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

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Family Justice

Council

Guidance on

“Financial Needs” on

Divorce

June 2016

Contents

• Foreword by the President, Sir James Munby 3-
• Membership of the Financial Needs Working Group
• Introduction to this guidance 6-
• The statute 10-
• The overall objective 13-
• The justification of meeting needs through financial remedies 15-
• What are needs, and how are they measured? 17-
• An overview 28-
  • The duration of provision for needs and the transition to independence 30-
  • Annex 1: Table of MCA 1973/CPA 2004 provisions
  • Annex 2: Annotated worked examples 47-
  • Annex 3: Pensions 61-
  • Annex 4: Practical examples of different types of need 63-

Division of the High Court to hear financial cases. It was given a warm welcome. The

consensus view was that its distribution nationally will be of significant assistance to judges

without in any way diminishing the fundamental importance of judicial discretion.

I trust that other colleagues will find the Guide helpful and will consult it as a useful

reference guide. The intention is that it will be revised and updated at regular intervals

and, to this end, the Working Group welcomes feedback with a view to informing future

revisions.

Sir James Munby

President of the Family Division

Family Justice Council Financial Needs

Working Group

Members

• Mrs Justice Roberts Chair
• Anne Barlow University of Exeter
• Jane Craig Penningtons Manches
• Nigel Dyer QC 1 Hare Court
• His Honour Judge Edward Hess Western Circuit
• Julian Lipson Withers
• Philip Marshall QC 1 King’s Bench Walk
• Joanna Miles University of Cambridge
• His Honour Judge Clive Million South Eastern Circuit
• Simon Pigott Levison Meltzer Pigott
• Peter Watson-Lee Williams Thompson
• Sarah Woodsford Burges Salmon

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Law Commission

concerns

4. As the Law Commission observed, in an area where there are no rules or strict entitlements, there is a limit to what such guidance can achieve.^2 However, the Family Justice Council agrees that such guidance would be helpful, bearing in mind, in particular, the following concerns identified by the Law Commission:

(i) unacceptable regional disparities and geographical inconsistencies in the type of solutions that tend to be negotiated or ordered,^3 including in relation to: (a) the amount of maintenance negotiated or likely to be ordered in different courts, and

(b) the duration of any order (i.e. whether

a ‘joint lives’ or ‘term order’ is made).^4 (ii) the lack of a definition of “financial needs” in the law, in combination with regional variations in the way that lawyers and judges conceive of them, means that it is very difficult for members of the public to understand their responsibilities and to agree to meet them following divorce; (iii) the removal of legal aid from many family cases including those relating to financial provision means that more litigants in person are either approaching the courts without the help of lawyers to manage their expectations or to assist them in reaching a settlement, or are seeking to negotiate entirely outside the court system “in the shadow of the law”.^5

5. This guidance cannot and is not intended to change the law. Its purpose is to disseminate information about the ways in which the courts’ discretion is currently exercised, and to encourage the consistent use of that discretion in a particular way and (if possible) with a particular objective.^6 Accordingly, when and if necessary, the Family Justice Council will review and amend this guidance in light of case law developments.

(^2) Law Com No 343, Matrimonial Property, Needs and Agreements at [3.93] (^3) Family Law Week on 27 July 2015 Maintenance ‘North / South divide’ encourages rush to London [www.familylawweek.co.uk/site.aspx?i=ed145972] which comments upon the perceived opposition in some parts of the country to the idea of providing applicants with indefinite spousal maintenance. (^4) Ibid at [1.19] and [2.45] to [2.53] – anecdotally, ‘term orders’ are more likely to be made by courts in the North, whereas courts in the South (and especially in London) are more likely to make ‘joint lives’ orders. (^5) Ibid at [1.20] to [1.23] (^6) Ibid at [3.86]

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6. We agree with the Law Commission that guidance of this type cannot deal with every case, and that there may be some exceptional cases where this guidance would not necessarily produce a fair result, or clear answer.^7 In such cases, there is no substitute for the exercise of judicial discretion after proper consideration of all matters to which the court is to have regard under section 25 of MCA 1973 to ensure that a fair order is made.
7. This guidance should be read in conjunction with

Sorting out Finances on Divorce, produced for the

assistance of litigants in person and for those seeking to reach a financial settlement with or without recourse to specialist legal advice: [www.advicenow.org.uk/guides/survival-guide- sorting-out-your-finances-when-you-get-divorced]

8. Sorting out Finances on Divorce provides the following

information about financial settlements for couples who are getting divorced or ending a civil partnership:

 A general overview of the law, dealing with

o Making an agreement without going to court o What the law aims to do and takes into account – and what the parties should aim to agree o What sort of orders can be made

 More detailed discussion of particular topics o Housing and other capital o Maintenance and income o Pensions

 Some worked Examples, which illustrate how the law would generally be applied in some typical situations.

 Some FAQs, which deal with particular issues that come up on divorce, including some “myth-busting” of things that many people believe the law says but which are not true.

The Family Justice Council encourages courts dealing with litigants in person – which increasingly means all courts, exercising both first instance and appellate jurisdiction – at an early stage, to invite attention to

(^7) Ibid at [3.120]

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The statute

9. When deciding what (if any) financial orders to make under sections 23, 24, 24A, 24B and 24E, courts must have regard under section 25 of MCA 1973 to “all the circumstances of the case” (the “section 25 factors”). The first consideration is given to the welfare whilst a minor of any child of the family who has not attained the age of eighteen. When assessing “needs” courts will have regard, in particular, to the matters set out in section 25(2):

The statute: MCA

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire; (b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future; (c) the standard of living enjoyed by the family before the breakdown of the marriage; (d) the age of each party to the marriage and the duration of the marriage; (e) any physical or mental disability of either of the parties to the marriage; (f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contributions by looking after the home or caring for the family; (g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it; (h) …, the value to each of the parties to the marriage of any benefit which, by reason of the dissolution … of the marriage, that party will lose the chance of acquiring.

10. Each of these checklist factors might, in an appropriate case, have a bearing on the parties’ needs – their nature, their extent, their source – and the resources

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that might be available to meet them.^9 This guidance refers to some of the checklist factors in the discussion below. Section 25 (‘the clean break’) must be read in conjunction with the section 25 factors. We address section 25A in the section on the duration of periodical payment orders in paragraph 48 of this Guide.

11. Lord Nicholls inWhite v White commented as follows

Leading cases: on the checklist factors:

White v White Miller, McFarlane Clearly, and this is well recognised, there is

some overlap between the factors listed in

section 25(2). In a particular case there may be

other matters to be taken into account as well.

But the end product of this assessment of

financial needs should be seen, and treated by

the court, for what it is: only one of the several

factors to which the court is to have particular

regard. This is so, whether the end product is

labelled financial needs or reasonable

requirements. In deciding what would be a fair

outcome the court must also have regard to

other factors such as the available resources

and the parties' contributions. In following this

approach the court will be doing no more than

giving effect to the statutory scheme.^10

12. Lord Nicholls inWhite was of course concerned with

the problem of courts in high value cases making orders which only attended to the needs – or “reasonable requirements” – of the applicant spouse,

and the decision in White set the courts in those

category of cases on a different path, guided by the “yardstick of equality of division”,^11 further developed

by the House of Lords inMiller; McFarlane.^12 In high

value cases, the parties’ equal shares of the capital will commonly cover and provide for their respective needs.^13 But in the type of case with which this guidance is principally concerned, equal sharing will commonly be departed from in order to meet needs, and periodical payments may be required. It is on the concept of “needs” that this guidance therefore focuses.

13. The importance of addressing needs – rather than pursuing equal sharing of assets – in lower value cases

(^9) E.g. Charman v Charman (no 4) [2007] EWCA Civ 503, [70]. (^10) [2001] 1 AC 596, 608 ‐9. (^11) Ibid, 605. (^12) [2006] UKHL 24. (^13) See Charman v Charman (no 4) [2007] EWCA Civ 5043, [73].

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The overall objective

Law Commission objective for financial orders

 To meet needs to enable a transition to independence to the

extent that is possible in the circumstances

 Needs may well, and commonly do, provide a justification for a

departure from equal sharing

14. This departure from equal sharing of assets in a needs- based case reflects the overall objective of financial remedy cases, the particular conception of “fairness” that the courts have identified.
15. The Law Commission describes that objective as follows:^15

Law Commission

objective:

transition to

independence

The Family Justice Council endorses that objective. As the Law Commission observed, it reflects what already happens in the vast majority of cases, and does not point to – still less, necessitate – any change in direction for the courts.^16

[W]e 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 marriage, the marital standard of living, the parties’ expectation of a home, and the continued shared responsibilities (importantly, child care). 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.

16. This objective – and the common requirement to depart from equal sharing in a needs-based case in order to attain it – are reflected in the speech of

Baroness Hale inMiller;McFarlane:

142. Of course, an equal partnership does not

necessarily dictate an equal sharing of the assets.

In particular, it may have to give way to the

(^15) Ibid at [3.67] (^16) Ibid at [3.68]

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needs of one party or the children. Too strict an

adherence to equal sharing and the clean

break can lead to a rapid decrease in the

primary carer’s standard of living and a rapid

increase in the breadwinner’s. The breadwinner’s

unimpaired and unimpeded earning capacity is a

powerful resource which can frequently repair

any loss of capital after an unequal distribution:

see, eg, the observations of Munby J in B v B

(Mesher Order) [2002] EWHC 3106 (Fam);

[2003] 2 FLR 285. Recognising this is one reason

why English law has been so successful in

retaining a home for the children.

144. …In general, it can be assumed that the

marital partnership does not stay alive for the

purpose of sharing future resources unless this is

justified by need or compensation. The ultimate

objective is to give each party an equal start

on the road to independent living.

[emphasis added]

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not to extrinsic, unrelated factors, such as a

disability arising after the marriage has ended.

138. The most common rationale [for granting

financial remedies] is that the relationship has

generated needs which it is right that the other

party should meet. … This is a perfectly sound

rationale where the needs are the consequence

of the parties’ relationship, as they usually are.

The most common source of need is the

presence of children, whose welfare is always the

first consideration, or of other dependent

relatives, such as elderly parents. But another

source of need is having had to look after

children or other family members in the past.

Many parents have seriously compromised their

ability to attain self-sufficiency as a result of past

family responsibilities. Even if they do their best

to re-enter the employment market, it will often

be at a lesser level than before, and they will

hardly ever be able to make up what they have

lost in pension entitlements. A further source of

need may be the way in which the parties chose

to run their life together. Even dual career

families are difficult to manage with completely

equal opportunity for both. Compromises often

have to be made by one so that the other can

get ahead. All couples throughout their lives

together have to make choices about who will

do what, sometimes forced upon them by

circumstances such as redundancy or low pay,

sometimes freely made in the interests of them

both. The needs generated by such choices are a

perfectly sound rationale for adjusting the

parties’ respective resources in compensation.

18. The choices the parties made during the marriage (for example, in relation to the provision of child care and/or the loss or interruption of a career) can have a short- or long-term effect upon one party’s ability to continue in employment and/or his or her capacity to return to work and/or to become wholly or partially independent and financially self-sufficient. This, in turn, requires an assessment to be made of his or her “income and earning capacity”, including that which it would be reasonable to expect that party to take steps to acquire (s.25(2)(a).

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What are needs, and how are they measured?

Housing and Income

 The main needs in most cases are for housing and present and

future income

 Future income typically includes a need for income in retirement

 The court will assess the level and duration of need as a question

of fact

 The court will decide whether the needs can best be met by

capital or income provision

19. The glossary in Law Commission (Law Com No 343)

Matrimonial Property, Needs and Agreements notes

that “needs” is

“a very broad concept with no single definition

in family law”

The Law Commission

definition of “needs”

This is elaborated upon in Chapter 3 (Financial Needs) as follows:^18

…we use the term “needs” to refer to how the

law of England and Wales understands spousal

support, encompassing a wide range of

provision: income and capital, present and

future. “Needs” includes payments made with a

view to providing income, whether made on a

regular basis or capitalised, but it also includes

the provision of a home, including privately

owned housing where that is appropriate, and

provision for old age.”

20. The needs of the parties are a question of fact to be determined by the court.^19 In practice, in most cases the main components of “financial needs” will be the need for housing and the need for regular income. Housing (and other capital needs) and income needs are linked and need to be considered in the round. How these needs are most appropriately met and by what form of order, whether by capital provision or (spousal) periodical payments or both, will depend on all the circumstances of the case, in particular the extent of the available capital and income, including – where appropriate – welfare benefits, tax credits and

Housing and

income

(^18) Law Com No 343, Matrimonial Property, Needs and Agreements at [3.8] (^19) Annex 4 provides a table of examples from case law of different practical categories of need.

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expression has gained general acceptance, for

example being adopted by the majority inRadmacher

v Granatino.^25 Other phrases have also been used,

such as the suggestion that “fairness can properly be achieved through meeting one party's reasonable requirements fully and generously assessed ”.^26 It is doubtful that anything turns on the precise terminology used. But the key point which these expressions perhaps convey is that in cases involving more financial resources and higher marital standard of living, “needs” can be met at a higher level than would otherwise be possible.

Measuring Need

 Need will be measured by assessing available financial resources

 The court will strive to stretch finite resources and where resources are

modest the children’s needs may predominate

 Need will be measured by assessing the standard of living during the

relationship, generally the longer the relationship’s duration the more

important this factor will be

 A party may be expected to suffer some reduction in standard of living

having regard to the overall objective of a transition to independence

 To measure need, and the ability to meet it, both parties will be expected

to present appropriately detailed budgets to the court

23. Any assessment of “financial needs” will, in particular, be informed by, and so depend upon, an assessment of:

Measuring “need":

available resources

and standard of

living (i) the size of the available assets and income (i.e.

“financial resources”) (s.25(2)(a) MCA 1973); and (ii) the “standard of living” enjoyed by the family before the breakdown of the marriage (s.25(2)(c)), certainly where the marriage was of more than short duration (s.25(2)(d)).

24. So inMcFarlane v McFarlane; Parlour v Parlour, Thorpe

LJ stressed that the court must be assisted to undertake a proper assessment of each (i.e. both) party’s income needs: 27

78. It is obvious that in cases such as the

present the calculation of the amount of surplus

income cannot be achieved without first

(^25) [2010] UKSC 42, [2011] 1 AC 534 per Lord Phillips of Worth Matravers at [28]. See also Lauder v Lauder [2007] 2 FLR 802; VB v JP [2008] 1 FLR 742; McFarlane v McFarlane [2009] 2 FLR 1322 (^26) K v L [2010] EWHC 1234, [2010] 2 FLR 1467 at [56], per Bodey J. (^27) [2004] EWCA Civ 872, [2005] Fam 171

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establishing what both the payer and the payee

need in order to meet their projected

expenditure…

79. In both cases the husbands failed to

complete the relevant section of the Form E and

in one case the husband refused subsequent

requests for information.

25. And inTL v ML and Others (Ancillary Relief: Claim

against Assets of Extended Family) Mr Nicholas

Mostyn QC emphasised that on an application for maintenance pending suit: 28

iii) In every maintenance pending suit

application there should be a specific

maintenance pending suit budget which

excludes capital or long term expenditure more

aptly to be considered on a final hearing (F v

F)^29. That budget should be examined critically

in every case to exclude forensic exaggeration (F

v F).

26. Courts have consistently taken the view that the lifestyle (i.e. “standard of living”) the couple had together should be reflected, as far as possible, in the sort of level of income and housing each should have as a single person afterwards. So too it is generally accepted that it is not appropriate for the divorce to entail a sudden and dramatic disparity in the parties’ lifestyles.^30 In a modest or “small money” case this may be unattainable, or financial provision (e.g. periodical payments) may only be ordered for a fixed term. By contrast, where there are sufficient financial resources available, it may be fair (and so appropriate) for the court to sanction a continuation of the ‘lifestyle choices’ made during the marriage.^31

27. Thus, inWhite,^32 in relation to “needs”, Lord Nicholls

commented as follows:

36. …Financial needs are relative. Standards of

living vary. In assessing financial needs, a court

will have regard to a person's age, health and

accustomed standard of living. The court may

(^28) [2005] EWHC 2860 (Fam), [2006] 1FLR 1263 at [124] (^29) F v F (Ancillary Relief: Substantial Assets) [1995] 2 FLR 45 (^30) (Law Com No 343) Matrimonial Property, Needs and Agreements at [1.16] (^31) See, for example, S v S [2008] 2 FLR 113 per Sir Mark Potter P (provision made for the wife to continue to keep horses) (^32) [2000] UKHL 54, [2001] 1 AC 596