Divorce (Financial Provision) Bill 2017-2019 Submission of Written Evidence in advance of Third Reading, 19th December 2018. Dr Sharon Thompson, Cardiff University, UK. Email: ThompsonS20@cardiff.ac.uk Summary 1. Baroness Deech’s Divorce (Financial Provision) Bill 2017-2019 has three main components: equal division of net matrimonial assets (that is, deferred community of property), the curbing of periodical payments to a maximum of five years (unless this would lead to ‘serious financial hardship’) and binding prenuptial and postnuptial agreements (subject to standard procedural safeguards such as independent advice, cool-off periods and disclosure). 2. The purpose of this submission is to respond to some of the issues raised during the Second Reading debate of the Divorce (Financial Provision) Bill on 11th May 2018,1 with particular focus on matters relevant to the legal status of nuptial agreements, an area where, according to Baroness Vere (at column 401), the Government is considering reform. Background to the Author of the Submission 3. The author is a Senior Lecturer in Law at Cardiff University and is author of several publications on financial provision on divorce and nuptial agreements, with particular focus on prenuptial agreements. These include the book Prenuptial Agreements and the Presumption of Free Choice2 which was shortlisted for three major book prizes and was cited and applied by the High Court of Australia in Thorne v Kennedy.3 This work was also cited by the Law Commission of England and Wales in its report on marital property agreements.4 There were no amendments at the Bill’s Committee Stage on 23rd November 2018. S Thompson, Prenuptial Agreements and the Presumption of Free Choice (Hart 2015). 3 [2017] HCA 49. See also S Thompson, ‘Thorne v Kennedy: Why Australia's decision on prenups is important for English law’ (2018) 48 Family Law 415-419. 4 Law Commission, Matrimonial Property, Needs and Agreements (2014) Report no. 343. 1 2 1 Issues raised during the second reading debate on 11th May 2018 General 4. Baroness Deech’s rationale for reform hinges on laudable criticism of the existing law. Her concerns include dissatisfaction with the uncertainty of financial provision law, and dissatisfaction with a system based upon ‘big money’ cases that does not represent everyday experiences of divorce. These are both longstanding issues affecting financial provision on divorce. But it is imperative that reform is both workable and fair. This submission will focus on clauses 2-5 of the Divorce (Financial Provision) Bill, highlighting the unintended effects of these provisions upon the lesser income producing spouse by drawing on evidence-based research of the power dynamics affecting couples on divorce. It will be argued that even though Baroness Deech asserts her Bill would further equality between women and men, it would ironically and disproportionately disadvantage married women who have had to make career sacrifices because of caring responsibilities and the prohibitive costs of child-care. 5. The remedy prescribed by Baroness Deech and enshrined in the Divorce (Financial Provision) Bill to reduce the uncertainty of the existing law is reform modelled on the Scottish system of financial provision. Baroness Deech argues at column 404 that this reform is underpinned by a solid evidence base of research showing that the law in Scotland works,5 and that other jurisdictions like Canada, the United States and Europe provide a wealth of evidence too. Such comparative data can be invaluable; for English law has much to learn from the pitfalls of reform in other parts of the world. Indeed, as outlined in paragraph 10 below, my empirical research in New York indicates cause for concern regarding reform of prenuptial agreements. However, transposing the approach of another jurisdiction onto one’s own must not be done before understanding the context in which the system operates and any comparison between English and Scottish law must be sensitive to jurisdictional differences. Furthermore, comparative evidence The effectiveness of the Family Law (Scotland) Act 1985 is supported by Mair, Mordaunt and Wasoff’s insightful research, which indicates broad satisfaction among Scottish practitioners with the legislation: J Mair, E Mordaunt and F Wasoff, Built to Last: The Family Law (Scotland) Act 1985 – 30 Years of Financial Provision on Divorce (Nuffield 2016). 5 2 must not overshadow the wealth of important and up to date empirical data which focuses specifically on financial provision in England and Wales.6 6. Baroness Deech is also dissatisfied with the outcomes of ‘big money’ cases and argues at column 378 that there are ‘extreme handouts to divorced wives’. She asserts that the current system of financial provision infantilises women, making it difficult for them to shake the housewife image and to be taken seriously as independent women. Baroness Deech’s argument that the current law is anti-equality is ostensibly persuasive. She says that the disadvantages experienced by married women in the public sphere are not attributable to their husbands and that our law legitimises the attitudes of employers who discriminate against women, because, (as she has said elsewhere) they are aware that the law rewards gold-diggers and alimony drones.7 And so Baroness Deech has proposed reform which, she says, could help women to be more equal and independent in society.8 However, the Divorce (Financial Provision) Bill will not be advantageous for most women. Economic dependency within the family is based on gendered social values, and is not simply encouraged by the system of financial provision in England and Wales, just as career sacrifices made by women are not simply a ‘matter of choice’9 because the freedom of one’s choices depend on the conditions they are in. Indeed, equality of opportunity is a fiction if there is no equality of care for children, and so while research shows there are more female breadwinners than ever before, this should not lead to assumptions as to the modern division of labour in the home, especially when the marriage has produced children. Clause 2 7. This clause defines matrimonial property, so it is clear which assets are susceptible to division on divorce and which assets are not. Excluded from the pot of matrimonial 6 See notably the work of Jo Miles and Emma Hitchings, which comprehensively outlines why achieving certainty through reform is so difficult and explores the experiences of practitioners and members of the judiciary in relation to the Matrimonial Causes Act 1973: ‘Rules versus discretion in financial remedies on divorce’ (2018) 33 International Journal of Law, Policy and the Family; ‘Meal tickets for life? The need for evidence-based evaluation of financial remedies law’ (2018) 48 Family Law 993-1005. 7 HL Deb 27 June 2014, vol 754, col 1491. 8 HL Deb 11 May 2018, vol 791, col 379. 9 R Deech, ‘What’s a Woman Worth?’ (2009) 39(12) Family Law 1140. 3 property are inherited assets, assets acquired by gift, and assets acquired before the marriage. It is already established principle in England and Wales that a spouse’s claim is weaker to these categories of assets, but importantly, they are not ring-fenced in case they need to be accessed to meet the needs of the parties. Ring-fencing non-matrimonial property and removing judicial discretion to divide these assets could lead to hardship for the non-moneyed spouse. This is because it would remove flexibility to divide nonmatrimonial property so that spousal needs are met, which could produce especially harsh outcomes in long marriages. Clause 3 8. Following the Supreme Court decision in Radmacher v Granatino10 prenuptial agreements have decisive weight, unless this would lead to unfairness. During the Second Reading debate, Baroness Vere noted that the Government were considering reform making prenuptial (and other nuptial) agreements binding under legislation (column 401). However, Baroness Deech also emphasised during this debate that there must not be too many conditions attached to the binding nature of such agreements (column 377). Therefore, clause 3 of the Divorce (Financial Provision) Bill would introduce binding prenuptial and postnuptial agreements with almost no exception, an approach more extreme than in jurisdictions where such agreements are enforced.11 The clause incorporates procedural safeguards at the drafting stage but there is no facility to account for changes in circumstances after the agreement has been signed. Unlike the Law Commission’s recommendations12 the Bill contains no requirement for spousal needs to be met. As a result, it is understandable why Baroness Faulkner had ‘some niggles’ about clause 3 during the second reading debate of the Bill (at column 387). The course of marriage and family life can create dependency in a way that may not be anticipated by the terms of a nuptial agreement. So even if the parties begin their marriage as financially independent individuals, this is frequently not the case at the end of the marriage. While matters sometimes work out as planned in the nuptial 10 [2010] UKSC 42. See S Thompson, Prenuptial Agreements and the Presumption of Free Choice (Hart, 2015) chapter 3. 12 Law Commission, Matrimonial Property, Needs and Agreements (2014) Report no. 343. 11 4 agreement, this should not detract from the fact that commonly, particularly in longer marriages, matters do change. 9. During the Second Reading debate, Baroness Deech highlighted the need to consider evidence from other jurisdictions to produce a sound basis for reform. However, the evidence considered appears to have focused primarily on the default system of financial provision, with no specific focus on the legislative context of prenuptial and postnuptial agreements elsewhere. As a result, paragraphs 10 to 11 below summarise the status of prenuptial agreements in New York and what England and Wales can learn from this jurisdiction, where the system of financial provision shares many more similarities with England and Wales than the Scottish system does. United States reform recommended by the American Law Institute is also outlined in paragraphs 12-14 below, as its focus on principled discretion could inform legislative reform in England and Wales. 10. Prenuptial Agreements and the Presumption of Free Choice is based in part on a study published in 2015 of New York practitioners’ experiences of nuptial agreements since the 1980s.13 Each attorney interviewed for this study believed prenuptial agreements tended to be conceived on an unlevel playing field and consequently said they take deliberate steps to ensure not only that an agreement is fair when made, but also that it will not later become unconscionable. 11. In addition to considerations of timing, independent legal advice and full financial disclosure (which form part of the Divorce (Financial Provision) Bill), New York attorneys also said they would take steps during the drafting process to improve an agreement for the non-moneyed spouse or make it less one-sided. While these efforts might assist the interests of both parties, it does not necessarily mean there is a level playing field. Requiring lawyers to make adjustments for their clients does not ensure fairness in a jurisdiction where financial agreements are binding. It creates a situation where fairness depends on the knowledge, expertise and insight of individual lawyers. 13 For a summary of the findings of this study S Thompson, Prenuptial Agreements and the Presumption of Free Choice (Hart 2015), chapter 3, and S Thompson, ‘Levelling the prenuptial playing field: Is independent legal advice the answer?’ (2011) 4 International Family Law 327-331. 5 Future legislative reform must therefore continue to acknowledge the endemic power imbalances in financial agreements. 12. This could be achieved by following the recommendations of the American Law Institute (ALI), which put forward reform proposals in the United States aiming recognise both issues of power and parties’ choice.14 For instance, the ALI has suggested that a prenup may be varied or set aside when it would lead to substantial injustice. When assessing the meaning of ‘substantial injustice’ and whether it has occurred, the ALI has set out a number of tests. First, it is recommended that a judge would have discretion to consider whether there has been substantial injustice only if the party resisting enforcement can show that one or more of the following has occurred since the agreement was created: (a) more than a fixed number of years have passed, that number being set in a rule of state-wide application; (b) a child was born to, or adopted by, the parties, who at the time of execution had no children in common; (c) there has been a change in circumstances that has a substantial impact on the parties or their children, but when they executed the agreement the parties probably did not anticipate either the change, or its impact. 13. Point (c) is of particular significance, as any unanticipated change in circumstances may be considered by the court, as long as the impact on the parties is ‘substantial’. Once one of these situations is proved to have occurred, the judge must consider whether enforcing the prenup in question would lead to substantial injustice. As ‘substantial injustice’ is a vague term, the ALI set out the following guide to matters to be taken into account, so that the judge’s discretion would be more principled: (a) the magnitude of the disparity between the outcome under the agreement and the outcome under otherwise prevailing legal principles; (b) for those marriages of limited duration in which it is practical to ascertain, the difference between the circumstances of the objecting party if the agreement 14 ALI, Principles of the Law of Family Dissolution: Analysis and Recommendations (LexisNexis 2002). See also the discussion in S Thompson, Prenuptial Agreements and the Presumption of Free Choice (Hart 2015), chapter 6. 6 is enforced, and that party’s likely circumstances had the marriage never taken place; (c) whether the purpose of the agreement was to benefit or protect the interests of third parties (such as children from a prior relationship), whether that purpose is still relevant, and whether the agreement’s terms were reasonably designed to serve it; (d) the impact of the agreement’s enforcement upon the children of the parties. 14. The principled discretion suggested by the ALI could ameliorate some of the unintended difficulties tied to clause 3 of the Divorce (Financial Provision) Bill, most notably, the lack of provision for changed circumstances during the marriage. The ALI asserts that its reform recommendations recognise the issues of power associated with nuptial agreements and by proposing principled discretion, a level of certainty is also ensured. As a result, the approach of the ALI could provide a step forward when considering future legislative reform in England and Wales. It provides a workable alternative to both the Divorce (Financial Provision) Bill, which does not allow for any change in circumstances to be taken into account, and the Law Commission’s Nuptial Agreements Bill, which ensures a level of fairness and that parties’ needs are provided for, but does not include specific provisions to enable parties changing circumstances and intentions to be properly accounted for. Clause 4 15. This clause stipulates that matrimonial property would be divided equally unless one of the exceptions in 4(5) can be established. There are some benefits to introducing a system based on equal division of assets acquired during the marriage. Cooke, Barlow and Callus have also acknowledged the attractions of the certainty achieved by this property regime.15 Yet, although Baroness Deech repeatedly emphasises fair division of assets through equal sharing,16 Cooke et al’s research reminds us that even if equal division seems equivalent to fairness in the public mind, this is not necessarily the case 15 E Cooke, A Barlow and T Callus, Community of Property: A Regime for England and Wales? (Nuffield 2006). 16 Hansard, HL Deb vol 778, col 947, 27 January 2017. 7 in practice. Many cases require unequal division to enable parties to have an ‘equal start on the road to independent living’.17 Permitting unequal division in narrowly constrained cases such as meeting the needs of children under 21 years old could still lead to avoidable hardship. Child arrangements following divorce affect the needs of the parents as well as the children, and there will be many situations where this continues to be the case in families where children continue to be economically dependent well into their twenties. Clause 5 16. Clause 5(c) of the Bill limits periodical payments to a maximum of five years unless ‘serious financial hardship’ can be established. The phrase ‘serious financial hardship’ is problematic. First, the meaning of ‘serious financial hardship’ is unclear. Secondly, the phrase implies that one of the parties will be barred from seeking relief from hardship unless they can establish that such hardship is ‘serious’. 17. This is concerning given the prevalence of spouses experiencing hardship on relationship breakdown, particularly on gender lines. Recent research indicates that women take longer than men to recover economically on relationship breakdown at all levels of wealth,18 and Baroness Deech’s proposed curb on maintenance will only exacerbate this inequality. This provision would bring an end to the non-discrimination principle championed in White v White19 by prioritising financial contributions and would see a return to the pre-White era whereby the non-moneyed spouse would be required to produce a budget of her needs so that it could be assessed whether five years of periodical payments is ‘reasonable’. This is clearly in line with the outmoded preWhite mentality that the breadwinner’s assets are his alone. 18. As Baroness Vere importantly pointed out at column 401 during the Second Reading debate, the ‘meal ticket for life’ cliché often features in headlines and has been at the forefront of a reform campaign led by The Times newspaper. The ‘meal ticket’ phrase 17 A phrase coined by Baroness Hale in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, para 144. H Fisher and H Low, ‘Recovery from Divorce: Comparing High and Low Income Couples’ (2016) 30(3) International Journal of Law, Policy and the Family 338. 19 [2010] UKHL 54. 18 8 is generally associated with ‘joint lives’ orders, whereby spousal maintenance lasts indefinitely until the court orders otherwise, the recipient re-partners20 or one of the parties dies. However, research shows that such orders are rare, and that more broadly, spousal support is generally awarded to parties caring for minor dependent children.21 As a result, it is important to confront and debunk this myth when evaluating the Divorce (Financial Provision) Bill. Research shows that women continue to be economically disadvantaged following divorce. Clause 5 will only serve to deepen such disadvantage. Concluding remarks 19. Taken in isolation, each clause considered above could be detrimental for the lesser income producing spouse on relationship breakdown. More concerning still, however, is the potential cumulative effect of the Divorce (Financial Provision) Bill. Under this Bill, periodical payments will not last longer than five years, but this cannot be offset by dividing non-matrimonial property, which is instead ring-fenced under clause 2 so that it cannot be accessed to meet the needs of the parties. The only option for a spouse with lasting needs post-divorce is to try and establish ‘serious financial hardship’ under clause 5. The word ‘serious’ suggests that the parties must meet a high threshold to have periodical payments extended, and there must be something exceptional about their case. But in an era of austerity where families are struggling, hardship is unfortunately not exceptional. One of the concerns with the current legal landscape is that parties without access to legal aid have little hope of navigating the complexities of financial provision law. However, the provisions in the Divorce (Financial Provision) Bill do not resolve access to justice issues, and further, legal aid cuts do not legitimise reform in the name of certainty that simultaneously condones hardship if it is not considered ‘serious’. 20. Baroness Deech argues that the Divorce (Financial Provision) Bill promotes equality because it is built on the assumption that women are now financially independent on 20 The maintenance will commonly terminate following long-term cohabitation and will always terminate upon remarriage. 21 E Hitchings and J Miles, ‘Meal tickets for life? The need for evidence-based evaluation of financial remedies law’ (2018) 48 Family Law 993-1005. 9 divorce. However, by removing flexibility from financial provision law in the areas where flexibility is most important, it is more likely that her Bill would reinforce inequalities that result from caring responsibilities. If the legal status of nuptial agreements is to be reformed, the model developed by the American Law Institute should be considered, as it ensures a level of certainty while recognising that in some circumstances, the law needs to be able to respond to changes during the marriage. LIST OF AUTHOR’S RELEVANT PUBLICATIONS Thompson, S., (2018). Feminist Relational Contract Theory: A New Model for Family Property Agreements. Journal of Law and Society 45 (4), pp. 617-645. Thompson, S., (2018). Thorne v Kennedy: Why Australia's decision on prenups is important for English law. Family Law 48, pp. 415-419, free text available at: <http://orca.cf.ac.uk/110827/>. Thompson, S. and Sandberg, R., (2017). Common defects of the Divorce Bill and Arbitration and Mediation Services (Equality) Bill 2016-17. Family Law 47, pp. 425-451, free text available at: <http://orca.cf.ac.uk/99619/>. Thompson, S., (2016). In defence of the 'gold digger'. Oñati Socio-Legal Series 6(6), pp. 1225-1248, available open access at: <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2887022>. Thompson, S., (2015). Prenuptial agreements and the presumption of free choice: Issues of power in theory and practice. Bloomsbury/Hart Publishing. Thompson, S., (2011). Levelling the prenuptial playing field: Is independent legal advice the answer? International Family Law 4, pp. 327-331. 10