financial remedies decisions

Partner Lesley Smythe discusses the importance of maintaining discretion in financial remedies decisions in eprivateclient.

Lesley‘s article was published in eprivateclient, 17 August 2023, and can be read here.

Family laws in England and Wales that provide judges with substantial discretion when dividing assets on divorce have long been a matter of vociferous debate in legal circles. The laws were challenged again recently by Mr Justice Mostyn, in an effort to influence a change in the legislation governing financial remedies decisions.

Having campaigned on the issue for years, Mostyn’s latest call for a “rules-based system” to determine financial remedies on divorce seems, on the face of it, to be a sensible solution to the perennial problem of parties spending disproportionately on costs.

Mostyn recently criticised the Court of Appeal while speaking at a meeting in parliament, saying his prior calls to overhaul the system had been “overpainted by woolly discretion” by the Court, which was protecting a system that could never be “predictable, transparent, economical or consistent”.

The issue of costs arises from a party’s ability to pursue arguments which might be successful all the way to a full court hearing. As a result, significant costs can be run up in the months, or even years, before a trial takes place.

At the trial itself, parties await the judge’s decision on what is a “fair” outcome in the court’s view, but of course every judge takes a different view on what is the fairest outcome, with their subjectivity an often-considerable factor in the final outcome. The inconsistency affects most divorce cases, which are in the main “small money needs cases”.

Given that the emphasis is on reaching a judgment that allows the reasonable financial needs of each party to be met, such inconsistent approaches have a serious impact on divorcing parties and their dependents.

Permitting a status quo to persist where such an enormous range of needs can be validly argued is certainly not conducive to keeping legal costs down or to reaching agreement.

There are of course some parameters when it comes to the sums reached by the courts in their judgments. However, the general view among family law professionals is that the lack of consistency and consequent uncertainty over the sums which will be awarded at trial greatly add to the financial burdens on each side.

Mostyn has advocated for a rules-based approach to financial settlements since 2014, after a divorcing couple spent a third of their combined wealth on legal costs, blaming “wasteful and inefficient” practices by their lawyers. Mostyn’s opinions are not shared with many family law practitioners, as excessively formulaic rules can often lead to an unfair result for one of the two parties.

One of the more difficult issues is spousal maintenance. Baroness Deech sought to introduce a private members bill several years ago to place limits on the number of years spousal maintenance can be received, however such a reform could feasibly create unfair situations where one party is left in financial trouble after the tap is turned off.

While many feel that Mostyn’s approach is too severe, there has been sufficient concern over the current system for the Law Commission to launch a review in April on whether there is a need for reform of the laws governing finances on divorce. However, since the Commission does not aim to publish a scoping paper until September 2024, any consultation on proposed reforms is unlikely to be undertaken earlier than 2025.

Such a timeframe underscores the long and arduous road to be travelled before any concrete reforms to the law are made, if they are made at all. The Law Commission’s task is to determine how to achieve a fair balance between the need for greater clarity and consistency, and the need to retain the court’s ability to find creative and bespoke solutions that cater for the individual circumstances of each party.

The latter need is arguably the most unique and attractive feature of divorce law in England and Wales and delivers benefits which should not be underestimated.

Clarifying basic principles and legislating accordingly would certainly help streamline most cases, but this cannot and should not replace the principle of discretion, which provides the flexibility necessary to give both parties a fair settlement in divorce. Putting in place rules that widen access to justice by limiting costs, while retaining the fundamental principle of discretion, seems to be the most equitable solution.