Matrimonial property, needs and agreements, Lecture notes of Law

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The Law Commission (LAW COM No 343) MATRIMONIAL PROPERTY, NEEDS AND AGREEMENTS Presented to Parliament pursuant to section 3(2) of the Law Commissions Act 1965 Ordered by the House of Commons to be printed on 26 February 2014 HC 1089 London: The Stationery Office £xx.xx ii v Paragraph Page Principled reform (Part 4 of the 2012 SCP): the options explained 3.9 30 Our consultation questions on principled reform 3.24 33 Consultees’ responses to our questions on principled reform 3.27 34 Compensation or merger over time? 3.27 34 Enforcing independence 3.46 38 Our conclusions following consultation 3.59 40 Our policy conclusion 3.60 40 Implementing our policy 3.69 42 Our recommendation 3.86 45 Content of the guidance 3.92 46 What are needs? 3.94 46 At what level should needs be met? 3.96 47 The duration of provision for needs and the transition to independence 3.105 48 The place of compensation alongside provision for needs 3.116 51 In conclusion 3.120 52 Looking to the future: could a formula be feasible? 3.121 52 The use of formulae in other jurisdictions 3.121 52 Formulae in family law in England and Wales 3.128 54 Consultation responses 3.132 55 The consultation events held in December 2012 3.148 59 Conclusions about formulae 3.151 60 CHAPTER 4: MARITAL PROPERTY AGREEMENTS 63 AND THE PUBLIC POLICY RULES Introduction 4.1 63 The development of the current law 4.3 63 Contracts between spouses 4.3 63 Pre-nuptial and post-nuptial agreements and the common law 4.5 64 rule of invalidity vi Paragraph Page Separation agreements and section 34 of the Matrimonial Causes 4.7 64 Act 1973 The public policy rules and the modern law 4.16 66 Our consultation question 4.21 68 Our recommendations 4.28 69 Abolition of public policy rule 1 4.28 69 Statutory provisions about maintenance agreements 4.36 70 CHAPTER 5: QUALIFYING NUPTIAL AGREEMENTS 73 Introduction 5.1 73 Qualifying nuptial agreements: in principle 5.8 74 Our consultation question and the responses 5.8 74 The empirical research 5.21 78 Discussion 5.25 79 The scope of qualifying nuptial agreements 5.42 83 The consultation responses 5.44 83 Our recommendation 5.68 90 Why a limitation on scope is necessary at all 5.69 90 The limit on scope: a prohibition on contracting out of needs 5.77 92 The draft Nuptial Agreements Bill 5.85 94 Qualifying nuptial agreements and the Inheritance (Provision for 5.93 95 Family and Dependants) Act 1975 Claims by a former spouse 5.96 96 Claims by a surviving spouse 5.100 97 CHAPTER 6: REQUIREMENTS FOR QUALIFYING 104 NUPTIAL AGREEMENTS Introduction 6.1 104 The requirements for qualifying nuptial agreements 6.6 105 (1) Contractual validity 6.6 105 (2) Execution 6.32 109 vii Paragraph Page (3) Timing 6.42 111 (4) Disclosure 6.69 116 (5) Legal advice 6.105 123 Further requirements for the formation and content of qualifying 6.160 134 nuptial agreements? A requirement of fair process 6.161 134 The content of the agreement 6.166 135 Conclusions on the form and content of the agreement 6.177 137 Variation of qualifying nuptial agreements 6.181 137 Revocation of qualifying nuptial agreements 6.188 138 Identifying property over time 6.192 139 Consultation questions and views expressed by consultees 6.197 140 Conclusion 6.210 143 CHAPTER 7: QUALIFYING NUPTIAL AGREEMENTS IN PRACTICE 144 Introduction 7.1 144 The uses of qualifying nuptial agreements 7.8 145 Jurisdiction and applicable law clauses 7.34 149 Review clauses 7.37 150 Qualifying nuptial agreements, ADR and family law arbitration 7.38 150 Arbitration agreements 7.38 150 What is family law arbitration? 7.39 150 Qualifying nuptial agreements as arbitration agreements 7.41 151 Inclusion of ADR provisions in a qualifying nuptial agreement 7.44 152 How is a qualifying nuptial agreement made? 7.45 152 The requirements for qualifying nuptial agreements 7.45 152 Contractual validity and execution 7.46 152 Timing 7.48 153 Disclosure 7.50 153 x before or after marriage), and sometimes in legal writing collectively as “nuptial agreements”. “Needs”: a very broad concept with no single definition in family law, discussed fully in Chapters 2 and 3. “Non-matrimonial property”: a term used by practitioners and by the courts (but not found in the statutes) to describe property received as a gift or inheritance by one party to the marriage or civil partnership, or acquired before the marriage or civil partnership took place. “Periodical payments”: a series of payments made for a definite or indefinite period of time, typically paid on a monthly basis. “Qualifying nuptial agreement”: a term used to refer to a marital property agreement which is enforceable, providing certain conditions are met, without the need for the agreement to be scrutinised by the court in its discretionary jurisdiction. Such agreements are not available under the current law. “Section 25 factors”: under section 25 of the Matrimonial Causes Act 1973 the court must have regard to all the circumstances of the case, with first consideration to be given to the welfare of minor children, when deciding whether and how to exercise its powers to make financial orders. The section sets out a “checklist” of specific factors to which the court must have regard.2 “Spouse”: we use this term to refer to one of the parties to a marriage or a civil partnership. 2 See Appendix D where we set out section 25 of the Matrimonial Causes Act in full. 1 THE LAW COMMISSION MATRIMONIAL PROPERTY, NEEDS AND AGREEMENTS To the Right Honourable Chris Grayling, MP, Lord Chancellor and Secretary of State for Justice CHAPTER 1 INTRODUCTION MATRIMONIAL PROPERTY, NEEDS AND AGREEMENTS 1.1 Divorce and the dissolution of civil partnership almost always have financial consequences. Typically, two people have been to some extent financially interdependent and the divorce or dissolution means that they are now embarking on separate lives. It is not always practicable to bring their interdependence to an immediate end, because the financial effects of having shared their lives may be long-lasting and shared responsibilities may continue well beyond the point of divorce or dissolution. 1.2 The law relating to the financial consequences of divorce and dissolution has developed over some decades. Its statutory framework dates back to 1969, and the courts have been largely responsible for the extensive development in this area of law since then. Some of those developments have been driven by social change; the position of women in society and in the labour market is very different from how it stood in 1969. Other developments have been a response to new financial practices; conspicuous among those are marital property agreements, whose use has become more widespread – partly as a result of influence from other countries where they are commonplace. 1.3 Yet for most couples, the financial imperative following divorce or dissolution is what it has always been: to make ends meet. The resources that used to support one household will not easily stretch to two. 1.4 This Report is the final step in a project that has examined both ends of the financial spectrum: the majority who need clear and accessible law and who may have to manage without professional advice, and the minority for whom sophisticated financial arrangements may be appropriate. These two groups have different practical needs and they prompt different law reform initiatives. Our recommendations are for relatively simple statutory reform which will provide non-statutory guidance to make the law more transparent and accessible for all and a new and efficient contractual tool for those with more complex resources. 1.5 We have not consulted on, nor challenged, the fundamental principles of financial provision: in particular equality, gender neutrality, and the requirement of fairness. In 2000, in its decision in White v White,1 the House of Lords laid the 1 [2000] UKHL 54, [2001] 1 AC 596. 2 foundation for what came to be known as the “sharing principle”: the view that a couple’s assets should be shared on divorce or dissolution, absent special factors relating to the source of the assets, or a very short relationship. That principle underpins our work. But fairness is a difficult and complex concept, inevitably subjective, and very dependent upon individual circumstances. An outcome agreed by the parties might be considered fair where the same outcome imposed by the court would be viewed as unfair, because the fairness inherent in upholding agreements may, to some extent, override other conceptions of fairness. The current statutory framework for financial orders assumes that a bespoke package will be devised by a judge for each couple; but in an environment where legal advice is not easy to access, and the court system cannot provide tailor-made justice for all. New approaches are required to enable and empower people to devise fair solutions for themselves or to use other methods of dispute resolution. 1.6 Our Report therefore recommends some new approaches, which we introduce and summarise in this Chapter. 1.7 There are no legal differences between marriage and civil partnership in any matters covered in this project. Nor will the introduction of same-sex marriage2 make any difference to what we say here. 1.8 We are aware of the imminent introduction of the single family court, but this is a structural and procedural change and will not affect the recommendations made within this Report. THE DEVELOPMENT OF OUR PROJECT 1.9 This Report is the culmination of an extended project. In 2009, the Law Commission for England and Wales started work on a project designed to review the law relating to marital property agreements. We use this term to refer to agreements made between spouses3 about the financial consequences of a future divorce, or dissolution of civil partnership. In some legal writing these are known collectively as “nuptial agreements”. 1.10 Marital property agreements can be divided into three types. First, there are pre- nuptial agreements, made before marriage or civil partnership. They contemplate relationship breakdown at a time when attention is focused on the celebration of its continuance and intended permanence. Then there are post-nuptial agreements made between spouses, but again contemplating a separation that is not currently happening, and may never happen. Finally there are separation agreements, made at the ending of a relationship when separation is a reality. 1.11 The practical and emotional implications of these three types of agreement differ, and the development of the law that relates to each has diverged. The most important divide is between pre- and post-nuptial agreements on the one hand, and separation agreements on the other. The former involve an element of prediction; the parties are setting out what they will need, and what they will be 2 Brought about by the Marriage (Same Sex Couples) Act 2013, which will come into force in March 2014. 3 We use the term “spouse” to refer to one of the parties to a marriage or a civil partnership. 5 on.12 1.19 Second, there are some regional disparities in the type of solutions that tend to be negotiated or ordered. It is not possible to be precise about this but many lawyers we have spoken to agree that the law is being applied inconsistently.13 1.20 Third, 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 or dissolution. 1.21 These factors together mean that where people who are going through divorce or dissolution have legal advice, their lawyers will be able to help them negotiate “in the shadow of the law”, predicting the sort of solution that the local courts would impose, and assisting them to reach settlements14 that can be embodied in draft consent orders which the courts will endorse. The law is not transparent, but solutions are reached and independence is achieved, after some time – sometimes after some years – and in a way that reflects the circumstances of the marriage or civil partnership. 1.22 But where lawyers are not involved, individuals struggle to know what the law requires of them. The meaning of “financial needs” is not defined in the statute, and yet it is an issue of central importance in most divorces. The statute gives judges a wide discretion to make financial orders in the light of all the circumstances, but does not say what is to be achieved. Nowhere in the law itself – only in the practice of the courts – can we find any indication that financial needs do have to be met after the ending of marriage or civil partnership, but not generally for ever. The eventual end result is usually independence; but the law gives its users no guidance about this. 1.23 The withdrawal of legal aid from many family cases including those relating to financial provision means that access to legal advice is now more difficult. Bargaining “in the shadow of the law”, seeking to produce the sort of outcome that the courts would have ordered, is very difficult if the law is not known and not accessible. The removal of legal aid means that there will be more litigants in person, either approaching the courts without the help of lawyers to manage their expectations or to assist them in reaching settlement, or seeking to negotiate entirely outside the court system. 1.24 We have not recommended any change in the law relating to financial needs. The courts have operated the law in a way that generally yields the most practicable outcomes in the circumstances and we have no quarrel with this. Nor had the majority of our consultees. Our consultation revealed no consensus supporting a change in the law here, whether for a change in levels of support to be provided between former spouses or for the introduction of any arbitrary time- limits to the availability of that support. 12 Chapter 2, para 2.42. 13 Chapter 2, paras 2.45 to 2.53. 14 See, for example, S Beinhart, J Eekelaar and M Maclean, Family Lawyers: The Divorce Work of Solicitors (2000) pp 185 to 187. 6 1.25 However, more is needed to make the law, and the courts’ practice, transparent. We recommend that the meaning of “financial needs” be clarified in guidance to be published by the Family Justice Council,15 in order not only to ensure that it is applied consistently by the courts across the country but also that people without legal representation have access to a clear statement of their responsibilities and of the objective that their financial settlement should be achieving. That guidance will be addressed primarily to the courts and legal advisers, but it should also be published in a version suitable for the assistance of litigants in person.16 1.26 Transparency in the law is a necessity, not a luxury. It is not realistic to insist that lack of clarity about financial needs is acceptable because the term is well- understood by lawyers, as many lawyers have told us. So we take the view that accessible guidance is an important step forward. 1.27 In recommending guidance produced by the Family Justice Council, and therefore with the authority and respect that that body commands, we do not ignore the many online tools that have been developed recently to help couples going through divorce and dissolution, including the “Sorting Out Separation” app.17 But while these tools are helpful in explaining in basic terms how to budget and pointing out matters that need to be resolved (debt, housing, childcare needs and so on), they do not point the reader towards a solution. Neither they, nor the statutes, state the objective to be achieved. Our recommendation is that the Family Justice Council guidance should not only make clear the elements involved in assessing financial needs but also make explicit and endorse the courts’ practice of making orders that lead to independence, to the extent that that is possible in the light of choices made within the marriage, the length of the marriage, the marital standard of living, the parties’ expectation of a home, and their continued shared responsibilities in the future, particularly for children. Couples making their own settlements, in the light of the courts’ practice, can be informed by that guidance and will have an indication of the outcome that they should be aiming for. 1.28 It would be a mistake to suppose that this Report represents an end to reform in this area of the law. It will be clear from our account of developments from 1969 onwards that this is a dynamic area, constantly evolving, constantly under pressure from social change, public opinion, economic pressures and legal influence from abroad.18 Our Report, and the implementation of our recommendations, can only be staging posts in an ongoing journey. 1.29 A further and important step on the journey may be the development, in the future, of more specific guidelines. Guidance as described above can provide only words, not figures. Some jurisdictions – notably Canada – have introduced 15 The Family Justice Council is an advisory, non-statutory, non-departmental public body which was established in 2004 and is sponsored by the Judicial Office. Its primary role is to “promote an inter-disciplinary approach to family justice and to monitor the system”. In August 2012, it became part of the office of the President of the Family Division. See http://www.judiciary.gov.uk/about-the-judiciary/advisory-bodies/fjc (last visited 7 February 2014). 16 Chapter 3, paras 3.88 to 3.90. 17 http://www.sortingoutseparation.org.uk/en/hub.aspx (last visited 7 February 2014). 18 See Chapter 2 for an overview of the current law and its history. 7 calculations to generate a financial range within which a court order might fall.19 Such calculations need not generate a single answer to the question “how much do I have to pay?”. They might generate a range, indicating a maximum and minimum level of support within which parties can negotiate, knowing at least that they are “on the right lines”. They can be subject to specified exceptions or additional criteria for certain types of situation. They might be statutory or non- statutory. Non-statutory guidance may attain an enhanced status if it is approved by the courts.20 1.30 The comparison with other jurisdictions has to be treated with caution, because of the different legal frameworks in which such calculations operate.21 In particular, the development of calculations for income provision in jurisdictions where the law clearly separates income and capital matters may be a very different matter from any attempt to develop a formula to reflect orders made in a legal context where income and capital are not distinguished. “Financial needs” in this country encompass not only income but also the provision of a home.22 That aspect of financial needs introduces a complexity that other jurisdictions do not suffer. But it is significant that formulaic guidelines have been found helpful in other jurisdictions, and have met with approval from the courts. 1.31 Accordingly, we have made a further recommendation, that work be done with a view to assessing whether such an aid to calculation could be devised here.23 It is very easy to dismiss such a development on the basis that no formula can capture individual circumstances, and we agree that that is true. But for individuals without access to legal advice who need to know whether, for example, one should be supporting the other for five years or ten years (or at all), or whether the proceeds of sale of their house should be split 50:50 or 40:60 (or in some other shares), guidance in the form of figures as well as words could be invaluable in supporting couples to reach settlement. We think that the endeavour to devise such guidelines would be well worth the effort and the relatively low public expenditure that it would require. Marital property agreements 1.32 We recommend statutory confirmation of the contractual validity of marital property agreements. 1.33 This in itself will make a practical difference in only a small proportion of cases,24 because despite their contractual validity marital property agreements cannot take a couple’s arrangements outside the scrutiny of the family courts; they will be upheld only if they are “not unfair”, in accordance with the decision of the 19 Whether it takes the form of regular income provision or a single payment so as to achieve a clean break. 20 Chapter 3, para 3.125. 21 Chapter 3, para 3.121. 22 For a long time (at least where the former matrimonial home was owner-occupied) spouses have been regarded as “needing” provision to help them purchase a home where that is possible. 23 Chapter 3, para 3.159. 24 See Chapter 4, paras 4.28 to 4.35. 10 (1) Appendix A: Draft Nuptial Agreements Bill and Explanatory Notes; (2) Appendix B: Responses to consultation questions not dealt with in the main body of the Report; (3) Appendix C: Case study questions from the 2012 SCP; (4) Appendix D: Section 25 of the Matrimonial Causes Act 1973; and (5) Appendix E: Respondents to the 2011 CP and the 2012 SCP. 1.43 We have also published on our website an Impact Assessment and copies of the consultation responses we received to both the 2011 CP and the 2012 SCP. ACKNOWLEDGEMENTS 1.44 Our hearty thanks go to all who responded to our two consultations. Law reform is a collective effort and we are truly grateful to all who have put work, time and careful thought into answering and commenting on the questions that we have posed. Inevitably, on a subject that engages emotions as well as minds, consensus did not emerge. Not everyone was in favour of reform at all, and those who wanted change expressed divergent views about how to achieve it. All these views are valuable and have influenced our conclusions. A list of consultees can be found at Appendix E. 1.45 We offer our warm thanks to the members of our advisory group, who met on a number of occasions before the publication of each of our two consultation papers; we benefited from their expertise and their forthright views. The members of the group are: Sarah Anticoni, Charles Russell LLP; Dr Thérèse Callus, University of Reading; James Carroll, Russell-Cooke LLP; Nicholas Francis QC, 29 Bedford Row; Mark Harper, Withers LLP; Dr Emma Hitchings, University of Bristol; David Hodson, the International Family Law Group; His Honour Judge Million, South Eastern Circuit; Jeffrey Nedas, Jeffrey Nedas & Co; Tony Roe, Tony Roe Solicitors; His Honour Judge Mark Rogers, Midland Circuit; Marilyn Stowe, Stowe Family Law LLP; and Richard Todd QC, 1 Hare Court. 1.46 We are extremely grateful to the following individuals and organisations: (1) Resolution for hosting a survey on financial needs on their website and the Resolution practitioners whose responses made a valuable contribution to our work. (2) The Money and Property Committee of the Family Justice Council for their useful discussions with us and in particular its Chair, and President of the Family Division, Lord Justice Munby. (3) All those academics who attended the seminar on 16 April 2012 to share their specialist knowledge of these areas of the law. (4) Professor Carol Rogerson for our useful discussions with her; in particular her presentations at the seminars in December 2012 at the Inner Temple and Nuffield Foundation, regarding the Canadian Spousal Support Guidelines, and for her help with sections of the Report describing those guidelines, their development and their effects. 11 (5) Professor Anne Barlow for her organisation of the seminar at the Nuffield Foundation and her research into the public’s view of pre-nuptial agreements, funded by the Nuffield Foundation. (6) Deepak Nagpal of 1 King’s Bench Walk for his advice and expertise. (7) Professor J T Oldham at the University of Houston Law Center for his assistance with sections of the Report summarising the American Law Institute’s Principles of the Law of Family Dissolution and their effects. (8) Joanna Miles at the University of Cambridge, who acted as a consultant on this project, for her invaluable insight and unstinting support. 1.47 Finally, we thank those organisations that so generously hosted events at which we were able to present the consultation issues. We would like to express our gratitude to the Institute of Advanced Legal Studies, Leeds University, Kings College London, St Philips Chambers, Durham University, the University of Bristol, the University of Birmingham, Reading University, Cardiff Law School, Stowe Family Law LLP, the National Museum of Wales, Thirty Park Place Chambers, the Honourable Society of the Inner Temple, and the Nuffield Foundation. 12 CHAPTER 2 OVERVIEW OF THE CURRENT LAW INTRODUCTION 2.1 In this Chapter we explain the legal background to our recommendations. In doing so we have not tried to provide a detailed text on the current law. Our 2011 CP provided a much fuller account of the law relating to marital property agreements in this and other jurisdictions, and the 2012 SCP1 did the same so far as financial needs and non-matrimonial property were concerned. The reader is referred to both documents for a more comprehensive account than we have provided here. In this Chapter we have endeavoured instead to draw together the essentials so as to demonstrate how the three elements in our project – financial needs, marital property agreements and non-matrimonial property – have emerged from the development of the law relating to financial orders during the legally eventful period from 1969 to the present. That development is an ongoing process; the issue for our project is to what extent law reform would improve the law, against the background of that continual development. Should the courts be left to continue the process, or is there a case for law reform to adjust or improve the process? THE LONG ROAD FROM 1969: STATUTORY FOUNDATION AND EVOLVED DISCRETION The Matrimonial Causes Act 1973 2.2 Statutory provision for the financial consequences of divorce began with the Matrimonial Causes Act 1857 but the starting point for the modern law is the Matrimonial Causes Act 1973, which consolidated the law following the major overhaul of the law of divorce (the most recent we have had) in 1969. The relevant provisions of the 1973 Act are duplicated for civil partnerships in the Civil Partnership Act 2004. 2.3 The statutes do two things. First, they set out the financial orders that can be made on divorce or dissolution.2 These range from orders for periodical payments to orders for pension sharing.3 Secondly, they set out the considerations that the court must have in mind when making orders. First consideration is to be given to the welfare of the parties’ minor children. Beyond that, a set of factors – known to family lawyers as the “section 25 factors” – are to be borne in mind. They are, in a sense, obvious: the judge is to have in mind the length of the parties’ marriage, for example, and the needs and resources of the parties. But the statutes do not say what effect the consideration of these factors is to have upon the orders made. 1 Chapter 1, footnotes 9 and 10. 2 Matrimonial Causes Act 1973, s 23; and Civil Partnership Act 2004, Sch 5, parts 1 to 4A. See para 2.5 of the 2011 CP and paras 2.3 to 2.4 of the 2012 SCP. 3 The addition, over the past two decades, of numerous provisions relating to pensions has made the list very much longer than it originally was. 15 2.11 Mrs White appealed, first to the Court of Appeal which increased her award to £1.5 million (32% of the total assets), and then to the House of Lords. And although their Lordships decided that the Court of Appeal’s award to Mrs White should stand,14 the case marked a revolution in financial provision, outlawing the reasonable requirements approach. Lord Nicholls said, “The present case is a good illustration of the unsatisfactory results which can flow from the reasonable requirements approach”.15 2.12 He stressed that: … there is one principle of universal application which can be stated with confidence. In seeking to achieve a fair outcome, there is no place for discrimination between husband and wife and their respective roles. Typically, a husband and wife share the activities of earning money, running their home and caring for their children. Traditionally, the husband earned the money, and the wife looked after the home and the children. This traditional division of labour is no longer the order of the day. Frequently both parents work. Sometimes it is the wife who is the money-earner, and the husband runs the home and cares for the children during the day. But whatever the division of labour chosen by the husband and wife, or forced upon them by circumstances, fairness requires that this should not prejudice or advantage either party.16 2.13 Their Lordships saw no reason why, when the assets exceeded the financial needs of the parties, the surplus should belong solely to the husband. Lord Nicholls said: Sometimes, having carried out the statutory exercise, the judge’s conclusion involves a more or less equal division of the available assets. More often, this is not so. More often, having looked at all the circumstances, the judge’s decision means that one party will receive a bigger share than the other. Before reaching a firm conclusion ... a judge would always be well advised to check his tentative views against the yardstick of equality of division. As a general guide, equality should be departed from if, and only to the extent that, there is good reason for doing so.17 2.14 Lord Nicholls later said that “the glass ceiling … was shattered by the decision … in the White case”.18 14 Misgivings were expressed about the value attributed to the gift from the paternal family and Lord Cooke felt that the award was “probably about the minimum that could have been awarded to Mrs White without exposing the award to further increase on further appeal”: [2000] UKHL 54, [2001] 1 AC 596 at [63]. 15 [2000] UKHL 54, [2001] 1 AC 596 at [45]. 16 Above at [24]. 17 Above at [25]. 18 Miller v Miller, McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618 at [8]. 16 2.15 The new principle established in White v White marked a sea-change in the courts’ approach. The many cases that had been put on hold pending the outcome in White v White went ahead on a new basis and later, the Court of Appeal began to refer to the “sharing principle” as one of the bases for its orders.19 2.16 Six years later the House of Lords had the opportunity to revisit its new principle in the conjoined appeals in Miller v Miller, McFarlane v McFarlane.20 The two cases involved a combination of factual scenarios that enabled the basis of financial provision to be explored; the outcome was a number of different judgments from the members of the House of Lords that enriched, but did not simplify, our understanding of the courts’ discretion. In particular, we were told that “several elements, or strands, are readily discernible”,21 namely financial needs, compensation, and sharing. 2.17 Of those strands, needs and sharing are familiar. The relationship between the two is unclear; the best we can say is that in some cases needs are to be met, and the balance (if any) shared, whereas in the wealthier cases financial needs are more than met by the provision of a half share of the entire wealth of the parties. In some cases, inevitably, a half share in the family wealth happens to match what is needed to provide for the financial needs of one party – but this is coincidental.22 2.18 The most mysterious of the three strands enunciated in Miller v Miller, McFarlane v McFarlane is compensation. It seems intended to reflect what one party would have had, or been able to earn, if certain choices had not been made within the marriage. Thus Mrs McFarlane lost out on projected high earnings as a solicitor because she gave up her job in order to look after the children. In our 2011 CP we suggested that compensation in this sense has always been an aspect of financial needs; and indeed in subsequent cases the courts have been wary of making separate orders for compensation because of the risk of “double- counting”.23 The limits of sharing 2.19 The sums of money involved in White v White were not particularly high compared with some of the very high-net-worth cases seen during the previous decade.24 But for very wealthy individuals the implications of the decision in White v White, and of the Court of Appeal decisions that came after it were immediately 19 Charman v Charman [2007] EWCA Civ 503, [2007] 1 FLR 1246 at para [65]. 20 [2006] UKHL 24, [2006] 2 AC 618; see J. Miles, “Principle or Pragmatism in Ancillary Relief: The Virtues of Flirting with Academic Theories and Other Jurisdictions” (2005) 19(2) International Journal of Law, Policy and the Family 242. 21 [2006] UKHL 24, [2006] 2 AC 618 at [10]. 22 See, for example, Young v Young [2013] EWHC 3637 (Fam) at [179]. 23 The 2011 CP, para 2.55; Miller v Miller, McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618 at [15] by Lord Nicholls; see also G v G (Financial Remedies: Short Marriage: Trust Assets), [2012] EWHC 167 (Fam) at [185], and CR v CR [2007] EWHC 3334 (Fam) at [83]. 24 Conran v Conran [1997] 2 FLR 615; Dart v Dart [1996] 2 FLR 286; A v A (Financial Provision) [1998] 3 FCR 421. 17 obvious. The 1990s position had been that there was in all cases a cap on the amount that a wealthy divorcé would have to pay; no matter how extreme the wealth involved, awards did not exceed £15m at most. But the application of the yardstick of equality meant that that had come to an end. 2.20 It may be the indignation of some of the wealthy about this change that has led to the references to London, in the press, as “the divorce capital of the world”.25 This is ironic; the courts in this jurisdiction in fact came very late to the principle that has guided divorce settlements throughout continental Europe for decades: that the couple’s wealth should be shared equally. Had Mr and Mrs White been from Sweden, for example, an equal division of their wealth would have taken place as a matter of course and without scope for dispute; had they been French, division would have been nearly equal, with an allowance for the contribution made by Mr White’s father. This is because Sweden and other Scandinavian countries along with the Netherlands, for example, operate a system of total community of property, while France is one of the countries that operate a system of community of acquests, automatically sharing equally property acquired by either spouse during the marriage. 2.21 In the 2011 CP we discussed the European community of property systems in some detail, as well as some of the common law systems of equitable distribution.26 The picture overall is that England and Wales has been a latecomer to the party; the sharing principle is uncontroversial, and has been for many years, in so many other jurisdictions. 2.22 However, the late development of the sharing principle, and the extraordinary fact that it arose from the exercise of judicial discretion and not from statute,27 had the consequence that it left the wealthy divorcé without any formal, reliable means of fencing off property from the sharing principle. In all countries that operate a regime of community of acquests, for example, it is clear that property acquired before the marriage will not be shared, unless the couple arranges otherwise by contract. In countries that operate a system of total community, pre-acquired or inherited property can readily be excluded from sharing by contract. That exclusion is not subject to challenge and the overseas courts have, for the most part, no discretionary jurisdiction to adjust the sharing arrangement so made.28 2.23 The introduction of the sharing principle as a development of discretion meant that there were no formal limits to sharing. That in turn meant that the principle was open to challenge in a number of different ways, all dependent upon the court’s discretion – with a consequent lack of predictability. 25 See, for example, R Dyson, “English courts still top the league for generous divorce payouts”, The Telegraph, 16 December 2013. 26 See Part 4 of the 2011 CP. 27 By contrast, see, for example, section 75 of the Family Law Act 1975 in Australia and section 11 of the Property (Relationships) Act 1976 in New Zealand. 28 See, for example, research recently carried out at Withers comparing “maintenance” in sixteen jurisdictions, for which our thanks go to Suzanne Kingston. 20 principles to shed light on those questions. 2.31 This is as far as the courts can go in validating marital property agreements. Only statutory reform can make such agreements contractually valid and capable of being enforced as contracts without the possibility of the court being able to override the contract by making an order under the Matrimonial Causes Act 1973 or the Civil Partnership Act 2004. In Chapter 5 of this Report we explain that we are recommending such reform, subject to the proviso that enforceable agreements will not be able to oust the court’s jurisdiction to make orders to meet financial needs. In effect, the new qualifying nuptial agreements will enable the parties to contract out of sharing (and out of compensation insofar as that concept differs from financial needs), but not out of their responsibilities to provide for each others’ financial needs after divorce. The limits of financial needs 2.32 That explanation of qualifying nuptial agreements does of course beg a question as to the extent of responsibility for financial needs. The answer is not entirely clear as there is no definition of “needs” in English law. We have said that the “reasonable requirements” approach was disapproved by the House of Lords in White v White;40 but the implications of that have not been clearly set out by the higher courts. 2.33 In the majority of cases the disapproval of “reasonable requirements” will have made no difference. The extent of the available resources means that for either partner to be maintained by the other at the marital standard of living for life is an unattainable aspiration. It is a matter of making ends meet, and the courts do the best they can. In most cases there is no question of any periodical payments between spouses (although there may be regular payments of child support);41 if periodical payments are ordered they may be for a limited term. The courts’ priority is likely to be to make use of the family’s resources in order to provide a home for the children and one of the parents. Anything approaching the reasonable requirements standard, in most cases, is not feasible. 2.34 In the very wealthy cases the picture is different. As we noted above, where there is very great wealth the courts tend to assess the financial needs of the applicant, check that they will be met by a half share of the matrimonial property, and then simply make a sharing award.42 But we can perhaps get a better sense of the way that needs are assessed when we look at very wealthy cases where sharing is not ordered, particularly after a short marriage where the respondent’s wealth was generated before the relationship began, but the wealth available is such 40 [2000] UKHL 54, [2001] 1 AC 596. 41 Just under 15% of all disposals of applications for financial orders in 2011 were for periodical payment claims. See Ministry of Justice, Judicial and Court Statistics (annual) 2011 (2012) pp 27 and 28 and table 2.6, available at https://www.gov.uk/government/publications/judicial-and-court-statistics-annual (last visited 7 February 2014). 42 As Sir Mark Potter, P said, “It is also clear that, when the result suggested by the needs principle is an award of property less than the result suggested by the sharing principle, the latter result should in principle prevail… .” Charman v Charman [2007] EWCA Civ 503 at [73]. For further discussion of the relationship between needs and sharing, see the 2012 SCP at paras 4.96 to 4.104. 21 that it places no constraints upon what can be ordered to meet needs.43 2.35 In those cases we find that needs are still assessed primarily by reference to the marital standard of living. Mr Justice Charles in G v G said that “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”.44 We do find acknowledgement that there is no longer a right to be kept at the marital standard of living for life;45 but it is not known what standard is aimed for. The only indication of what is wanted in Lawrence v Gallagher, for example, is a reference to the need “for each to live comfortably in their own homes”.46 2.36 This links to the idea of need being “generously interpreted” which derives from the speech of Baroness Hale in Miller v Miller, McFarlane v MacFarlane,47 In recent case law concerning high net worth, or “big money” cases, this concept has gained ground, when the court is assessing the applicant’s needs.48 However, this is not a term found in statute and, accordingly, judges have criticised the use of the term, as a judicial gloss that can create confusion and which should not be accorded a separate life.49 2.37 At the other end of the spectrum is the idea, from Radmacher v Granatino, of “real need” identified by Lord Phillips (giving the judgment of the majority) who commented that: 43 See McCartney v Mills McCartney [2008] EWHC 401 (Fam), [2008] 1 FLR 1508; also Lawrence v Gallagher [2012] EWCA Civ 394, [2012] 1 FCR 557. 44 [2012] EWHC 167 (Fam), [2012] 2 FLR 48 at [136]. 45 See for example: Lady Hale’s comments about the transition to self-sufficiency in Miller v Miller, McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618 at [158]; Bennett J’s comments in McCartney v Mills McCartney [2008] EWHC 401 (Fam), [2008] 1 FLR 1508 at [168] (“It must have been absolutely plain to the wife after separation that it was wholly unrealistic to expect to go on living at the rate at which she perceived she was living”); and Charles J’s comments in G v G [2012] EWHC 167 (Fam), [2012] 2 FLR 48 at [136] (“the objective of achieving a fair result … is not met by an approach that seeks to achieve a dependence for life (or until re-marriage) for the payee spouse to fund a lifestyle equivalent to that enjoyed during the marriage”). 46 [2012] EWCA Civ 394, [2012] 1 FCR 557 at [42] by Thorpe LJ. 47 [2006] UKHL 24, [2006] 2 AC 618 at [140]. 48 Lauder v Lauder [2007] EWHC 1227, [2007] 2 FLR 802; VB v JP [2008] EWHC 112 (Fam), [2008] 1 FLR 742; McFarlane v McFarlane [2009] EWHC 891 (Fam), [2009] 2 FLR 1322. See also the discussion in G Howell and J Montgomery (eds) Butterworths Family Law Service (Issue 184) para [846]. 49 Robson v Robson [2010] EWCA Civ 1171, [2011] 1 FLR 751; J v J (Financial orders: wife’s long-term needs) [2011] EWHC 1010 (Fam), [2011] 2 FLR 1280. 22 Of the three strands identified in White v White and Miller v Miller, it is the first two, needs and compensation, which can most readily render it unfair to hold the parties to an ante-nuptial agreement. The parties are unlikely to have intended that their ante-nuptial agreement should result, in the event of the marriage breaking up, in one partner being left in a predicament of real need, while the other enjoys a sufficiency or more, and such a result is likely to render it unfair to hold the parties to their agreement.50 2.38 It may be that the reason why the majority in the Supreme Court in Radmacher v Granatino spoke of “real need”, which sounds narrower than “need”, was because, in the same paragraph, they referred to the compensation of long-term disadvantage generated by the devotion of one partner to the family and home.51 The concept of compensation may simply make explicit what has always been regarded as an element of needs, that is, making provision, on divorce, for the long-term financial consequences of the marriage. This is not a new concept but the term “compensation” may be useful because it draws attention to financial consequences of divorce that may not be immediately obvious. 2.39 The recognition that an award focused on this type of disadvantage is a form of compensation may help the courts to focus their attention upon the real value of what has been lost. It is arguable that the introduction of compensation as a separate concept therefore simply teases out the complex notion of “needs generously interpreted”, to which the Supreme Court majority in Radmacher v Granatino referred.52 We note that this was not the view of Baroness Hale in Miller v Miller, McFarlane v McFarlane who took the view that compensation for relationship-generated disadvantage “goes beyond need, however generously interpreted”.53 2.40 But this, at least, appears to be the way that the courts have subsequently applied the concept, as the introduction of compensation as a distinct concept has made no difference in the level or the nature of the awards made. However, the effect of doing so may be to express the idea of “need” more narrowly, as “real need”, because its long-term aspect is now considered under this different head. That said, the concept of “real need”, as expressed in Radmacher v Granatino does not appear to have been taken up in subsequent case law.54 2.41 Does the uncertainty regarding the extent of responsibility for meeting “needs” matter? Arguably not. The “big money cases” are a minority, and those involved are unlikely to suffer real hardship, despite the energies and costs expended upon battles over budgets and the level of needs.55 And for the rest of the 50 [2010] UKSC 42, [2011] 1 AC 534 at [81]. 51 Above. The majority in Radmacher v Granatino took the view that there was no question of compensating Mr Granatino for the economic effects of his career change, on the basis that his was an individual choice, not a family decision; see [121], but see also the comments of Lady Hale at [194]. 52 [2010] UKSC 42, [2011] 1 AC 534 at [28]. 53 [2006] UKHL 24, [2006] 2 AC 618 at [140]. 54 See para 2.30 above. 55 See 29 Bedford Row’s consultation response, quoted in Chapter 5 at para 5.51. 25 presenter said: are you serious? No way! It became clear that there was a huge difference of approach.67 2.49 If that is true, we do not know whether the geographical inconsistency arises from geographical variations in the employment market and other factors which might provide an objective justification for the difference, or whether it is an ideological difference which cannot be so justified. Even if there are regional differences in income and employment patterns, differences in judicial practice are problematic if they give rise, not to fact-sensitive decision-making, but to forum shopping (that is, practitioners choosing particular courts in order to get the result their clients want). 2.50 In 2010, the Law Reform Committee of the General Council of the Bar said to us: There exists an almost "policy based" approach by courts as to whether they provide for joint lives, or term orders. For example, the Principal Registry of the Family Division and High Court tend to make joint lives orders, other major court centres do not. The impact is that clients and solicitors openly forum shop and an element of geographical lottery is introduced to these orders.68 2.51 In 2011, an article was published in the Family Law journal where the authors noted: As practitioners we have experienced cases with similar facts where the maintenance order made in courts outside London differs to that in central London in terms of whether a joint lives or term maintenance order is made and the level of maintenance. From speaking to other practitioners around the country it seems that they have had similar experiences.69 2.52 One of the questions asked in the Resolution survey, conducted specifically to support this project,70 was whether practitioners had ever issued proceedings in a particular court, or area of the country, because of a belief that the outcome to their client would be more favourable than issuing elsewhere. The majority of the 234 practitioners who responded (57%) indicated that they had issued proceedings in a particular location or court because they thought that would yield a more favourable outcome for their client.71 67 E Hitchings, “Chaos or Consistency? Ancillary Relief in the ‘Everyday Case’” in J Miles and R Probert (eds), Sharing Lives, Dividing Assets: An Inter-Disciplinary Study (2009) at page 185. 68 In response to our consultation on the contents of the 11th Programme of Law Reform, advocating a project on joint lives orders. 69 C Bradley and E Moore “The Maintenance Conflict: Crystal ball gazing versus a meal ticket for life” [2011] 41(Jul) Family Law 733. 70 Available at http://lawcommission.justice.gov.uk/consultations/matrimonial_property.htm. 71 A survey reported in the media, but not otherwise published, by Pannone, tends to the same conclusion. Reported by F Gibb, “Wives Seeking Divorce Get Better Settlements in the City”, The Times, 30 April 2013 and M Chorley, “Why An Ex in the City Gets a Better Divorce Settlement than Wives in the Provinces”, The Mail Online, 30 April 2013. 26 2.53 There is sufficient evidence of regional inconsistency, and of its being used strategically by legal advisers, for us to regard it as problematic. Lack of transparency 2.54 Second, there is a lack of transparency. Certainly, family lawyers are familiar both with the law and with the practice of their local courts, and they can advise on the likely outcome of litigation and so enable their clients to settle.72 But most people cannot afford lawyers. Many who previously had access to legal advice are no longer entitled to legal aid. They are able to access the courts, of course; but the process is more difficult without lawyers (for both the parties and the judiciary)73 and there is great concern that the court system will not be able to cope.74 In any event, at present most divorces are not accompanied by litigation about financial orders,75 and the court system does not have the capacity to accommodate the adjudication of a greater proportion of disputes; so it is no answer to the problem of the withdrawal of legal aid to say that the parties always have access to judicial discretion. This is not a reality. 2.55 Accordingly, a couple seeking to negotiate a financial settlement on divorce, without the means to afford lawyers and without the inclination to go through the court process, may have great difficulty in discerning what their legal rights and responsibilities are. They may be under the impression that the law requires them to share everything on a 50:50 basis. They may be under the impression that the wife is entitled to lifelong support, or to no support – and that confusion may be exacerbated by the first issue set out above: the fact that there appear to be significant differences in the levels of support awarded by courts in different parts of the country. 72 See E Hitchings, J Miles and H Woodward, “Assembling the jigsaw puzzle: understanding financial settlement on divorce – key findings” (2014, forthcoming), and S Beinhart, J Eekelaar and M Maclean, Family Lawyers: The Divorce Work of Solicitors (2000) pp 185 to 187. 73 One consultee, who sits as a Recorder, told us of the problems faced by the judiciary at FDR hearings where both parties are unrepresented, reporting that one recent case “just turned into a directions hearing where I tried to isolate the issues that needed to be heard and told them what the court could and could not do... . It had a time estimate of a day rather than the 1/2 day it would otherwise have taken”. 74 See, for example, K Holt, “Territory skirmishes with DIY advocacy: a Dickensian misadventure” (2013) 43(Sep) Family Law 1150 and H Genn, “Do it yourself justice: access to justice and the challenge of self-representation” (2013) 32(4) Civil Justice Quarterly 411. See also the recommendations made by the Judicial Working Group on Litigants in Person: Report (2013) to deal with an increase in litigants in person, available at http://www.judiciary.gov.uk/Resources/JCO/Documents/Reports/lip_2013.pdf (last visited 7 February 2014). 75 In 2012, 125,116 petitions for divorce, nullity or judicial separation were filed and 47,986 applications for one or more ancillary relief orders were made, meaning that approximately 38% of divorces are accompanied by litigation about financial orders. See Ministry of Justice, Court Statistics (quarterly) Main Tables (2013) table 2.1, available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/264142/csq- q2-2013-main-tables.xls (last visited 7 February 2014). 27 OUR CONSULTATION AND CONCLUSIONS 2.56 The law relating to financial orders is inherently unclear. It is not possible to discern from the statute what the law requires, although the courts and family lawyers administer the law with confidence. In our Supplementary Consultation Paper we asked questions designed to elicit the views of consultees as to whether this was an acceptable situation and whether the law should be changed so as to include, in statute, an explicit statement of the objective to be achieved in meeting financial needs. 2.57 As will be seen in Chapter 3 we have concluded that statutory amendment is not appropriate. But we have recommended the production and publication, by the Family Justice Council, of non-statutory guidance. It will be addressed both to lawyers and, in a different format, to the public, with the aim of minimising regional inconsistencies and addressing the problem of lack of transparency. We say more in Chapter 3 about the level of guidance that we think would be achievable and useful. 2.58 That guidance cannot introduce an objective in the law. Reverting to the metaphor at paragraph 2.5 above, it cannot tell the bus driver where he is supposed to go. However, we are recommending that the Family Justice Council in its guidance take on board and emphasise the fact that in the majority of cases, the outcome of the financial settlement made on divorce is independence. That independence is attained sooner or later, and whether it is sooner or later depends on factors inherent in the marriage – its length, the presence or absence of children, decisions made within the marriage, the marital lifestyle and so on. That outcome is consistent with the availability of no-fault divorce in a way that the reasonable requirements approach was not. 2.59 If guidance is prepared on that basis, acknowledging the general run of outcomes and the appropriateness of independence as an eventual outcome where possible, the courts and the public will know – at the risk of over-working that metaphor – where the bus usually goes. We say that this is where it ought to go. We are not changing the law, but we are encouraging what we see as best practice and as the most appropriate outcome. What we hope will result from that is not only more consistent practice in courts across the country, but also better access to law – and therefore fairer and more appropriate settlements – for those who do not have the assistance of lawyers. 30 CONSULTATION ON NEEDS IN THE 2012 SUPPLEMENTARY CONSULTATION PAPER Principled reform (Part 4 of the 2012 SCP): the options explained 3.9 In Part 4 of the 2012 SCP we discussed the options for a principled reform of the law relating to needs, with a view to resolving the two practical problems identified at the start of this Chapter.8 We expressed the view that the current law with its mixture of principles and objectives derived from case law is not satisfactory and that there should be a single objective, so that the courts and – even more importantly – the parties know what is to be achieved by an award designed to meet financial needs. 3.10 In the light of both the academic literature and the evidence from other jurisdictions, we took the view that there are two potential objectives pursued in making financial awards to meet needs. One is compensation: an award that makes up for the losses suffered by a spouse as a result of the marriage and/or of the choices made during the marriage. The other possibility is that needs are met in order to enable the parties to make the transition out of the financial “merger over time” that inevitably takes place during a marriage or civil partnership of almost any length. We discussed these as two possible – but mutually exclusive – objectives for the financial arrangements made on divorce or dissolution.9 We also considered the introduction of restrictions on payments, whichever objective was adopted, in order to hasten or enforce the attainment of independence. We asked consultees for their views about the two alternative objectives (both of which we explain in more detail below), and about the possibility of enforcing independence. We did not consult about the “reasonable requirements” approach, according to which a divorced spouse is entitled to support at the marital standard of living for life. The justification for this disappeared when divorce law was reformed in 1969 and it is not a viable option for reform.10 3.11 We now say more about the alternatives on which we consulted, before setting out consultees’ responses. Principles justifying the meeting of needs: (1) compensation 3.12 Marriage and civil partnership involve financial choices, and very often they also involve a division of labour. The choices that the partners make may have a short- or long-term effect on one or other party’s ability to earn and to be self- supporting; the obvious example is the loss of a career when a spouse gives up work, or moves into part-time employment, in order to look after children. Other examples include the spouse who loses the chance of promotion or of a better job by relocating for the sake of his or her partner’s career or lifestyle preferences. 8 We also explored the reasons why financial needs should be met at all. Marriage and civil partnership inevitably involve some level of practical and financial interdependence, and the ending of the relationship generally leaves responsibilities that have to be met which may impact on people unevenly. Very few consultees argued that there should be no liability for spousal support at all. 9 See Part 4 of the 2012 SCP. 10 Chapter 2, para 2.5. 31 3.13 Making provision for needs can be seen as compensation for this sort of loss, requiring the spouse who comes out of the marriage in a stronger financial position to account to the other for what he or she has lost. 3.14 This is, on the face of it, a logical basis for support. It has a long academic pedigree, enunciated by Ira Ellman in his article “The Theory of Alimony”.11 He made an economic analysis of the traditional housewife marriage, in which the wife invests early in the marriage and suffers serious losses in her earning capacity in return for the promise of lifelong support. The husband in this sort of arrangement postpones his investment until later; he carries on earning and has housework and childcare done for him, but makes a pay-back later by supporting his wife in their old age. Accordingly, Ellman reasoned, when a marriage breaks down it is likely that all the losses will have been incurred by one party while the other has as yet lost nothing. If only to avoid a perverse incentive for men to divorce their wives, these losses should be compensated. 3.15 This is no longer a universal model for marriage, and it is unlikely to be typical of many civil partnerships, although it is by no means irrelevant to contemporary life. However, it suffers from some drawbacks as a basis for spousal support. 3.16 For one thing, it entails, logically, that a spouse who is the financially weaker party but who lost nothing by marrying or as a result of his or her contributions to married life gets nothing by way of spousal support. The woman with a low-paid job who married a rich man and stopped work for a while (without having children) can go back to that job. We believe that many people are very uncomfortable with this outcome in the context of marriage and civil partnership. Divorce and dissolution are not, we found, generally seen as a clean break from responsibility or as an opportunity to send either party straight back to the position they were in immediately prior to marriage. 3.17 A further difficulty with the compensatory approach is evidential. It involves proving what would have happened had the financially weaker party not given up work, and that involves imponderable questions. Would the person have risen to the height of his or her profession, or would he or she have given up work anyway after marrying someone else? 3.18 We are not aware of any jurisdiction, where the needs of parties on divorce are met on a discretionary basis, that uses a pure compensatory approach in this sense.12 Indeed, when Ira Ellman came to devise “spousal support” guidelines as a law reform proposal for the USA, as Chief Reporter for the American Law 11 (1989) 77(1) California Law Review 1. See also, L Cohen, “Marriage, Divorce and Quasi Rents; or, ‘I Gave Him the Best Years of My Life’” (1987) 16 Journal of Legal Studies 267 and E M Landes, “Economics of Alimony” (1978) 7 The Journal of Legal Studies 35. 12 However, financial relief for cohabitants in Scotland is based on a principle of compensation: see Scottish Executive, Family Matters: Living Together In Scotland (2006) at page 5, available online at http://www.scotland.gov.uk/Resource/Doc/113318/0027450.pdf (last visited 7 February 2014), and section 28 of the Family Law (Scotland) Act 2006, which refers to “derived economic advantage” and “suffered economic disadvantage”. 32 Institute,13 he turned to a different model that avoids both the difficult practical outcomes that a compensatory model can cause and the evidential difficulties. Principles justifying the meeting of needs: (2) the “merger over time” 3.19 A different principled basis for providing for needs derives from the theory known as the “merger over time” and endeavours to unravel that merger by generating transitional – albeit often long-term (and, in certain cases, life-long) – provision for needs. This method does not require evidence of what might have happened or of careers and opportunities given up. 3.20 Most versions of the “merger over time” theory, which has a considerable foundation in academic writing,14 involve some degree of income-sharing for a period following divorce. Both the extent of sharing and its duration are proportionate to the length of the marriage. They also depend upon the length of time for which shared responsibilities (particularly for children) are going to continue despite the divorce, because that makes a difference to individuals’ ability to make a transition from the economic merger involved in most marriages and civil partnerships to independence. The merger over time theory accepts that in some cases, because of age or the length of the marriage or both, “de-merger” is not possible and needs have to be met indefinitely. 3.21 The merger over time theory justifies a particular approach to needs. It explains why support is paid and it explains what the end result is supposed to be: a de- merger of the merged financial lives. The theory by itself does not tell us how long it is supposed to take to de-merge, and therefore to adapt it to real life requires some decisions that turn on particular policy preferences. Is there to be a swift transition or a long and gradual one? Even if we say that the transitional period is proportionate to the length of the marriage, does that mean that it should be equal to that length, half that length, twice that length or some other proportion? 3.22 English law may be viewed as already embodying the merger over time theory. We observed in Chapter 2 that most divorces end in financial independence, sooner or later.15 In other words, deliberately or otherwise, the courts are enabling the parties to make the transition to independence, but in a way that is characteristic of this jurisdiction: ensuring, generally, that the transition is not too 13 The American Law Institute describes itself as "the leading independent organization in the United States producing scholarly work to clarify, modernize, and otherwise improve the law". It consists of 4,000 lawyers, judges, and law professors; it "drafts, discusses, revises, and publishes Restatements of the Law, model statutes, and principles of law". See http://www.ali.org/index.cfm?fuseaction=about.overview (last visited 7 February 2014). 14 See, for example, S Sugarman, “Dividing Financial Interests on Divorce” in S Sugarman and H Kay (eds), Divorce Reform at the Crossroads (1990) pp 159 to 160 and 162 and J W Ellis, “Surveying the Terrain: A Review Essay of Divorce Reform at the Crossroads” (1992) 44 Stanford Law Review 471, 495. 15 Chapter 2, para 2.42. 35 We consider the “relationship-generated needs” approach to be problematic with the potential for unhelpful arguments including the dissection of roles undertaken in a marriage. Recognition should be given to the fact that the principle of compensation to emerge from Miller v Miller, McFarlane v McFarlane seems to have largely fallen away. 3.29 There was real concern that the concept of compensation would create confusion. Mary Welstead agreed that “compensation relies too much on discretion and I think the time has come for some ‘bright line’ rules rather than judicial discretion”. 3.30 The majority response on behalf of the Judges of the Family Division was similarly concerned about the practical pressures which would be placed on the legal system by compensation, saying: In our opinion, if reform is to be undertaken at all, it would be highly retrograde and capable of meting out real injustice if spousal support were confined only to the compensation of loss caused by the relationship. Further, such a reform would undoubtedly lead to an explosion of litigation as to the scope and scale of the compensation claimed. 3.31 Those few consultees who expressed limited support for the concept of compensation did so generally in relation to fact-specific scenarios. For example, Manches LLP generally thought “that restricting spousal support to the compensation of loss caused by the relationship could cause undue hardship and unfairness in the case of long marriages or marriages where there are children or other dependent relatives”. They nevertheless saw a potential role for compensation in relation to short, childless marriages where they thought that “it may be appropriate to restrict spousal support to the compensation of loss caused by the relationship where that loss is quantifiable, for example loss of widow’s pension on remarriage”. The family law team at Charles Russell LLP agreed that a short marriage was the “only circumstance in which compensation of loss was relevant and achievable”. 3.32 Joanna Miles thought that there was a role for compensation, but as a complementary concept within a formulaic calculation rather than “an ‘all or nothing’ determining factor”. She said: … if one had a system which, as in Canada, produces ranges (which I think is very appealing), one might wish to distinguish those cases that had a “compensatory” flavour from those that were “pure need” (i.e. in no sense related to the conduct of the marriage) by allocating to the former awards from the upper end of the range and to the latter awards from the lower end. 3.33 Joanna Miles felt that this accorded with the treatment of compensation under the current law, commenting that “compensation seems already to be a factor that may push one’s award to a more ‘generous assessment’ of need, i.e. towards the upper end of whatever invisible range of quantum is being deployed (e.g. McFarlane (No 2))”. 36 3.34 In contrast, merger over time found significant support from consultees. Resolution highlighted many of the benefits of the principle in their response, noting: The unravelling of the “merger over time” approach is grounded in the reality of life at the end of the marriage or civil partnership, and might better address the complexity of the marriage partnership today which no longer necessarily follows the weaker claimant and stronger payer model. Most importantly it looks forward rather than backwards (unlike a compensation only model), reflecting the general direction of travel currently being taken by the courts to the question of spousal support. 3.35 The Law Society expressed similar support for the concept of merger over time noting that it seems: … a more accurate reflection of the diversity of circumstances found in contemporary marriages. It also enables the parties to achieve independence more quickly, albeit within a timeframe reflective of their personal circumstances. Attempting to balance the spouses’ position for a period proportionate to the length of the marriage seems both fair and realistic. 3.36 Consultees were critical of the artificial analysis of marital decisions required by a compensation approach. A number, like Resolution, saw merger over time as reflecting the realities of married life and separation. Dr Emma Hitchings described merger over time as “a principle grounded in the lived reality of the individuals as they leave their relationship”. As Julia Thackray said, “people expect their marriage to last and they make joint decisions about child care, work and where they will live on what seems best for their family at the time”. Professor Anne Barlow echoed these sentiments, saying: [Merger over time] reflects the joint enterprise or partnership nature and spirit of marriage which couples embark on together and which, as a result of (healthy) optimistic assumptions that the marriage will last, often involve one partner making the lion’s share of domestic contributions, either giving up work or working part-time, whilst the other’s greater financial contributions means they have not suffered financial setbacks in career terms. 3.37 Irwin Mitchell Solicitors told us that they preferred merger over time to compensation but noted that “the major flaw of the ‘merger over time’ approach is, however, that it does not tell us ‘what has to be paid by way of spousal support and for how long’ … . It is not clear, for example, why ‘the length of the marriage’ is proposed as the logical duration of support”.20 They felt, therefore, that it was “necessary to have recourse to other principles to answer these questions”. 3.38 Although merger over time had considerable support, a number of influential consultees declined to make a choice between the two concepts. The 20 We did not propose that the duration of support should be equal to the length of the marriage, although we did argue that the duration of the marriage is highly relevant to the duration of support. 37 Association of Her Majesty’s District Judges thought that it would be inappropriate to prefer one approach over the other, and that they “both have their superficially logical attractions”. Mr Justice Charles was more critical, saying that “both concepts introduce conceptual problems” and preferred “an approach based on relationship generated need to effect a fair transition to independent living”. The Family Law Society21 felt that they were being “unnecessarily constrained in choices” and the majority response from the Judges of the Family Division noted that they did “not consider that either of these proposals would improve the current law”. 3.39 A significant minority of consultees thought that merger over time was preferable to compensation, but that it was insufficient as a stand-alone concept. For example, the Family Law Bar Association felt that there was “more merit” in merger over time but that it was “not perfect, and it does not provide a complete answer to case study 3 [the civil partner who sustained a severe disability in an accident]”. They considered that there “may be a number of factors which can properly justify ongoing spousal support. These are but two examples … we prefer an approach which articulates a number of reasons which may justify ongoing support rather than the identification of just one”. Other factors relevant to the assessment of needs 3.40 In evaluating the compensation and merger over time models, consultees were also asked to consider the relevance of certain factors including length of marriage and standard of living, and ongoing joint responsibilities. Broadly speaking, there was support for the relevance of all suggested factors, although consultees disagreed about their relative importance. 3.41 It was generally accepted that length of marriage and ongoing contributions to the marriage were relevant in assessing need. The Law Society told us that “it seems unfair to force one party to support another for the rest of his or her life, which could be forty or fifty years, if they have only been married for a period of, say, five years. Conversely, it seems unrealistic and cruel to expect a party who has taken on child-rearing duties for 20 years to suddenly become independent within a three year time frame following a divorce”. Irwin Mitchell Solicitors reiterated this point, noting that “a spouse may need support for a longer period where s/he has a low or no earning capacity because s/he has primary care of the children”. 3.42 The most contentious factor was standard of living. Many consultees thought that this was significant. For example Irwin Mitchell Solicitors said, “Where spouses have dependent children, the spouses’ respective standards of living are relevant and should be comparable”. Dr Robert George agreed, saying he did not share “the Commission’s apparent difficulty with ‘needs’ (or any other part of the financial assessment) being assessed by reference to the parties’ previous standard of living. Everyone assesses their need according to their circumstance”. The Association of Her Majesty’s District Judges thought that length of the marriage as a factor was “less significant than the standard of living”. 21 The Family Law Society describes itself as “a gender-neutral organisation, founded in 2004 to help families experiencing the pain of parental separation”: see http://c0371814.myzen.co.uk/wordpress/?page_id=10 (last visited 7 February 2014). 40 3.56 Consultees disagreed about whether disabled dependent spouses should be encouraged towards independence.23 One anonymous consultee told us that “The law should in all cases encourage financial responsibility and independence except where genuine disability of one party prevents them providing for their basic needs”. Joanna Miles questioned whether there was a justification for one spouse having to support the other, after the end of the marriage, purely because the other spouse had suffered a catastrophic accident. 3.57 Responses to our Case Study 3, which discussed spousal support for Pat, who had suffered a devastating disability whilst in a civil partnership, were varied. Manches LLP thought that the working civil partner Chris should have responsibility for contributing to Pat’s care after the ending of the civil partnership, depending on his/her ability to do so. Rhys Taylor said that he “would not be deflected from saying that support should continue until independence has been reached” even in the face of an example where independence was unlikely to be achievable. Tony Roe Solicitors agreed, saying “Chris does have a responsibility to provide for Pat’s care after the ending of the civil partnership even though [Pat’s] needs might not be generated by the relationship”. 3.58 Irwin Mitchell Solicitors thought that Pat’s care ought to be the responsibility of the state rather than Chris. The Family Law Bar Association thought that Chris’ limited earning capacity made it inappropriate to require spousal support, but that a much larger income might require “modest” payments to Pat. OUR CONCLUSIONS FOLLOWING CONSULTATION 3.59 In the paragraphs that follow we set out, first, our policy conclusion following consultation and, second, our conclusions about how best to implement that policy and our recommendation for the way forward. Our policy conclusion 3.60 The two practical problems we are seeking to solve are the lack of transparency in the law relating to needs (leading to confusion and difficulty when people do not have legal advice), and inconsistency in the application of the law.24 Both could be resolved, or at least considerably ameliorated, if the Matrimonial Causes Act 1973 set out an objective to be met by provision for needs.25 3.61 Our consultation was therefore primarily about the possibility of introducing an objective, as we explained above. 3.62 We can draw a number of strands from the consultation responses. Overall this is a highly controversial area and there is a great deal of resistance to reform. Certainly there was no unanimity about the need for change. A number of consultees preferred to retain multiple objectives within the law. This preference 23 We received an interesting reminder that the disabled spouse may not be the party requiring support. Our consultee was the wealthier spouse and had considerable care needs. She found herself making payments to her former spouse for spousal support which she found “unbelievable”. 24 Paras 3.3 to 3.6 above. 25 As it did before the reform of 1984 (see Chapter 2, para 2.5) – although of course we do not suggest reverting to that deleted objective (para 3.10 above). 41 is, we think, an expression of the confidence that lawyers rightly have in judicial discretion. It is helpful to retain a choice of objectives so as to enable tailor-made solutions. But we remain convinced that the presence of multiple objectives, with no overriding rationale, generates confusion and give insufficient assistance to litigants in person and to those who are not accessing the courts at all. 3.63 Turning to the alternatives we offered, clearly there is little support for compensation as the reason for meeting needs. Consultees felt that this justification could generate litigation due to its backwards-looking approach, which would require arguments over quantification and a dissection of roles within the marriage, and also because it would provide too much discretion, potentially generating confusion. They were also concerned that confining spousal support to the compensation of loss could cause hardship and injustice in some cases. 3.64 The idea of unravelling the merger over time, so as to enable the parties to make a transition to independence, garnered more support. Consultees took the view that this approach was grounded in the reality of life and marriage, recognising the diversity and complexity of relationships, and looking forward to the transition to the parties’ lives after separation. They felt that it recognised that financial relief should have some relation to the length of the marriage and respected the fact that marriage is a serious, joint commitment which may take time to unravel. Generally, consultees pointed to the many elements involved in meeting needs including the occupation of the former matrimonial home and housing more broadly, and the relation of needs to the marital standard of living and the spouses’ responsibilities, in particular the ongoing care of children. 3.65 However, while there was support for the idea that the law should encourage independence by setting limits on levels of support provided to meet needs, there remained misgivings about this approach, which we share. We are not in favour of a rigid time limit to the payment of periodical payments, for example, and we think that any such recommendation would be highly contentious despite the support in principle for a transition to independence. We explained in the 2012 SCP how it would operate unfairly, causing particular hardship to those who are not sufficiently well off to be able to capitalise income provision;26 and individual hardship will impose costs on society as a whole. 3.66 By contrast, the principle of merger over time fosters the conclusion that, on divorce, the transition to independence should not be sudden. Especially important in this jurisdiction, with our particular understanding of needs, is to build into the merger over time idea the expectation of a home. In practice, in the light of the fact that the proportion of divorces which are followed by ongoing periodical payments is small, we know that independence is what in fact happens sooner or later. So we support the adoption of the merger over time justification for meeting needs, aiming for independence but without adding in artificial constraints to make independence happen quickly. 3.67 Accordingly, we conclude that the objective of financial orders made to meet needs should be to enable a transition to independence, to the extent that that is possible in light of the choices made within the marriage, the length of the 26 The 2012 SCP, Part 4, paras 4.79 to 4.81. 42 marriage, the marital standard of living, the parties’ expectation of a home, and the continued shared responsibilities (importantly, childcare) in the future. We acknowledge the fact that in a significant number of cases independence is not possible, usually because of age but sometimes for other reasons arising from choices made during the marriage. 3.68 That policy is perhaps the least surprising that we could have reached. It reflects what happens in the vast majority of cases already. It does not point to any change in direction for the courts; it is consistent with the majority of current decisions while setting out a clear objective for those who do not have legal advice. Implementing our policy Statutory amendment? 3.69 The 2012 SCP envisaged that a consideration of the appropriate objective for the meeting of needs would lead us to recommend statutory reform. Until 1984 there was a statutory objective for the provision of needs. Our predecessors recommended its abolition, but did not provide a replacement – which we could now do. At first sight that is the obvious route to improving the law. 3.70 Statutory amendment would take the form of an amendment to section 25 of the Matrimonial Causes Act 1973, and its counterpart in Schedule 5 to the Civil Partnership Act 2004. It would take the form of an additional objective, subordinate to the existing “first consideration” (being the needs of the parties’ minor children); the section would set out the objective to be attained when the court made an award designed to meet the parties’ financial needs. It might also specify how that objective was to be reached, taking into account the merger over time issues that we set out above. 3.71 However, there are disadvantages to this approach. The reality of the courts’ practice, which is that financial needs are the only issue in the vast majority of cases, is not reflected in the statute at all. It would not be clear how the other section 25 factors related to this objective, which would apparently refer to just two of the words among the matters set out in section 25(2)(b). Any further explanation of “financial needs” would run into very difficult problems because the obvious contrast is with “sharing” and “compensation” – the other two “strands” identified in Miller v Miller, MacFarlane v McFarlane,27 neither of which is mentioned in the statute. 3.72 Nor would it be obvious what the effect of the amendment should be. Our policy is not designed to give rise to any general change in outcomes; a statutory amendment, by contrast, would be likely to be viewed as intending to change things, and would certainly be vulnerable to interpretations that conflicted with our intentions. 3.73 Perhaps our most important misgiving about amending the statute is that our policy is closer to clarification, or even to a statement of best practice, than a change in the law. Independence, attained in a way that reflects the merger over time, is what happens now in the vast majority of cases. As we said in Chapter 2, 27 [2006] UKHL 24, [2006] 2 AC 618. 45 We have some difficulty with the concept of practice guidance issued by the FJC and how such guidance would fit in with our common law system of statute and case law precedent. Would such guidance be treated as if it were statute, or as a rule or practice direction? Would it be binding on the Court of Appeal and Supreme Court? In any event, such guidance would be “fixed in time” and in due course may fail to reflect changing social norms and expectations as set out above. 3.83 Resolution were concerned that judges would ignore non-statutory guidance, saying: Unfortunately, we doubt that judges would consistently take non- statutory guidance into account (even if produced by the FJC) unless it had the force of a Practice Direction accompanying the Family Procedure Rules. Practice Directions with worked examples have the benefit of being able to be updated quickly. Judges of course wouldn’t and shouldn’t be precluded from looking at hub guidance. 3.84 The family law team at Charles Russell LLP thought that guidance would “need to be frequently updated to dovetail with case law” and we agree that this would be important. 3.85 There was support for guidance to be made accessible to the public. Alec Samuels told us “law and practice is readily accessible by the lawyers … . Information certainly needs to be provided for the public and laymen generally”. The Chancery Bar Association recognised the “real concern … that the absence of public funds for divorcing couples requires the Guidance to be readily available to the lay parties”. Joanna Miles was concerned that “plain English” experts should be involved to ensure the resulting guidance was accessible to litigants in person. Our recommendation 3.86 Clearly guidance cannot change the law. In answer to the concerns raised by the Family Law Bar Association, it cannot be treated as statute or as law, nor can it bind the courts. But the existence of guidance does not threaten the rule of law in any way. Guidance can disseminate information about the ways in which the courts’ discretion is currently exercised; and it can encourage the use of discretion in a particular way and with a particular objective. Whether that encouragement is accepted depends upon the authority of the body giving the guidance. We think that it is important that it comes from a judicial source, and we think that the Family Justice Council – with its judicial members, and chaired by the President of the Family Division – will command respect among the judiciary because of its wide range of membership, and the experience of its members. 3.87 As we noted above, this is an area where consensus is unlikely. But we think that the authority and experience of the Family Justice Council mean that it is best placed to produce guidance, addressed primarily to the courts but published, additionally, in plain English and in an accessible format for members of the public. Steps would need to be taken to disseminate it so that those involved in divorce and dissolution can use it and be guided by it; it should be made widely available in printed form and on the internet. 46 3.88 We recommend that the Family Justice Council prepare guidance as to the meaning of financial needs, encouraging the courts to make orders that will enable the parties to make a transition to independence, to the extent that that is possible in the light of choices made within the marriage, the length of the marriage, the marital standard of living, the parties’ expectation of a home, and their continuing shared responsibilities. 3.89 We recommend that the guidance prepared by the Family Justice Council be addressed primarily to the courts, but that it should be produced additionally in a plain English format and made widely available to the public, in printed form and electronically. 3.90 We recommend that the guidance be kept under review by the Family Justice Council and updated regularly. 3.91 Internet publication is obviously important, in view of the growing familiarity of the public with the internet and its use as a source of everyday information. One possibility would be to have the guidance linked to the Government online information hub being developed in response to one of the recommendations of the Family Justice Review,32 as well as other non-Government online divorce resources. However, its source and authority – deriving from the Family Justice Council and not from Government – should always be made clear. A paper version could also be handed out to members of the public who collect court forms for divorce and dissolution, such as the petition and acknowledgement of service. CONTENT OF THE GUIDANCE 3.92 We think that the guidance we envisage will need to cover the following areas. (1) What are needs? (2) At what level should needs be met? (3) The duration of provision for needs and the transition to independence. 3.93 We offer here a brief sketch of what we think guidance should include under each head, setting out our understanding of the “mainstream” position. It is important to appreciate that in an area where there are no rules or strict entitlements, there is a limit to what guidance can achieve. We move on later in the Chapter to consider whether there is scope for guidance that might include figures, on an indicative basis, rather than only words. In the meantime, carefully worded guidance can point the courts and the parties to the result to be achieved. What are needs? 3.94 It is well known to lawyers that “financial needs” is a very broad concept, potentially encompassing every aspect of provision of a home and for daily life, in the short and longer term. An elucidation of the subject matter of needs is perhaps the least critical element of the proposed guidance because on this 32 Such as http://www.sortingoutseparation.org.uk/ (last visited 7 February 2014). 47 issue, at least, there is already considerable information available to the public.33 The courts need no reminder of the breadth of needs, but it will be helpful to the public for the guidance to indicate as many elements of needs as possible so that it cannot be argued, for example, that needs does not include the provision of a home, an income for living expenses and so on, including in some cases, the provision of a pension by way of a pension sharing order.34 3.95 Far more difficult, and more inaccessible to the public as things stand, are the questions as to the level of provision for needs, and the duration of that provision. At what level should needs be met? 3.96 Exactly how, and at what level, needs will be met will depend on the resources available and, usually, the marital standard of living. Replicating the marital standard of living in two homes, after divorce, will be rare: most parties will not be able, in the short to medium term, to live at the standard they enjoyed during the marriage. That said, their former standard of living will be relevant in so far as any reduction in standard of living as a consequence of the financial settlement made on divorce should not fall disproportionately on one party. In addition, 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 own resources.35 Where there are children 3.97 If there are children who must be cared for and limited resources available, the parent who primarily cares for those children should be securely housed in priority to the other parent. Preferably she or he and the children should remain in the family home after divorce if they wish and if that will not prevent the other parent from being able to be housed. If such an outcome would be unfair in terms of the capital split then the other parent could retain an interest in that property, under a trust or charge, that can be realised at a later date, usually on the youngest child leaving secondary or tertiary education. Alternatively, it may be that both parents can reasonably afford to retain or buy a property, perhaps by downsizing. 3.98 It may be that neither parent can afford to buy (or retain) a property, if doing so would mean that one parent could not even afford to pay rent. That might be the case if the former marital home was heavily mortgaged. Or the parties may never have owned a property, in which case, unless there are significant savings that could be used towards purchasing a home, both should expect to rent. 3.99 Cases where divorcing spouses or partners have children are likely to be those where income need is greatest. This is because caring for children usually 33 Such as the online resources mentioned at para 3.91 above. See, for example, R Rogers, “Divorce: how to calculate ‘reasonable needs’” Marilyn Stowe Blog, 15 January 2010, available at http://www.marilynstowe.co.uk/2010/01/15/divorce-calculate-reasonable- needs-by-rachel-roberts/ (last visited 7 February 2014). 34 The purpose of sharing of a pension could be characterised as being to secure a fair share of the parties’ assets on divorce but, ultimately, except in wealthy cases, also helps to meet the needs of a party for financial provision after retirement. 35 See para 3.109 below. 50 3.110 We would expect the length of such terms to be in the region of two37 to 1038 years. If continuing provision is expected to be required for longer than that then, given the difficulties of foreseeing changes in circumstances, we would expect that provision would better be made by way of a joint lives order. 3.111 Where there are minor children, the term could endure until such time as the care of their children no longer prevents the parent with primary care from meeting his or her own needs through employment, therefore making a transition to independence. The term might end on the youngest child reaching secondary school age, providing that allows sufficient time for the payee spouse to establish or exercise an earning capacity. However, the specific details of what is appropriate will vary according to the facts of each case, and it may be the case that financial settlements contain provisions that reduce in stages the level of payments made during the term, depending on what can reasonably be expected of the payee spouse with regard to employment. 3.112 The age of the parties at the time of divorce will be significant for whether any continuing provision should be limited to a term. This links to, but is not the same as, the length of the marriage. For example, even after a long marriage of, say, 20 years, if the parties married young, they may only be in early middle age at the time of divorce. At this age an individual may have 20 to 25 potential years in the labour market without childcare responsibilities. It may not be unfair to encourage a party in his or her forties - or older, depending on specific circumstances - to make the transition to independence, by limiting any periodical payments to a term. 3.113 There is also the question of whether the term should contain a bar preventing it from being extended.39 Such a bar is unlikely to be appropriate if there are young dependent children being cared for by the payee spouse but may be appropriate if the children are older. It may also be appropriate where, in the situation of an older separating couple, provision by way of continuing periodical payments is only to continue until such time as pension provision can be accessed.40 No, or limited, continuing provision 3.114 In certain circumstances, continuing periodical payments should be avoided in favour of a clean break. The most likely scenario is that of a short, childless 37 As in the case of L v L (Financial Remedies: Deferred Clean Break) [2011] EWHC 2207 (Fam), [2012] 1 FLR 1283, where a term of two and a half years was set. The wife was 44 at the time of separation, and a successful businesswoman having worked throughout the marriage. The wife also owned a mortgage-free, 350 acre farm. 38 As in the case of D v D (Financial Provision: Periodical Payments) [2004] EWHC 445 (Fam), [2004] 1 FLR 988 in which Coleridge J allowed the husband's appeal against a joint lives order and imposed a 10 year term. Coleridge J stated, at [25], “It is not, in my judgment, fair to the parties for the courts to carry out a careful, equal division of assets as this district judge did and then leave open in an unrestricted way the possibility for that fairness to be revisited in years to come”. 39 Under section 28(1A) of the Matrimonial Causes Act 1973 or para 23 of Sch 5 to the Civil Partnerships Act 2004. However, following the Court of Appeal case of Fleming v Fleming [2003] EWCA Civ 1841, [2004] 1 FLR 667, we note that the extension of a term order for maintenance must be justified by exceptional circumstances meaning that the distinction between a term order with such a bar, and one without, may not be that significant. 40 See para 3.106 above. 51 marriage. Spouses of such marriages are unlikely to have fully merged their lives and resources and we would expect the transition to independence to be swifter than in other cases. While a periodical payments order might be appropriate where, for example, there is very little capital and a great disparity between the parties’ incomes, this will be unusual. Any such payments would, we think, typically only be made for a short term of no more than two or three years. A bar to extending the term is likely to be appropriate. 3.115 In rare cases, where resources allow, income needs may be met by a division of the capital that the parties have, in excess of what is required for housing, so capitalising any ongoing provision that would otherwise be made by periodical payments. The place of compensation alongside provision for needs 3.116 How does a right to reliance-loss compensation41 work with, or not work with, an objective of transition to independence? If compensation is not the overall objective, it is difficult to accept that it could be an additional objective. It should not compromise transition where transition is possible. If a party can work and support him- or herself now, then there is an argument that it is not beneficial to either party for one spouse to be in receipt of life-long maintenance for reasons of compensation. Such a compensation basis could imply that the payee party’s income should be increased, by receipt of periodical payments, to what it would have been had she or he continued working as, for example, an investment consultant. 3.117 On the other hand, is it possible to regard reliance-based compensation as one of the ways the court can achieve transition to independence? After a 10 year marriage with children let us assume that the wife is going to have an impaired earning capacity for the next 10 years because of the age of the children; she needs support, because a transition to independence is not yet possible. Could the measure of that support be what she would have been earning if she had not married, rather than the marital standard of living which might have been higher or lower? This is not consistent with our policy nor with the courts’ current approach. It is less worrying, however, in a short marriage case where the court might realistically be able to use it in order to “turn the clock back”. 3.118 So, we take the view that compensation should not be an addition to the merger- over-time-based transition to independence, because that compromises independence. Nor does it work generally as an alternative measure of transitional support (that is, the route to independence, used instead of the merger-over-time-based ideas) because that might be to the advantage or disadvantage of the person compensated. In any event, using such a measure runs into the evidential problems that have motivated consultees to reject compensation as a general basis for needs claims.42 41 See Chapter 2, paras 2.38 to 2.40. We use the term “reliance-loss compensation” in this context to refer to a situation where a person has made financial decisions in reliance upon the continuation of the marriage or civil partnership and of the financial partnership. Whether or not there is fault in the divorce, that reliance fails when the marriage or civil partnership breaks down. 42 See paras 3.27 to 3.33 above. 52 3.119 Equally, to say that reliance-based compensation cannot happen would be to go too far. The policy outlined above leaves room for reliance-based compensation in short marriage cases. In these cases the objective of independence may be achieved by providing the payee spouse with what would have been earned had he or she not given up a job to join in an endeavour of his or her partner’s. For example, this might well solve the problem of how much of a wealthy party’s capital needs should be given up in order to facilitate the transition of his wife of, say, 15 months who simply needs to be enabled to make a fresh start. That may amount to the value of a house, or it may provide a deposit on a house which she can then buy herself. Either approach is plausible under the current law, fits with the very English value placed on owned housing, and is acceptable under our policy. In conclusion 3.120 Guidance of this kind will not always be capable of dealing with every case. There may be those cases, exceptional in nature, where the guidelines that we have set out do not produce a fair result, or clear answer. That is inevitable. However, this does not negate the desirable nature of a single objective, rather than a range. If there is a choice of objectives, the court can opt for what is seen as most appropriate in an individual case; but that leaves the general public in a position where the law does not tell them what to aim for. We think that a single objective is workable and that the difficulties in its operation in some marginal cases are outweighed by the benefit of clear law. But we take the view that the existence of such exceptional cases should not undermine the results of the work that we hope the Family Justice Council will undertake, building on what we have set out above. LOOKING TO THE FUTURE: COULD A FORMULA BE FEASIBLE? The use of formulae in other jurisdictions 3.121 One further aspect of the 2012 SCP provoked particular interest and controversy. Many jurisdictions, both civil law and common law based, have faced the same difficulties with the law relating to spousal support as we have found here, as a result of the breadth of the discretionary jurisdiction set up in the statute. As a result, some jurisdictions have devised methods of calculating spousal support, using an arithmetical formula. These are jurisdictions where “spousal support” tends to mean income payments, in the context of a community of property regime which means that capital is divided equally, so great care is needed with the comparison. But it is useful to see what has been achieved elsewhere. 3.122 Perhaps the most famous of these is found in the American Law Institute’s Principles of the Law of Family Dissolution (“the ALI Principles”). The ALI Principles are a law reform proposal, but they reflect the current law and draw together principles and practice from across the different states within the USA. They advocate spousal support that addresses the different impact upon the parties of the ending of the relationship. They provide a formula for calculating spousal support, which adjusts the differential in income that the parties are going to experience following divorce, to an extent and for a period that are both proportionate to the length of the marriage and to the period spent looking after children. The longer the marriage and the longer that responsibility is to be undertaken, the more the payee gets and the longer he or she gets it for. 55 are still vivid.54 That experience, and a great respect for judicial discretion, combine to make formulae something of an anathema for English family lawyers. 3.130 The other is legal and practical. Most of the jurisdictions where a formula is in use operate a community of property regime. The couple’s property is divided equally on divorce,55 and spousal support is seen as a matter only of income. That is very different from the position in England and Wales where we see spousal support, or “financial needs”, as a matter of both capital and income and crucially as including provision for housing in a way that simply cannot be achieved by dividing the couple’s capital equally. We also have a strong preference for capital orders over income orders; we prefer the financial and psychological advantages of the clean break to the imposition of an ongoing financial relationship. 3.131 In the light of this, any formulaic approach to spousal support56 for use here would have to be set up so as to generate both the level of support currently awarded and the form of support. The formula could generate a range of periodical payments, which could be capitalised if the parties wished,57 and if this could be afforded (which may be uncommon). It may also be possible to generate an overall figure, which would normally be paid as an unequal share of the equity in the family home (in cases where there is any), so as to reflect current practice and so as not to discourage the clean break. While this will be a complex undertaking it should not present an insuperable problem. Careful attention will have to be paid to factors such as regional disparities in house prices and salaries,58 the prevalence of debt, and the fact that income has two functions: it can be spent, but it also represents borrowing capacity. All these are factors in an economy where the well-being of a family is seen as being closely linked to its ability to borrow in order to own its own home.59 In some cases the provision of owner-occupied housing, after divorce, may simply not be possible. Consultation responses 3.132 In the 2012 SCP we explained the use of formulae in other jurisdictions and asked: 54 The current, simple formula can be examined by using the online calculator available at http://www.cmoptions.org/en/calculator// (last visited 7 February 2014). 55 Either all of it, if a regime of total community is in force, or only property acquired after the marriage in states where a community of acquests is in force; and, in all cases, subject to contrary provision in a marital property agreement. 56 We continue to use this term to mean “financial needs” in the English sense. 57 As do the SSAG (see SSAG Chapter 10 on Restructuring) and the ALI Principles (see § 5.10). 58 See Standard Note (SN/SG/1922), Regional house prices: affordability and income ratios (29 May 2012), available at www.parliament.uk/briefing-papers/SN01922.pdf (last visited 7 February 2014). 59 Although we have to ask, as some consultees have said in discussion with us, whether this is bound to continue for the future: is our dependence on capital going to be sustainable in the current economic climate, or will renting homes become a more acceptable and manageable option? 56 If consultees favour a principled reform of spousal support, should it take the form of: (1) a reformed discretionary approach or (2) a formulaic calculation?;60 and What preliminary work would be needed to research and pilot a new approach? In particular (1) who should do the work? (2) what methodology should be adopted? And (3) what sort of timescale would be required?61 3.133 We asked about methodology because we were aware that years of work went into the Canadian SSAG, and also that the lack of preparatory work and testing was one of the reasons for the disastrous failure of the 1991 child support formula. 3.134 We also asked a scenario-based question (reproduced in Appendix C). Consultees were asked whether the couples in our scenarios would find it helpful, or frustrating, to be able to look up and use a calculation that would give them a figure, or a suggested range, for the amount payable by way of support. 3.135 Predictably, there was no majority support for the introduction of a formula. Twenty-three consultees preferred a reformed discretion while 19 were in favour of a formula; but within the 23 were nearly all the practitioners (including Resolution and the Family Law Bar Association) and all the judiciary, making that a much more significant majority in favour of discretion than the bare numbers would indicate. 3.136 The majority response from the Judges of the Family Division gave short shrift to the idea of a formula: As we have stated, we would not support any specific reform to the law relating to spousal support. However, if there is to be reform we would strongly oppose the imposition of any kind of a formula. The utterly disastrous experiences of the CSA speak for themselves; yet that deals with but a small aspect of a family’s needs. 3.137 Less vehement but equally clear was the Association of Her Majesty’s District Judges: If any reform is needed (and we refer again to our primary position in this respect), we prefer a reformed discretionary approach. Each case is fact-sensitive and not susceptible to the application of a rigid formula. Further, a formulaic approach is likely to lead to satellite litigation as to what circumstances constitute substantial injustice, and thereby enabling a departure from the formula. This satellite litigation is likely to lead to uncertainty in its own right and a whole raft of new case law. 3.138 Among the practitioners, Julia Thackray and Tony Roe Solicitors highlighted the benefit to those going through divorce that would be offered by guidance as to 60 The 2012 SCP, paras 4.116 and 7.5. 61 The 2012 SCP, paras 4.118 and 7.7. 57 the appropriate result, for example for those left without legal advice as a result of the withdrawal of legal aid. Julia Thackray said: Like many other family lawyers the idea of a formula to determine maintenance did not appeal to me. Our experience of the CSA formula has not been an entirely happy one. Family circumstances vary widely and we want to be able to tailor settlements appropriately. I have, however, been considering the possible look of the future of family law and what people divorcing want and need. Even wealthy clients can find plenty of other things to spend their money on than lawyer’s fees. Most clients who end up arguing over these issues feel to an extent drawn into a conflict that they didn’t know would exist or that they feel drawn into and greater guidance on the spousal support would assist. I have come to see that the kind of guidance applied in the Canadian courts could be usefully explored here. Not a strict tariff or formula, but bands of maintenance based on the differential between the parties’ earnings. Not an absolute amount, but a balancing up of income disparities taking into account whether there are children and the length of the marriage. On top of clear capital split it seems to me that such a system could mean that in many cases there would be reduced scope for argument whilst preserving sufficient room for manoeuvre where particular needs arose. 3.139 And while Tony Roe Solicitors responded to the formula option at paragraph 4.116 of the 2012 SCP by saying, “No. Not under any circumstances”, in responding to the question about the scenarios they conceded, “Pragmatically, bearing in mind the abyss that looms in April, after the severe reining in of public funding, something must be better than nothing, no matter how frustrating that might be”. 3.140 Much of the professional opposition to a formula was focused on the idea of a rigid statutory formula giving a single answer. The idea of guidelines, starting points or ranges attracted less opposition, and the Canadian experience aroused interest. So the family law team at Charles Russell LLP said: Only a few favoured a formula. Most were sceptical as a result of poor (mainly CSA) experiences. The clarity it brought for some was little benefit as compared with the hardships it might impose upon others. Much interest was expressed in the Canadian formula which was understood to create a high and low range of outcomes. 3.141 Resolution said: … we are not persuaded about the merits of a purely formulaic calculation in relation to only spousal support, in isolation from full and proper consideration of the merits or not of reform of the whole law on financial remedies post divorce or dissolution. 60 3.150 We felt that those events – which took place at the very end of the consultation period – prompted a change of view in some practitioners. Professor Rogerson’s presentation was effective in demonstrating that a formula need not be a strait- jacket, and indeed that the Canadian situation was not so far remote from ours. She pointed out that when the working group was first set up to consider the devising of a formula, it was not at all certain that the project would be successful. Today, the formulaic guidelines are widely used and respected. Conclusions about formulae 3.151 We can draw a number of conclusions from the consultation responses. One is that a child-support-style formula that gave a single answer in a given case would not be acceptable to us or to the family law profession.62 3.152 However, there remains potential for development of guidelines similar to the Canadian SSAG. These are not wholly opposed by our legal practitioner consultees. We agree, of course, that a world where everyone had access to legal advice and to judicial discretion that provided “a bespoke approach in each case so as to achieve fairness”63 would be ideal. But that is not available. In the light of that, we have recommended a transparent objective for spousal support as described above,64 and guidelines showing the way in which that objective is to be achieved. In addition, it may be helpful to people to have access to a calculation that could be made available online, as is the child support formula, and that would indicate at least a “ball-park” – a range within which people could then negotiate. 3.153 We do not think that that formula should be statutory; the Canadian experience shows that non-statutory guidelines work well and are likely to arouse far less opposition than legislation. 3.154 It would take a great deal of work to develop a formula generating a range of outcomes in each case. Responses to our question about methodology65 generated a variety of views but almost all who contributed to this point agreed that it would be a major, multi-disciplinary undertaking. 3.155 We can perhaps isolate three points. One is the need for empirical data. A formula would need to be generated “from the ground up” as it was in Canada and would need evidence of current court determinations.66 We have been saying for some years that there is a serious lack of data in this area;67 some research is 62 Despite the views of some professionals, such as Baroness Ruth Deech QC. 63 Family Law Bar Association response. 64 Paras 3.88 to 3.90. 65 The 2012 SCP, paras 4.118 and 7.7, quoted at para 3.131 above. 66 As the objective would be to capture current best practice we do not agree with consultees who suggested that a public opinion survey would be required. However, if at any stage the whole of the law of financial provision came under review, that sort of work would be vital. 67 Tenth Programme of Law Reform (2008) Law Com No 311, para 5.6. 61 now in progress,68 but more would be needed. It is most likely to be undertaken by academics with access to external funding. 3.156 Second, there would be a need for that evidence to be studied and work carried out by an interdisciplinary team. This is not a job for the Family Justice Council, we think, because a broader range of expertise is needed. Nor is it a task for one academic alone, nor even for a team of lawyers. An interdisciplinary team should include academics from a range of disciplines – including social scientists and economists – and practitioners. The Canadian experience shows that the involvement of the judiciary is essential and valuable. We envisage that the work would involve a close study of the empirical data, followed by a process of experimentation with different forms of calculation so as to devise something that would replicate the mainstream of current outcomes as far as possible.69 3.157 Thirdly, the project would need time. Estimates among consultees ranged from one to five years, and we think that five years might be about right. Experience elsewhere makes it clear that the investigation and development of a formula takes a considerable time; this is not an area where a quick fix is possible. 3.158 The work needed to try to develop a formula would involve a great many people. We are mindful of the fact that the successful development of the Canadian SSAG depended in part upon the fact that the Government sponsored the endeavour. To “sponsor” the development need not involve massive funding; although Government might undertake the empirical research itself, realistically it is more likely that the research would be carried out in the university sector with Research Council or third sector funding. The working group itself is likely to be convened on a part-time basis; Government’s involvement might extend to space, travel expenses and a secretariat, and perhaps payment for a small number of full-time research assistants. Whether such limited funding would be forthcoming is, of course, a big question but we do not know how things will develop in the future. Some consultees suggested that the Law Commission should be involved in this work, and we note that possibility. However, the project would require wide-ranging cross-disciplinary leadership. 68 Dr Emma Hitchings and Joanna Miles are currently conducting a research project funded by the Nuffield foundation on final settlements in financial disputes following divorce. They are carrying out empirical research focusing on the stage within court proceedings at which consent orders are made; they are also examining the content of orders made at different stages and the characteristics of cases. Further information about the project is available at http://www.nuffieldfoundation.org/final-settlements-financial-disputes-following-divorce. Hilary Woodward of Cardiff University Law School is currently conducting research in this area, focused on pensions in the context of divorce. The project title is “Pensions on divorce: an empirical study”: see http://www.nuffieldfoundation.org/pensions-and-divorce (last visited 7 February 2014). 69 We used the word “pilot” in the 2012 SCP; we do not envisage piloting in the sense of experimenting with the use of a formula on as yet unresolved cases. We would expect that the group’s work would involve a long process of testing out different versions of the formulae on both hypothetical cases and real (anonymised) examples. 62 3.159 We recommend that Government support the formation of a working group, to be convened once suitable empirical data become available, to work on the possible development of a formula to generate ranges of outcomes for spousal support. The group would be composed of academics from law, the social sciences and economics, and of family law practitioners and judges. Government support should extend at least to the provision of meeting space, travel expenses and a secretariat; ideally it would also involve the funding of research assistance for the duration of the project (which we envisage could last some five years). 65 4.9 This stance at common law left the parties in a potentially difficult position. The separation agreement, if it included a provision seeking to prevent either party from going to court for financial provision, might be found to be entirely void. Or the paying party might be bound by the agreement whereas the payee could go to court and ask for increased provision, creating an asymmetry between the parties. Following a report on separation and maintenance agreements by a Royal Commission,11 Parliament made provision in the Maintenance Agreements Act 1957 for maintenance agreements made between spouses intending to separate to be binding, but not for such agreements to oust the discretion of the court to make orders. Further changes were recommended by the Law Commission12 and were implemented in the Matrimonial Proceedings and Property Act 1970, consolidated as sections 34 to 36 of the Matrimonial Causes Act 1973.13 4.10 Section 34 of the Matrimonial Causes Act 1973 is entitled “Validity of maintenance agreements”. Section 34(1) provides that while any provision purporting to restrict the right to apply to the court for financial provision is void, such a provision shall not prevent the remainder of financial arrangements in the agreement from being binding. In other words, whilst it does not abolish public policy rule 2, it ensures the contractual validity of agreements unaffected by Rule 1, namely separation agreements.14 4.11 Section 35 gives the court power to vary the agreement (so addressing the asymmetry noted above), while section 36 deals with the alteration of agreements after the death of one party. 4.12 These provisions were enacted in a society where divorce was far less common than today15 and specifically to deal with separation agreements. They are called “maintenance agreements” because the function of such agreements was almost invariably to arrange periodical payments for a separated wife. The drafting of section 34 specifically excludes agreements made by parties before marriage, as the definition of a maintenance agreement contained in section 34(2) states that the agreement must be “made … between the parties to a marriage … [emphasis added]”. So pre-nuptial contracts remain out of its scope. That post-nuptial contracts, in the sense we understand them today and as distinct from separation agreements, would fall within the section is unlikely to have been foreseen by the draftsman at a time when such agreements were unknown in this jurisdiction. 11 Report of the Royal Commission on Marriage and Divorce 1951-1955 (1956) Cmd 9678. 12 Financial Provision in Matrimonial Proceedings (1969) Law Com No 25. 13 See MacLeod v MacLeod [2008] UKPC 64, [2010] 1 AC 298 at [23]. 14 And, following MacLeod v MacLeod [2008] UKPC 64, [2010] 1 AC 298, post-nuptial agreements. 15 See figure 2, “Divorce rates by sex, 1971-2011”, Office for National Statistics, Divorces in England and Wales 2011 (2012); available online at http://www.ons.gov.uk/ons/dcp171778_291750.pdf (last visited 7 February 2014). 66 4.13 The reported use of these sections of the Matrimonial Causes Act 1973 has been very thin;16 we have not found a case in which a maintenance agreement was varied using the court’s powers under section 35 of that Act. In Simister v Simister (No 2)17 the judge held that the husband had to establish that the court’s jurisdiction to vary the maintenance agreement had in fact been engaged, that is, that there had been a change in circumstances warranting a variation of the maintenance agreement in question, before an order could be made. However, after that had been established, the court then made an order using its more familiar powers under section 23 for financial provision, varying the periodical payments to the wife. 4.14 Other cases established that the court has no jurisdiction under section 35 to add a lump sum payment to a maintenance agreement after the applicant has remarried18 but that an application to vary does not die with the applicant, so that the applicant’s estate can proceed with the application.19 It has also been established that the court has the power to backdate the variation of a maintenance agreement.20 Nevertheless, in the most recent case citing section 35, F v F (Financial Remedies: Premarital Wealth)21 in 2012, the court declined to hold that a share agreement entered into by the parties was a maintenance agreement and instead amended the agreement using its powers under section 24. 4.15 So, while the court has the power to vary the provisions of maintenance agreements, in the context of such agreements being made on separation, this power is little used as the more wide-ranging powers of sections 23 and 24 are available, at least on divorce. The utility in practice of section 35, as fewer people separated without divorcing, decreased and, before the case of MacLeod v MacLeod,22 it is doubtful whether many family lawyers ever had occasion to examine closely sections 34 to 36 of the Matrimonial Causes Act 1973. The public policy rules and the modern law 4.16 At the beginning of the 21st century, therefore, both public policy rules23 remained in place.24 Marital property agreements made before or after marriage, contemplating a future separation, were void because they might encourage 16 As Wilson LJ (as he then was) put it, “Sections 34 and 35 have been dead letters for more than thirty years. To the best of my recollection, neither at the bar nor on the bench have I been party to a case in which they have even fallen to be considered…” See Radmacher v Granatino [2009] EWCA Civ 649 at [134]. 17 [1987] Fam Law 50, [1987] 1 FLR 194. 18 Pace (Formerly Doe) v Doe [1977] Fam 18, [1976] 3 WLR 865. 19 Joseph v Joseph (26 November 1998) Fam (unreported). 20 Warden v Warden [1982] Fam 10, [1981] 3 WLR 435. 21 Also referred to as WF v HF [2012] EWHC 438 (Fam), [2012] 2 FLR 1212. 22 [2008] UKPC 64, [2010] 1 AC 298. 23 See paras 4.5 to 4.8 above. 24 See, for example N v N (Jurisdiction: Pre-nuptial Agreement) [1999] 2 FLR 745 at 752 by Wall J: “An agreement made prior to marriage which contemplates the steps the parties will take in the event of divorce or separation is perceived as being contrary to public policy because it undermines the concept of marriage as a life-long union”. 67 separation and divorce; and any provision purporting to oust the court’s jurisdiction to make orders for financial provision on divorce was also void. As the courts moved towards affording greater weight to marital property agreements a curious position arose. Agreements contemplating a future separation were at the same time unenforceable as contravening public policy rule 1, and yet were matters which the court would be willing to take into account, potentially decisively, as part of its section 25 exercise.25 4.17 In MacLeod v MacLeod, the Judicial Committee of the Privy Council held that the first public policy rule no longer applied to post-nuptial agreements. They gave two reasons for restricting that decision to post-nuptial agreements, one technical and one general: (1) the existence of a statutory jurisdiction to vary such agreements, contained in sections 34 and 35 of the Matrimonial Causes Act 1973; and (2) post-nuptial agreements were considered safer than pre-nuptial agreements because they were not seen as the price of a wedding and therefore the parties were less vulnerable to pressure.26 4.18 The MacLeod v MacLeod case was not strictly binding on future court decisions in England and Wales as it was a Privy Council decision on an appeal from the Manx High Court, but such decisions are treated as highly persuasive. However, in 2010, the Supreme Court in Radmacher v Granatino took a further step. Clearly unconvinced by the two reasons given by the Privy Council in MacLeod v MacLeod for not abolishing public policy rule 1 for pre-nuptial contracts,27 it said that: We wholeheartedly endorse the conclusion … that the old rule that agreements providing for future separation are contrary to public policy is obsolete and should be swept away … . But … this should not be restricted to post-nuptial agreements. If parties who have made such an agreement, whether ante-nuptial or post-nuptial, then decide to live apart, we can see no reason why they should not be entitled to enforce their agreement.28 4.19 Strictly, this statement was not binding on the lower courts. It was not an issue on which the case itself was decided. Naturally it is regarded, nonetheless, as being of the highest authority and is likely to be followed. 25 As pointed out by Lord Justice Rix in the Court of Appeal in Radmacher v Granatino [2009] EWCA Civ 649, [2009] 2 FLR 1181 at [64]. We set out the history of the court’s growing willingness, since the mid 1990s, to take such agreements into account in our 2011 CP at paragraphs 3.27 to 3.37. 26 [2008] UKPC 64, [2010] 1 AC 298 at [36]. 27 We explained in the 2011 CP why we too were unconvinced. We noted that the emotional pressures that may exist after marriage may, in some circumstances, be as great as that which may be experienced by parties negotiating a pre-nuptial agreement. We were fortified in that view by the fact that some other jurisdictions view post-nuptial agreements as in need of greater judicial control than those made before the marriage. See paras 3.78 to 3.82 of the 2011 CP. 28 [2010] UKSC 42, [2011] 1 AC 534 at [52]. 70 at all. The purpose of the statutory provision is simply to put the matter beyond doubt. Hence the reference in clause 1 to the common law rule “if it still exists”.33 4.32 We might more usefully ask what is the effect, if any, of the abolition of public policy rule 1 (whether effected by the Supreme Court or to be effected by statute). The answer must be, on its own, “very little”. Because public policy rule 2 remains intact, the fact that an agreement between husband and wife is a valid contract does not change the court’s jurisdiction to make financial orders. Whatever was agreed years before the divorce, if the parties do not agree to abide by their contract then either is free to apply for financial orders. The court will decide, on the basis of the principle in Radmacher v Granatino, whether or not to make orders inconsistent with the agreement by asking whether it would be unfair to do so. 4.33 However, we consider that some marginal changes arise from the abolition. One is that contractual enforceability may now be an option where there is no relevant judicial discretion. Imagine a couple whose pre-nuptial agreement gave the wife certain property in the event of separation. They separate. The husband dies before transferring the property to the wife. Because the pre-nuptial agreement was a valid contract, the wife can enforce the contract against the husband’s estate. 4.34 Another is that arguments about severability will become less important. Imagine an agreement made at the time a civil partnership is celebrated between A and B, that in six months’ time A will transfer his second home to B, and that, if the civil partnership is ever dissolved, B will not receive any financial provision from A. Before the decision in Radmacher v Granatino, the enforceability of the agreement to transfer the house was dependent upon its being severable from the provision about the dissolution of the civil partnership – which it might be, if the provision about civil partnership was not expressed to be the consideration for the transfer of the house. If it was not severable, then the whole agreement was void on the basis of public policy rule 1. The point might matter if either party became bankrupt. If the contract is valid as a whole, then the validity of the agreement to transfer the house is clear. 4.35 Aside from such unusual cases, however, the effect of the abolition of the public policy rule is largely symbolic, and it avoids the discomfort of an agreement that the law technically regards as contrary to public policy being, in some cases, an important or decisive factor in the determination of an application for financial orders. Statutory provisions about maintenance agreements 4.36 What, then, is to be done (if anything) about sections 34 to 36 of the Matrimonial Causes Act 1973, and other statutory provisions relating to maintenance 33 See clause 1(2) of the draft Nuptial Agreements Bill at Appendix A. 71 agreements – in particular section 17 of the Inheritance (Provision for Family and Dependants) Act 1975?34 4.37 These provisions are not used. Very few practitioners were aware of them before they were brought to unexpected prominence by the decision in MacLeod. Although the Privy Council regarded their existence as a reason to abolish the public policy rule for post-nuptial agreements, the Supreme Court was clearly not swayed by that reasoning, and did not regard the non-availability of the section 35 variation jurisdiction as an argument against abolishing the public policy rule for pre-nuptial agreements.35 4.38 One option is therefore to repeal sections 34 to 36 of the Matrimonial Causes Act 1973 (together with section 17 of the Inheritance (Provision for Family and Dependants) Act 1975. That is the simplest option. 4.39 However, three reasons made us decide instead to recommend extending those sections to cover pre-nuptial agreements. 4.40 In a number of cases, referred to above,36 it was argued that the power in section 35 to vary or set aside a maintenance agreement was important in order to establish that the court then had jurisdiction to make financial orders that were not consistent with the earlier agreement. We do not think that that is the case, but it may be that dicta in these decisions will be followed. 4.41 More plausibly, there will be cases where a court makes orders that are inconsistent with a marital property agreement, but where there are provisions in the agreement that the court cannot, under its powers in the Matrimonial Causes Act 1973, address. For example, the agreement may make provision for payments to be made to a third party (for school fees, perhaps, or mortgage repayments). The court cannot order such payments. There may be a need for the court to be able to vary the contractual provision in order to make the overall “package” workable. We are not aware that such cases have in fact arisen, but we have been told that practitioners may in some cases rely on the section 35 power when drafting agreements. 4.42 There may be a very few couples today who are separated and wish to obtain financial provision without wishing to become judicially separated or to divorce. Unlikely though it is, the power of variation in section 35 would then be useful, because in this situation there would no engagement of the court’s powers under sections 23 and 24 of the Matrimonial Causes Act 1973. 4.43 We recommend that sections 34 to 36 of the Matrimonial Causes Act 1973 and section 17 of the Inheritance (Provision for Family and Dependants) Act 1975 be amended to cover pre-nuptial agreements. 34 As explained at footnote 28 above, section 17 of the Inheritance (Provision for Family and Dependants) Act 1975, gives the courts the power to revoke or vary “maintenance agreements” where provision is made for payments to continue after the death of the payer. 35 See para 4.17 above. 36 See paras 4.13 to 4.15. 72 4.44 Clause 2 of the draft Bill therefore amends Section 34 of the Matrimonial Causes Act 1973 so as to extend it to pre-nuptial agreements. 4.45 This clause also removes the label “maintenance agreements”, which is inappropriate today where agreements are now likely to contain – or indeed exclude - capital provision. Reference is made now to “section 34 agreements”. And the “financial arrangements” which characterise such agreements are now simply defined, at clause 2(3), as provision for the financial consequences of separation, including dissolution or annulment of a marriage or civil partnership.37 4.46 Amendment of sections 34 to 36 of the Matrimonial Causes Act 1973 also prompts an amendment to section 17 of the Inheritance (Provision for Family and Dependants) Act 1975. This section currently enables personal representatives to apply to the court for the variation of a maintenance agreement for the benefit of a surviving spouse, when an application is made under section 2 of that Act for family provision. We are not aware of its having ever been used but, for the sake of symmetry with the amended sections in the Matrimonial Causes Act 1973, the term “maintenance agreements” is removed, and a new definition of “financial arrangements”, matching that used in section 34 of the 1973 Act, is provided. 37 Clauses 2(9) and (10), and 3(7) and (8), amend the language of further statutory references to “maintenance agreements”, so as to match what is now the language of section 34 of the Matrimonial Causes Act 1973 and paragraph 67 of Schedule 5 to the Civil Partnerships Act 2004, without changing their substance. 75 this by providing individuals with greater certainty about the financial consequences of divorce, dissolution or separation. The Family Law Bar Association felt that certainty was the strongest argument in favour of qualifying nuptial agreements, given the “significant uncertainty in current ancillary relief case law”.5 5.11 A major argument raised by several consultees was that individuals should be able to choose for themselves how to arrange their financial obligations on divorce, dissolution or separation. A member of the public thought that: We need to restore an element of autonomy and choice to the individuals concerned that is currently being removed by courts. We need to enable the public to sort out their own lives rather than trying to do it for them. 5.12 Some consultees questioned how far qualifying nuptial agreements would genuinely promote autonomy, as opposed to undermining it. Christian Concern discussed the “widely recognised concern” that one party might be placed under “immense pressure” to sign an agreement.6 5.13 Joanna Miles acknowledged that there is always a risk that an individual might come to regret making a pre-nuptial agreement but added that: While I may be restricting my partner’s future choices, I can only do that in consequence of a choice made by that individual to enter into the agreement in the first place. 5.14 It was argued that a greater degree of certainty and autonomy over how property will be divided on divorce could encourage individuals to marry. Two members of the public said that they would not wish to marry again unless qualifying nuptial agreements were introduced. Furthermore, binding qualifying nuptial agreements may be particularly helpful to those couples in special circumstances which the Matrimonial Causes Act 1973 does not address, for example, couples who have already been married and would like their property to go to their children of a 5 Furthermore, several consultees who had experienced the current system of financial orders first-hand felt aggrieved by the outcome and thought that the availability of qualifying nuptial agreements could have addressed some of their problems by providing greater certainty in advance. The Mission and Public Affairs Council of the Church of England also felt that Radmacher v Granatino could have “potentially shapeless results”. 6 We take this concern very seriously; it is addressed by appropriate safeguards, such as the requirement to seek independent legal advice, and the rules relating to duress and undue influence in the law of contract, discussed further in Chapter 6. 76 previous marriage,7 or those who own a family business which they wish to keep within the family.8 5.15 Introducing qualifying nuptial agreements would also bring the English system into line with other jurisdictions. 29 Bedford Row noted that “almost every other legal system” allows such agreements in some form. The Unquoted Companies Group characterised the current law as “increasingly out-of-step with international practice”, and pointed out that some claims for financial orders are deliberately begun in England due to the courts’ “potentially more ‘liberal’ approach to marital property agreements”. 5.16 Resolution thought that the solution should be to amend section 25 of the Matrimonial Causes Act 1973 to provide that marital property agreements would be accepted by the court subject to certain safeguards. They felt that to introduce qualifying nuptial agreements alongside non-qualifying ones could create layers of extra litigation, as parties challenging agreements might need to apply first to the county court or Queen’s Bench or Chancery Division to have the agreement declared non-qualifying and then make a new application in the family court. 5.17 Mishcon de Reya thought that marital property agreements should always be capable of review by the court on the grounds of fairness. However, they disagreed with the concept of fairness given in Radmacher v Granatino – they did not think that the existence of a marital property agreement between the parties should be capable of altering what is fair, as the majority in Radmacher v Granatino held.9 5.18 A significant minority of consultees were against the introduction of qualifying nuptial agreements. Some made principled arguments, for example, that such agreements were inimical to the nature of marriage, or would undermine gender equality, or that reform would be inappropriate as it would only benefit the rich. Others raised practical concerns, arguing that introducing qualifying nuptial agreements would lead to more litigation, not less. Others did not consider that there was a need for reform, either because the current law was satisfactory, or because the law should be allowed to develop in the wake of Radmacher v Granatino before a decision was made as to whether further changes would be 7 The Family Law Bar Association felt that “autonomy arguments are more validly made in relation to mature couples”, particularly if they have been married before, though they questioned whether autonomy-based arguments could be used in every case. 8 Unquoted Companies Group thought that allowing businesses to be excluded from the sharing principle in financial orders would help to ensure the “continuity and viability of businesses and the employment and investment that they provide”. The Historic Houses Association made a similar point in relation to the preservation of historic houses. Another consultee, Aina Khan, suggested that marital property agreements had the potential to be “of real benefit to British Muslims”. She felt that many young Muslims, perhaps a majority, were “frightened of entering into marriage” due to the current system of financial orders, and were instead “having just an Islamic marriage, which has no status under English law”. We would stress, in response to that comment, that while the use of a qualifying nuptial agreement will enable couples to design their own provisions relating to the sharing of property, it will not enable any arrangement that takes away a former spouse’s entitlement to provision for financial needs, whether the motivation for that arrangement is religious or secular. 9 [2010] UKSC 42, [2011] 1 AC 534 at [75]. 77 necessary.10 Several consultees also noted that the current state of the law on financial orders, which following White v White11 measures awards according to a “yardstick of equality” and does not confine the non-earning or less wealthy spouse to provision based upon needs, has been hard-won. They felt that introducing qualifying nuptial agreements would be a step backwards as it would allow wealthier spouses to avoid this principle of equality. 5.19 Several consultees thought that introducing qualifying nuptial agreements would undermine what they felt to be the fundamental nature and incidents of marriage. Christian Concern thought that: The law should encourage marriage as a life-long, permanent union which creates the ideal and most stable environment for the raising of children. Introducing Nuptial Agreements will undermine marriage by redefining it as a temporary commitment akin to a business or commercial contract. 5.20 Dr Robert George saw marriage as a “privileged status” with “prescribed legal consequences”, which one accepts when one decides to marry. He argued that if one wishes to enjoy the benefits of marriage, one must accept its burdens, such as the financial obligations which arise on divorce and questioned the idea that financial agreements deserve different treatment from the law compared with any of the other obligations of marriage: Divorce, for example, is allowed only under the circumstances set out in the Matrimonial Causes Act 1973. Individuals cannot specify before they marry that, for them, adultery will not count as evidence of irretrievable breakdown, or that the wearing of a yellow hat will constitute an additional ground for divorce. These restrictions on the availability of divorce are necessary consequences of the state’s regulation of marriage, but one cannot imagine that the Supreme Court thinks that this is an undue restriction on “respect for individual autonomy”, nor “patronising and paternalistic”. Since property division on divorce is simply a particular manifestation of the marital obligation of mutual support, it is hard to see why the autonomy argument is any stronger in relation to ante-nuptial agreements than it would be in these hypothetical examples about the grounds for divorce itself. If autonomy is powerful enough an argument to allow people to escape one of the incidents of marriage, why not others? 10 David Hodson called Radmacher v Granatino “one of the best case law innovations in family law” and said that it “dramatically removes the need for immediate primary legislation”. Such legislation should only be contemplated if “confusions and contradictions and uncertainties from the High Court and Court of Appeal” arise in the future. District Judge Tony North felt that legislation would only be needed if Radmacher v Granatino led to “numerous anomalies”. However, Mrs Justice Florence Baron felt that “the Court must retain residual power to monitor overall fairness” in all cases but disagreed with the approach of the Supreme Court in Radmacher v Granatino, which she felt created “the worst of all worlds” as the new “unfairness” test would result in much court time being spent on attempting to “loosen the magnetism” of a marital property agreement. 11 [2000] UKHL 54, [2001] 1 AC 596. 80 2009 the Court of Appeal said that to assume one party is “unduly susceptible to … demands … is patronising, in particular to women”.18 Lord Justice Wilson suggested that it would be preferable for the “starting point to be for both parties to be required to accept the consequences of whatever they have freely and knowingly agreed”.19 5.29 Our consultees also raised this argument; Andrew Turek said: It is my experience and observation that the present law imposes a burden on divorcing couples and on society which is not necessary and which is derived from an assumption, which may once have been true but is not now, that in marriage and divorce grown men and women (especially women) are unable to recognise and protect their own interests. 5.30 However, we accept as we did in the 2011 CP that the argument for autonomy has to be regarded with caution: those who marry or form civil partnerships are adults and can take their own decisions, but it is a matter of experience that people are willing to agree, when they are in love, to things that they would not otherwise contemplate. As we discuss in more detail below, we know that people tend to be unrealistically optimistic about both the likelihood that they will divorce and their future fortunes.20 A fiancé(e) may enter into an agreement at the other’s request in the firm belief that the relationship will never end. He or she may not really want the agreement to take effect, or may not have thought through the consequences of entering into it. 5.31 Furthermore there may be pressure. Practitioners in a study by Dr Emma Hitchings talked of the pressures their clients may face when being encouraged to sign a pre-nuptial agreement. Dr Hitchings reported that: Time and again practitioners raised the “typical scenario” of the financially stronger party exerting emotional pressure upon their client (normally the financially weaker party), through the “I won’t marry you if you don’t sign the agreement” argument.21 Indeed, the law already recognises the possibility of pressure within a close relationship, in the context of the law relating to undue influence in contracts, and we have more to say about this in Chapter 6.22 5.32 We think that it is possible, to some extent, for the law to counteract pressure by imposing certain pre-conditions for the validity of a qualifying nuptial agreement and we have attempted to ensure that our suggested reform would do so. For example, as we go on to describe, we recommend that the parties to a qualifying nuptial agreement must take legal advice and receive disclosure, and that 18 Radmacher v Granatino [2009] EWCA Civ 649, [2009] 2 FLR 1181 at [127]. 19 Above (emphasis in original). 20 See below, paras 5.70 to 5.76. 21 E Hitchings, A Study of the Views and Approaches of Family Practitioners Concerning Marital Property Agreements (2011) p 112. 22 Chapter 6, from para 6.16. 81 qualifying nuptial agreements should not be concluded within the 28 day period leading up to the day of the wedding. We accept, however, that legal pre- conditions cannot entirely eliminate the probability that some people may agree qualifying nuptial agreements that they would later regret. 5.33 The other reason for caution is that we have to be very clear about what the autonomy, or freedom, in question is. All couples, under the current law, have the freedom to agree whatever they like by way of financial settlement when their relationship comes to an end. The autonomy that is prayed in aid of binding marital property agreements is not simply the freedom to make an agreement, nor simply the freedom to do as one wishes. It is the freedom to force one’s partner to abide by an agreement when he or she no longer wishes to do so. It is freedom of contract, but it is therefore freedom to use a contract to restrict one’s partner’s choices. 5.34 So the autonomy argument is a strong one but it raises concerns as well. These concerns, and the results of both the empirical research and our consultation have led to our decision, discussed below from paragraph 5.68, to limit the scope of qualifying nuptial agreements. We recognise that there may be pressure on one party to sign an agreement, and that that party may enter the agreement unwillingly or with unrealistic optimism. Thus, whilst a party may regret the agreement, or have his or her choices restricted, we have decided that the court’s jurisdiction to make provision for needs should not be ousted by a qualifying nuptial agreement and so no party will be left without resources following separation. Certainty and the cost of discretion 5.35 Much stronger, we feel, than the argument for autonomy is the argument for certainty. As one member of the public put it: Surely the most important point of a pre-nuptial agreement is to provide both parties with a high degree of certainty as to the outcome in the event of a breakdown in their forthcoming marriage and to reduce the need to resort to expensive legal redress in the event of the breakdown. 5.36 Again, of course, that freedom exists under the current law, provided there is agreement at the point when the relationship ends. What is being argued is that it is important for the parties to have certainty in advance that a partner will not be able to re-open the financial agreement by resorting to the court, and that that limitation upon one partner’s freedom is justified in the interests of both by ensuring that neither will be involved in the uncertainty, stress and cost of litigation. The fact that the terms of a marital property agreement are always subject to the court’s review means that it is currently never possible to be certain, in advance, that an agreement will determine the outcome of the financial relief process. 5.37 Certainty may be particularly important for those who are remarrying and have children from a previous marriage, and for those who wish to protect inherited or “family” wealth from division upon divorce. Under the current law there is no guarantee that a party who has children from a previous relationship will be able to preserve assets to pass on to those children, whilst a binding qualifying nuptial 82 agreement would allow a party to do just that. As we set out later in Chapter 8, the law on non-matrimonial property is unclear, both in terms of what property can be considered “non-matrimonial” and in terms of the effect that the existence of non-matrimonial property will have on the eventual division of assets by the court. A qualifying nuptial agreement would allow parties to define, from the outset of the relationship, what property should be split between them and the way in which it should be split. As already mentioned, these two situations are ones in which the public feel that a pre-nuptial agreement may be sensible and pragmatic.23 5.38 It may be argued that couples can, following Radmacher v Granatino,24 already be reasonably sure that pre-nuptial agreements will be upheld. However, the fact that the terms of a marital property agreement are always subject to the court’s review means that it is currently never possible to be certain, in advance, that an agreement will determine the outcome of the financial relief process. The international perspective 5.39 As we explained in our 2011 CP, a great number of other jurisdictions allow binding marital property agreements.25 The introduction of qualifying nuptial agreements would bring our laws into step with those jurisdictions, allowing couples who had made their agreements in another country to rely on the binding nature of the agreement if they subsequently moved to England or Wales.26 One consultee, a member of the public, told us of his unhappy experience of moving here with his wife, only to find that it was no longer guaranteed that their pre- nuptial agreement would be upheld by the courts. The introduction of qualifying nuptial agreements could encourage the movement of wealthy foreign nationals to this jurisdiction by offering them the opportunity to replicate, or come close to replicating, the certainty of outcome on divorce and preservation of wealth which they may enjoy in their jurisdiction of origin. This could benefit England and Wales economically. Qualifying nuptial agreements could also reduce disputes between foreign national couples who seek to litigate, on an English divorce, over the status of their foreign agreement, since such couples could simply reproduce the terms of their foreign pre-nuptial agreement as a qualifying post-nuptial agreement upon moving to England or Wales. This could save time, money and stress for those involved, and potentially reduce the burden on our courts. 5.40 We recommend that qualifying nuptial agreements should be introduced by legislation. 5.41 However, an important part of the reasoning that led us to that conclusion is consideration of the scope of these new agreements, and that is so fundamental to our conclusions that we discuss it in the next section of this Chapter before spelling out our recommendation further. Another important element of our 23 See para 5.23 above. 24 [2010] UKSC 42, [2011] 1 AC 534. 25 The 2011 CP, Part 4. 26 Provided, of course, that the agreement fulfils the pre-requisites necessary for a qualifying nuptial agreement, including the requirement that the couple have received advice given by a qualified lawyer as to the agreement’s effect in law in England and Wales. 85 a simpler or modified concept of “injustice” or in a broader notion of “fairness”. 29 Bedford Row, for example, favoured a safeguard based on “serious injustice”, (linking it to “need” narrowly defined, that is, the fifth safeguard option) explaining that: We are attracted to the New Zealand model where an agreement can be set aside on the basis that giving effect to it would cause serious injustice … . We acknowledge that this reintroduces discretion but feel that ‘serious injustice’ is a sufficiently high hurdle – much higher than mere ‘unfairness’ – to give a reasonable degree of certainty. … We feel that any argument that giving effect to an agreement would fail to meet a party’s needs or to provide adequate compensation can and should be raised in the context of serious injustice. Experience of present ancillary relief law shows that the proper level of needs is one of the most contentious features: huge energy and much cost and time are devoted to competing budgets and property particulars in a high number of cases. A hurdle of serious injustice would leave the door open for arguments based on needs and/or compensation, but would provide a focus for resolving such issues and would discourage too ready a resort to court. … We feel that the criterion of serious injustice would be the best way of achieving the goal of narrowly defined needs. 5.52 However, Dr Robert George did not agree that the term “injustice” ought to be qualified, such as through the use of the word “significant”. He suggested an alternative model and explained his opposition to qualified standards: … I am highly concerned by the word “significant” – why should an agreement which produces “injustice”, but not “significant injustice”, be upheld? Who is to draw the line between “injustice” and “significant injustice”? … My preferred option would be this: … provision for the agreement to be varied or set aside by the court if it produced injustice to one or both parties or any minor child of the family, including (without limitation) by failing to provide for that person’s needs (generously interpreted), or by failing to provide compensation for any losses caused by the relationship. 5.53 Other consultees discussed notions of “fairness”. Mrs Justice Baron, for example, emphasised the importance of the court retaining a residual discretion to help ensure fair outcomes; her comments also have some cross-over with the option of varying or setting aside agreements on the happening of specified events. She said: … I am clear that the Court must retain residual power to monitor overall fairness. I am not convinced that “manifest” unfairness is the proper test because it is too limiting. The criterion should be fairness in the context of the particular circumstances of the case. 86 The birth of children has to be a trigger for re-assessing fairness, although it should not automatically render a fair agreement nugatory. She also addressed sharing: To summarise: couples should never be able to contract out of needs (“reasonable requirements”) in the context of a particular marriage. I am not in favour of contracting out of sharing if such can be established by need. The usual form of pre nuptial agreements which prevents sharing is generally unfair, although I can accept a legitimate use for pre-nuptial agreements to preserve pre-acquired and inherited property subject always to provision for needs. 5.54 Dr Thérèse Callus similarly placed emphasis on the potential value of fairness as a safeguard: … In the light of the current law on ancillary relief, the elusive and all- pervading concept of fairness may appear to be the most relevant safeguard to consider. However, I would also reject any proposal to include a statutory definition as this would be extremely difficult to articulate. If fairness is to remain the overarching principle, it is perhaps most appropriate for the court to maintain its discretion in assessing fairness on each individual case before it. Any list could not be exhaustive, so it would be unlikely to produce greater certainty. However, as an elusive concept, it may be helpful for statute to articulate a clearer framework for fairness. If the lowest common denominator of fairness is that no party should be left dependent upon state benefit as a result of a [marital property agreement], I would suggest that the formal status of marriage requires that divorce have particular effects which informal cohabitation does not have. This must surely be that by virtue of the marriage, fairness requires sharing of the marital acquests. 5.55 Mishcon de Reya added further to the support for a safeguard based on fairness, stating that “the Court should retain an overall discretion to vary or set aside an agreement if it is objectively unfair”. And the Judges of the High Court, Family Division advanced the following argument: … fairness should remain the guiding principle, which in turn requires the court retaining sufficient flexibility to ensure fairness can be achieved. … we would endorse the view expressed by the Supreme Court that it is unlikely to be fair to hold parties to an agreement which leaves one in a predicament of real need – as per proposal (4). In our view any such result would be likely to constitute significant injustice - as per proposal (3). 5.56 Another argument based on fairness was presented by Marilyn Young: … any agreement should be capable of variation or to be set aside by the Court if it made insufficient provision for any child or was 87 manifestly unfair to one of the parties. There can never, in my view, be a "cast iron" model as a generality. … To limit the Court's power to intervene to just specified events is, again, dangerous and fettering the Court's powers. … The Court should have the power to set aside an agreement if it fails to meet the parties' needs and to provide compensation for any losses caused by the relationship ─ in other words, to make the agreement measure up to what a Court might have ordered had there been no agreement. 5.57 Some consultees, however, expressed their opposition to safeguards based on fairness. Tracey O’Dwyer for example, told us that: I am not in support of a safeguard for where the agreement is unfair. If a person has entered into it freely and with legal advice, then unless they can show undue pressure or something like that, then they should be held to it I believe. (4) Provision for varying or setting aside an agreement by the court to the extent that it failed to meet the parties’ needs or to provide compensation 5.58 Professor Lorna Fox O’Mahony favoured this option as, in her view, it provided “maximum scope for the courts to achieve fair and flexible outcomes”. The Chartered Institute of Legal Executives saw the benefit of a provision of this kind as follows: … it would prevent parties attempting to make agreements which may give rise to hardship or which leaves a party with little or nothing following the breakdown of a marriage. It will also allow the lawyers who are providing independent legal advice to each party, to provide advice on the matter, giving clarity on whether an agreement is likely to fall foul of such a provision. 5.59 The protection of needs, generously interpreted, was seen as particularly important by some consultees. District Judge John Regan said: … the law must provide an over arching power to the court to use some or all of the assets protected by such agreement if required to achieve fairness to the other spouse in meeting the reasonable needs [generously interpreted] of that spouse or any child. I can see a place for the ability to agree with the expectation the court will not go behind an agreement in cases such as a second marriage particularly with the older couple when children will be unlikely a factor; as long as they are required to take full and independent advice and with disclosure, but even in such cases it is not difficult to see a scenario where even then such as the assets of one spouse being depleted, a needs based argument arising. 5.60 Certain consultees expressed conditional support for the different options. The Law Society, for example, said that: