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27 FEB 2014

Law Commission's Report on Matrimonial Property, Needs and Agreements

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Law Commission report, Matrimonial Property Needs and Agreements
The eagerly anticipated Law Commission report, Matrimonial Property Needs and Agreements, has now been published. It is available to download here. An in-depth analysis of the report is available here. An article by Professor Elizabeth Cooke, Law Commissioner for England and Wales will appear in the March issue of Family Law. An extract of the article can be read here.

The Law Commission is recommending a set of measures to make it easier for couples to manage their financial affairs on divorce or at the end of a civil partnership.

These are:
  • guidance to help couples assess and agree financial needs;
  • an assessment of the feasibility of using formulae to help agree financial settlements; and
  • 'qualifying nuptial agreements' to allow couples to decide how their assets should be shared if they separate.
When married couples or civil partners separate, the courts in England and Wales have a wide discretion to make financial orders, including capital payments and ongoing maintenance. An important element of those orders is to ensure that the financial needs of both partners are met. The Law Commission believes that the objective of such orders should be to enable both partners eventually to achieve financial independence. That is already the outcome of the majority of cases, and there is no need for a change in the law.

However, there is evidence of regional inconsistencies in how the courts approach orders for financial needs, which can make the outcome unpredictable. And, while the law is largely well-understood by family lawyers, it is not clear to the general public who are increasingly dealing with the financial consequences of separation without legal assistance.

Agreeing financial needs

The Law Commission are recommending that the Family Justice Council produce authoritative guidance on financial needs. The guidance would explain the outcome a judge would aim for in determining a settlement, including achieving eventual financial independence. This would enable couples to reach an agreement that recognises their financial responsibilities to each other. The guidance would also help to bring more consistency to how the law is applied in the courts.

Making settlements more predictable

Guidance from the Family Justice Council would provide an explanation of the sort of outcome that should be aimed for but it would not provide figures. The Law Commission is also recommending that the Government commission a long-term study to assess whether a workable, non-statutory formula could be produced that would give couples a clearer idea of the amounts that might need to be paid to meet needs. Formulae are already used successfully in other jurisdictions such as Canada, where they produce a guideline range of outcomes within which couples can negotiate.

Qualifying nuptial agreements

The Law Commission is recommending the introduction of 'qualifying nuptial agreements'.

Qualifying nuptial agreements would enable married couples and civil partners to make a binding agreement about how their property or finances should be shared if their relationship breaks down. The agreements would be enforceable as contracts but would apply only after both partner's financial needs, and any financial responsibilities towards children, have been met. And they would be binding only if, at the time of signing, both parties had disclosed material information about their financial situation and both received legal advice.

Under the current law, couples can make pre- and post-nuptial agreements. The courts may follow these agreements but they are not binding and the parties cannot be certain they will be upheld.

Professor Elizabeth Cooke, Law Commissioner for property, family and trust law, said:

'We believe that married couples and civil partners should have the power to decide their own financial arrangements, but should not be able to contract out of their responsibilities for each other's financial needs, or for their children. The measures we are recommending would help couples understand and meet their financial responsibilities and, where appropriate, achieve financial independence.

Pre- and post-nuptial agreements are becoming more commonplace but the courts will not always follow them and lawyers are therefore not able to give clear advice about their effect. Qualifying nuptial agreements would give couples autonomy and control, and make the financial outcome of separation more predictable. We have built in safeguards to ensure that they cannot be used to impose hardship on either party, nor to escape responsibility for children or to burden the state.'
The Law Commission's report, Matrimonial Property Needs and Agreements, includes a draft Bill that, if implemented, would bring qualifying nuptial agreements into effect.
Speaking of the Law Commission's report, Resolution vice-chair (and chair-elect) Jo Edwards commented:

'Since the landmark ruling in Radmacher v Granatino in 2010, pre-nups have, in effect, been made legally binding, yet it is only when they are tested in court that this becomes clear. This latest development seeks to enshrine the status of pre-nups in legislation, which we welcome, and should give people confidence that marital agreements will be upheld. This should also help reduce the burden on the courts.

We don't expect this measure to lead to every engaged couple in the country seeking a pre-nup, but for those couples who want to have one in place, it will make their legal situation much clearer and reduce uncertainty upon separation.

It's also important to note that the court will still have the ability to review agreements in so far as they deal with people's financial needs.

Individuals' financial needs - in particular those of any children - are still the overriding consideration, and couples will not be able to make binding agreements which allow them to avoid future consideration of financial needs.

There is, therefore, a risk that we could end up with a two-tier arrangement, where one type of agreement is legally binding, and others still open to challenge - couples need to be aware of this, and that's why the recommendation that people are required to seek legal advice is so important.

We would prefer to see change which would open up binding pre-nups to a wider group of people, with appropriate safeguards. Nevertheless, we welcome the fact that this will allow some couples to create certainty about their financial settlements should their marriage sadly come to an end.'
Alison Hawes, a specialist family and divorce lawyer at Irwin Mitchell said:

'This report provides clarity after years of uncertainty and will turn case law (Radmacher v Granatino in 2010) into law, as well as changing the emphasis so that the court has no power to interfere if the agreement "qualifies".

Qualifying pre-nuptial agreements will give couples greater autonomy to determine the financial outcome in the event of a future separation. The outcome of a future separation will be more predictable and less expensive. The proviso that it needs to meet the parties and children's needs will avoid unfair agreements. This approach to pre-nuptial agreements is more in line with how they are treated in the rest of Europe.

This long-overdue decision to make pre-nups legally binding under the right circumstances will bring clarity to how these agreements are dealt with in the courts and provide couples with more certainty over the whole process.'
The full report can be downloaded here; it includes a draft Bill and is accompanied by an Executive Summary, an Impact Assessment and the responses to both consultations.

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