The Law Commission’s report on matrimonial property, needs and agreements: The future of financial orders of divorce and dissolution

The Law Commission has published its long-awaited report on matrimonial property, needs and agreements, and recommends that pre- and post-nuptial agreements should finally be given full recognition in divorce in England and Wales.

At present, the Supreme Court has said that such agreements should be upheld so long as they are entered into freely with a full appreciation of the implications, unless it would be unfair to do so. This itself is relatively recent law, with previous such agreements apparently being upheld only if, and to the extent that, they accorded with the trial judge’s own assessment of what was fair in a particular case. The Supreme Court has however gone as far as it can in giving recognition to these agreements, and the responsibility now lies with Parliament either to accept or reject the proposals of the Law Commission.

The difficulty with the law as it currently stands is the lack of certainty. Nuptial agreements are neither contractually enforceable nor binding on the divorce courts. Thus, when advising a client with regard to entering into such an agreement, as we are increasingly asked to do, we must preface all our advice with caveats about enforceability and risk. This, to a client with significant pre-acquired wealth, for example, is an unacceptable state of affairs, and incomprehensible when considered alongside many other jurisdictions where such agreements are enforceable and have been for many years.

But what to one person may appear to be unacceptable uncertainty may, to another, be the benefit of our courts’ wide and flexible discretion, developed over many years as part of a constant quest for fairness. To the financially weaker party, the ousting of the courts’ discretion on the basis of an agreement entered into perhaps many years ago, perhaps before children, perhaps in the first flush of love, might be disastrous, particularly, if that party is then forced to throw herself and the children on the mercy of the state.

Of course, the Law Commission does not go that far in its recommendations. What it suggests is that, whilst such agreements should be enforceable, and “not subject to the scrutiny of the courts”, they should “not remove the parties’ ability to apply for, and the courts’ jurisdiction to make, financial orders to meet their financial needs”. In other words, you can agree what you like, but if you don’t ensure that your spouse’s needs are met, you’ll still find yourself in court.

So how is this different from the law as it currently stands? The Law Commission says that it has “particular sympathy with those who wish to ensure that inherited or gifted property, or property generated before the relationship began, will be excluded from the sharing exercise provided that the other party’s needs are met and children are adequately provided for”. Naturally – these are exactly the people we have been advising for years. But what are the other party’s needs? How can we guarantee to our clients that at some future unknown date this agreement will meet the other party’s needs and make adequate provision for the children? We can’t. So the answer to the question at the top of this paragraph is apparently: Not much.

The Law Commission is of course alive to this, its report, don’t forget, being concerned not only with nuptial agreements, but also needs on divorce. It recommends that the meaning of financial needs be clarified, possibly through development of a formula, which it envisages would take the form of non-statutory guidance and would give a range of outcomes, “within which the separating couple might negotiate”.

It notes that, to family lawyers, the law is more or less predictable; we can advise our clients about likely outcomes, based partly on our own experience and partly on case law. We can advise about the meaning of “needs” and that in most cases “needs” will determine the outcome. The problem is that, to the public at large, the law is somewhat shrouded in mystery. There is a lack of public confidence. There is also a lack of public funding, which means that more people are knocking on the door of the court asking the judges to make decisions because they do not understand the parameters within which they should be negotiating, and have no means of obtaining advice. With the benefit of clear, formulaic guidance, the public should be better equipped to reach their own agreements, says the Law Commission, whilst recommending that the Family Justice Council be tasked with providing the guidance.

Such guidance will inevitably bring with it a whole text book full of its own issues, which of course I should be delighted to comment on at the relevant time, but for now there is no such guidance and therefore to the majority of the general public, what is meant by financial needs on divorce will remain a mystery, to be revealed unto them only after a hefty payment to a divorce lawyer. Meanwhile, we divorce lawyers, whilst always happy to pronounce at length on the law, will be forced to continue to preface our pronouncements on nuptial agreements with caveats about their enforceability.
Undeterred, the Law Commission has published a draft Bill, which sets out the requirements to be met before an agreement will be recognised as a “qualifying nuptial agreement”:

So at least we have a degree of certainty about the minimum requirements for an agreement to be taken seriously, and even without statutory reform, I suggest that these are likely to be adopted by practitioners and the courts in cases to come, although I am wondering what is meant by “material disclosure”. Would it, for example, be sufficient for the wealthy spouse to disclose the total net value of his worth, without going into detail, and without documentary evidence? That approach would accord with the decision in Radmacher (Radmacher v Granatino [2010] UKSC 42) but to me remains somewhat counter-intuitive.

Lastly, the Law Commission considered what is meant by “non-matrimonial property” and whether there is a need for statutory reform in order to clarify the manner in which the courts should treat such property. This might include pre-relationship wealth, or an inheritance or gift received before, during or after the relationship. In some cases, the courts have ringfenced such assets, retaining them in whole or in part for the contributing party, but in most cases, there isn’t enough money to provide for everyone’s needs without using up all the assets, so that the question of their provenance, or contributions, is much less relevant. In the end, the Law Commission concluded that this was a potato too hot to handle, or rather that reform would be “unacceptably controversial”. Instead, and entirely logically, it recommends that, if it is important to one or both parties to separate such property from the assets to be divided on divorce, then it should be included in qualifying nuptial agreements and dealt with in whatever way they agree at the time. Great, so long as, at the time of divorce, the other party’s needs – whatever they are – are adequately met.

Where do we go from here? The government has yet to publish its response but I think it fair to say that the majority of practitioners would urge parliament to act on its advice in order to bring greater clarity to the law, and reduce the cost to many divorcing couples of a messy and protracted dispute. In order for the recommendations to be effective, however, they would have to be followed in full. There can be little merit in adopting the concept of qualifying nuptial agreements without also clarifying what is meant by “needs”.