Friday, June 29, 2012

A community of marital property regime?

Nicholas Cusworth QC
The Law Society Gazette reported yesterday that Nicholas Cusworth QC, chair of the Family Law Bar Association, is in favour of a regime of ‘community of marital property’, under which all assets, except inheritances, gained during a marriage are presumed to be jointly owned and are divided upon divorce. I thought I might set out some of my observations upon such a proposal. (Obviously, this is an area that has already been the subject of considerable scrutiny and research - see, for example, this 2006 study by the University of Reading - but this post is just intended to set out my initial thoughts, as someone who is not an expert upon community property, but has dealt with many divorces under our current system.)

Firstly, let me say that I am definitely in favour of more certainty in the laws governing division of marital assets on divorce (and, of course, asset division on breakdown of Civil Partnerships). As Cusworth himself said, the current lack of certainty (i.e. lack of 'definite' rules) works in favour of lawyers by encouraging parties to go to court. Not only that, it can actually make it very difficult for lawyers to give clients a 'definitive' answer as to what is likely to happen in their case, much to the frustration of many clients.

Our current discretionary system is, of course, designed to be that way for a reason: it must surely be the case, goes the argument, that no strict formula-based system can possibly result in a fair outcome in every given set of facts, and therefore giving the judge a wide discretion is considered by many to be likely to result in a greater proportion of 'fair' decisions. Can a community property regime provide more certainty and still get over this hurdle?

Secondly, a little background about community property regimes. As I said above, I am certainly not an expert upon them, but they exist in a number of other jurisdictions, including the western United States and several European countries. They can vary in their detail, but essentially they work by calculating what assets are 'matrimonial' (usually only those acquired by the efforts of the parties during the course of the marriage), and requiring that those assets be divided 50:50 between the parties, with all other assets (primarily those acquired prior to the marriage) belonging to the party who originally owned or acquired them. As far as I can tell from my (limited) research, some jurisdictions build in an element of discretion to cover certain circumstances where a strict 50:50 division would result in clear unfairness, such as where one spouse is at an economic disadvantage, for example because they have children to look after.

OK, now I am not necessarily against a community property regime, but here are some points that spring to mind, after a brief initial consideration:

Mixing of assets: Obviously, it will often be the case that assets that were originally not 'matrimonial property', such as assets acquired prior to the marriage or inheritances, will get mixed in with matrimonial assets, especially in longer marriages. Are we going to try to unravel this 'mixing', or just say (as courts already do here now) that the assets have become 'matrimonial'?

Children and other economic disadvantage: There does I think need to be some discretion (as mentioned above) to ensure, for example, that a party looking after children has sufficient assets available to them to do so. Obviously, incorporating any measure of discretion could lead back to a system similar to what we have at present, unless the limits of the discretion are clearly defined - a task that may be easier said than done. As for children, I suppose you could have some sort of 'deferred split' arrangement similar to that used in Children Act Schedule 1 applications, whereby for example the party looking after the children has the benefit of the former matrimonial home until the children grow up, whereupon the property is divided equally.

Valuation of assets: One current problem that a community property regime will certainly not resolve, and which gives rise to considerable dispute, is the valuation of assets. Now, this will obviously not be a problem where the asset is to be sold, but often there will not be, or cannot be, a sale. One party will retain an asset, and will want the value of that asset to be as low as possible, so that the other party gets as little as possible from the remaining 'pot'. I'm not sure that a community property regime would exacerbate this issue, but it could mean that many cases would still have to go to court, even with such a regime.

Pre-nuptial agreements: Most community property regimes allow couples to 'contract out', by entering into agreements between themselves. This clearly raises the possibility of the 'stronger' party putting pressure upon the weaker party to agree to something that would clearly be disadvantageous. Would the court have a discretion to disregard such agreements?

The contents of the pot: Lastly, and obviously, a community property regime may give rise to even more argument than at present as to what is or is not a matrimonial asset.

There are, I'm sure, many other issues that need consideration. Whatever the merits of community property, however, it would be very nice if Nicholas Cusworth's comments were to lead to a wide debate upon the issue of reform of the law on financial remedies - a subject which, quite frankly, is more urgent than some of the other reforms of family law that the Government is pursuing.

2 comments:

  1. I couldn't agree more with the last sentiment but I see no reason to hope that any politician is listening, more's the pity. The fact is that hard cases really do make bad law. There law can at best hope to provide properly for most parties - it cannot guarantee to provide perfect fairness for absolutely everyone.

    At one time I had a succession of clients whose constant refrain was that they only wanted what they were entitled to and that was a perfectly reasonable approach. However, the law merely says that the order will be what is just and reasonable in all the circumstances of the case, or what is fair. This is little better than equity being the length of the Lord Chancellor's foot!

    Unless parliament legislates, there will be no change, given the addiction our higher courts have for the unfettered discretion of judges.

    ReplyDelete
    Replies
    1. No, I will not be holding my breath while waiting for legislation...

      Delete

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