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Family Justice Council publishes Guidance on 'Financial Needs' on Divorce

Date:1 JUL 2016

The Family Justice Council has today (1 July 2016) released its long-awaited Guidance on ‘Financial Needs’ on Divorce.

This follows the Law Commission consultation on Matrimonial Property, Needs and Agreements published in February 2014.  In contrast to the guidance released for Litigants in Person (Sorting out Finances on Divorce) earlier this year, this guidance is addressed primarily at courts and legal advisers. Its aim is (i) to clarify the meaning of ‘financial needs’ on divorce, with particular reference to the most commonly encountered cases in which the available assets do not exceed the parties’ needs (ie ‘needs-based’ cases); and (ii) to provide a clear statement of the objective that financial orders made to meet needs should (if possible) achieve, and to encourage consistency of approach by courts across England and Wales.

The guidance concentrates only on needs and does not address the interpretation and application of the principles of sharing and compensation.

The guidance sets out the Law Commission’s overall objective (to meet needs to enable a transition to independence to the extent that is possible in the circumstances) and then examines the justification for meeting needs through financial remedies. In summary it states that:

  • Marriage typically creates a relationship of interdependence. 

  • Dependence is commonly created by the presence of children. 

  • Potentially long term dependence can be created by decisions for one party to discharge family obligations at the expense of the development of employment potential.

  • It is generally right and fair that relationship generated needs should be met by the other party if resources permit.

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It further discusses what needs are and how they are measured.  By examining the case law the report gives the following guidance:

  • 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.

  • The term ‘reasonable requirements’ to describe needs is now not approved. 

  • The term ‘needs (generously interpreted)’ has gained acceptance to assist determination in higher resource cases.

  • 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.

  • Needs may be met from non-matrimonial resources. 

  • A court in a needs case should not focus on the marital acquest, but should instead consider all the available assets.

  • The court will assess the needs of both parties. 

  • Before requiring payments to meet need the court will stand back and consider what portion of the payer’s resources should fairly go to the payee. 

  • Where resources are modest the children’s need for a home with their primary carer may predominate but, if possible, the court will strive to stretch resources to provide a home for children with each of their parents. 

  • The court will consider the detrimental impact of requiring one party to remain on the mortgage of the other’s home for an indefinite period.

  • If the needs of the children require one party to sacrifice an entitlement to capital in favour of the primary carer then the court will consider reimbursement to the sacrificing party through a Mesher order. 

  • This may not be appropriate if the capital sacrificed can be generated through anticipated future endeavours by the sacrificing party. 

  • The fairness of a Mesher order may also be undermined by the likely effects on the primary carer at the time the trigger events apply.

The report then goes on to tackle the difficult issue of duration of provision for needs and the transition to independence, and gives guidance as follows:

  • Most case outcomes tend eventually not towards life-long support but towards independence, but this is not appropriate in all cases. 

  • If needs are to be met through a periodical payments order then the court must consider (whether making an initial order or a variation order) whether to make a joint lives order, an extendable term order or a non-extendable term order. 

  • In deciding on the duration of any order the court will need to consider the statutory steer towards the termination of obligations at the earliest point which is just and reasonable, but termination should only occur if the payee can adjust to it without undue hardship. 

  • Termination of the obligations should not be achieved at the expense of a fair result.

  • Termination of the obligations should be justified by reference to an evidential foundation, not crystal ball glazing or pious exhortation.

  • A clean break should not be achieved at the expense of a fair result. 

  • There is a distinction between ‘undue hardship’ and ‘hardship’ and a payee might be expected to suffer a degree of hardship - not all reductions in the standard of living amount to undue hardship. 

  • In assessing undue hardship the court is likely to draw a distinction between, for example, short childless marriages and marriages which are either long or involve children or both.

  • Fixed or extendable terms: 28(1A) MCA 1973 - Where a term order is made the court must decide whether it is to be extendable. Where a party seeks to extend a term the court must carry out a fresh analysis of need, but the reason for the imposition of the initial term is likely to be a relevant and possibly decisive factor.

  • Step down maintenance orders - When making a periodical payments order the court may impose future step ups or step downs of the amount to be paid to anticipate future changes in circumstances, for example an anticipated gain of employment. 

Throughout, the guidance refers to the leading case law and contains extracts of essential reading of the relevant judgments. One of the annexes (Annex 2) to the guidance contains a useful table of cases with short summaries. Annex 2 also contains annotated worked examples, taken from the LiP guidance Sorting out Finances on Divorce. Annex 3 briefly addresses the topic of pensions, referring to the orthodox approach encouraged by Martin-Dye v Martin-Dye [2006] 2 FLR 901, but noting that there are issues in cases of more modest means and that there is no consistent methodology when pension offsetting. Annex 4 is a table giving practical examples of different types of need, ranging from the common place (for example, a main home) to the more unusual (for example, funding a hobby).

As the guidance notes itself, it does not 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.  It is hoped that the guidance will go some way to addressing the Law Commission’s concerns about regional differences and the lack of transparency in this area of the law.

The full FJC Guidance on “Financial Needs” on Divorce report is available to download here.