Financial settlements arising on dissolution of a Civil Partnership

Since the Supreme Court decision of Villiers, considerable attention has been given to the differing legal jurisdictions in England and Wales, and in Scotland.

Different laws and processes apply in each jurisdiction, and below we highlight some of the main differences for financial settlements arising on dissolution.

England and Wales

In England and Wales, all resources held by the parties, whether in their joint or sole names, or whether held with third parties, worldwide, are assessed when ascertaining the terms of a reasonable and fair financial settlement.

The court will consider which assets constitute ‘matrimonial property’ acquired during the civil partnership, and consider assets acquired both before the relationship and those acquired post-separation.

All are available for consideration when ascertaining the terms of an appropriate financial settlement.

Scotland

 In Scotland, there are key differences.

The matrimonial property available for a fair financial settlement is limited to those resources acquired by the parties during the course of the civil partnership up to the date that they separate. For example, if a party won the lottery or received a significant inheritance the week after separation, the other partner would not have any entitlement to a share of the same on dissolution.

Any gifts or inherited assets are not considered matrimonial property if they remain in the same format as received and have not been sold or converted into new assets during the civil partnership. They would effectively continue to belong to the party that received them.

Any assets acquired before the civil partnership would not be considered matrimonial property and again would continue to belong to the party who acquired them.

There is an exception to this last rule in that any property or its contents acquired before the civil partnership which the parties use as a family home would be deemed to be matrimonial property and liable for division on dissolution.

Entitlement to a fair share

In both jurisdictions, any division must be fair and reasonable having regard to the parties’ respective resources.

The court in England/Wales and Scotland will consider whether an equal division is appropriate, or whether it is fair in that case to depart from equality.

Each jurisdiction will apply its own case law and legislation.

Maintenance/periodical allowance

In both jurisdictions, if one party is going to be in a position of financial need they can also apply for maintenance/aliment. Aliment after dissolution in Scotland is called ‘periodical allowance’.

This may be assessed as giving financial support to allow one party who may have been financially dependent on the other sufficient time to adjust to the separation. During that time, they might be expected to retrain or try and find employment or it may be they have young children to care for and will need some time to get back properly to employment.

Duration of payments

However, a key difference between England and Wales, and Scotland, is the duration of maintenance payments.

In Scotland, this is normally limited to no more than three years of payments. In rare cases where there is likely to be severe financial hardship, there could be financial payment which is deemed reasonable to relieve hardship over a reasonable period. This can be paid until death or entering into a new civil partnership or marriage. An example of this might be where one party cannot work due to longstanding illness.

In England and Wales, the court has a wider discretion to assess the duration of payments.

Procedure

In both jurisdictions, most separated couples try to negotiate an amicable separation agreement based on the above principles to deal with their finances rather than going to court.

Procedure in England

In England, parties are always advised to seek a court order to record the settlement that has been negotiated.

On civil partnership and dissolution, the law provides both parties with a wide range of obligations and financial responsibilities towards their partner, or former partner. Unless those obligations are formally dismissed and so brought to an end by a court order, they are still potentially available for the other party to make a claim against in the future. If a party inherited a significant sum or won the lottery for example, or if circumstances change such that they or their partner need the support of the other, in England/Wales they could be at risk of a claim, even if a dissolution was finalised several years ago.

As such, it is important to obtain a properly drafted court order to dismiss the risk of a former partner making a claim in the future.

Procedure in Scotland

Unlike England, such an agreement does not have to be approved by the court in Scotland. Once such an agreement is negotiated, agreed and signed it is effectively a contract between the parties. It can be registered to become binding and enforceable in the same way a court order would but the court will not scrutinise it. It is extremely difficult to challenge the terms of such an agreement or to persuade a court to vary it or set it aside. It is therefore vital that legal advice is sought before any agreement is signed.

Once an agreement has been concluded, the parties need only ask for a straightforward dissolution at some point later when it suits them. The parties generally agree that the action will be undefended so it can proceed quickly. Neither party has to attend court.

If the parties have no children under 16 they can apply for the even quicker and cheaper simplified dissolution provided at least one year has elapsed since separation.

Contested proceedings

In both jurisdictions, it is only if parties cannot reach an amicable agreement that they will need to apply to a court to ask a judge to decide the matter.

Pre-Civil Partnership Agreements

Legal status — England and Wales

Pre-Civil Partnership Agreements (Pre-Nup) and Post-Civil Partnership Agreements (Post-Nup) are not legally binding in England and Wales as this would require a legislative change. However, they are persuasive evidence in financial proceedings, especially if certain safeguards are adhered to.

The Supreme Court case of Radmacher shifted the balance so that it is extremely likely in the future a Pre-Nup will be upheld by a court unless it can be shown that doing so would be unfair to the other party in the circumstances at the time of the divorce or dissolution.

The Law Commission has also reported on Pre-Nups and recommended that they should be largely upheld provided that they meet the needs of both parties.

The safeguards that should be adhered to can be summarised as:

1. The agreement meets contract law criteria (no fraud, undue influence or misrepresentation);
2. The agreement is signed as a deed no less than 28 days before the civil partnership ceremony;
3. Both parties must have been informed of its implications, appreciated those implications and considered (and ideally sought) legal advice;
4. Both parties have made full disclosure of their assets and resources.

Legal status — Scotland

Pre-Nups are treated differently in Scotland and are considered legally binding.

Pre-Nups have been used in Scotland for centuries. They have a long history in Scotland and have always been recognised as valid agreements, having been used in Scotland since the Middle Ages to regulate financial arrangements during civil partnership and on dissolution.

Validity of Pre-Nups in Scotland

Pre-Nups have been recognised as valid in Scottish courts for some time and provided they are prepared and signed properly they will be recognised and deemed valid in the event of any dissolution.

The court is required to take into account an agreement when deciding if they should make any financial order in the dissolution. The courts in Scotland are unlikely to interfere with the arrangement set out in an agreement unless there is a very good reason to do so, such as the agreement not being entered into fairly or with the appropriate capacity. The fact that the consequences of the agreement may be deemed to be unfair or harsh by the time of the dissolution is not usually considered relevant if the agreement was deemed fair and reasonable when the parties signed up to it.

There are no conditions that a Pre-Nup in Scotland needs to be signed within a certain time period before the civil partnership. In Scotland, if there is insufficient time to get an agreement completed, the agreement is sometimes concluded as a Post-Nup and will be equally as valid. It is however recommended that any such agreement is considered well in advance of any wedding/service where possible in order to avoid any suggestion that the agreement was signed under duress.

In Scotland, it is not a requirement that both parties to the agreement need to have legal representation but again it is recommended where possible as this will avoid "lack of legal advice" being cited later as a reason the agreement might have been unfairly entered into.

Summary

In both jurisdictions, the test for challenging the validity of any Pre-Nup is a high one.

Accordingly, a well-drafted Pre-Nup will provide considerable protection and financial certainty for any person going into a civil partnership in either jurisdiction.

We can provide specialised advice in both England/Wales and Scotland and can assist in any cross-border family cases which span both jurisdictions.