Divorce (Financial Provision) Bill [HL]

Lord Davies of Stamford Excerpts

Friday 27th June 2014 Lords Chamber

[Lord Davies of Stamford (Lab)]

My Lords, I hope that I carry the whole House with me when I say that I think that the law should be, above all, four things. First, it should be clear—the citizen has an obligation to observe it and therefore has a right to understand it. Secondly, it should be permissive—we live in a free society and are proud of that, and a free society is defined by the fact that the state intervenes to restrict the freedom of the citizen only to the extent required to defend and protect the freedom of other citizens. If something is not allowed which, if it were allowed, would not undermine the freedom of other persons, that is an anomaly and should be addressed. Thirdly, the law should be protective of the vulnerable, of the weak and of the less sophisticated against the more sophisticated. Finally, the law should be just and fair. It should reflect the principles of justice and make the proper balance between the protective and the permissive.

In my view, the noble Baroness’s Bill would advance the law in all those four very important respects. First, so far as clarity is concerned and as the noble Baroness has already explained, there is an unanswerable case that jurisprudence in family law has run far away from the Matrimonial Causes Acts. It is impossible to know where one stands and what precedent one might be guided by in trying to anticipate future judgments. That is a very unsatisfactory state of affairs. It is exactly the same with prenuptial agreements. Sometimes they are enforced by the courts; sometimes they are not—it is completely unclear what the law is, and that is very unsatisfactory. When you have a situation like that, it is absolutely the duty of Parliament to do something about it. I congratulate the noble Baroness on having decided to do that with this Bill.

Secondly, in the area of fairness, the Bill introduces the notion of matrimonial property, a concept drawn from Scotland, as the noble and learned Lord, Lord Mackay, has reminded us, and drawn by Scotland from the Roman law tradition which it has. A similar principle exists in the Roman law jurisdictions on the continent, where one can choose on marriage a regime either of séparation des biens or of communauté des biens. If one chooses the séparation des biens, one keeps separate the property that one brings to the marriage from other sources. The noble Baroness’s Bill would introduce into English law the notion of matrimonial property that would be subject to division on divorce and other matrimonial property that would be protected, such as inheritances and—according to the text of the draft Bill before us—gifts. That is definitely an enhancement of justice.

Then there is the contribution that the Bill would make to making the law more permissive. That is achieved through the provisions for prenuptial agreements. In a sense, if you have the rest of the Bill—the matrimonial property et cetera concept—then you have less need for prenuptial agreements, but on the permissive principle it is a good idea to make it absolutely clear that, if people want to enter into these contracts, they should be able to do so. Why? It is simply because, if two citizens wish to have a contract about anything, they should have an assumed right to make that contract—with the normal common-law protections about disclosure of material facts, no undue influence and so forth. The burden is on those who wish to prevent two mentally capable adults from entering into such a contract. We have contracts in this country that are enforceable in law for all kinds of things: employment contracts, sale and purchase contracts, leasing contracts, licensing contracts, exclusivity contracts, partnership contracts and so on. Only gambling contracts are not enforceable under the law in this country. It would be an extraordinary state of affairs to put prenuptial contracts—with all the protections required and that are in the Bill before us with one small exception that I shall come to—on the same footing as gambling contracts.

I should not so much declare an interest as my own record on this matter. Many years ago in the other place, I introduced a Bill to provide legal standing and protection for prenuptial agreements, giving legal force to them. That got to an unopposed Second Reading but was never taken further for reasons of time. I have previous on this particular subject.

It seems to me that prenuptial agreements not only meet the criteria that the law should be permissive wherever possible but also advance the fairness of the law. People have been deeply offended by some of the gold-digging—that is the word one must use—that has had a lot of publicity recently. The McCartney case was famous. There was a case in point recently when one lady might have been involved in successful gold-digging on two separate occasions in the course of a relatively small number of years. That offends the public’s sense of justice. Both the noble Baroness’s provisions on the matrimonial property concept and prenuptial agreements would tend to address that issue and make the law more obviously fair and just. That is a very desirable achievement.

On the impact on people’s willingness to get married, it seems to me that in practice the opportunity of having prenuptial agreements for those who might want to take advantage of them would, logically, encourage more people to get married. Some people certainly feel inhibited without them. In my own anecdotal experience, I can think of people who have been inhibited from formalising their relationship because they wanted to protect family assets of one kind or another that they already had. The Bill would enable them to engage in a marriage with no such inhibitions or fears. That is a thoroughly desirable thing.

I make just one perhaps niggling comment or suggestion, but it is important. Full disclosure should include not merely assets as provided for in the Bill but also liabilities. A false picture would emerge of the net worth of the two parties if the liabilities were not disclosed. Parties to a potential prenuptial agreement might think, if only the assets were fully disclosed, that they both had assets of a similar order of magnitude when in fact one had massive liabilities and the other had none. There might be enormous distortion in showing such a balance, so it would be quite false not to bring to the attention of the two parties a true and fair picture at the outset of the negotiations over that particular contract.

I hope that the Bill makes progress; I think that it is urgent that it does so. I hope that it becomes a part of the law of this country as soon as possible and that the noble Baroness, whom I congratulate again on this initiative, will take on board my one small suggestion.

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[The Minister of State, Ministry of Justice (Lord Faulks) (Con)]

My Lords, like all other noble Lords, I thank the noble Baroness, Lady Deech, for introducing the Bill and for enabling the House to debate the appropriate division of financial provision on divorce. She has done the House a great service by prompting this high-quality debate.

The Bill has the highly laudable aim of seeking to assist divorcing couples and civil partners undergoing separation in resolving disputes over the division of property. It is intended both to recognise and enforce prior agreements between separating spouses and substantially to amend the law on financial provision on divorce.

The Bill makes fundamental changes to the law on financial provision on divorce as it has applied for over 30 years. However, it differs from and goes beyond recommendations made by the Law Commission report, which the Government are currently considering. Comments were made about the speed at which the Law Commission has historically proceeded. There is no criticism of the quality of the work that the Law Commission does and I echo the comments made by my noble friend Lord McNally about the way in which a number of Law Commission Bills have been going through Parliament recently.

The Government are not anxious to pre-empt the consideration that is taking place of the Law Commission’s report. In any event, the Government have a number of concerns about the Bill’s provisions and whether these sufficiently safeguard the needs of children and families so as to avoid potential hardship. I will set out these concerns by reference to the current law, the proposals in the Bill and the proposals on matrimonial property agreements made by the Law Commission.

The current law on financial provision on divorce provides a number of important safeguards. This is governed in England and Wales by the Matrimonial Causes Act 1973. Section 23 provides for lump-sum payments and various other forms of financial provision; Section 24 enables property transfers; and further provisions allow for orders for the sale of property, pension-sharing orders and so on.

The courts have a wide discretion as to what orders to make in any particular case and must have regard to the factors set out in Section 25 of the Act. On the face of it, that might seem to be a fair state of affairs. However, there has been a great deal of criticism during the course of the debate that, although the Act provides for all these matters to be taken into consideration, it nevertheless produces uncertainty of outcome—too much depends, perhaps, on the idiosyncrasies of particular judges and fashions—and it does not enable parties to be sufficiently clear on divorce about what is the likely division of property.

However, Section 25, importantly, says that the first consideration of the court is the welfare of any child of the family under the age of 18. Other factors in Section 25 include the income and earning capacity of the parties, contributions made to maintaining the home and children, the financial needs and obligations of the parties, the age of the parties, the duration of the marriage and any physical or mental disability suffered by either.

The noble Baroness’s Bill provides that Section 25 will be repealed and will therefore no longer have effect in relation to orders for financial provision between the parties to a marriage or civil partnership. The Government would be particularly concerned if this had the effect of weakening the protection given to children when their parents divorce. The noble Baroness has indicated that maintenance for children will not be affected, but the Government are concerned that the removal of the welfare of minor children as the court’s first consideration in making financial provision for spouses might cause adverse consequences for children. This would plainly require a great deal of consideration.

Clause 6 addresses the provision for children of the family and provides that the court must have regard to any order for support of a child of the family, the age and health of any child, the educational and financial circumstances of the child and so on, but it does not make the welfare of the child the first consideration of the court, and thus may not provide as much protection for children as the current law. The Government think that the court should look at the needs of the children first and then go on to consider the division of property between the parents.

The Bill proposes that subject to certain exceptions, matrimonial property, defined as is, should be divided equally between the parties. The Government are concerned that this would also be potentially unfair and could cause hardship, particularly for poorer families and for families with children. The noble Lord, Lord Kennedy, referred to the danger of a one-size-fits-all provision. Moreover, reference has been made during the debate to the changes in society since 1973, including the demographic changes described by the noble Baroness, Lady Bakewell, and women’s increasing equality. None the less, as the noble Baroness, Lady Meacher, said, the old models of marriage do still exist in some sections of society and we cannot ignore them when deciding on an appropriate change to the law, if indeed any is needed. In fact, the Law Commission recommended that there should be no change to the law on need in financial provision on divorce.

The Bill provides that periodical payments for spousal maintenance should be for a maximum period of three years and that lump-sum payments and periodical payments should be intended to enable the recipient to become independent of financial support within three years. An absolute three-year limit on maintenance would be similar to the law in Scotland, referred to by the noble and learned Lord, Lord Hope, and my noble and learned friend Lord Mackay. Having looked at the matter, I see that it emanated from a recommendation by the Scottish Law Commission that eventually became part of Scottish law. But, again, the Government are concerned that this could cause hardship and may be inappropriate for many couples. Having to adjust to a new financial reality may take longer than three years, so the Government currently consider that it is better for the court to retain a discretion to provide as it thinks best to meet the circumstances of each individual family.

[Lord Davies of Stamford]

My Lords, I am listening to the noble Lord with great attention. Would he be kind enough to say what it is that makes circumstances or human nature different in England from what they are in Scotland?

[Lord Faulks]

I am not altogether sure whether that is a serious question, but of course human nature is not different. The answer is that there is no perfect solution to these difficult problems, as I am sure all noble Lords would agree. The Scottish solution is one that is certainly worthy of great consideration. The current solution in the law of this country is rather different. At the moment we are all concerned to find a solution which best serves the interests of all parties on divorce. Scotland has much to teach us, but it does not have necessarily the perfect answer. We need to learn from the experience in Scotland while accepting that human nature is the same in Scotland as it is in England.

As I say, the Bill provides for matrimonial property agreements to be binding upon couples on divorce. In its proposals on matrimonial property agreements, the Law Commission has strongly recommended that the courts should be able to depart from a matrimonial property agreement where this is considered necessary in order to protect the needs of a spouse or in the interests of any children. The Bill departs from that proposition. In its proposals on matrimonial property agreements, the Law Commission set out a comprehensive list of the requirements necessary to underpin enforceable agreements made prior to divorce. In considering the Law Commission’s proposals, the Government wish to reflect on the sufficiency of safeguards before committing to legislate to make agreements enforceable. We are currently considering those and, as my noble friend Lord McNally said, we will announce our response to them in the very near future. That will be in August—albeit that I heard what he said about the undesirability of reflecting and responding in that particular month.

The Bill’s proposals differ quite substantially from the recommendations made by the Law Commission in the light of really extensive consultation, which included consultation with family practitioners—although I am glad to say that this debate has benefited from the contribution of family practitioners. The proposals in the Bill are substantially different and their likely effects are at least unclear.

I appreciate, as I am sure the whole House does, the noble Baroness’s desire to ensure that financial division on divorce and on dissolution of a civil partnership is made simpler so that people will much more easily be able to estimate what they are likely to receive and be better able to negotiate with each other, and that couples should be able to enter into agreements to determine what they would receive on divorce.

The Government are considering the Law Commission’s report on matrimonial property agreements and how these could be made binding, and will respond in the near future. The report recommends making information available on the likely outcomes of financial applications on divorce—that has been developed during the debate—but recommends that there should be no change to the law governing “need”. The Government are concerned to give proper consideration to these and all the recommendations made by the Law Commission.

The Government recognise that divorcing couples often need help to reach an agreement and should be encouraged to avoid court proceedings. There is unanimity that court proceedings very rarely help in resolution of these disputes. They are far too expensive and the result is usually damaging both financially and, very often, to the future happiness of warring parties and children. The Government are therefore particularly anxious to encourage people to use family mediation and other forms of alternative dispute resolution.

For those who are eligible, legal aid is available for mediation. Under the Children and Families Act 2014, from 22 April this year applicants for financial orders and for financial provision on divorce must attend a mediation information and assessment meeting—