Family: financial needs on divorce

In June the Family Justice Council published Guidance on ‘Financial Needs’ on Divorce. It has been disseminated among judges and is essential reading for all practitioners undertaking financial remedy work.

The guide follows on from the Law Commission’s observations in its 2014 report dealing with matrimonial property, needs and agreements. The commission was concerned about unacceptable regional disparities and geographical inconsistencies in final financial remedy orders. It was also concerned about the lack of definition of ‘financial needs’.

The Family Justice Council’s guidance principally covers two areas:

• What are needs and at what level should they be met?
• The duration of provision for needs and the transition to independence.

What are needs and how are they measured?

The main needs in most cases are for housing as well as present and future income. Future income needs typically include a need for income in retirement.

The pre-White v White [2001] 1 AC 596 phrase of ‘reasonable requirements’ to describe needs is no longer approved. However, it was acknowledged that the term ‘needs (generously interpreted)’ has gained acceptance to assist determination of needs in higher resource cases. An assessment of financial needs will be informed by and depend upon an assessment of the size of the available assets and income (that is, the financial resources), and the standard of living enjoyed by the family before the breakdown of the marriage.

The guidance acknowledges that courts have consistently taken the view that the standard of living the couple had together should be reflected, as far as possible, in the level of income and housing each should have as a single person post-divorce. It is also generally accepted that it is not appropriate for the divorce to entail a sudden and dramatic disparity in the parties’ lifestyles.

The guidance, however, acknowledges that in ‘small money’ cases this may be unattainable, or financial provision may only be ordered for a fixed term. By contrast, where there are sufficient financial resources available, it may be fair for the court to sanction a continuation of the lifestyle choices made during the marriage.

In measuring need, the following are of particular note:

• Need will be measured by assessing the available financial resources.
• The court will strive to stretch finite resources. Where those resources are modest, the children’s needs may predominate.
• Need will be measured by assessing the standard of living enjoyed during the relationship. Generally, it is the case that the longer the relationship’s duration, the more important this factor will be.
• A party may be expected to suffer some reduction in the standard of living, having regard to the overall objective of a transition to independence.
• To assess need, and the ability to meet it, both parties will be expected to present detailed budgets to the court.

The report also reminds us that needs may be met from non-matrimonial resources. In a needs case, a court should not focus on the marital acquest, but rather should consider all of the available assets.

The duration of periodical payments orders and the transition to independence

The guidance is particularly helpful on whether a periodical payments order should be on a joint-lives basis or a term and, if the latter, whether it should be subject to a bar under section 28(1A) of the Matrimonial Causes Act 1973.

In practice, most case outcomes tend eventually not towards life-long support, but towards independence. Only a small proportion of divorces result in any award of periodical payments. Ministry of Justice statistics on periodical payments orders combine child and spousal periodical payments and therefore do not give a clear account on the latter. A survey carried out in 2014 found a very low proportion of cases with any periodical payments orders at all.

In deciding on the duration of any order, the court will need to consider the statutory steer towards the termination of obligations at the earliest point which is just and reasonable, but the termination should only occur if the payee can adjust to it without undue hardship (section 25A of Matrimonial Causes Act 1973). The termination of the obligation should not be achieved at the expense of a fair result. Furthermore, termination of the obligation should be justified by reference to an evidential foundation and not be based upon crystal ball gazing or pious exhortation.

The guidance addresses applications to extend term orders and the status of the Court of Appeal’s decision in Fleming v Fleming [2003] EWCA Civ 1841. Fleming established that it was necessary for there to be exceptional justification for a term to be extended. The report acknowledges that more recently some first instance judges have taken the view that the reasoning underpinning the original order is key to a decision regarding an application to extend – for example, Mostyn J’s decision in SS v NS (Spousal Maintenance) [2014] EWHC 4183 (Fam).

When considering whether to make a joint-lives or term order, with or without a section 28(1A) bar, the report recommends that courts have regard to the following matters:

• Age;
• Health and mobility;
• Relevant qualifications;
• Previous work experience;
• Length of time since last employment;
• The opportunity to brush-up, acquire skills or retrain;
• Cost and availability of retraining;
• Availability of work;
• Childcare commitments and the daily routine;
• Age, health and any particular needs of a child/children or other dependants;
• Childcare options and cost;
• Realistic level of net remuneration;
• Availability of work-related state benefits;
• Net financial gain after paying childcare and work-related expenses;
• The extent to which there has been pension sharing to take account of future needs;
• Compatibility of working with caring for any children; and
• Attributing an earning capacity in view of the length of the marriage and the ex-spouse’s net remuneration and ability to pay.

Worked examples

Annexed to the report are some extremely useful examples of where certain types of orders may be made, such as term orders and joint lives orders. The report also usefully concludes with a gazetteer of cases dealing with specific circumstances and different types of need.