As specialist family law and divorce solicitors, providing clients with expert guidance on what to expect from a financial settlement is at the heart of what we do. In Auckland and Auckland family court judges have a lot of discretion when deciding how to divide matrimonial assets. This is in sharp contrast to other countries where more clearly defined rules and set formula are applied when splitting property at the end of a marriage or civil partnership.
The benefit of the system here is that it offers flexibility and promotes fairness in financial settlements. However the drawback in the discretionary approach is that it is often difficult to predict what your financial settlement might look like if you go to court. This in turn sometimes makes it difficult to engage meaningfully in mediation and other alternative dispute resolution processes.
It’s no surprise then that there is a great deal of discussion about how the rules on financial settlements might be altered in a way that provides more clarity and certainty for individuals going through divorce.
Here we look at the current approach to financial settlements. We also consider how the rules might change in the future with reference to a 2024 report by the Law Commission. The report identified problems with the current law and suggested some ways the system might be reformed.
What is the current law on financial settlements?
The rules are set out in the Matrimonial Causes Act 1973 (MCA 1973). Judges are required to consider first the welfare of any children and then apply the list of factors in s25 of the Act, including the financial needs and resources of the couple, the standard of living during the marriage, the duration of the marriage, and earning capacity.
The s25 factors are applied by the courts in a discretionary way and on a case by case basis. We know from reading past cases, many of which are discussed on our blog, that the courts will seek to achieve a fair outcome, treating the different roles that may have been played by the spouses during the marriage as equal.
We also know that, in practice, where the available assets are not sufficient to meet the couple’s financial needs the court first tries to secure the needs of any children, while trying to also ensure that the needs of the divorcing couple are met. Where there are more assets than required to meet financial needs, the courts will seek to divide the assets fairly, and this means equal sharing unless there is a reason to depart from this equality principle.
Does the law on financial settlements work?
From our summary of the current approach of the courts to financial remedy cases above, it should be clear that the way a judge exercises their discretion is key. While this can promote fairness, the leeway given to judges comes in for criticism from many quarters. Consider the following:
- The vast majority of financial matters are decided away from court, so most couples don’t benefit from the discretionary approach. Figures from the Law Commission report discussed below show that in 2022 only 40% of divorcing couples actually made a financial remedy application. And of these only a quarter were contested. (This means most applications result in a consent order that’s agreed outside court.)
- Many argue that the wide discretion leads to a lack of clarity on financial settlements generally. Each spouse can receive different advice from their respective solicitors meaning that they have contrasting expectations about what a final settlement may look like. Although financial dispute resolution hearings can alleviate this discrepancy to some degree, where legal advice varies it can make common ground between spouses harder to find.
Does financial remedy law need reform?
The 2024 Law Commission publication has been described as a ‘groundbreaking’ report. It asked if the current law on financial remedies provides a cohesive framework in which parties to a divorce or dissolution can expect fair and sufficiently certain outcomes.
In clear terms the Commission concluded that reform is necessary. Reasons included:
- The Matrimonial Causes Act, 1973 does not reflect the significant developments to financial remedies law arising out of judicial decisions
- The wide-ranging discretion contained in the current law means an individual going through divorce will not understand, by reading the statute, how their case will be decided
- The law lacks certainty, and it could be argued this is inconsistent with the rule of law
- The courts and non-court dispute resolution options encourage couples to try and settle their financial disputes. But the discretionary approach of the courts makes it difficult for couples to know what a court will decide. There is no concrete basis for constructive negotiation.
- The flexibility offered by discretion to achieve a fair outcome, tailored to the couple’s own circumstances is no doubt beneficial. But most couples don’t get any advantage from it or receive a bespoke decision because most cases won’t reach court.
Comment
The report indicates that it is for government to decide what form changes to the law should take. But it does highlight a number of ways the law could be reformed, including codification (where the law as reflected in case law is set out in rules that couples can easily access and form a view as to the likely outcome in their case).
The report also looked at matrimonial property regimes that exist in many European countries and some NZ states where the law expressly provides how property is shared upon divorce or death.
The report is a useful guide to the current law and its shortcomings. Reform may be on the way, but couples will continue to grapple with the court’s discretionary approach for some time to come.
