s.24(1)(c) para 7(1)(c) extinguishing or reducing interest in settlement s.24(1)(d) para 7(1)(d) order for sale (etc.) of property s.24A para 11 pension sharing orders ss.24B-24G Part 4 paras 15-19F matters to which the court is to have regard s.25 Part 5 paras 20-22 ‘clean break’ / terminating financial obligations s.25A para 23 failure to maintain s.27 para 39 duration of spousal/civil partner orders s.28 para 47 prohibition (‘bar’) on extension of term s.28(1A) para 47(5) duration of child orders s.29 para 49 Variation s.31 paras 51 variation by capitalisation s.31(7A) para 53 46   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. Annex 2: annotated worked Examples The annotated worked Examples below are taken from Sorting out Finances on Divorce which is intended to guide and assist litigants in person to understand the approach likely to be adopted by the court when addressing financial remedies. Courts dealing with litigants in person are encouraged to invite attention to Sorting out Finances on Divorce and to the worked Examples. The annotated version below includes reference to reported cases relied on in formulating the possible outcomes set out. This is an example of a Mesher order Jade and Steve are in their early thirties and are getting divorced after being married for five years and having separated six months ago when Steve moved out. They have two children Mark (5) and Scarlett (3). Jade has not been working since Scarlett was born so that she can look after the children. Scarlett currently goes to nursery five mornings a week. Steve is working full time and earns £35,000 gross; he brings home £2,230 each month. Before the children came along, Jade was earning £22,000 working full time. She can earn £10,000 on part time basis, working 2½ days each week on Monday and Tuesday and on Thursday morning. Both her and Steve’s mothers have agreed to look after Mark and Scarlett when Jade is at work. They have agreed that the children will continue to live with Jade and will still see Steve every weekend. The family home is worth £180,000 but is subject to an interest only mortgage of £120,000 which costs £400 per month. Steve’s rent (for a two bedroom flat) costs £600 per month. When they separated Jade went to the CMS for child support and they have assessed that Steve should pay £398 per month. https://www.gov.uk/calculate-your-child-maintenance They have a joint debt on credit cards of £3,500. They both have cash ISA accounts: Steve’s has £4,000 and Jade’s has £2,800. Steve has a small pension connected with his work worth £5,000, but Jade has no pension savings. Possible outcome The children need to have a home. If the family home was sold, the mortgage discharged and the sale costs paid, there will be about £54,600 left. This is unlikely to be enough to enable either Jade or Steve each to buy a new home each, even with a mortgage. So, as the needs of the children must come first, this means that Jade and the children should probably continue to live in the family home. Steve will need to rent. After paying his rent and child support Steve is left with £1,238. Jade will not have to 47   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. limited period but long enough for Karen to adjust and make the transition to independence without undue hardship. Karen’s take home pay is £1,238 each month. Sam could pay maintenance to Karen for 5 years on a sliding scale; say £400 per month in the first year (Sam would have £1,945 / Karen would have £1,638); £320 each month in the second year (Sam £2,025 / Karen £1,558); £240 each month in the third year (Sam £2,105 / Karen £1,478); £160 per month in the fourth year (Sam £2,185 / Karen £1,398)and £80 a month in the fifth year (Sam £2,265 / Karen £1,318). Then maintenance could stop. Sam would be 60 and Karen 55 and they would be independent of each other before each retires. This is an example of a maintenance order ending on retirement / a deferred clean break Mary is 63 and Adrian is 59.They are getting divorced after being married for thirty three years. They have three children but all live away from home and are independent. Mary gave up work when she was pregnant with their first child and has not worked out of the home for 27 years. The family home, a three bedroom property which they have lived in for 19 years, was bought for £125,000 with a 25 year repayment mortgage of £100,000 and is now worth £260,000; there is now only £24,000 outstanding on the mortgage. Adrian and Mary both have cash ISA accounts worth £7,000 each. Adrian is self-employed and owns a shop in their town’s high street (which is leased and has six years left on the lease)). Last year his income was £47,500, which is less than he has earned in the past. Business has suffered since a shopping mall was opened out of town five years ago. He has a substantial pension savings worth £300,000 in a scheme into which he has been paying throughout the marriage. Mary has no pension savings, but receives her state pension. https://www.gov.uk/calculate-state-pension Mary plans to move away from the town and live near their youngest child, who has just had a baby boy and who has asked Mary to help look after him. Adrian plans to move into a flat in the town, near his shop. Each believes they will need not more than £110,000 to buy somewhere new to live. Possible outcome Mary and Adrian have been married for a long time. The family home will need to be sold because it is their main cash asset and each will need the money to buy a new property, in Mary’s case, near her daughter and in Adrian’s case, near the shop. After paying off the mortgage and paying the sale costs, there will be £228,200. This can be 50   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. shared equally. Add the ISA they each have and each will have £121,000. This will meet their housing need. Mary is a pensioner. She is active but has promised to look after their grandson. Her only income is her state pension of £490 per month, which she has received for the last two years. She will need to receive financial support from Adrian. Adrian has another six years work in front of him until he reaches 65 and retires. His income after tax and National Insurance is £2,992 per month. He will pay Mary maintenance. Were he to pay Mary £1,250 per month she will have this amount and her pension, in total £1,740 each month; Adrian will be left with £1,742 per month. The maintenance should continue until he retires. But what happens then? Adrian’s pension scheme will need to be shared now. It is as much of an asset as the family home. A pension sharing order can be made. If the pension is shared equally now, the maintenance he will be paying to Mary can stop when Adrian retires at 65. There will then be a clean break. This is an example of an immediate clean break Sally and Raj are in their early thirties and have been married for six years. They have no children and have been living in a flat that they bought together for £100,000 a year before they got married with an interest only mortgage of £80,000. The deposit of £20,000 came from Sally’s savings of £5,000 and a £15,000 loan from Raj’s father. They have decided to divorce. Their flat is now worth £125,000. They each work full time; Sally works as theatre nurse and earns £27,900 a year; Raj now works in IT for a small start up company (and was given a 15% shareholding in the company) and is paid a salary of £22,000 but can receive a discretionary bonus, which last year was £8,000. Sally has a credit card debt of £3,000, resulting from a holiday that she and Raj took last summer to try and “mend” their marriage. Raj has been repaying his father the money he and Sally borrowed to use towards the deposit and still owes him £5,500. Sally has savings of £900 and Raj has £3,750 left over from last year’s bonus. Sally has her NHS pension. Raj has no pension provision but does own 15% in the company, although its value is unknown and has not been valued. Possible outcome Sally and Raj will need to sell their flat. Once the mortgage has been discharged and the costs of the sale have been paid, there will be about £41,250 left. Sally’s credit card debt should be paid off since it was taken out for her and Raj to have their holiday. Raj’s 51   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. father should also be repaid as the loan was made for both of them and has been repaid regularly throughout the marriage. That will leave them with £32,750 which they can share equally. This can be used for a deposit if either wants to buy or put in the bank should either decide to rent. Neither Sally nor Raj will need to pay maintenance to the other. Sally’s monthly take home pay is more than Raj’s, but he can get a bonus, as he did last year. Sally will keep her own pension and Raj will keep his shareholding. This will be a clean break. Each goes their own way. This is an example of a joint lives order Anne and Rob are in their mid-forties and have been married for 18 years. They have one child, Garry, who is 16 and has just done his GCSEs, who will live with Anne but see Rob from time to time, as Garry wishes. They live in a house bought ten years ago for £200,000 with a £150,000 repayment mortgage over 25 years. Their home is currently worth £300,000 with a mortgage debt of £100,000. They have both worked throughout their marriage. Rob currently earns £55,000 (and brings home £3,253 each month). Anne worked until the birth of Garry, took time out until he went to school and has worked three days a week since then. She earns £20,000 (£1,383 take home each month). Rob and Anne have agreed that Anne can and will return to full time work when Garry goes to university from when Garry will support himself from a student loan. Her income will then increase to £34,000 (£2,208 net each month). They each have cash ISAs, Rob’s is worth £15,000 and Anne’s £8,000, and a joint savings account with £10,000. Neither has a private pension. A new home for each of them will require each to have £150,000. Possible outcome It will be necessary to sell the home and release funds to enable each to purchase somewhere to live. The equity in their home will be about £191,000. If this was shared between Anne and Rob each would have £95,500. It would be fair to share equally the ISAs and the savings, in total £43,000, so that each then has £117,000. Both will need a small mortgage to buy and move into a new home, say of £40,000, On a repayment basis at 4% of 20 years this would cost each of them £242 per month. Rob will pay to support Garry. Anne and Rob have agreed that Rob should pay £515 a month which is in line with the amount the CSA would assess as being payable. https://www.gov.uk/child-benefit-tax-calculator 52   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. now aged 9 and 6. The marriage came to an end after 3 years at which time W and children remained in the matrimonial home in London and H, who had been made redundant, found employment and moved to Milan, earning a significantly lower salary. In the financial proceedings W was awarded a lump sum of £800,000 and global periodical payments of £30,000. H was left with £489,000 of non-pension capital as well as his income and prospects. Overall he received 42% of the assets including his pension. The suggestion of a Mesher order was rejected on the basis that H had a greater earning capacity than W and was likely to get a better paid job. H appealed, claiming that the judge had erred in not making a Mesher order. The appeal was allowed and a Mesher order was granted of 35.83% over W’s property in favour of H inclusive of 2.5% in respect of H’s costs on appeal – Mansfield v Mansfield [2011] EWCA Civ 1056 H received £0.5m compensation from a personal injury claim prior to meeting W. He invested the money in a bungalow which subsequently became the matrimonial home and an investment flat which he let out for rent. The bungalow was adapted to meet his special needs, partially funded by £30,000 from the sale of W’s pre-marital flat. H and W were married, including a period of cohabitation, for 6 years and had 4- year-old twins. Upon separation W was awarded £285,000 to provide a home for herself and the children. If the award could not otherwise be met, H was ordered to place the bungalow on the market for sale. H appealed, seeking a lower award for W and the possibility of a Mesher order. The appeal was allowed and the order was converted to a Mesher order with a 1/3 reversionary interest to H to be redeemed upon the children’s maturity. 55   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. Reducing maintenance order Murphy v Murphy [2014] EWHC 2263 (Fam) Holman J refused to order a "step down" in spousal maintenance where a wife’s future earnings were unknown. W aged 42 was primary carer of young twins (aged c. 2 years old). The parties cohabited since 2005, married in 2007 and separated in 2013. In the circumstances it was not appropriate to place a limit on the duration of periodical payments. W was in a precarious financial provision without support from H and with the responsibility of raising their two children. She had very little capital and an uncertain earning capacity. SS v NS (Spousal Maintenance) [2014] EWHC 4183 (Fam) The parties’ open positions were as follows: • H: £24k p.a. for 12 mths, reducing to £18k p.a. for 5 yrs, then £12k p.a. for 6 yrs; then termination with s.28(1A) bar; plus 20% net cash bonus for 3 yrs capped at £18k p.a. • W: £60k p.a. for 27 years, extendable; plus 30% net bonus (after school/univ fees) capped at £70k p.a., without time limit Mostyn stated that “Neither of these proposals is reasonable”. H was ordered to pay from his base salary £30k in spousal maintenance (+ £22.5k in child maintenance and £65k school fees). The order left H with £52.5k of his base salary. There was an 11-year extendable term until the youngest child attained 18 years of age. Wright v Wright (2008, unreported) Highly publicised permission to appeal case in 2015. The 2008 Final Hearing was before DJ Cushing. In essence the Judge found that: • No PP’s step-down “because I would need to have confidence in the precise earning capacity she has before I could justify stepping down... A step down is not to be used as a stick…” • But “there is a firm expectation that she will use her best endeavours to develop her earning capacity in 2-3 years’ time to the 56   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. extent that is compatible with [the children’s] care” Maintenance order ending on retirement/deferred clean break H v H [2014] EWHC 760 (Fam) This case looked at when a former spouse can stop paying maintenance, and whether there should be a final lump sum payment to (in part) capitalise the maintenance. H had been paying a significant yearly amount to his first wife. He had remarried and had two young children with his second wife, who had tragically been diagnosed with terminal cancer. It was H’s firm intention to retire from his well-paid job when his wife passed away, to look after his two young children. He therefore applied to end the maintenance payments to his first wife. W had been able to save money from the maintenance already received, and the court looked at the income generating potential of those savings. Looking at W’s income needs for the rest of her life, and what she could provide herself, the judge ordered that the maintenance would end when H retired, and he should pay a lump sum of nearly 3 years’ maintenance at that point to discharge the obligation for good. L v L (Financial Remedies: Deferred Clean Break) [2011] EWHC 2207 (Fam) Eleanor King J considered that this case “cried out” for a term order. It was a 10-year marriage with aged children 12 and 9. W owned a £2m farm and worked in fashion. She had minimal income. H earned £82k pa net. The Judge made a joint lives global maintenance order at £47.5kpa. On appeal, this was reduced to a term of 2.5 years with a s.28(1A) bar, and to £30k pa (+£10k in child maintenance). SA v PA (Pre-marital agreement: Compensation) [2014] EWHC 392 (Fam) This case is an example of the court looking to achieve a clean break over a much shorter period in a high income case through a combination of factors such as awarding the recipient spouse a higher level of maintenance than their assessed income needs in the expectation that the surplus will be saved and used as 57   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. acceptable” • “if the choice between an extendable term and a joint lives order is finely balanced the statutory steer should militate in favour of the former” Murphy v Murphy [2014] EWHC 2263 See above regarding ‘step down’ refusal. Holman J stated that: • “the having of children changes everything… The economic impact on this wife is likely to endure not only until they leave school but...for the rest of her life…I do not know, nor do the parties know, what the future will bring…it is frankly impossible for me to form the opinion that s.25A(2) requires as the trigger to then making a term order” In the circumstances it was not appropriate to place a limit on the duration of periodical payments. W was in a precarious financial provision without support from Hand with the responsibility of raising their two children. She had very little capital and an uncertain earning capacity. The consent order would remain in its current form but with a clear recital expressing W’s clear desire and intention to obtain the best paid work that she reasonably could. 60   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. Annex 3: Pensions One aspect of “need” which will arise in most divorces is the need for income in retirement. The need will be more acute for parties approaching or past retirement age, but even for younger parties this need will be seen by the courts as being “in the foreseeable future” for the purposes of MCA 1973, section 25(2)(b) and the court is also required by section 25(2)(h) to consider the widow’s pension rights which will be lost on divorce. The orthodox view, encouraged by Martin-Dye v Martin-Dye [2006] 2 FLR 901, has been that meeting the need for income in retirement should primarily be achieved by way of a pension sharing order. The orthodox logic has been that pensions (being a sui generis species of future income stream) should be dealt with separately and discretely from other capital assets. In bigger money cases, where needs are comfortably met, the courts are now likely to be less interested in drawing a distinction between pension and non-pension assets than hitherto. This is partly because other assets will also be deployed for income production so the distinction is less obvious, but more because the “pension freedoms” introduced by Taxation of Pensions Act 2014, as a result of which those aged 55 or above have the option of cashing in some categories of pension scheme, have blurred the dividing line between cash and pensions and in such cases the trend is now to treat pensions as disposable cash assets, thus disregarding their income producing qualities: see SJ v RA [2014] EWHC 4054 (Fam) and JL v SL [2015] EWHC 555. In small to medium money cases, however, where needs are very much in issue, a more careful examination of the income producing qualities of a pension may well be required in the context of assessing how a particular order can meet need. The need to avoid the possibly punitive tax consequences of cashing in a pension may be more important in these cases and the mathematical consequences of making a pension sharing order (for example because of an external transfer from a defined benefit scheme to a defined contribution scheme or the loss of a guaranteed annuity rate) can be unexpected and often justify expert actuarial assistance: see B v B [2012] 2 FLR 22. In cases where state pension income is an important component of meeting need, the complicated changes introduced in April 201684 provide additional justification for expert pension evidence. In cases where (for whatever reason) a court wishes to set off the value of a pension against other assets the methodology to be utilised is uncertain85. Where needs are the dominating factor, ensuring that the outcome of any offsetting capital provision is understood, in terms of what the parties will each receive in income terms, will be critical and the court may often be assisted by expert pension evidence. 84  In particular the phasing out of the additional state pension with the related transitional arrangements, the  introduction of a single  tier state pension and  the abolition of substitution of National  Insurance contribution  records on divorce.  85 The authors of “Apples or pears? Pension offsetting on divorce”, Family Law, December 2015 at p.1485 were  unable  to  suggest a  reliable working  formula  to  cover all  cases and  in  JS  v. RS  [2015] EWHC 2921  (Fam)  the  process was described as “necessarily arbitrary”. In  WS v WS [2015] EWHC 3941 (Fam), where the issue had to  be addressed on its particular facts, the court utilised Duxbury tables in its calculations, but this may not be the  right answer in all cases.    61   Guidance for the judiciary on financial needs on divorce ……………………………………………………………………………………………………………. The guidance set out in Sorting out Finances on Divorce and in A survival guide to sorting out your finances when you get divorced includes excellent information on the options and issues, which may be particularly helpful to direct to litigants in person appearing before the court, but also to judges in considering the case studies and the key issues.86 86 Sorting out Finances on Divorce at pages 42‐47; A survival guide to sorting out your finances when you get  divorced at pages 41‐49    62