The Law Commission’s report on potential reform of matrimonial finance law

England and Wales is famous for its matrimonial finance laws, and London has come to be often referred to as the ‘divorce capital of the world’.

Many people, when the choice is open to them, opt to have their matrimonial finance cases heard in England and Wales ahead of any other potential jurisdiction. This is especially true for financially weaker or dependent spouses in high-net-worth and ultra-high-net-worth cases. England and Wales is famous for possessing a comprehensive and bespoke system, which places a heavy emphasis on providing full financial disclosure, meeting parties’ ‘needs’ in a manner which is often generously assessed (especially if the parties enjoyed substantial wealth during the marriage), otherwise sharing matrimonial property equally and possessing a broad judicial discretion which, when coupled with comprehensive judicial powers to transfer assets and income between parties, allows for tailored and powerful orders to be made.

Proponents of this system argue that because it is so comprehensive, flexible and fact-specific, each individual case can receive a judgment which is optimised for providing overall fairness for the parties involved. This is particularly important for financially weaker or dependent spouses, whose circumstances may justify a substantially unequal division of the capital assets, as well as substantial income provision (i.e. spousal maintenance), after their case has been fully considered. As with many other countries, the starting point in England and Wales is that matrimonial wealth should be shared equally, and that there should be a ‘clean break’ in respect of ongoing financial ties between the parties, but outcomes in England and Wales are often radically different to this starting point as a result of a number of key principles which have developed through case law over the years.

But England and Wales’ unique and bespoke system may not remain as it is for much longer. These laws have been the subject of repeated calls for reform, and this has culminated in the production of a ‘scoping report’ by the Law Commission, which has investigated whether England and Wales’ matrimonial finance laws require reform. The Law Commission published its scoping report on 18 December 2024. In respect of whether or not the law requires reform, the report summarised: ‘Our conclusion is that it does, although the form that reform should take is a matter for the Government to decide’.

The case for reform

A key part of the report’s justification for this conclusion is that the law, in its current state, ‘lacks certainty, and accessibility to an extent that it could be argued to be inconsistent with the rule of law’. This summarising statement refers to the fact that the key piece of relevant legislation, the Matrimonial Causes Act 1973, provides family court judges with wide-ranging powers to transfer assets and income between divorcing spouses, but provides only limited guidance as to how these powers should be exercised. The family court, therefore, possesses a broad judicial discretion to decide how cases are to be determined. Legal principles specifying the manner in which the family court exercises this discretion have developed over the years, but this has largely occurred through a wide base of case law, which constantly evolves and is subject to differing interpretations and application from case to case.

The current state of the law has therefore been criticised as not capable of being understood by ordinary divorcing couples who do not possess specialist legal knowledge in family law, even if they take the time to read and properly consider the Matrimonial Causes Act 1973 (given the lack of specific guidance regarding the use of the family court’s powers contained within it). It is therefore alleged as being inaccessible to the population to which the law applies, and this is particularly unfair for those who cannot afford to obtain specialist legal advice.

The other key criticism of the current state of the law is that even if it has been explained to them by a suitably-qualified legal advisor, it is still largely uncertain as to what the likely outcome of their case would be if it were heard at a family court, given the broad judicial discretion and flexibility which currently exists. Key principles have been developed and identified through case law, but judges still retain a large amount of individual discretion to interpret and apply these principles in a way that they believe achieves a ‘fair’ outcome with reference to the specific facts of the case before them. Certainty in how the law operates is not only crucial to ensure fairness and equal treatment under the law, but it is also crucial in assisting parties with out-of-court negotiations and settlements; parties are less likely to ‘roll the dice’ at court if they already have a good indication of the likely outcome.

Litigation is expensive and time-consuming for the parties involved. Specialist legal advice and a comprehensive court process may be a sought-after luxury for rich couples, but the negative consequences of inaccessibility and uncertainty referred to by the Law Commission are disproportionately borne by the overwhelming majority of the population who may feel unaided by a legal framework that they cannot afford to properly understand, cannot afford to litigate and cannot rely upon to reach an appropriate agreement outside of the court system.

The options for reform

The Law Commission’s scoping report does not provide a settled view on how the law should be reformed, but it does set out four potential models for reform for the government to consider. The report also addresses nuptial agreements, spousal maintenance and pensions, but this article will focus on the fundamental models of reform put forward by the Law Commission. They are categorised as follows:

• Codification
• Codification-plus
• Guided discretion
• Default property regime.

The report explains that ‘these models represent a spectrum of reform’ with codification entailing the least radical change and a default property regime representing the most significant reform. The four options are summarised below.

Option 1: codification

This does not, in fact, entail a ‘reform’ of the law but simply seeks to ‘codify’ it by having the existing key principles regarding the exercise of judicial discretion recorded within the key piece of legislation, the Matrimonial Causes Act 1973. Codification does not, therefore, make any substantial alteration as to how the law currently operates, and so it would not rectify the perceived lack of certainty regarding how the family court would deal with any given case, but it is suggested that this would at least make the law more accessible to divorcing couples, who should be able to get a better understanding of the law by simply referring to the Matrimonial Causes Act 1973 if it contained a codification of the existing key case law principles.

Option 2: codification-plus

This option is similar to codification but goes a step further. In addition to codifying the existing law, the government could make substantive amendments to the law by amending the current family law principles or introducing new ones. This would therefore not simply involve recording the law as it is but making policy decisions regarding legal reform. An example provided within the report is that standard codification would record the principle that the family home is ordinarily regarded as matrimonial property, whereas codification-plus could record this principle whilst also introducing some specific exceptions to it.

Option 3: guided discretion

This is a style of matrimonial finance regime that has been adopted in other jurisdictions, most notably in neighbouring Scotland. In a guided discretion regime, the relevant legislation not only provides the family court with the powers to transfer assets and income between parties, but it also provides specific guidance as to how judges are to exercise their powers. Therefore, although the judges have a broad range of powers available to them, and some discretion as to the particular terms of the orders they are asked to make in each case, they are bound to a large extent to exercise their discretion in particular ways when certain circumstances apply as a result of the specific guidance that is found within the legislation.

In England and Wales, the existing Matrimonial Causes Act 1973 does provide relevant factors for judges to consider when making decisions, but it does not prescribe in particular terms how the judges should exercise their discretion. Conversely, in Scotland, the Family Law (Scotland) Act 1985 contains a number of guiding principles which effectively steer the manner in which judges exercise their powers. One key example is that it specifies that judges should share matrimonial property fairly, and it provides a specific definition of ‘matrimonial property’ as well as clarifying that ‘fairly’ sharing matrimonial property ordinarily means sharing it equally, unless a departure from this is justified by ‘special circumstances’, and this term is also explained within the legislation.

Proponents of guided discretion regimes praise them as offering relative clarity of the law and certainty of outcomes, especially when compared to a highly discretionary regime such as that of England and Wales. Although they are more prescriptive, proponents of this style of regime argue that they still allow for a meaningful reserve of judicial discretion, which allows for judges to retain a meaningful amount of ‘wiggle room’ to tailor judgments to account for specific circumstances where that is appropriate.

The Law Commission’s scoping report has, however, identified a number of perceived issues with guided discretion regimes that are being used in practice. In Scotland, for example, the report identifies that although the Family Law (Scotland) Act contains a number of key principles guiding judicial discretion, which theoretically allows for different outcomes for an array of different factual circumstances, it has been observed that in practice the principle of dividing matrimonial capital equally appears to dominate outcomes, both in and outside court. Therefore, although the potential for Scotland’s matrimonial finance regime to produce certain-but-appropriate outcomes exists in theory, in practice it has shaped outcomes in a manner which mainly abides by only one key principle, and there has been concern both from within Scotland and from external observers that an over-reliance on the equal sharing principle may be to the detriment of financially weaker or dependent spouses. Conversely, the scoping report records that the New Zealand Law Commission has identified that the pre-set definition of ‘family property’ within its legislation, which the courts are bound to follow, ‘can sometimes lead to unjust outcomes’.

These two examples demonstrate the key issue at the heart of structuring and/or reforming matrimonial finance regimes: the desire to produce certainty in the application of the law often conflicts with the desire to produce sufficient judicial flexibility to avoid unfair or unjust outcomes. The scoping report acknowledges: ‘The extent to which the existing [guided discretion] models protect the financially vulnerable party is persistently criticised’.

Option 4: default property regime

This is the most prescriptive form of matrimonial finance regime, and it can be described as effectively the ‘polar opposite’ of the current regime in England and Wales, which offers minimal legislative prescription and maximal judicial discretion. The scoping report explains that in most jurisdictions, a default property regime applies automatically upon marriage and provides set rules regarding how assets would be divided if the couple were to divorce. The married couple would therefore, in principle, know in advance what the financial outcome of their divorce would be with reference to the set rules that apply. Although each jurisdiction has its own individual differences, it is common within these regimes for certain assets to be designated as ‘community property’, which is to be divided equally between spouses in the event of divorce. Different regimes have been observed as designating ‘community property’ either at the point of marriage or at the point of divorce. Prominent examples of modern Western nations adopting default property regimes include France, Germany and Sweden.

At first glance, one might presume a default property regime to simply be a more draconian and authoritative version of the guided discretion model explained above, simply providing for an equal division of matrimonial property (however defined) and little else. This would naturally maximise the benefits of providing the certainty of outcome whilst also maximising the negative consequences relating to potential injustice/unfairness. The scoping report explains, however, that the use of default rules regarding marital property is usually only one ‘pillar’ of a jurisdiction’s matrimonial finance/family law regime, and there are usually separate ‘pillars’ regulating issues such as spousal maintenance, child maintenance and pensions, which operate alongside the default property regime. This is important because although pre-set rules can be viewed as being potentially unfair to financially weaker or dependent spouses, in many jurisdictions with default property regimes, such spouses would also have recourse to other ‘pillars’ of potential support to produce a more comprehensive package than simply a pre-defined share of matrimonial property. Jurisdictions which utilise default property regimes can also have special rules in place regarding the continued occupation, sale or division/retention of the family home.

What next for England and Wales?

The government is not obligated to commit to reforming England and Wales’ matrimonial finance regime. It is, however, required to provide a response to the Law Commission’s scoping report. The report was published on 18 December 2024. The government must provide at least an ‘interim response’ within 6 months of the report’s publication, and a full response within a year.

The scoping report has set out options for reform for the government to consider. If the government selects a specific model, the Law Commission states that it would then be in a good position to carry out ‘a future project of law reform’ in accordance with what model the government has chosen. This project could recommend, in exact terms, a new legal framework for the government to adopt based on the government’s instructions.

As of yet, there has been no response of any sort from the government, and so it is not known whether the government will opt for any reform at all, let alone which model it would choose if it did opt for reform. The Law Commission is clear in its view that the law needs reform, but this does not mean that the government will agree with this view and/or act upon it.

Even if the government does decide to take action for reform, in the absence of any response, it is currently impossible to predict how this would impact the law. For example, if the government simply opts for basic codification, that is not going to lead to much, if any, substantive change in how the law currently operates. If any of the other three options are chosen, the extent to which they will result in a change in how the law operates will depend on exactly which laws the government wishes to implement through these models and how much they differ from the current laws. Hopefully, more will be known about the future of England and Wales’ matrimonial finance regime by mid-2025 when the government’s interim response to the Law Commission’s report is due.

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