UK – New formula to settle divorce payouts

Divorce settlements would be worked out according to a mathematical formula which would divide up a couple’s assets depending on income and how long they have been married, a major review has suggested.

Why do couples split up?

Divorcing couples currently have no idea how their assets will be divided, it is claimed

Couples could calculate how much money they would receive in a settlement under the proposals by the Law Commission to clarify the “uncertain and inconsistent” law.

This would encourage couples to work out settlements between themselves rather than going through the time-consuming and costly process of going to court.

In a further attempt to lower costs and keep cases out of the courts, new guidance could be provided online so that couples can work out their assets and their needs.

Another change being considered by the Law Commission, which recommends legal changes to Government, is that family homes should be left out of divorce settlements if they were inherited or acquired before marriage.

A consultation by the Law Commission, which will lead to a report to ministers in 2013 but which would require more work before it could trigger a draft Bill, says that presently spouses who split up cannot predict what support they would receive, or have to pay, and the situation will worsen as legal aid is removed from family cases.

Big-money divorces are no guide to cases where there is not enough to cover the parties’ needs, and there is a “postcode lottery” with levels of generosity differing across the country.

It is not clear if judges are meant to enable the lower-earning party to keep the same living standards as they had while married, and maintain them for life, or give them just enough to get back on their feet again.

The law in England and Wales is unclear and treats a family court judge like a bus driver who has been told how to drive and told that he must drive, but has not been told where to go, nor why he is to go there, according to the consultation.

Moves to reform the law come after the highest court in the land allowed an appeal last November by hairdresser Patricia Jones against an earlier ruling that ice cream salesman Leonard Kernott was entitled to half of the value of the house they shared nearly 20 years ago in Thundersley, Essex.

The five Supreme Court justices said Ms Jones was entitled to 90% and Mr Kernott, of Benfleet, Essex, should get 10% at the end a fight which started in 2008 and had seen lawyers argue in a county court, the High Court, the Court of Appeal and the Supreme Court.

It also follows last year’s consultation on whether to make pre-nuptial deals legally binding.

Under the current law in England and Wales, if separating couples cannot agree how to divide their assets and how to look after each other in future then it is up to a judge to make orders.

In the “vast majority” of cases there is not enough money or property to be divided equally between husband and wife, so the courts just try to work out the spouses’ needs.

Orders can be made for the richer party to pay the poorer a lump sum, allowing a “clean break”; to pay a certain amount of support for a particular number of years; or to sell the family home. Child maintenance is calculated separately.

But the Law Commission’s new consultation, published on Tuesday 11th Sept 2012, claims there is a “lack of legal clarity” about the definition of needs, and so even if a member of the public read the relevant legislation they would have “no sense of what the outcome would be”.

It is unclear to what extent one spouse must support the other and for how long, nor whether wives should be compensated if they gave up careers to raise children.

Judges are not told if their objective should be to allow the poorer spouse to become independent again, or to provide a limited amount of support to discourage dependence.

“That the law is inaccessible and difficult to discover is troubling in a context where currently by no means all separating couples take legal advice, and where far fewer will be able to get publicly funded advice following reforms to legal aid.”

One possible solution raised by the consultation is to create “formulaic guidelines”, along the lines of those already established in Canada, that would calculate support based on the length of the relationship and the difference between the spouses’ incomes.

In Canada, guidelines were devised in 2005 to make divorce settlements more consistent and predictable, although they are not binding upon judges.

For couples without children, they start by determining how long the parties to the divorce have lived together.

The difference in their income is multiplied by between 1.5 and 2 per cent, for each year of cohabitation, up to a maximum of 25 years.

So in a childless couple where the husband earns $90,000 and his estranged wife earns $30,000, the income gap is $60,000.

If they had been together for 10 years, the amount of support he must pay her would be between $9,000 and $12,000 a year.

The length of time he must pay support is between half a year and a year, for each year of cohabitation, so in this case between five and 10 years .A more complex formula is used for spouses with children.

Separately, the report raises the question of how – when wealthy couples split up – their valuable gifts or inheritances should be divided.

The Law Commission proposes that “non-matrimonial property” held in one spouse’s name alone and acquired as a gift or inheritance, or before their marriage, should not be shared unless it helps meet their partner’s needs.

If this were extended to include family homes, it could mean even a country mansion would be kept by a rich husband rather than going to his ex-wife and children, if it had been in his family for generations.

A spokesman for the Ministry of Justice said: “The Government will consider the recommendations of the Law Commission when its report on Pre-nuptial and Post-nuptial Agreements is published.”

Louise Halford, a partner at the leading law firm Pannone, said a formula would bring certainty to divorce settlements but added that couples should still have the right to go to court if they felt the calculation was unjust.


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