Achieving Fair Outcome in Ancillary Relief - Essay Example

ACHIEVING FAIR OUTCOME IN ANCILLARY RELIEF – A REVIEW OF LEGAL DEVELOPMENTS IN THE LAST 10 YEARS Reconciling fairness in ancillary relief applications has been, and continues to be, one of the most difficult problems facing courts and judges in England and Wales when deciding divorce cases. The highly discretion-based ancillary financial relief system proposed by the English legal system1; the difficulty of fairly balancing easily quantifiable financial contributions to family life against non-financial ones such as homemaking and childcare2; complexity of property valuation and adjustment issues in divorce cases not to mention the changing dynamics of marriage relationships3 have made fair redistribution of financial assets on divorce a daunting task to judges, while the legal advisers and parties remain largely uncertain of the outcome. The present research attempts to understand the legal developments concerning ancillary relief over the past ten years in England and Wales, and analyse to what extent they have been successful in achieving a fair outcome for the parties concerned in such applications. Given the fact that a ‘fair outcome’ in a claim proceeding is influenced by the legislative coverage, the court’s approach in interpreting the provisions and the complexity rules and procedures, the review of legal developments shall essentially consider the major changes to the legislation, the major developments in case law as well as the changes to the rules and procedures towards achieving a fair outcome for the parties. Ancillary Relief – Overview of Law and Changes Ancillary relief – the apportioning of financial assets and income of the parties to the marriage– remains one of the major issues to be resolved on divorce. The basic law and judicial considerations for ancillary relief are contained in Part II of the Matrimonial Causes Act (MCA) 1973, amended by the Matrimonial and Family Proceedings Act 1984 imposing a ‘clean break’ obligation on the courts. Statutory improvements have been impacted the provisions, a review of which shall be endeavoured. Statutory Provisions The 1973 Act provided courts with the power award maintenance and grant lump sums via division of income, but more significantly to make property adjustment orders, enabling capital division of assets.4 While this by itself was ‘revolutionary reforming measure,’5 as traditionally ancillary relief was limited to only income, the Act made no mention of the pension rights of the spouses, except merely stating it as a ‘benefit’ for consideration while dividing family assets. Considering the fact that during the marriage both parties would have looked to it as a joint fund for their eventual retirement, the law proved unfair to the party who lost the pension rights on divorce (usually the wife).6 The situation was improved by the 1995 Pension Act and the subsequent amendment in 1999. The 1995 Pensions Act had conferred courts with the power to earmark pension rights on divorce, 7 inserting sections 25B to 25D of the MCA 73. However it presented crucial drawbacks that the ex-spouse could not get her or his share of the pension until the pensioner retired, and all payments ceased when the pensioner died.8 The Welfare Reforms and Pensions Act (WRPA) 1999, which became effective since December 1, 2000,9 amended the provision introducing pension sharing order, which could take effect at the time of the divorce itself, as well as requiring an earmarking order to be expressed as a percentage.10 The legislative introduction has been largely successful in a more equitable apportioning of income as in Burrow v Burrow, where the former spouse was issued an earmarking order of half the tax-free lump sum and half the husbands pension income 11. With these developments in the last decade courts and judges have gained wide sweeping powers in divorce, nullity and judicial separation proceedings to make a number of financial relief orders, so as to provide a fair outcome to either party to the proceedings including lump sum Orders, property adjustment Orders, pension sharing/earmarking Orders in the case of divorce or nullity proceedings, interim and/or final periodic payments Orders, and maintenance pending suit Orders.12 The changes to legislation can be said to be major improvements towards achieving a fair outcome in relief proceedings, though subject to court’s approach, as evident in the case law discussion. Statutory Guidance While making the relief orders as above, the judges are primarily guided by s.25 of MCA 1973, in achieving a fair outcome to parties involved. The section says that that the court shall have regard to “all the circumstances of the case”, and first consideration shall be being given to the welfare of any minor child.13 In this regard, it is worth noting that the introduction of Child Support Acts 1991-2000, segregating child support from spousal provision, making child support “administrative and formulaic” as compared to the “court-based and discretionary spousal provision,”14 can be considered as an improvement aimed at achieving a fair outcome in relief claims from the perspective of children, and facilitated a ‘clean break’ for spouses – a controversial ‘fairness’ principle proposed by Lord Scarman15 and validated by the 1984 Matrimonial and Family Proceedings Act. As regards spousal provision, s. 25(2) of the Act presents a set of factors that need to be considered by the court in exercising its powers while deciding ancillary relief applications. The factors broadly include the income, earning capacity, property and other financial resources of the parties; the present and/or future financial needs, obligations; the standard of living before breakdown; the age of each party and duration of marriage; any physical or mental disability of either of the parties, the past or future contributions to the welfare of the family; the conduct of each of the parties during marriage; the value of any benefit which either party may will lose due to divorce. While the Act, as amended, lays down specific aspects for the court to consider, it offers “no hierarchy” or statutory guidance as to which aspect should gain priority or how to apply the various matters suggested in s. 25, as noted by the judge in Piglowska v Piglowski.16 The Act favours flexibility, significantly trusting judicial discretion to achieve fairness in each individual case, considering the merits of the case. Justice Waite LJ has commented on this aspect in Thomas v Thomas: “The discretionary powers conferred on the court by the… Matrimonial Causes Act 1973 to redistribute the assets are almost limitless.” 17 Legal experts have commented that judicial discretion aids in ‘fair outcome’ considering the changing views of the society. Sachs LJ has observed that discretionary powers enable the court to take into account ‘the human outlook of the period in which they make their decisions.18 Policy makers have also commented that the judicial discretion allows courts “to develop and adapt the application of the statutory criteria in response to changing social and economic circumstances, in a way which cannot easily be achieved through legislation.”19 However recent researchers have commented on the courts’ inconsistent and contrasting views and approaches in deciding financial relief applications,20 as well as questioned the capacity of judicial law making to formulate social policy in the absence of legislative intervention.21 The research shall now turn to the developments in case law, specifically courts’ approach towards the legal provisions and facts in achieving a fair outcome when dividing finances between divorcing parties. Ancillary Relief: Developments in Case Law The legislative provisions22 have improved the legal framework towards achieving a fair outcome over the past ten years as seen; however, given the wide judicial discretion to award or annul an ancillary relief order and/or to divide the assets and income in apposite ways, the success of achieving a fair outcome in ancillary relief claims dependent on the facts of each case and how a judge applies the s. 25 guidelines to those specific facts. While it may not be prudent to see if the decisions in different cases were ‘fair’ or not, given that the concept of ‘fairness’ is by itself “elastic and often subjective,”23 and very much case-specific, it may be worthwhile to analyse the major developments in court’s approach to the objective of fairness. In the same year that the MCA was enacted Lord Denning has surmised the approach of courts in interpreting s.25 MCA 1973: “The court takes the rights and obligations of the parties all together. …[and] hands them out without paying any too nice regard to their legal or equitable rights but simple according to what is the fairest provision for the future, for the mother and father and the children.”24 While Lord Denning had stressed on the ‘fairness’ of the outcome, the implied principle was a ‘needs’ based approach and his yardstick of ‘one third rule’ as ‘a starting point’25 has guided courts for some years. As judges began to apply their discretion for a fairer outcome, the concept of “reasonable requirement” – a broader concept than the narrow ‘needs’ based approach– became the guiding norm. 26 In the early so-called ‘big money’ clean-break cases, judges chose to equate the concepts of “need” and “reasonable requirements.” 27 It is significant to note at this point that most of the cases that reached the higher courts were the big money cases and hence significant changes in case law concerning ancillary relief pertains to those cases.28 While this aspect is suggestive of ‘unfairness’ of the legal system, the new rules, discussed subsequently, are considered an improvement to the situation. When considering the case law developments over the past ten years that have influenced the outcome in ancillary relief proceedings, the landmark case of White v. White29 in 2001, assumes significance as it set radically new standards of “fairness” in ancillary relief. Nonetheless other leading cases have attempted to deviate from the usual interpretations of s.25 extending the precepts of ‘needs’ and ‘reasonable requirement’, setting guidelines for the courts to apportion financials more fairly. In justifying his decision Thorpe LJ in the Court of Appeal case, Dart v Dart, in 1996, observed that “in a big money case where the wife has played an equal part in creating the family fortune it would not be unreasonable for her to require what might be even an equal share.”30 In a subsequent case31, the judge fitting an allowance for contribution into an analysis of a wife’s needs, and that doing so by the precept of “reasonable requirements” would be doing ‘violence to language’ and to section 25(2). These cases suggest in many ways that the courts were beginning to change the approach to interpreting the Act, extending the provisions to take into consideration the changing socio-economic realities of the time. However, White v. White was a significant move, restating the general principles underlying the power to grant ancillary relief by introducing the concept of ‘equality’ in achieving a fair outcome. Rejecting the earlier concept of deciding cases on the basis of either party’s “reasonable requirements”, the House of Lords in White, stated that the implicit objective is to achieve a fair outcome in financial arrangements, and that it required the court to take into account all the circumstances of the case and not to discriminate between husband and wife and their respective roles. Most interestingly, Lord Nicholls added that: “a judge would always be well advised to check his tentative views against the yardstick of equality of division. As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so.” White was a ‘big-money’ clean-break case involving £4.6 million and involved the sale of the farm for a 50-50 division. In achieving fair outcome in subsequent cases courts have both upheld, yet deviated from the ‘yardstick of equality’, justifying their decisions considering the merits of each case. While scholars have commented on the inconsistency of outcome and the shifting yardsticks, a review suggests that nonetheless there have been a move towards achieving fair outcome in these cases.32 In N v. N, 33 the court reverted back to idea that in high net worth cases a wife’s entitlement may be restricted to what would be adequate, having regard to a wife’s position in life and her reasonable expectations and awarded the wife less than half the share claimed. Aiming for an orderly redistribution of wealth the judge also deferred a clean-break giving time to the husband for realisation of assets. In Cowan v Cowan the court reviewed the principle in White case, the court held that the goal was a fair outcome, not equality per se, and identified a number of factors justifying a departure from equality, including the husband’s creative genius in creating the wealth, the wife received 38% and the husband 62%.34 However, in Lambert v Lambert, 35 the Court of Appeal decided special contribution by husband could only be argued in exceptional circumstances, and should be considered only when it is “obviously inconsistent with the objective of achieving fairness.” 36 The decision also warned against courts giving detailed consideration to the nature of the contribution made by the parties and said that other statutory criteria also needed consideration in the over-arching search for fairness. In M v M 37 the court for the first time took account of a pre-nuptial agreement in dividing up matrimonial assets, though it proved limiting to the wife in respect of the award. In GW v RW 38 the court held that equal division must reflect not only the parties’ respective contributions but also an accrual over time considering aspects such as duration of marriage, as well as earning capacity as qualifying factors in the consideration for fair-outcome. The more recent combined appeal case Miller v Miller and McFarlane v McFarlane,39 the former a short-lived marriage with substantial income accrual for husband, and the latter a long-marriage, with moderate income accrual to husband and reduced earning capacity of wife, have also deviated from equal division considering such factors as duration of marriage, the either of parties’ contribution before and after marriage and such aspects in achieving a fair outcome. More significantly in MacFarlane appeal, the judge considered ‘clean break’ principle as outdated saying that “it no longer fits in with modern concepts of fairness”.40 A review of major case law developments suggests that the yardsticks of ‘fairness’ have changed, and courts have increasingly begun to apply discretion in interpreting the significance of each aspect in s.25 in achieving fair outcome. The case of White was an attempt to bring objectiveness into the concept of fairness, upholding clean break between spouses, nonetheless courts have chosen to deviate from the principle of equal division based on equal contribution, as well as clean break in subsequent cases. Researchers have commented on the judges’ “scepticism of the search for principle in the s 25 exercise”41 and the contrasting views held by judges in asset division, jeopardising a predictable, and to that extent, fair outcome to parties. Herring42 and Martin43have argued the need for fairness considering the state and community interests and potential losses, However, the difficulty as Bailey-Harris has noted lies in the difficulty of achieving a socially acceptable “yardstick to identify fairness” in apportioning matrimonial assets. 44 Ancillary Relief Rules and Procedures While a detailed discussion lies beyond the scope of this paper, it is significant to note that radically new rules and procedures have been introduced on 5 June 2000 with the “overriding objective” that “the courts must deal with cases justly.”45 The Family Proceedings (Amendment No.2) Rules 1999 has inserted rule 2.61E of the Family Proceedings Rules 1991 introducing a three stage process involving the first appointment, financial dispute resolution (FDR) and the final hearing. The process promotes agreement between parties, aiding a fair and predictable outcome to parties as in Rose v. Rose46 where Court of Appeal held that an agreement reached between the parties at a FDR, which had been approved by the FDR judge, was an order of the court, from which neither party could back down. While the three-stage process, with enhanced judicial control is expected to reduce unnecessary cost, delay and personal distress, the Law Society has proposed several procedural changes to the rules to enhance clarity and fairness, which needs legislative attention.47 Conclusion In conclusion, it can be said that improvements to the legislative framework, though subject to reform proposals, have been largely successful in promoting a fair outcome to the parties involved. While it remains a fact that judges have been increasingly applying their discretionary power in achieving the objective of fair outcome, the yardstick of fairness by itself being “elastic and subjective” has been subject to critical reviews by both legal researchers and practising judges as seen, and remains a point a debate. Legal scholars and practitioners have commented that clean break, or equal division cannot fairly balance the complexities inherent in achieving justice for the parties, and proposed the need for an over-arching objective and more coherent and principled approach to the discretionary provisions of MCA Act, so that the outcome of relief proceedings become more predictable and fair.48 In proposing reforms for improving clarity and fairness, the Law Society has suggested the need to include guidelines for the sharing of assets, for greater clarity and fairness of outcome, which needs legislative intervention.49 Bibliography Books/ Articles 1. Bailey-Harris, R. (2005) “The Paradoxes of Principle and Pragmatism: Ancillary Relief in England and Wales International Journal of Law, Policy and the Family 19(2): 229-241 2. Barton, C. and Hibbs, M (2003) Family Law (Blackstone’s Questions and Answers) 3rd Ed. Oxford: Oxford University press 3. Barton, C and Hibbs, M. (2002) “Ancillary Relief and Fat Cat(tle) Divorce” Modern Law Review Vol. 65 (1) p. 79-87 4. Birks, Peter. (2004) English Private Law: Second Cumulative Updating Supplement (Oxford English Law) New York: Oxford University Press 5. Black, Jill M., Jane Bridge & Tina Bond. (2004) Practical Approach to Family Law, 7th ed. Oxford: Oxford University Press 6. Brestler, Fenton (2000) Law Without Lawyer (Second Edition) London: Century 7. Cretney, S. M. (2000) “Trusting the Judges – Money after Divorce.” Current Legal Problem, Vol. 52 Oxford: Oxford University Press 8. Cretney, S. M. (1973) “Financial Provision after Wachtel v. Wachtel” The Modern Law Review, Vol. 36(6), pp. 653-8 9. Davis, G, Pearce, J, Bird, R, Woodward, H, and Wallace, C. (2001) “Ancillary relief outcomes” Child and Family Law Quarterly 43 10. Fineman, M. (1991) The Illusion of Equality: The Rhetoric and Reality of Divorce Reform Chicago: University of Chicago Press 11. Herring, J. 2005. “Why financial orders on divorce should be unfair.” International Journal of Law, Policy and the Family, 19: 218-228 12. Law Society. 2003. “Financial Provision on Divorce: Clarity and Fairness”, London: Law Society 13. Martin, F. (2002). “From Prohibition to approval: The limitations of the “No clean break”: divorce” International Journal of Law, Policy and the Family, 16(2): 223 14. Miles, J. (2005). “Principle of Pragmatism in ancillary relief: the virtues of flirting with academic theories and other jurisdictions.” International Journal of Law, Policy and the Family, 19: 242-256. Legislations 1. Child Support Acts 1991-2000 2. Family Proceedings (Amendment No.2) Rules 1999 3. Matrimonial causes Act 1973 4. Matrimonial and Family Proceedings Act of 1984 5. Pensions Act 1995 6. Welfare Reforms and Pensions Act 1999 List of Cases 1. Burrow v Burrow (1999) 1 FLR 508 2. Conran v Conran [1997] 2 FLR 615 3. Cowan v Cowan [2001] 2 FLR 192 4. Dart v Dart [1996] 2 FLR 286 5. GW v RW (Financial Provision: Departure from Equality) [2003] 2 FLR 108 6. Lambert v Lambert [2003] 1 FLR 139 7. M v M (Financial Relief: Substantial Earning Capacity) [2004] 2 FLR 236 8. M v M (Pre-nuptial Agreement) [2001] 2 FLR 654 9. Miller v Miller: McFarlane v McFarlane [2006] UKHL 24 10. Minton v Minton (1979) AC 593 11. N v N (Financial Provision: Sale of Company) [2001] 2 FLR 69 12. O’D v O’D [1976] Fam 83 13. Page v Page (1981) 2 FLR 198 14. Piglowska v Piglowski [1999] 2 FLR 763 15. Porter v Porter [1969] 3 All ER 640 16. Preston v Preston [1982] Fam 17 17. Rose v Rose [2002] 1 FLR 978 18. T v T (1998) 1 FLR 1072 19. Thomas v Thomas [1995] 2 FLR 668 at 670D 20. Wachtel v Wachtel [1973] Fam 72 21. White v White [2000] 2 FLR 981 Read More