Terry & Co.

Principles Applicable in Dividing the Matrimonial Assets

 


 

 

 

 

 

 

Section 25 of the Matrimonial Causes Act 1973 (as amended) sets out the basic guidelines which the English courts apply in deciding ancillary relief claims (ie property and maintenance matters) in the context of divorce and the following attempts to explain the individual factors in more detail. In cases where there are dependent children under the age of eighteen the opening words of the section may be very important indeed:-

 

"It shall be the duty of the court in deciding whether to exercise its powers ..... to have regard to all the circumstances of the cases, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen."

The above is the "first consideration" where it applies but thereafter (or immediately in cases not affecting children) the following are the matters which a court is required to take into account in deciding these issues:-

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;


(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;


(c) the standard of living enjoyed by the family before the breakdown of the marriage;


(d) the age of each party to the marriage and the duration of the marriage;


(e) any physical or mental disability of either of the parties to the marriage;


(f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;


(g) ...the value to either of the parties to the marriage of any benefit (for example, a pension) which ... (by reason of the divorce) ..that party will lose the chance of acquiring....;


first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen

In cases where there are dependent children who are under the age of eighteen the courts are required to give first consideration to the welfare of such children in deciding financial issues between their parents on divorce. This is not to say that the welfare of any dependent child is the only or, indeed, the paramount consideration in deciding financial matters between the parents. Nevertheless, it is something to which the courts look first in cases where there are such children and its impact can be very important.

A dependent child is likely to have two main needs - one to be maintained and the other to have a home. Naturally, therefore, the courts will look carefully to see whether the parent who has day to day custody of the child has sufficient income to bring the child up. This will be relevant in cases where the court orders maintenance payments by the absent parent but in practice the CSA has usurped the courts' jurisdiction in respect of maintenance orders for the benefit of children in the great majority of cases and so this is often of limited importance.

What remains of great importance is the fact that the child will need a home. The parent with whom the child lives most of the time will inevitably benefit from this but the need is that of the child. In very many cases a young child will live with his/her mother who will continue to live in the matrimonial home because no other options are practical. Although there are a number of ways of dealing with this situation - for instance, the courts may order that the house be sold when the child has ceased to be dependent and the proceeds divided equally between both parents at that point - one of the more common outcomes is that the matrimonial home is ordered to be transferred into the sole name of the wife. The need of the child for a home is a significant factor in explaining such decisions.

 

 

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

This is obviously of critical importance in any decision made by the courts. They can only make awards of maintenance, transfer of property etc on the basis of what the parties' resources actually are or may reasonably be foreseen to be in the near future. Although it is possible for the courts to make orders on the basis that a husband or wife could find work if they wanted, or possibly find more remunerative work, in practice no court will make such an order unless there is compelling evidence to this effect.

The courts are not really in the business of speculation and they operate on the basis of evidence. For instance, it may well be the case that one spouse stands to inherit a substantial sum from a parent in the foreseeable future but a court will very rarely take that into account because people can change their wills and all inheritances are to some extent speculative up to the point of death. It is much the same with earning capacity, intention to re-marry etc. Unless there is evidence to the effect that a spouse intends to re-marry - such, for instance, as the spouse saying so in evidence - a court will tend to ignore it no matter how likely it may be. It is important to understand how reliant the courts are on evidence and they will almost always take the financial situation as it is rather than as it might be at some point in the future.

In most cases, of course, it will be quite easy to establish what the parties' earning capacities are from wage slips, bank statements etc and this is the evidence the courts rely upon in the great majority of cases.

 

 

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

Again this is very important in practice. Almost always each party will have a need for accommodation and to maintain him/herself. Where there are dependent children their needs to be housed and maintained will be extremely important. Naturally, if the dependent children are to live, say, with the wife her need for accommodation may be rather more important than that of her husband and for this reason the former matrimonial home is often ordered to be transferred into the sole name of the wife. This is not the only reason for this phenomenon but it is almost certainly among the more important reasons.

Balancing the competing needs of husband and wife can be very difficult and there is often no easy answer. This is particularly the case where, say, the husband has re-married and now has a new wife and children. He will obviously have obligations towards them and balancing their needs against those of the former spouse and/or children is hard to do. Almost any solution will probably not be welcome to the new family.

Sometimes it is not easy to distinguish between legal and "moral" obligations in this field and the courts are not strict about making any such division. For instance, a husband might have been maintaining an elderly parent for years and this is not strictly a legal obligation yet the courts would be unlikely to ignore it and order that the money so used be diverted to the benefit of the ex-wife or children in future. Cases like these show just how fine the judgments can be in many cases.

 

 

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

This sub-section is something of a hang-over from the pre-1973 law in that the law as it then stood allowed the parties to be "compensated" for the standard of living which was lost as a result of the marriage breaking down. This might have made sense, for instance, where a wife had given up her employment to marry a very wealthy man and then the marriage broke down. Such a wife might feel that she ought to be compensated for what she had lost.

It has to be said that this approach is now something of an anachronism and it is not readily taken into account by the courts. Indeed, there is quite a strong public feeling that divorce should not represent a "meal ticket for life" (which is reflected in the statutory provisions that the courts should always consider the appropriateness of a "clean break" settlement and/or limiting spousal maintenance in terms of time) and the attitude of the courts to some extent mirrors this.

The truth of the matter is that in the overwhelming majority of cases of marriage breakdown it is simply not practical to put this consideration into practice. Say, for instance, the only significant matrimonial asset is the former matrimonial home and that both husband and wife have a need for alternative accommodation (as is very often the case). If the matrimonial home is sold and the proceeds divided between husband and wife the likely outcome is that each will have to live in a more modest home. The additional expenses of maintaining two homes where only one was maintained before from the same joint income will mean that the standard of living of both spouses will fall. This is inevitable and there is not a great deal that can be done about it.

For the above reason this sub-section is only rarely applicable. In most cases it is simply a counsel of perfection and the available assets do not make it viable to consider doing this. Nevertheless, if the assets available for division are substantial this sub-section may become relevant in some cases.

 

 

(d) the age of each party to the marriage and the duration of the marriage;

There is naturally some overlap between the various factors which the Act prescribes should be taken into consideration in ancillary relief claims and the age of the parties and the length of the marriage may be also be reflected in their "needs for the foreseeable future" as mentioned above. Nevertheless, each of these factors is invariably important. A short childless marriage where both parties are in their twenties is a quite different proposition from a thirty year marriage where both parties might be approaching the age of retirement.

In the case of the former a court might well take the view that there should be a clean break between the parties and each should take out of it what he/she had put in. This will certainly be the case where both parties can earn their own living and where the prospective working life each has before them means that they can both plan for their own future quite easily - in terms of pensions, mortgages etc.

A longer marriage is much more difficult in that a court is unlikely to divide the property in terms of strict property rights and will be far more concerned about where each party is to live, what provision each has for retirement etc. In the case of a young married couple it may be appropriate to transfer the matrimonial home into the sole name of the wife - especially where there are young children - but where the husband is, say, in his fifties a court will recognise that he cannot easily get another mortgage and that the number of working years before him is limited. It will therefore be as concerned about the husband's future accommodation as about that of the wife and be less inclined to make a property transfer order in the wife's favour: an order for sale and for the division of the proceeds might be more suitable in these circumstances.

Similarly, an elderly wife in her fifties who has not worked for many years will not normally be expected to return to work in the immediate future and a court will recognise the difficulties such a wife will face in becoming financially independent. A "clean break" might not be appropriate here and maintenance - for at least a limited period - might be more realistic.

 

 

(e) any physical or mental disability of either of the parties to the marriage;

In practice this heading does not add very much to the factors which will have been taken into account under paragraphs (a) and (b) of the section above because obviously mental or physical disability has an effect on a person's earning capacity and/or foreseeable needs for the future. This sub-section was apparently included in the Act as a result of Parliamentary pressure at the time of the statute's enactment and really it does not add anything significant to the factors taken into account above. Mental or physical disablity will be taken into account but the way in which that might affect the outcome depends very much on individual and personal circumstances.

 

 

(f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

The significance of this sub-section should not be ignored because it is extremely important in practice. What it is getting at is that the wife's (and it is still typically the wife) contribution to the marriage by looking after the home, doing the housework, raising the children etc is to be taken into account in any division of the matrimonial property. Say, for instance, in the early years of the marriage a wife gives up her employment and stays at home to look after the children of the family while they are young. Say also that the house is in the sole name of the husband, as is the mortgage, and that the husband has made all the mortgage payments. The effect of this sub-section is that the wife's contribution to the "welfare of the family" by staying at home can be taken into account just as much as the husband's contribution to the mortgage payments and the courts certainly do adopt this approach.

A husband often does feel that the house is "his" because he has paid for it but this sub-section ensures that the contribution of the wife is taken fully into acount. In the case of a long marriage, therefore, the courts would almost certainly regard the wife as entitled to a half share in the house even if she is not on the title deeds or a party to the mortgage. In fact, the needs of the children and some of the other factors above might mean that the courts would award her more than a half share of the house but it is important to be aware that this sub-section does recognise the contribution made by the wife in non-financial terms and that is its main purpose.

As the courts have said in one case:-

"..the wife who looks after the home and family contributes as much to the family as the wife who goes out to work. The one contributes in kind. The other in money or money's worth. If the court comes to the conclusion that the home has been acquired and maintained by the joint efforts of both then, when the marriage breaks down, it should be regarded as the joint property of both of them, no matter in whose name it stands."

It is important to understand that this principle also applies to other "family assets" as well as the matrimonial home. The wife may, perhaps, have been involved in the running of a family business. Perhaps that business may have struggled in its early years to get on its feet and the wife (and husband) may have taken very little out by way of salary etc. Yet now it may be flourishing and prosperous. Again, the wife is entitled to be compensated for this. In point of fact, a business is very rarely ordered to be sold as a house might be - because a business is an income producing asset upon which very often at least one of the parties depends - but the wife would still be entitled to be compensated in some way if, say, the business were ordered to be transferred into the husband's sole name. Very likely such compensation would take the form of being awarded a greater share of the other matrimonial assets.

 

 

(g) ...the value to either of the parties to the marriage of any benefit (for example, a pension) which ... (by reason of the divorce) ..that party will lose the chance of acquiring;...

After the matrimonial home the value of any pension funds built up by either or both parties to the marriage may be the most substantial matrimonial assets. Although this sub-section is expressed to apply to any asset and not just to pension funds in practice the vast majority of cases will be concerned with pensions. Naturally, in the case of a short marriage where both parties are at the beginning of their working life this sub-section will normally have little significance but as the length of the marriage increases along with the amount of the parties' incomes which has been devoted to building up their pension funds this consideration will become ever more important.

Take, for instance, the case of a couple who have been married for thirty or so years and who are aged in their late fifties. The husband might have worked all his life while the wife remained at home and looked after the children. During the course of his working life the husband (and his employer) might have contributed very substantial sums into a pension fund which, in the ordinary course of events, would benefit the family when the husband retired from work and his widow in the event that the husband pre-deceased his wife. This is a very common situation and the amounts involved might be very large.

Whether the wife would benefit from her former husband's pension entitlement after their divorce very much depends upon the wording of the pension deed but in the normal case an ex-wife would not benefit if she was not a "dependant" of her ex-husband at the date of his death. Quite apart from anything else, husband might re-marry and the beneficiary under his pension fund might then very well be his new wife rather than the ex-wife.

Bearing in mind that the pension fund will have been built up from the husband's income during the course of the marriage the ex-wife will, to some extent, have "paid" for this pension because funds which could have gone into other things were diverted into the husband's pension. If the ex-wife is without pension arrangements of her own (or has insufficient pension provision) it will now be impossible for her to make that provision because of her age. She will, therefore, have to be compensated in some way for the loss of this future pension benefit.

Very often the way this was done was to award the wife a greater share of the other matrimonial assets in order to compensate her for the loss of pension benefits under her ex-husband's pension plan but more recently legislation has come into force which allows for more sophisticated ways of dealing with this. Basically, the way it will be dealt with will very much depend on how husband and wife prefer to tackle the problem but the principle of the matter is clear: if there is a loss of benefit in this way the courts will take it into account in the financial orders which they make.

This principle would also apply to other financial losses which might flow from the divorce. For instance, one of the parties might cease to be a beneficiary under a trust fund as a result of the marriage coming to an end. Again this is something which the courts will take into account.

 

 

Lengthy though the above may be, it does not exhaust the factors which a court might have to take into account in individual cases. The judge may, for instance, have to weigh up the desirability or otherwise of ordering a "clean break" or whether any order for maintenance should be limited as to time. Again, issues of conduct may come into the equation (although rarely) as might the delay before the application has been made to the court.


Please contact David Terry at David_Terry@dterry.demon.co.uk if you need any further information about these or any related matters. Despite the apparently straightforward wording of the Matrimonial Causes Act 1973 (as amended) a layperson cannot predict the decisions of the courts without knowledge of how the courts work in practice and for this professional advice is essential.