THE S 25 ‘STATUTORY EXERCISE’ IS NOTHING OTHER THAN ‘AN EMPEROR WITH NO CLOTHES’ – IT IS TIME TO DETHRONE IT - Chronicle Law

Ashley Murray, Barrister-at-Law at Ashley Murray Chambers, Liverpool

Introduction:

The Law Commission’s 373 page scoping report on Financial Remedies on Divorce and Dissolution, (https://cloud-platform-e218f50a4812967ba1215eaecede923f.s3.amazonaws.com/uploads/sites/30/2024/12/Financial-Remedies-scoping-report-Dec-24-1.pdf) which was published in the week before Christmas, is at first reading a significant review of the current Financial Remedies process upon divorce and dissolution of marriage.

Within its detail, the report lays out the current law’s approach as developed by several decades of reported judicial court decisions undertaking what is known as the ‘statutory exercise’ when effecting resource division between divorcing couples under s 25 of the Matrimonial Causes Act 1925. The Commission’s scoping report highlights existing problems with both the principles applied and related court practice and procedures as drawn from its consultation with judges, academics, practitioners, received voluntary submissions and selected published legal commentary and data.

In some areas of its analysis, the report then considers the recent development of comparative divorce division in other selected jurisdictions before meeting its terms of reference in laying out the choice of some four models of reform for the government to decide upon, being the Codification of the existing current principles and law, or a Codification-Plus approach effecting some additional reform, including checks to the current system, or a Guided Discretion reform which would introduce a set of statutory foundation principles and objectives beyond those to be derived from the s 25 exercise or the adoption of a Default Matrimonial Property Regime reflective of other jurisdictions setting out by statute in advance how parties’ property would be divided upon divorce with the Courts having little discretion to make any adjustment.

The Law Commission acknowledges that, at this stage, it has not yet, subject to receiving the Government’s response (expected within 6 months) as to which model of reform, if any, is to be pursued, attempted a wider public consultation.

The report is, undoubtedly, for the family financial remedies practitioner a useful up-to-date compendium of the current divorce financial division approach and, on any reading, there will be much in terms of highlighted shortcomings, which the legal professional will readily acknowledge as issues which have emerged and, indeed, recently increased within the workings of a statutory process, which itself was last substantively reformed by Parliament over 50 years ago.

Avoidable Delay:

However, in this context, it is important to recall that as early as 2009 (some 15 years ago) the Law Commission first commenced a project to first examine the status and enforceability of marital property agreements. That project was subsequently extended in 2012 to cover two further issues of financial provision arising upon divorce /the dissolution of civil partnerships, namely financial needs and non-matrimonial property in order to clarify areas of law causing particular difficulties.

In their full report in 2014, the Law Commission not only advanced the idea of Qualifying Nuptial Agreements and suggested draft legislation around that idea, but also provided recommendations as to how the law in this area could be further clarified for both professionals and litigants alike, including the need for a definition of ‘reasonable needs’, which the Family Justice Council subsequently addressed and the potential development of guideline formulae to calculate a financial settlement. Whilst the dissolution of Parliament in 2015 interrupted the anticipated governmental final response to the Commission’s recommendations – the same were not, it has to be said, vigorously pursued thereafter.

Indeed, the recommendations of the following report by the Law Commission in 2016 on Enforcement of Family Financial Orders have, again, not yet found their way into legislation. In parallel, the Conservative government had also declined to take forward the recommendations in the Commission’s report upon Cohabitation (2007). The further delay in progress in the lee of a private members Bill introduced, initially, in 2018, by Baroness Deech (ie the Divorce (Financial Provision) Bill) and then its successor by Baroness Shackleton may well, in part, be explicable by the intervention of the pandemic (2020), but, in reality, the chronology above in large part speaks of governmental dereliction of advised legislative reform relating to crucial aspects of the country’s core family relationships during this period.

Need For Reform:

The excuse ‘if it isn’t broke don’t fix it’ hardly applies in the light of the Commission’s stance in their 2014 report above or in the view now expressed by their present scoping report, in which it is stated:-

‘1.58 In our view, the current law relating to financial remedies on divorce and dissolution does not, to use the words of the question set out in our Terms of Reference, “provide a cohesive framework in which parties to a divorce or dissolution can expect fair and sufficiently certain outcomes.’

And

‘2.71…Other than directing the courts to have regard to all the circumstances of a case and above all to the welfare of any minor children, the MCA 1973 does not contain an explicitly stated aim. Although section 25 provides a comprehensive list of the factors which the court must consider, there is no hierarchy or guidance beyond that list. Where couples seek legal advice, it is therefore difficult for lawyers to advise of the most likely outcome. Furthermore, for the average divorcing couple who do not obtain legal advice, the statute offers limited guidance. They are left with the uncertainty of trying to use complex case law – the high net worth facts of which are far removed from the circumstances of most divorcing couples – to calculate the possible financial remedies outcomes on divorce.’

The Statutory Exercise and Discretion:

The experience of many family practitioners will be that if there has been one aspect of the s 25 ‘statutory exercise’ which has become more troublesome in practice than all others since 1973, it has been the ability as a professional to predict the outcome of the exercise of the wide discretion vested in the Court to determine upon the circumstances of each case the appropriate fair division of the affected parties’ resources. Such a basis of bespoke determination in determining divorce financial division, it is suggested, speaks more of the present system pandering to the wealthiest litigant, who can afford access to the court process, than it reflects the broader demands of the those divorcing as a whole. Indeed, as the scoping report highlights, the median total property values (including pension and less debts) of divorcing couples on latest published figures is just £135k (see Nuffield Trust Fair Shares report (2023) – indeed almost one fifth of these couples had no assets at all to divide).

Equally, the existence of such a wide discretion prevents, without any express declared objective in the statute itself as to how the parties’ finances will be approached upon divorce etc, unnecessary uncertainty in separating spouses of the likely outcome at the point of their marital breakdown and unsatisfactory pressure upon them to incur the cost of lawyers thereafter to attempt to discover the likely approach to be adopted. Indeed, without access to such advice many will labour under the impression that if they reach a homemade division of finances after divorce, the same will have settled their issues, without more, whereas, of course, the opposite without a court approved Consent Order will be true.

In this same context, the scoping report again highlights (see para 1.14 of report) from data supplied from the Family Court Statistics Quarterly (2024) that of 112,135 divorces/dissolutions commenced in 2023 only in some 40% (ie 44,564) of these divorces were applications made for a court order. Indeed, only 11.5% of all divorcees in 2023 contested their financial division arrangements before the Court. Look into this data further and it reveals that the 40% figure of those who applied for a financial remedy court order included those who would already have reached a homemade compromise over their finances with little or no separate legal advice.

The Disconnect:

Hence, currently the distinct majority of divorcees do not actually benefit from the Court’s bespoke case by case adjudication of their financial division on divorce in any event and even of those that do, a not insignificant yet unknown number are likely to have reached a settlement on scant or no legal advice. It is, therefore, not surprising that the Commission’s scoping report expresses concern that with, for example, pension division between divorcing couples – the same for many represents their most valuable asset (eg. in 2020 total UK household wealth was estimated by the ONS at £15.2 trillion of which pensions made up £6.4 trillion) and yet, not only does the Law Commission, unsurprisingly, highlight that parties in divorce continue to under appreciate their pension holdings significance (see para 10.3 of report) but the Fair Shares report above revealed that only 11% of divorcing couples actually had made in their settlements provision between themselves for the division of existing, but as yet undrawn pensions.

Call to Action:

This state of affairs is entirely woeful and can only on any family law professional’s experience in practice only result in the already financially weaker party in a divorce (usually still the woman, of course) becoming comparatively even less well-off than the other party going forward. What is the point in there being any defence of the status quo when the present wide discretionary system is failing most divorcees so miserably and is frankly an irrelevance to them.

All family financial remedies practitioners are to be encouraged to attempt a full reading of the scoping report, despite its length. Within its pages, the Commission’s scoping report valiantly attempts to capture many of the problems and shortcomings existing within the current system. Specifically, Nuptial Agreements in Chapter 7, Spousal Maintenance and Provision for Children over 18 in Chapter 8, Conduct in Chapter 9, Pensions in Chapter 10, Limitation Periods in Chapter 11 and Impact Consideration in Chapter 12.

Overall, however, the author expresses the view that there remains within the report too little emphasis on the fact that action and not yet more consultations and evaluations are urgently required.

Wrong Audience:

The audience from which, in the main, the scoping report material has been taken, consists, of course, of those with a vested interest in the current financial remedies system, namely the legal professions, legal academics and, of course, the judiciary. The public have yet to be formally engaged.

The problem with a consultation of only those who form the very institution under consideration is that, by definition, they look inward and not outward for the answers. Indeed, for example, the current topical debate that is drawing attention within the professions concerning ‘Conduct’ within financial remedies division and, particularly, whether domestic abuse should automatically be acknowledged therein is, it is suggested, a classic example of the position.

Whatever the merits of that debate, it is again irrelevant if the access to the system is as limited as it presently is. It is even more so, if addressing the perceived injustice of not deeming domestic abuse as ‘gross and obvious conduct’, as some would argue, results in the need for more fact-finding hearings in a legal court system which has to actively encourage alternative routes to determination to enable it to meet the overall minority of contested cases it already deals with.

The calls for greater attention to the failings for the minorities engaged in our divorce process, whilst undoubtedly well intentioned is in danger of entirely neglecting the wider failings in the present system for the majority of divorcees.

Delay and procrastination in reform over the last has decade has led to this situation, as arguably it has with other institutions within the nation which have suffered the same fate. Putting it another way, there is no point in decorating a room in the house, if the room next door has already caught fire.

In Conclusion:

The wide judicial discretion within the ’statutory exercise’ in its current form is outdated and the law in this area requires far greater certainty of outcome. The s 25 exercise is nothing other than ‘an emperor with no clothes’ and those of us who administer its procedures its courtiers. The niceties of academic reform debate must give way to the economic realities of the 21st century to ensure that what now replaces it provides all and, if not, then most divorcees with informed access to its replacement at a reasonable, or if not, a capped cost. Like the emperor, the financial remedies system of divorce division must continually remind itself why it exists and who it is there to serve.

February 2025.

THE S 25 ‘STATUTORY EXERCISE’ IS NOTHING OTHER THAN ‘AN EMPEROR WITH NO CLOTHES’ – IT IS TIME TO DETHRONE IT