North/South divide - is it a myth that disadvantaged spouses and partners do better in England?

The Brodies Family Law Team held its inaugural Family Law Conference in Edinburgh in September. We welcomed a panel of exceptional speakers who provided delegates with a day of fascinating and hugely informative insights into some of the most topical issues in family law.

In this insight, we look at how courts north and south of the border address the issue of economic disadvantage when determining financial provision on divorce. In their presentation, Sheriff Principal Kate Dowdalls KC and Will MacFarlane, Partner at Kingsley Napley LLP compared the respective legal frameworks in Scotland and England to explore whether there was scope for either jurisdiction to learn from the other in trying to achieve fairness and certainty in financial disputes.

The legal frameworks

In each jurisdiction financial provision on divorce is governed by core legislation - in Scotland by the Family Law (Scotland) Act 1985 and in England and Wales by the Matrimonial Causes Act 1973. The law continues to be developed over time by the courts applying that legislation to individual cases but there are general principles which remain common to both legal frameworks, such as equity and fairness. Both also allow for a significant degree of judicial discretion in determining the orders to be made. However, a closer comparison reveals a divergence in approach which often results in very different outcomes north and south of the border.

Scotland: addressing "economic disadvantage"

In deciding which (if any) orders to make in respect of financial provision on divorce, the Scottish court must take account of two key factors. Firstly, any orders must be justified by the principles set out in section 9 of the 1985 Act. Secondly, the order must be reasonable having regard to the resources of the parties. The section 9 principles (as they are generally known) form the basis for determining how the overall matrimonial estate ought to be divided between the parties.

Section 9 provides for fair sharing, which will generally be equal sharing of matrimonial property unless there are factors or special circumstances which justify a departure from equal sharing.

The second of the section 9 principles, requires "fair account to be taken of economic advantage derived by either party from contributions by the other, and of any economic disadvantage suffered by either party in the interests of the other party or the family."

The court must consider the extent to which such advantages or disadvantages have been balanced between the parties and how any overall imbalance in favour of either party will be addressed by the sharing of their matrimonial property on divorce. It is important to note that in the first instance the court does not assess the needs of the parties in considering economic advantage and disadvantage. The focus is on identifying and addressing any residual imbalance.

The Scottish courts have often been required to consider economic disadvantage where a couple has limited or no matrimonial property, including in circumstances where one party had significant non matrimonial assets, such as inherited wealth or pre-marital business interests. If economic disadvantage is established it does not result in the non-matrimonial asset then being included in the pot to be shared on divorce. But the court can award a capital payment to the disadvantaged party which requires to be paid in effect from non-matrimonial funds or may share the matrimonial property unequally in their favour.

In general, the Scottish courts opt for a clean break with any disadvantage being remedied by the way in which the matrimonial property is shared, rather than perpetuating any financial dependence of one party on the other. Awards of ongoing financial support are short term, and only made where fairness cannot be achieved by the division of assets alone.

England and Wales – assessment of need

South of the border there is a starting presumption that capital will be shared equally unless one party can justify a departure on the basis of a range of factors including pre-marital contribution or in the rarest of cases, stellar or special contribution. Any attempt to depart from an equal capital division is always subject to the financially weaker party’s needs being met. Section 25 of the Matrimonial Causes Act 1973 provides a checklist of factors the court must take into account. This includes needs-based considerations such as income, earning capacity and resources; financial needs (both current and foreseeable); standard of living during the marriage; the age and health of the parties; and the contributions parties have made or are likely to require to make in future to the welfare of the family (including caring for children and running the family home).

In general, the court will work out parties' respective needs and consider whether those needs can be met by sharing the parties' capital and assets equally. If not, then the sharing will be adjusted accordingly. Whilst foreseeable (not just current) needs can be taken into account in determining financial provision, following the Waggot case in 2018 it is clear that future earning capacity is not something that the court will share between the parties. Although the English courts also aim to provide a clean break for divorcing couples, ongoing financial support is more common and less limited than in Scotland. However, long term and remainder of life awards appear to be a thing of the past.

Broadly speaking, the legal framework in England and Wales does not tend to compensate for "relationship-derived" economic disadvantage as readily as in Scotland. However, it may be that a needs based approach where the outcome is frequently an equal capital division negates the requirement to compensate for economic disadvantage suffered during the relationship.

Pensions

The treatment of pensions on divorce also varies greatly between the jurisdictions. In Scotland, only the proportion of a party's pension interest which corresponds to the period of the marriage will be "in the pot." This requires pension valuations to be apportioned relative to party's membership of the pension scheme during the period of the marriage, irrespective of whether or not contributions were being made throughout that period.

By contrast, in England the standard practice, at least in ‘needs cases’ is not to apportion a party's pension interests relative to the period of the marriage. Indeed, the report of the Pensions Advisory Group in 2019 concluded that "it is rarely appropriate to apportion based on the length of the marriage and the existence of the pension." Accordingly, where one or both party's pensions are a significant asset in the case the outcome on the question of pension sharing is likely to be vastly different north and south of the border.

So who does financial provision better?

That is a difficult question to answer. Clearly neither jurisdiction gets it completely right and there is appetite for improvement on both sides of the border – particularly in England and Wales where the Law Commission is expected to report within the next year on scope for possible reform.

In Scotland, the current law arguably provides more certainty for couples in terms of what is to be shared and how. However, as addressing economic advantage is not a needs-based exercise in Scotland, one party may find themselves in a precarious financial position even when the court has made an award which is, on the face of the legislation, fair. That is perhaps less likely to be the outcome if the same case was hearing in an English court.

What does this mean for practitioners?

Given the proximity of the jurisdictions it is not uncommon to encounter clients who may be in position to issue proceedings in either Scotland or England. It is therefore important for practitioners in Scotland to have a working knowledge of the English position (and vice versa) in order to properly advise our clients about where they are likely to secure the best outcome. That is particularly true in cases where one party is financially weaker or has been financially disadvantaged during the course of the marriage, for example by giving up a career to care for children. Notwithstanding the considerations above, for many couples the jurisdiction in which the divorce is to be raised is often self-evident and not a matter of choice.