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Impact of lifestyle factors in divorce proceedings

  • October 20, 2015
  • By Hunters Law

When family lawyers of a certain generation die, they will find engraved on their hearts: ‘the section 25 factors’. For nearly 40 years, we have looked at s25, Matrimonial Causes Act 1973 (MCA 1973) and tried to understand what it means for our divorcing clients, and how to advise on it. The law provides that these factors must be taken into account when advising on a financial settlement on divorce, so that the settlement is fair. We are told that none of the section 25 factors are superior, but that some will have a ‘magnetic quality’ in certain cases (see for example Crossley v Crossley [2008]). We are told both to forego any gloss on it (per White v White [2000]), and to strip our advice back to the statute and to stop over-interpreting it, but at the same time that the law is flexible and must reflect current attitudes in society; ‘fairness is an elusive concept… grounded in social and moral values’ which ‘change from one generation to the next’ (per Miller v Miller; Macfarlane v Macfarlane [2006]).

This article is about the changing law in relation to s25(1)(c), MCA 1973, ie ‘the standard of living enjoyed by the family before the breakdown of the marriage’, from the different perspectives of a solicitor who qualified in 1981 and began her law degree in 1975 (just after MCA 1973 came into force) and of a trainee solicitor who will qualify in late 2015. We look only at divorce law, although there is a growing case law on Schedule 1 to the Children Act 1989 applications for children whose parents were not married.

When out young colleagues consider the composition of their daily work, they find that more and more of it relates to cohabitation issues and less to divorce and its consequences. Office for National Statistics figures from July 2015 indicate that around one in eight adults lives with someone outside marriage or civil partnership, and that cohabitation is most common in the 30-34 age group. With no government apparently willing to legislate on the rights of cohabiting couples on separation, will the courts try to offer ‘justice by the backdoor’, to ease possible later unfairness? Some of the perceived problems are found in the apparent disparity of lifestyles after the breakdown of cohabitation. It is possible that reform of the law on divorce will move towards that on cohabitation, as regards future interdependence, but reform does not appear to be imminent.

Developments

A number of recent court decisions have led to a change in advice that solicitors give to clients. As ever, the majority of cases that go to court and end up in a full final hearing are brought by the relatively (or hugely) rich. Most people cannot afford the legal fees, nor to put their lives on hold while their dispute wanders through the family court process. Private dispute resolution such as mediation and collaborative practice outcomes are very seldom reported unless there is a subsequent problem. A rare example is the decision in S v P [2008].

Ten years after the MCA 1973, s3, Matrimonial and Family Proceedings Act 1984 amended the original legislation to insert a new s25A(1) to provide that the court has a duty, when considering financial arrangements, to consider:

… whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree… as the court considers just and reasonable…

and goes on to provide in s25A(2) that when considering periodical payments, to consider whether these should be only for:

… such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party.

This provision has become increasingly important in the last 15 years, as we explain below.

Needs, sharing and compensation

The leading case of Miller; McFarlane has helped us explain to clients how, using the three linked principles of needs, sharing and compensation, we interpret the law and help them to find a fair settlement.

Compensation has fallen out of favour, as a principle. We may choose to describe it as Potter P (as he then was) did in VB v JP [2008] as a ‘relationship-generated disadvantage’ (which is probably quite common) that is ‘only likely to arise exceptionally’, as Mostyn J reminded us in B v S [2012]. It is not however impossible to claim, as demonstrated by Coleridge J in H v H [2014] which involved an application to capitalise maintenance. Here the wife had been awarded maintenance at the first hearing in 2005 of £90,000 per annum, which was increased in 2007 to £150,000 per annum to reflect compensation. The judge decided to only attribute part of the equity in the home as an income fund, not to amortise it, nor order any step down. On appeal, Ryder LJ did not criticise this decision as to compensation, wanting ‘to avoid discriminating against a wife who is entitled to compensation’ (although Coleridge J’s decision was remitted to be re-heard by a different judge).

Sharing is most easily established where the assets are easy to value and to divide, but not so easy, for example, if they are not yet established, let alone valued, assets such as interests in private equity (see B v B [2013]). For family lawyers advising clients, the starting point is usually the capital (following the order found in Form E on financial disclosure). Fairness does not always mean equality of sharing, but is a good check.

Income is often far harder to deal with. For the great majority of people who divorce, just to meet the needs of two future households is a problem, let alone any excess to share. Again we turn to Mostyn J, who in B v S was clear that income sharing must be based only on needs for the great majority of people. As Charles J said in G v G [2012]:

… if capital has been equally shared and is enough to provide for need and compensate for disadvantage, then there should be no continuing financial provision.

Law Commission report

The Law Commission report, ‘Matrimonial Property, Needs and Agreements: The Future of Financial Orders on Divorce and Dissolution’ (Law Com 343), published in February 2014, recommended clearer guidance as to the meaning of financial ‘needs’ to help both lawyers and clients, and of course litigants in person, to work out fair settlements. The report does not attempt to give a definition of financial needs, and the relevance to that of the former standard of living. It recognised that the standard of living of the parties is one of the things to be considered by a judge on making a financial order, but after 2000, and the seminal case of White, the principle of equal contribution and equal sharing really took hold as regards capital. We therefore currently remain without guidance on how to reflect the standard of living in any settlement

 

Case law

The focus of recent cases that address the standard of living has been on periodical payments, recognised by many family lawyers as being a very difficult area on which to advise definitively. That is in part because of the establishment and acceptance of the sharing principle as regards capital, where there is enough to get beyond meeting needs, so that the battleground has moved to income.

In Matthews v Matthews [2013], an appeal from a decision of Mostyn J, the Court of Appeal was asked to reconsider the dismissal of nominal maintenance in relation to a mother of two young children. Until this case, it had been usual for a primary carer with young children to be awarded nominal maintenance in case of future change of circumstances, affecting either them or the children, that might necessitate the call on the paying party for financial support. The facts were perhaps slightly unusual, in that the mother earned more than the father, but she had suffered unemployment and her earning capacity was predicated on having young children who depended on her at home. The Court of Appeal however could not fault the judicial exercise of discretion at first instance. Following a redistribution of capital so that the wife was for example released from a mortgage, there was to be a clean break.

In Wright v Wright [2015], a single appeal judge decided not to allow a former wife to appeal against a previous court order, that had varied the earlier court order (made on divorce in 2008) for the wife to receive maintenance from the husband ‘during joint lives’ – ie until one of them dies. The order being appealed was made on an application by the husband to vary the 2008 order, and was considered in June 2014. The case focused on the standard of living for the parties from the time of separation. The husband was involved in the equine industry centred on Newmarket. In 2008 the first judge had said that:

… by September 2009/10 the wife should be able to work… she should make some financial contribution… she will use her best endeavours to develop an earning capacity in 2 to 3 years’ time.

In 2008 the younger child was aged three, and it is clear that the first judge thought that once a child is in year two at school (ie aged about six or seven), most mothers can consider part-time work, so the order was structured to take account of the wife becoming partially able to meet her own needs. By the time of the hearing in 2015, the child was aged ten, still young enough to need her mother to look after her, but not so dependent. It is important to note that this judgment was only a refusal of an application to appeal, it was not a fully argued case in the Court of Appeal, so it is persuasive and has led to many new enquiries from clients, but perhaps fewer actual court cases so far than the media might have hoped.

The decision of Holman J in Fields v Fields [2015] was reported very widely. For most observers, the lavish lifestyle of the couple and in particular the wife’s claims to maintain her standard of living were eye-watering. The judge expressly addressed the common and high standard of living, the husband admitting to being a high spender and the wife confirming that in 2009 they spent the equivalent of £595,000 and in 2010 £567,000. She did not get that, but she did get a home in central London and some cash on top. We must be wary of considering how such extraordinary facts can guide us when we look at how courts deal with the issue of standard of living for most couples.

 

What now?

On the above analysis, it is hard to see future courts awarding periodical payments based on the standard of living in the great majority of marriages. In Y v Y [2012] Baron J did give a 51-year-old ex-wife the sum of £8.7m, saying that the woman’s aspirations ‘borne of her lifestyle’ were ‘not outlandish or avaricious’ but a result of her ‘expectations from birth’. But again this is rare.

Given the established principle that fairness usually leans towards equal contributions by the parties, and thus an equal division of capital if there is enough, only if there is surplus does one then look at further sharing, and there are few judgments that help the day-to-day work of a family lawyer when they try to consider the impact of the parties’ standard of living. Mostyn J was customarily forthright in his judgment in SS v NS [2014] when he said:

It is a mistake to regard the marital standard of living as the lodestar. As time passes how the parties lived in the marriage becomes increasingly irrelevant. And too much emphasis on it imperils the prospects of eventual independence.

It is notable that the cases cited above involve wealthy families. How far we apply those principles to regular, everyday divorcing couples is a difficulty. The infamous ‘North v South divide’ has long given rise to anecdotal surmise that only in London and the South East have judges really taken the parties’ lifestyles into account in awarding maintenance for life, but in the North, claimants are given limited terms and expected to move fairly rapidly towards independence. How far the recent economic recession has made parties’ ability to support themselves, let alone each other, a distant prospect has not really troubled the law reports.

Attempts to introduce legislation that imitates that of our neighbours (for example, Scotland) in limiting the quantum and term of future financial interdependence have not been successful to date. There seems little appetite in government for legislation on matrimonial matters, and certainly even less for cohabitants.

So in future years, when the older of your two authors has retired from practice, we ask you to contemplate the working life of the younger solicitor, who knows that she needs to know the section 25 factors, but may well have to advise her clients that s25(c), MCA 1973 is really pretty redundant for their cases. Perhaps the Law Commission will come up trumps with those difficult definitions of ‘need’ etc. But, as ever, it will require political will to make legislative change.

This article was published in the October 2015 edition of Family Law Journal.

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