Friday, 5 October 2012

A Formula for Spousal Maintenance: Is maths the solution to nightmare divorces?

Could a formulaic approach to maintenance calculations help divorcing couples to stay out of court?

The message from the Law Commission’s consultation on Matrimonial Property,Needs and Agreements is clear: they want to help separating couples reach a fair financial settlement without the need to go through costly and stressful court proceedings.  One of the problems which has been identified is the unpredictability of court proceedings which has been put down to a number of factors including the wide discretion provided to the Court and the inconsistency of the court in applying the case law to the cases they deal with. 

At the moment, the court has a very wide discretion when it comes to making an award of maintenance.  This is set out in section 25 (1) of the Matrimonial Causes Act 1973 where judges are required to “to have regard to all the circumstances of the case”. Sub-section (2) does provide further guidance with the list of factors to be taken into account but it is not exhaustive, as was recently demonstrated in Radmacher where the Court took viewed the existence of the pre-nuptial agreement as a relevant factor. The application of case, law which includes White v White, Miller & Macfarlane and Jones v Jones, can be problematic, has it has emerged from scenarios that do not usually crop up in most divorce cases.  Not every family has an ancestral estate to argue about (White), or a business whose value increases from £12m to £25m within a year of separation (Jones).  The inconsistency could also be attributed in part to the unique circumstances, resources and needs of each and every couple and family going through a divorce.

The above factors make it difficult for practitioners to advise clients what they are likely to get if their case goes all the way to a final hearing and it therefore makes negotiating a settlement more difficult.  One of the suggested ways of removing some of the uncertainty, at least in relation to spousal maintenance, is to introduce a formula so that couples would have a better idea of what they can expect to receive or pay out.

The Law Commission has the benefit of being able to look at other jurisdictions, such as Canada, where a formulaic approach has been in use for several years.  A simplification of the Canadian formula for a childless couple is set out below, whereby Income 1 relates to the income of the higher earning spouse and Income 2 relates to the income of the lower earning spouse at the date of separation

(Income 1 – Income 2) x 1.5 to 2% x Length of marriage/cohabitation = £pa*

*Subject to a cap of 50% of the paying spouses income.

Once the amount of annual maintenance has been calculated then a further calculation is done to establish how long the maintenance should be paid for, with each year of marriage equating to between 6 months to one year of maintenance.  The formula is flexible (the % of the difference and the calculation for duration can be adjusted within certain defined limits) and is designed to provide guidance rather than being a rigid scheme which the judges are bound by.

It is not difficult to imagine how things could quickly get complicated.

The formula does not take into account child maintenance (for which other formulae exits), neither does it cater for those couples who have a sporadic income or who live exclusively off capital.  It does not take into account earning capacity, age, or the cost of living and does not look at the standard of living which has been enjoyed during the marriage or any other circumstances such as disability or contributions from third parties.  All these issues would need to be addressed at some point during negotiations or proceedings. The formula might only add an additional layer to the already cumbersome financial remedy proceedings it that it would be used and then disregarded as it is too restrictive to be of any real value.  Furthermore, if emphasis is given to a formula based solely on a spouses income at the date of separation, might that not discourage couples from maximising their earning potential in order to avoid paying out more or receiving less?

So is a formulaic approach to maintenance calculations a good idea?  Even if it only serves to provide a starting point for settlement negotiations?  Or is it too simplistic and it will only prove to be an extra exercise for practitioners and clients to go through and then discard before focusing on what their client really needs and what is available whilst taking into account all the circumstances of the case?

1 comment:

  1. This comment has been removed by a blog administrator.